CHINA – MEASURES AFFECTING TRADING RIGHTS AND DISTRIBUTION SERVICES FOR CERTAIN PUBLICATIONS AND AUDIOVISUAL ENTERTAINMENT PRODUCTS
Document: Report of the Panel
Date: 12 August 2009
Document codes: WT/DS363/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

Report of the Panel

I. INTRODUCTION
1.1 On 10 April 2007, the United States requested c onsultations with the Government of China
pursuant to Article 4 of the Understanding on Ru les and Procedures Governing the Settlement of
Disputes ("DSU"), Article XXII of the Ge neral Agreement on Tariffs and Trade 1994
("GATT 1994"), and Article XXII of the General Agreement on Trade in Services ("GATS") with
respect to (1) certain measures that appear to restrict trading rights with respect to imported films for
theatrical release, audiovisual home entertainment products, sound recordings , and publications, and
(2) certain measures that appear to restrict market access for, or discriminate against, foreign suppliers
of distribution services for publications and forei gn suppliers of audiovisual services (including
distribution services) for audiovisual home entert ainment products. The request was circulated on 16
April 2007.1
1.2 On 25 April 2007, the European Communities request ed to join in the consultations requested
by the United States.2 China accepted the European Communities' request.3
1.3 Consultations were held on 5-6 June 2007. Those consultations did not resolve the dispute.
1.4 On 10 July 2007, the United States requested supplemental consultations with China pursuant
to Articles 1 and 4 of the DSU, Article XXII of the GATT 1994, and Article XXII of the GATS with
respect to certain market access concerns related to the distribution of imported films for theatrical
release and the distribution of imported sound recordings, as well as sound recording distribution
services, specifically, (1) certain measures that appear to provide less favourable distribution
opportunities for imported films for theatrical release than for like domestic films, and (2) certain
measures that appear to provide less favourable op portunities for foreign suppliers of sound recording
distribution services and for the distribution of impor ted sound recordings in physical form than are
provided to like service suppliers and like produc ts. This request supplemented the request for
consultations circulated as WT/DS363/1. It was circulated on 16 July 2007.
4
1.5 On 20 July 2007, the European Communities requested to join in the supplemental
consultations requested by the United States. 5 Further consultations were held on 31 July 2007, but
these did not resolve the dispute.
1.6 On 10 October 2007, the United States requested that the Dispute Settlement Body ("DSB")
establish a panel to examine the matters raised in th e consultation requests, pursuant to Article 6 of
the DSU, with the standard terms of refere nce as set out in Article 7.1 of the DSU. 6 At its meeting of
27 November 2007, the DSB established a Panel with the following terms of reference:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document WT/DS363/5, the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."
7

1 WT/DS363/1.
2 WT/DS363/2.
3 WT/DS363/3.
4 WT/DS363/1/Add.1.
5 WT/DS363/4.
6 United States' panel request WT/DS363/5.
7 WT/DS363/6, para. 2.

1.7 On 17 March 2008, the United States requested the Director-General to determine the
composition of the Panel, pursuant to paragraph 7 of Article 8 of the DSU. On 27 March 2008, the
Director-General accordingly composed the Panel as follows:
8
 Chairman: Mr. Florentino P. Feliciano

 Members: Mr. Juan Antonio Dorantes
 Mr. Christian Häberli

1.8 Australia, the European Communities, Japan, the Republic of Korea ("Korea"), and the
Separate Customs Territory of Taiwan, Penghu, Kinm en and Matsu ("Chinese Taipei") reserved their
rights to participate in the Panel proceedings as third parties.
9
1.9 The Panel met with the United States and China (the "parties") on 22 and 23 July 2008. It
also met with the third parties on 23 July 2008. The Panel met again with the parties on 23 and
24 September 2008.
1.10 The European Communities, Kor ea, and Japan presented third-party submissions before the
first substantive meeting of the Panel. Australia , the European Communities, Japan, and Korea made
oral statements during the first substantive meeting of the Panel.
1.11 The Panel issued its Interim Report to the parties on 20 April 2009. The Panel issued its Final
Report to the parties on 23 June 2009.
II. FACTUAL ASPECTS
A. MEASURES AT ISSUE
2.1 This dispute concerns China's obligations under the WTO Agreement with respect to goods
and services relating to reading materials (e .g. books, newspapers, periodicals, electronic
publications), audiovisual home entertainment (AVH E) products (e.g. videocassettes, video compact
discs, digital video discs), sound recordings (e.g. recorded audio tapes), and films for theatrical
release.
2.2 The dispute arises over certain measures that affect (i) the importation into China of relevant
goods, (ii) the distribution within China of releva nt goods, and (iii) services and service suppliers in
relation to certain of the above mentioned products.
2.3 More specifically, this dispute involves the US claims of violation with respect to:
(a) Chinese measures that are alleged to unjustifia bly restrict the right of enterprises in
China and foreign enterprises and individuals to import into China reading materials,
AVHE products, sound recordings, and films for theatrical release by limiting trading
rights to Chinese state-owned enterprises;
(b) Chinese measures relating to the distribution of reading materials, AVHE distribution
services, and sound recording distribution services. More specifically, the United
States is challenging Chinese measures that allegedly:

8 WT/DS363/6, para. 4.
9 Ibid., para. 5.

- prohibit foreign-invested enterprises fro m engaging in the master distribution
of reading materials, the master wholesale and wholesale of electronic
publications, and the distribution of imported reading material;
- impose, on foreign-invested enterpri ses permitted to engage in the sub-
distribution of reading materials, requirements that are more burdensome
than those applicable to wholly Chinese-owned distributors. Such
requirements relate to registered capita l, operating terms, pre-establishment
legal compliance, examination and ap proval process, and decision-making
criteria;
- limit commercial presence for the distribution of AVHE products to Chinese-
foreign contractual joint-ventures with majority Chinese ownership;
- as regards the sub-distribution of AVHE products, discriminate against
Chinese-foreign contractual joint ventures by imposing on them certain
requirements that are more burdensome than those that apply to wholly
Chinese-owned enterprises. These requirements relate to operating terms,
pre-establishment legal compliance, examination and approval process, and
decision-making criteria;
- prohibit foreign-invested enterpri ses, but not wholly Chinese-owned
enterprises, from engaging in the electronic distribution of sound recordings,
e.g. through the Internet and mobile telecommunications networks.
(c) Chinese measures that allegedly do not provide national treatment for imported
reading materials, sounds recordings inte nded for electronic distribution, and films
for theatrical release. More specifically , the United States is challenging Chinese
measures that allegedly:
- restrict distribution channels for certain imported reading materials by
requiring their distribution to be conduc ted exclusively through subscription,
by Chinese wholly state-owned enterprises, and only to subscribers that have
been examined and approved by the Chinese government; unlike the
situation for similar domestic reading materials;
- limit the distribution of certain impor ted reading materials (which can be
distributed other than through subscription) to wholly Chinese-owned
enterprises, while the distribution of similar domestic reading materials can
be effected by other types of enterprises, including foreign-invested ones;
- discriminate against imported sound recordings intended for electronic
distribution by subjecting them to mo re burdensome content review regimes
than similar domestic products;
- discriminate against imported films for theatrical release by limiting their
distribution to two state-owned enterp rises, while similar domestic products
can be distributed by any distributor operating in China.

B. T
RANSLATION OF CHINA'S MEASURES
2.4 Regarding China's measures at issue, the Unite d States put forward its translations of the
measures into English as part of the exhibits it submitted with its first written submission. China also
submitted translations of some provisions as part of its exhibits attached to its first written submission.
2.5 At the second substantive meeting with the parties, the Panel identified a variety of provisions
where the parties had provided different translations of China's measures or disputed the meaning of
particular terms. The Panel requested the parties to attempt to bilaterally agree on a single translation
of the provisions, and to provide, should the parties not be able to agree on the translation of all
provisions, a joint suggestion as to the procedures that could be used to arrive at a single definitive
translation of these provisions.
2.6 On 9 and 20 October 2008, the parties jointly communicated to the Panel that they had
resolved a number of the translation differences by either agreeing on a translation or by agreeing that
the differences in translation were not significant and therefore suggesting that the Panel might choose
either one for the purpose of its work. With regard to the translation differences that could not be
agreed, the parties jointly suggested, on 20 Octobe r 2008, that each party provide the Panel with a
concise rationale explaining its views on each tran slation difference and that the Panel then seek
translation of the outstanding provisions from an independent source.
2.7 On 22 October 2008, the Panel proposed to appr oach the United Nations Office at Geneva
(UNOG) to assess its availability to serve as an independent translator in this dispute.
10 This course of
action was agreed to by the parties. On 14 November 2008, the Panel informed the parties that, due to
current workload and resource constraints, UNOG woul d be unable to finalize the translations in the
near future. On 20 November 2008, the US expressed concerns regarding delays to the Panel's work
that might result from the use of translation services provided by UNOG. Should UNOG be unable to
provide a revised, shorter timeframe, the US proposed that a private translation company be
contracted to perform the relevant translations . On 24 November 2008, China expressed concerns
with respect to the alternative put forward by the US.
2.8 On 12 December 2008, the Panel informed the parties that the United Nations Office at
Nairobi (UNON) was able and willing to undertak e the assignment sooner than UNOG. The Panel
suggested that this avenue be pursued, and the parties did not object. On 19 December 2008, the
Panel asked the translation services of UNON to provide the relevant translations.
2.9 The Panel and the parties received the tran slations from UNON on 10 February 2009. The
parties then provided comments on the transla tions performed by UNON, and subsequently
commented on each others' comments. Throughout this Report, the Panel will refer to UNON as the
Panel's "independent translator". Annex A-1 su mmarizes the translation issues arising in these
proceedings.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 The United States requests the Panel to find that:
(a) With respect to China's trading right s obligations, the following measures are
inconsistent with paragra phs 5.1 and 5.2 of the Accession Protocol, as well as
paragraph 1.2 of the Accession Protocol to the extent that it incorporates the
commitments referred to in paragraphs 83 and 84 of the Working Party Report: the
Publications Regulation ; the Importation Procedure ; the Catalogue; the Foreign

10 Both the United States and China are members of the United Nations.

Investment Regulation ; the Several Opinions ; the 1997 Electronic Publications
Regulation; the 2001 Audiovisual Products Regulation ; the Audiovisual Products
Importation Rule; the Audiovisual (Sub-)Distribution Rule; the Film Regulation; the
Film Enterprise Rule; and the Film Distribution and Exhibition Rule;
(b) The following measures are inconsistent with Article XVI of the GATS: the
Audiovisual (Sub-)Distribution Rule ; the Catalogue; the Foreign Investment
Regulation; and the Several Opinions;
(c) The following measures are inconsistent with Article XVII of the GATS: the
Publications Regulation ; the Publications Market Rule ; the Publications
(Sub-)Distribution Rule; the Sub-Distribution Procedure; the Imported Publications
Subscription Rule; the 1997 Electronic Publications Regulation; the Internet Culture
Rule; the Circular on Internet Culture ; the 2001 Audiovisual Products Regulation ;
the Audiovisual (Sub-)Distribution Rule ; the Network Music Opinions ; the
Catalogue; the Foreign Investment Regulation; and the Several Opinions;
(d) The following measures are inconsistent with Article III:4 of the GATT 1994: the
Imported Publications Subscription Rule ; Publications (Sub-)Distribution Rule ; the
Network Music Opinions; the Internet Culture Rule; the 2001 Audiovisual Products
Regulation; the Audiovisual Products Importation Rules ; the Film Regulation; the
Film Enterprise Rule; and the Film Distribution and Exhibition Rule.
(e) With respect to China's national treatment obligations for products, the following
measures are inconsistent w ith paragraphs 5.1 of the Accession Protocol as well as
paragraph 1.2 of the Accession Protocol to the extent that it incorporates the
commitments referred to in paragraph 22 of the Working Party Report: the Imported
Publications Subscription Rule ; the Publications (Sub-)Distribution Rule ; the
Network Music Opinions ; Internet Culture Rule ; the 2001 Audiovisual Products
Regulation; the Audiovisual Products Importation Rules ; the Film Regulation; the
Film Enterprise Rule; and the Film Distribution and Exhibition Rule.
3.2 The United States further requests, pursuant to Article 19.1 of the DSU, that the Panel
recommend that China bring its measures into c onformity with its obligations under the Accession
Protocol, the GATS, and the GATT 1994.
3.3 China asks the Panel to reject the claims raised by the United States. It argues that the
measures at issue are consistent with its WTO oblig ations. In addition, China argues that certain
measures challenged by the United States in its firs t written submission are outside the Panel's terms
of reference because they were not identified in the panel request. China also argues that the US
claim under Article III:4 of the GATT 1994 is outside the Panel's terms of reference because it was
not included in the consultations request. Finall y, China asks the Panel not to examine certain
measures because they are only internal guidance and cannot serve as the basis for administrative acts.
IV. ARGUMENTS OF THE PARTIES
4.1 This section is based on executive summaries of the parties' submissions and statements and
does not include summaries of the parties' answers to questions posed by the Panel in the context of
the first and second substantive meetings or summaries of the parties' comments on each other's
answers to those questions.

A. F
IRST WRITTEN SUBMISSION OF THE UNITED STATES
1. Introduction
4.2 China's accession to the WTO offered real promise for the producers and distributors of
books, newspapers, periodicals, DVDs, music and theatrical films. China's commitments to
significantly enhance access to th e Chinese market for these goods and services opened the prospect
of more liberal and efficient markets, greater educational exchange, and stronger commercial
opportunities for highly successful global competitors.
4.3 Unfortunately, China has failed to fulfil its WTO commitments in numerous respects. The
Chinese measures at issue in this dispute affect four sets of industries, their services and their
products. These products include reading materi als (including books, newspapers, periodicals and
electronic publications); audiovisual home ente rtainment products ("AVHE products") (including
videocassettes, video compact discs (VCDs) and digital video discs (DVDs)); sound recordings
(including songs, "ringtones" and "ringback tones"); and films for theatrical release (collectively, the
"Products"). The affected service suppliers include AVHE products and sound recording distributors,
as well as reading material wholesalers.
4.4 China acts inconsistently with its WTO obliga tions in the following three areas: (1) China
prohibits foreign companies and individuals, as we ll as private enterprises inside China, from
importing reading materials, AVHE products, sound recordings and films for theatrical release; (2)
China places unfair restrictions on foreign distributors of reading materials and AVHE products and
prevents foreign distributors from engaging in the electronic distribution of sound recordings in
China; and (3) China uses an array of restrictiv e measures to discriminate against imported reading
materials, sound recordings, and films for theatrical release in China.
2. Factual background
(a) China's measures addressing trading rights
4.5 China limits the right to import reading ma terials, AVHE products, sound recordings, and
films for theatrical release to cer tain Chinese state-owned enterpri ses, prohibiting foreign-invested
enterprises and privately-owned Chinese enterprise s from engaging in these import activities. To
import some of these Products, Chinese state-owned importers are required to obtain approval from
the relevant regulatory agency. For other Pr oducts, the Chinese state-owned importer must be
"designated" by the Government of China, a pro cess whereby the relevant regulatory agency appoints
one state-owned enterprise or an exclusive set of state-owned enterprises – of that agency's own
choosing in the exercise of its discretion – to import a particular type of product or products.
4.6 China maintains its regime for the importation of reading materials, AVHE products, sound
recordings, and films for theatrical release through numerous measures. Some of these measures
apply broadly to all (or almost all) of the Produc ts, and other measures apply more specifically to
particular categories of the Products. The broadly applicable measures include: the Catalogue, the
Foreign Investment Regulation , the Several Opinions , the Publications Regulation , and the
Importation Procedure.
4.7 The general measures establish overarching rules governing, inter alia, the right to import the
Products into China. They do so in two r espects. First, two of these measures – the Catalogue and
the Several Opinions – forbid foreign investment in enterprises engaging in the importation of any of
the Products. Second, the two other general measures – the Publications Regulation
 and the
Importation Procedure – which cover all of the Products except films for theatrical release, further
limit the importation of reading materials, AVHE products, and sound recordings to certain Chinese

wholly state-owned enterprises. Other film-specific measures impose parallel restrictions on who is
entitled to import films for theatrical release.
4.8 China maintains one additional measure focused on only one subset of reading materials – i.e.
the 1997 Electronic Publications Regulation – which controls the right to import certain reading
materials known as electronic publications. Th e United States understands that electronic
publications include only books, periodicals, newspa pers, and audio books saved as digital codes on
the media forms set out above, but do not incl ude AVHE products and sound recordings. The 1997
Electronic Publications Regulation implements the restrictive approval and licensing requirements
contained in the Publications Regulation and the Importation Procedure , and reconfirms the
prohibition on any foreign-invested enterprise or fo reign individual, or any privately-owned Chinese
enterprise, engaging in the importation of electronic publications.
4.9 Chinese measures also strictly control the importation of AVHE products. Several sector-
specific measures provide for trading ri ghts restrictions on AVHE products: the 2001 Audiovisual
Products Regulation , the Audiovisual Products Importation Rule , and the Audiovisual
(Sub-)Distribution Rule.
4.10 China regulates imported audiovisual produc ts, including AVHE products, according to
whether they are finished or unfinished. Fini shed AVHE products are legitimately produced and
replicated outside of China and require no additiona l production or replication in China before being
made available to consumers. Unfinished AVHE products are master copies to be used to publish and
manufacture copies for sale in China. China has designated only one enterprise to import finished
audiovisual products: CNPIEC, which is a wholly st ate-owned enterprise. Likewise, with respect to
unfinished audiovisual products, only Chinese wholly state-owned enterprises are permitted to engage
in their importation.
4.11 Rather than providing for a sui generis system of trading rights for sound recordings, China
includes sound recordings within the legal regime governing the importation of AVHE products, i.e.,
the Catalogue, the Several Opinions , the Publications Regulation , the Importation Procedures , the
2001 Audiovisual Products Regulation , the Audiovisual Products Importation Rule , and the
Audiovisual (Sub-)Distribution Rule . In all of these measures, China defines the term "audiovisual
products" to encompass sound recordings – e.g., recorded audio tapes, records, and audio CDs.
4.12 The Catalogue and the Several Opinions forbid foreign investment in the importation of
sound recordings. In addition, the Publications Regulation and the Importation Procedure provide
that only wholly state-owned enterprises are allowe d to import audiovisual products, and thus, sound
recordings into China. For finished sound reco rdings, CNPIEC (a Chinese wholly state-owned
enterprise) is the only entity designated to engage in the importation of finished sound recordings in
physical form (e.g., CDs). For unfinished sound r ecordings (e.g., master recording discs) only wholly
state-owned enterprises are permitted to import such sound recordings.
4.13 In addition to the Catalogue and the Several Opinions, the measures that maintain the trading
rights restrictions applicable to film s for theatrical release include: the Film Regulation , the Film
Distribution and Exhibition Rule, and the Film Enterprise Rule.
4.14 Under this Chinese regime, China has designate d only a single wholly state-owned entity –
the China Film Import and Export Corporation, a subsidiary of China Film Group – to import films
for theatrical release. This monopoly applies to all films for theatrical release, regardless of whether a
film is imported on a revenue-sharing basis or a flat-fee basis.

(b) China's measures addressing distribution
4.15 Distribution activities are identified and segmented in numerous ways by the Chinese
measures. Key activities that are covered by these measures and that are relevant to this dispute are:
master distribution ( Zong Fa Xing ), the sale of, e.g. a reading ma terial, exclusively by a single
distributor; distribution ( Fa Xing), which includes master distribution, wholesale, retail, leasing, and
exhibition for sale; sub-distribution ( Fen Xiao ), which includes wholesale and retail; master
wholesale (Zong Pi Fa ), which is synonymous with master distribution; wholesale ( Pi Fa), i.e. the
sale of products to businesses that are not ultimate consumers; and retail ( Ling Shou), i.e. the sale of
products to ultimate consumers.
4.16 China prohibits foreign-invest ed enterprises from engaging in, inter alia , the master
distribution of all reading materials as well as the master wholesale and wholesale of electronic
publications. China also prohibits foreign-invested enterprises from engaging in the distribution of
any imported reading materials. In addition, wh ere foreign-invested enterprises are permitted to
engage in the distribution of reading materials, the measures at issue impose requirements on those
foreign-invested enterprises that are more burdensome than those applicable to wholly Chinese-owned
distributors of reading materials.
4.17 China maintains its regime for the distri bution of reading materials through measures
including: the Publications Market Rule , the Publications (Sub-)Distribution Rule , the Sub-
Distribution Procedure , the Imported Publications Subscription Rule , the 1997 Electronic
Publications Regulation , the Several Opinions , the Foreign Investment Regulation , and the
Catalogue.
4.18 China permits foreign-invested enterprises to e ngage in only one type of reading materials
distribution – i.e., the sub-distribution of books, ne wspapers and periodicals published in China. To
engage in such sub-distribution, foreign-invested enterprises must satisfy requirements different from
those applicable to wholly Chinese- owed enterprises also engaged in the same distribution activities.
These differential requirements apply with respect to registered capital, operating terms, pre-
establishment violations, and approval processes.
4.19 China's regulatory regime governing the distri bution of AVHE products in China imposes a
number of restrictions on distribution by foreign-invested enterprises, including the form of the
enterprise (i.e., only be Chinese-foreign contract ual joint ventures) and the share of foreign
investment (i.e., majority Chinese owned). As a re sult, Chinese-foreign contractual joint ventures, in
which the Chinese party owns the majority of the shares, are the only foreign-invested enterprises
permitted to engage in audiovisual distribution services. In addition, China discriminates against even
Chinese-foreign contractual joint ventures by imposing on them certain requirements that are different
from those that apply to wholly Chinese-owned en terprises engaging in the sub-distribution of AVHE
products.
4.20 With respect to China's limitations on cor porate form and on foreign participation in
audiovisual product sub-distribution enterprises, there are four relevant measures: (1) the 2001
Audiovisual Products Regulation ; (2) the Audiovisual (Sub-)Distribution Rule ; (3) the Catalogue;
and (4) the Several Opinions.
4.21 Even after limiting the sub-distribution of AVHE products only to Chinese-foreign
contractual joint ventures, China then imposes numer ous other requirements not applicable to wholly
Chinese-owned enterprises. These requirements come in the form of operating term limitations, pre-
establishment violation conditions, and approval process obligations.

4.22 China greatly limits the ability of foreign-invest ed enterprises to engage in the distribution of
sound recordings by prohibiting th ese enterprises from engaging in their electronic distribution – i.e.
the distribution of sound recordings using any electromagnetic means, (i.e. not physical copies),
including distribution to other distributors or to end users over, e.g. the Internet or mobile
telecommunications networks. China maintains th ese restriction through four measures: (1) the
Internet Culture Rule; (2) the Circular on Internet Culture; (3) the Network Music Opinions; and the
Several Opinions. This prohibition does not extend to wholly Chinese-owned enterprises.
(c) China's treatment of imported products compared to domestic products
4.23 China maintains requirements for the distribution of imported reading materials, sound
recordings, and films for theatrical release that disad vantage these products relative to their domestic
counterparts. First, China's subscription regime ope rates as the sole distribution channel for a large
proportion of reading materials imported into China. Domestic reading materials are free of these
restrictions. Second, imported sound recordings intended for electronic distribution must receive
prior approval from MOC before distribution. Dom estic sound recordings, in contrast, require no
such approval from MOC; they need only be registered with MOC.
4.24 Third, China requires the distribution of imported films for theatrical release to occur through
one of two Chinese state-controlled distributor s assigned by the Chinese Government. These two
distributors use identical form contracts and allow no negotiation of key terms. By contrast, domestic
films for theatrical release can be distributed by the full range of film distributors in China, with that
distribution occurring on the basis of commercially ne gotiated terms covering a ll relevant aspects of
the film's technical preparation, as well as its mark eting and distribution. Moreover, domestic films
for theatrical release may be distributed by their pr oduction studios, as is common throughout the rest
of the world.
4.25 China restricts distribution channels for many kinds of imported reading materials by
requiring their distribution to be conducted excl usively through subscription and then imposing
requirements on subscribers to these imported publicati ons that do not apply to those that subscribe to
equivalent domestic reading materials.
4.26 The Imported Publications Subscription Rule is a key measure implementing this restricted
distribution system. Under this measure, all im ported newspapers and pe riodicals, and imported
books and electronic publications in the limited distribution category, can only be distributed through
subscription by Chinese wholly state-owned enterprises. While imported books and electronic
publications in the non-limited distribution category can be distributed through sales on the market,
these reading materials may only be distributed by wholly Chinese-owned enterprises.
4.27 Domestic books, newspapers and periodicals, on the other hand, can be sub-distributed by
foreign-invested enterprises, and distributed by wholly Chinese-owned enterprises (including Chinese
privately-owned enterprises), and Chinese state-owne d enterprises, through a variety of channels,
including but not limited to subscription. The Publications (Sub-)Distribution Rule authorizes
foreign-invested enterprises to engage in the su b-distribution of books, ne wspapers and periodicals
published in China.
4.28 China requires all sound recordings, including sound recordings intended for electronic
distribution, to undergo content review. The nature of that review, however, varies substantially
depending on whether the sound recording is impor ted or domestic. China's measures require
imported sound recordings to undergo content review and approval by the Chinese Government prior
to their electronic distribution. In contrast, domes tic sound recordings do not have to receive prior
approval from the Chinese Government. Instead, they undergo internal company content review, and
they simply are registered with the Mi nistry of Culture. Measures including the Network Music

Opinions and the Internet Culture Rule give specific effect to this two-tier regime for sound
recordings intended for electronic distribution. In addition, the 2001 Audiovisual Products Regulation
and the Audiovisual Products Importation Rule , make clear that imported and domestic sound
recordings are subject to different content review regimes.
4.29 China maintains a dual distribution system for imported and domestically produced films for
theatrical release. Imported films can be distributed only by two state-owned enterprises – China
Film Distribution Company, a subsidiary of Ch ina Film Group, and Huaxia Film Distribution
Company ("Huaxia"). Furthermore, commercial negotiations do not determine the terms for the
distribution or which of these two distributors will handle the imported film. Rather, China Film
Group determines both the distributor and the basic distribution conditions for all imported films.
4.30 Domestic films, by contrast, have access to a far more open distribution system. The two
state-controlled enterprises authorized to distribut e imported films, as well as many other enterprises,
including the film's producer, and many other distri butors, both private and state-owned, operating on
a local, provincial or national basis, all can co mpete to distribute a domestic film on commercial
terms. Several measures implement this dual distribution regime, including: the Film Regulation, the
Film Enterprise Rule, and the Film Distribution and Exhibition Rule.
3. China's measures regarding trading rights are inconsistent with China's obligations
under the Accession Protocol and the Working Party Report
4.31 During its accession to the WTO, China committed to provide all enterprises in China and all
foreign enterprises and foreign individuals the right to trade in all goods except those listed in Annex
2A or Annex 2B of China's Accession Protocol. Th ese commitments extend to all of the Products, as
none of the Products is listed in either Annex. China's "trading rights" commitments are expressed in
Part I, paragraphs 5.1 and 5.2 of the Accession Prot ocol, as well as in Part I, paragraph 1.2 of the
Accession Protocol, to the extent that it incorpor ates the commitments referred to in paragraphs 83
and 84 of the Working Party Report.
4.32 Through a variety of measures, however, China refuses to permit any foreign enterprises or
foreign individuals to import the Pr oducts, and likewise only allows a subset of enterprises in China –
i.e. wholly state-owned Chinese enterprises approve d or designated by the Chinese Government – to
import the Products. The measures establishing China' s current trading rights regime for the Products
are, therefore, inconsistent with China's obligations contained in Part I, paragr aphs 5.1, 5.2 and 1.2 of
the Accession Protocol, as well as in paragraphs 83 and 84 of the Working Party Report.
4.33 Read together, these provisions establish that all enterprises in China, all foreign enterprises
and all foreign individuals shall have the right to import the Products into China following a transition
period. That transition period ended on December 11, 2004, more than three years ago. Moreover,
none of the Products is among those goods listed in Annex 2A of the Accession Protocol that are
excluded from China's trading rights commitments.
4.34 China first committed to providing all enterprises in China the right to trade in the Products
via paragraph 5.1 of the Accession Protocol and pa ragraphs 83(d) and 84(a) of the Working Party
Report.
4.35 Paragraph 83(d) confirms the obligation contained in paragraph 5.1 of the Accession Protocol
– i.e. that China committed to provide trading rights to all enterprises in China by December 11, 2004.
Paragraph 84(a) likewise confirms China's obligations with respect to trading rights, as set forth in
paragraph 5.1 of the Accession Protocol.

4.36 As a result of paragraph 5.2 of the Accession Prot ocol and paragraphs 84(a) and 84(b) of the
Working Party Report, China furt her committed to extend to all fo reign enterprises and all foreign
individuals, including sole proprietorships of other WTO Members, the same right to import all goods
into China as is accorded to all enterprises in China.
4.37 Paragraph 84(a) of the Working Party Report c onfirms and elaborates on paragraph 5.2 of the
Accession Protocol. It provides expressly that Ch ina shall permit all foreign enterprises and all
foreign individuals, including sole proprietorshi ps, to import goods, including the Products, into
China. Paragraph 84(b) of the Working Party Re port also confirms and elaborates on paragraph 5.2
of the Accession Protocol. Paragraph 84(b) explains that not only are trading rights to be granted to
foreign individuals and enterprises, but that these rights shall be granted in a "non-discriminatory and
non-discretionary" way.
4.38 Despite China's trading rights commitments, Ch ina permits only wholly state-owned Chinese
enterprises approved or designated by the Chin ese Government to import into China reading
materials, AVHE products, sound recordings, and f ilms for theatrical release. Underscoring this
restriction, China expressly prohibits any fore ign-invested enterprises from engaging in the
importation of any of the Products. Thus, under Ch inese law, any foreign-invested enterprise in
China – whether the enterprise is wholly-foreign owned or is a Chinese-foreign joint venture – as well
as any foreign enterprise and any foreign individual is denied the right to import the Products.
4.39 There are four measures broadly applicable to the importation of the Products: (1) the
Catalogue; (2) the Several Opinions ; (3) the Publications Regulation ; and (4) the Importation
Procedure. Each of these is inconsistent with China's trading rights commitments. The Catalogue
and the Several Opinions prohibit foreign-invested enterprises from importing any of the Products
into China. Article X of the Catalogue bans foreign-invested enterprises from engaging in the
importation of the Products. Likewise, the Several Opinions definitively forbids foreign-invested
enterprises, whether or not they are in China, from engaging in the importation of the Products.
4.40 These measures are inconsistent with China's trad ing rights commitments in two ways. First,
by depriving foreign-invested enterprises in Chin a, as well as foreign enterprises and individuals, of
the right to import the Products, the Catalogue and the Several Opinions limit the trading rights of
these entities, which China's trading rights commitments do not permit. Second, the Several Opinions
and the Catalogue also restrict trading rights in a discriminatory manner, as they insulate certain
wholly Chinese-owned enterprises from any competition from foreign sources.
4.41 The Publications Regulation and the Importation Procedure are similarly inconsistent with
China's trading rights commitments. First, these measures mandate that only wholly state-owned
enterprises satisfying specified criteria, including th e State plan for the total number, structure, and
distribution/deployment of these enterprises, may import reading materials, AVHE products, and
sound recordings into China, giving rise to the same two inconsistencies with China's trading rights
commitments discussed above with regard to the Several Opinions and the Catalogue. Second, the
importation of certain reading materials, i.e., news papers and periodicals, is further restricted to
wholly state-owned enterprises specially desi gnated by the Chinese Government, pursuant to
Article 41 of the Publications Regulation . These measures inject further qualifying criteria and
government discretion into a process that China committed to be "non-discretionary" and are therefore
inconsistent with China's trading rights commitments.
4.42 The 1997 Electronic Publications Regulation is inconsistent with China's trading rights
commitments by imposing limits on which enterprises may import electronic publications into China.
Articles 50 and 51 limit which enterprises may engage in the importation of electronic publications
according to Chinese Government plans for "total number, structure and deployment" of such
enterprises. Articles 52-55 further require appr oval by multiple layers of Chinese Government

decision-makers before an enterprise may import electronic publications. By conditioning trading
rights on Chinese Government plans for structur ing these activities and on successfully obtaining
Chinese Government approvals, the 1997 Electronic Publications Regulation is inconsistent with
China's trading rights commitments. It injects qua lifying criteria and government discretion into a
process that China committed to be "non-discretionary".
4.43 China uses a number of measures specific to the audiovisual sector to place restrictions on the
right to import AVHE products into China that are inconsistent with China's trading rights
commitments. The 2001 Audiovisual Products Regulation and the Audiovisual Products Importation
Rules provide that only enterprises designated by the Chinese Government may import finished
audiovisual products, and it provides that importers of unfinished audiovisual products must be
approved by the Chinese Government. Under these requirements, only CNPIEC (a Chinese wholly
state-owned enterprise) has been designated to import finished audiovisual products, and only Chinese
wholly state-owned enterprises may be approved to import unfinished audiovisual products.
4.44 The Audiovisual (Sub-)Distribution Rule , which governs the activities of foreign-invested
distributors of audiovisual products, specifically provides in Article 21 that Chinese-foreign
contractual audiovisual product distribution en terprises are prohibited from engaging in the
importation of audiovisual products. Article 21 is therefore inconsistent with China's trading rights
commitments, because it denies these enterprises the right to import AVHE products.
4.45 China's trading rights regime with respect to sound recordings is also heavily restricted and is
also inconsistent with China's trading rights commi tments. This restrictive sound recordings trading
rights regime is incorporated into the general me asures governing the importation of the Products as
well as the specific measures governing the importation of AVHE products. Accordingly, only
Chinese state-owned enterprises are permitted to impor t sound recordings into China, with foreign-
invested enterprises and individuals explicitly banned from these activities.
4.46 Furthermore, only the state-owned enterprises specifically "designated" by the Chinese
Government are allowed to import finished sound recordings. As for unfinished sound recordings,
only enterprises that have been approved by the Chinese Government are permitted to import such
products. In practice, as is the case with AVHE products, China reserves the exclusive right to import
finished sound recordings to CNPIEC, while permitting only Chinese Government-approved Chinese
state-owned enterprises to import unfinished sound recordings into China.
4.47 China's measures granting China Film Group a monopoly on the right to import films for
theatrical release are inconsistent with China's trading rights commitments. The basis for this
monopoly is established through such general measures as the Several Opinions and the Catalogue,
which forbid foreign-invested enterprises from importi ng films into China. The restriction is further
detailed in the following specific measures: the Film Regulation, the Film Enterprise Rule, the Film
Distribution and Exhibition Rule.
4.48 The Film Distribution and Exhibition Rule explicitly establishes China's film importation
monopoly, designating China Film Import and Expor t Corporation as the exclusive importer of
foreign films into China. Article 30 of the Film Regulation provides the legal basis for this monopoly,
providing that only enterprises designated by the Chinese Government are permitted to import films
for theatrical release. Article 16 of the Film Enterprise Rule confirms this restriction. This monopoly
not only deprives enterprises in China (other than China Film Group) as well as foreign enterprises
and individuals of the right to import films for theat rical release. It also discriminates against foreign-
invested enterprises and foreign individuals, in contravention of China's trading rights commitments.

4. China's measures regarding distribution services are inconsistent with China's
obligations under the GATS
4.49 In its Accession Protocol, China made market access and national treatment commitments in
the distribution services and audiovisual services s ectors of its Services Schedule to open China's
market in substantial fashion to foreign service suppliers, including distributors of reading materials,
AVHE products and sound recordings. Despite these commitments, China's measures impose
discriminatory restrictions and requirements on fo reign service suppliers seeking to engage in the
distribution of reading materials, AVHE products , and sound recordings. Those restrictions and
requirements are inconsistent with China's obligations under the GATS.
4.50 In Sector 4B, under the Distribution Servi ces heading of its Services Schedule, China
undertook market access and national treatment commitments with respect to wholesale trade services
("wholesaling") through commercial presence (mode 3) of, inter alia , reading materials (including
books, newspapers, periodicals and electronic publications).
4.51 China committed to permit foreign service suppliers to engage in wholesale trade services via
mode 3 with respect to books, news papers and periodicals within three years after China's accession.
After December 11, 2004, therefore, China's Services Schedule provides for no market access
limitations under mode 3 for wholesaling services with respect to any reading materials. Having
inscribed "None" in mode 3 under the national treatme nt column in Sector 4B, China provided for no
conditions or qualifications on its national treatment commitment with respect to wholesaling services
through commercial presence. Moreover, China' s inscriptions under mode 3 of its horizontal
commitments do not create any limitations on China' s commitments in Sector 4B of its specific
commitments that would justify the measures at issue.
4.52 The discriminatory limitations on foreign-invested reading materials wholesalers imposed by
China's measures are inconsistent with Article XVII of the GATS. In examining a claim under
Article XVII, three distinct elements are relevant to establishing a breach: (1) the Member whose
measure(s) is at issue has made a commitment in its services schedule in the relevant sector and mode
of supply, and has not inscribed any relevant lim itation to that commitment; (2) the Member has
adopted or applied a measure affecting the supply of services in that sector and/or mode of supply;
and (3) the measure accords to any other Member's service suppliers treatment less favourable than
that accorded to its own like service suppliers. Ch ina's measures regarding foreign reading material
wholesalers are inconsistent with China's GATS Ar ticle XVII commitments, since they treat foreign
suppliers of these services far less favourably than their domestic counterparts.
4.53 China maintains numerous measures affecting the supply of reading material wholesaling
services under mode 3. These measures include the Publications Regulation, the Publications Market
Rule, the Publications (Sub-)Distribution Rule , the Sub-Distribution Procedure , the Imported
Publications Subscription Rule , the 1997 Electronic Publications Regulation , the Catalogue, the
Foreign Investment Regulation , and the Several Opinions . These measures affect the supply of
reading material wholesaling services in mode 3 with in the meaning of Article XVII, because they
directly regulate the wholesale distribution of reading materials in China.
4.54
On their face, these measures treat foreign-invested wholesalers of reading materials
operating under mode 3 less favourably than whol ly Chinese-owned wholesalers. First, China
prohibits foreign-invested enterprises from engaging in several forms of reading material wholesaling.
Further, where China has made a limited exception to this general ban, as it did for foreign-invested
enterprises engaging in the sub-distribution of books , newspapers and periodicals published in China,
foreign service suppliers are subjected to requirements – governing registered capital, operating terms,
pre-establishment violations, and examination and a pproval procedures – that are more onerous than
those applicable to their wholly Chinese-owned competitors. This treatment is less favourable

because it modifies the conditions of competition in favour of wholly Chinese-owned reading material
wholesalers compared to like foreign-invested reading material wholesalers.
4.55 In Sector 2D of its Services Schedule, entitled "Audiovisual Services", China undertook
market access and national treatment commitments under mode 3 for the distribution of a range of
products, including AVHE products such as videocassettes, VCDs, and DVDs.
4.56 In the first column of Sector 2D, China inscrib ed "Videos, including entertainment software
and (CPC 83202), distribution services" under "audiovi sual services", which covers the distribution
of, inter alia, videocassettes, VCDs, DVDs, video games, computer games as well as the leasing or
renting services concerning videocassettes.
4.57 Under the market access column for Sector 2D, China inscribed the following : "Upon
accession, foreign services suppliers will be permitte d to establish contractual joint ventures with
Chinese partners to engage in the distribution of audiovisual products, excluding motion pictures,
without prejudice to China's right to examine the content of audio and video products (see
footnote 1)." China's horizontal market access co mmitment under mode 3 describes three forms of
foreign-invested enterprises – i.e., foreign capita l enterprises (also referred to as wholly foreign-
owned enterprises), equity joint vent ures and contractual joint ventures. Foreign investment in equity
joint ventures must account for a minimum of 25 per cent of total registered capital; no maximums for
foreign investment participation in equity joint ventures are established.
4.58 For contractual joint ventures, China inscr ibed no limitations – whether minimums or
maximums – on foreign equity partic ipation, either in its horizontal commitments or in Sector 2D.
China's horizontal market access commitment under mode 3 provides that the level of equity
participation in contractual joint ventures is to be determined by the parties as memorialized in the
terms of the contract.
4.59 Returning to the second column of Sector 2D, China excluded the distribution of "motion
pictures" from its market access inscription under mode 3. "Motion picture" is defined as a "cinema
film" and means in this context a film for theatrical release as opposed to an AVHE product, such as a
videocassette, VCD or DVD.
4.60 Reading China's market access commitment under m ode 3 in Sector 2D together with its
horizontal commitments, China scheduled no market access limitations on the contractual joint
ventures that foreign-invested enterprises may est ablish with Chinese partners to engage in the
distribution of audiovisual products, excluding films for theatrical release, without prejudice to
China's right to examine the content of audio a nd video products. In particular, China did not
schedule any limits on the level of foreign equity participation in such contractual joint ventures;
rather, it expressly acknowledged that this level is to be negotiated and agreed by the parties to the
contractual joint venture. Turning to national tr eatment, China inscribed "None" – i.e., no limitations
– in the national treatment column of Sector 2D.
4.61 The foreign equity participation restrictions imposed by China on foreign-invested AVHE
product distributors are inconsistent with Article XV I of the GATS. Article XVI:2, sub-paragraph (f)
provides that where a Member has made a market access commitment in its Services Schedule, that
Member is prohibited from imposing limitations on the participation of foreign capital, whether in
terms of maximum shareholder percentage limits or in terms of the total value of foreign investment
(on either an individual or aggregate basis), unless th e Member included that limitation in its Services
Schedule.
4.62 Thus, in order to show that a Member's measure is inconsistent with Article XVI:2(f), it is
necessary to demonstrate: (1) that the Member made a market access commitment in the relevant

sector or sub-sector and mode of supply in its Serv ices Schedule; (2) that the Member did not include
a limitation on the participation of foreign capital in that sector or sub-sector and that mode of supply
in its Services Schedule; and (3) that the measure at issue imposes such a limitation.
4.63 As discussed above, China committed to perm it foreign service suppliers to establish
contractual joint ventures with Chinese partners to engage in the distribution of AVHE products.
China, however, maintains numerous measures limiti ng the percentage of shares foreigners may own
in contractual joint ventures engaged in the di stribution of AVHE products. These measures include
the Audiovisual (Sub-)Distribution Rule , the Catalogue, the Foreign Investment Regulation and the
Several Opinions.
4.64 China's measures at issue are also inconsistent with Article XVII of the GATS. In the market
access column under mode 3 of Sector 2D of its Services Schedule, China committed to permit
foreign service suppliers to establish contractual join t ventures with Chinese partners to engage in the
distribution of AVHE products through commercial presence. In addition, China scheduled no
limitations on its national treatment commitment under mode 3.
4.65 The measures at issue affect the supply of video distribution services under mode 3 of
Sector 2D of China's Services Schedule by dir ectly regulating audiovisual distribution services,
including distribution services regarding AVHE products in China.
4.66 China's measures fail to meet the obligations of Article XVII: they treat AVHE product
distribution services and service suppliers of othe r Members less favourably than China's own like
services and service suppliers. The measures at issue limit the operations of foreign-invested
enterprises wishing to engage in AVHE product distribution services by imposing more stringent
requirements – governing equity participation, ope rating terms, the existe nce of pre-establishment
legal violations, examination and approval processes, and decision-making criteria – on foreign-
invested enterprises engaged in these services compared to their wholly Chinese-owned competitors.
4.67 In Sector 2D of its Services Schedule, Ch ina undertook market access and national treatment
commitments under mode 3 with respect to sound reco rdings distribution. China has also inscribed
"sound recording distribution services" under the audiovisual services sector of its Services Schedule.
Thus, the market access and national treatment co mmitments that China has included in the second
and third columns under mode 3 of Sector 2D also apply to sound recordings distribution in China.
4.68 In addition, China inscribed no limitations on its market access commitment under mode 3
regarding the means of delivery used for sound recordings distribution. That is, China did not identify
any means of delivery – whether by mail, Internet, mobile telecommunications networks, or any other
means – that Chinese-foreign contractual joint ventures were precluded from using to distribute sound
recordings.
4.69 As the panel noted in US – Gambling , "the GATS does not limit the various technologically
possible means of delivery under mode 1", which is reflected in the principle of "technological
neutrality" espoused in the Work Programme on Electronic Commerce – Progress Report to the
General Council and relied on by the panel in US – Gambling.
4.70 China's measures do not provide national treatment to foreign-invested enterprises engaged in
sound recording distribution under mode 3 and thus are inconsistent with Article XVII of the GATS.
4.71 China's measures affect the supply of sound reco rding distribution services via mode 3. The
Internet Culture Rule, the Circular on Internet Culture , the Network Music Opinions and the Several
Opinions dictate how certain types of electronic distri bution are to be conducted through commercial
presence within China, and they li kewise dictate who may engage in these activities. These measures

likewise accord less favourable tr eatment to foreign-invested enterprises by prohibiting them from
engaging in any electronic distribution of sound recordings through commercial presence.
5. China's measures regarding product distribution are inconsistent with China's
obligations under Article III:4 of the GATT 1994
4.72 Imported copyright-intensive products face numerous disadvantages in the Chinese
marketplace and are deprived of national treatme nt vis-à-vis their domestic counterparts. China
significantly limits the distributors and distribution channels that are available to imported reading
materials; they impose a restrictive subscription regime on a large portion of these imported products.
China also discriminates against imported sound recordings intended for electronic distribution by
imposing more burdensome content review requirements prior to distribution. Finally, China confines
imported films for theatrical release to two Chinese state-controlled distributors. In each instance,
China accords treatment to imported reading materials, sound recordings intended for electronic
distribution, and films for theatrical release that is less favourable than that accorded to like domestic
products.
4.73 China's measures governing the distributi on of imported reading materials (the Imported
Publications Subscription Rule and the Publications (Sub-)Distribution Rule), hard copies of imported
sound recordings intended for electronic distribution (the 2001 Audiovisual Products Regulation , the
Audiovisual Products Importation Rule , the Internet Culture Rule, the Network Music Opinions), and
imported films for theatrical release (the Film Regulation , the Film Enterprise Rule , and the Film
Distribution and Exhibition Rule) are inconsistent with Article III:4 of the GATT 1994.
4.74 The Appellate Body has identified three distin ct elements that are required to establish a
breach of Article III:4: (1) the imported and domestic products are "like products"; (2) the measure is
a law, regulation, or requirement affecting the intern al sale, offering for sale, purchase, transportation,
distribution, or use of the imported and domestic like products; and (3) the imported product is
accorded less favourable treatment than the domestic like product.
4.75 For each product, imports are "like" those made in China within the meaning of Article III:4.
The question of whether imported and domestic pr oducts are "like products" for the purposes of
Article III:4 is readily answered where the measure s at issue make distinctions between products
based solely on origin. As the panel found in India – Autos , where "origin [is] the sole criteria
distinguishing the products, it is correct to treat su ch products as like products within the meaning of
Article III:4."
4.76 Whether they are reading materials, sound record ings intended for electronic distribution, or
films for theatrical release, the imported and domestic products share the same physical characteristics
and commercial uses. However, Chinese measures discriminate against imported reading materials,
imported sound recordings intended for electronic distribution, and imported films for theatrical
release on the basis of national origin through measures that favour the purchase and use of their
domestic counterparts.
4.77 The second prerequisite to a finding of an Artic le III:4 inconsistency requires a showing that
the measures at issue "affect [the] internal sale, offering for sale, purchase, transportation, distribution,
or use" of like products. The term "affecting" in Article III:4 has been understood to have a "broad
scope of application", and to cover measures even beyond those which directly regulate or govern the
sale of imported and domestic like products. The measures at issue here all regulate at least the
internal sale, offering for sale, purchase, distribut ion or use of imported and domestic like products,
and thus readily qualify as "affecting" these activities within the meaning of this term in Article III:4.

4.78 The last element in an Article III:4 analysis is whether the measures at issue accord less
favourable treatment to imported products than to domestic products. The Appellate Body has found
this to be the case when, for exam ple, the measure at issue modifies the conditions of competition in
the relevant market to the detriment of imported products. The panel in Canada – Wheat found that
"the imposition of additional, or extra, require ments on imported products as compared to like
domestic products constitutes less favourable treatment ". The measures at issue systemically distort
competition between imported and like domestic pr oducts. These regulatory constraints, from which
competing Chinese products are exempt, create majo r disadvantages for imported products in the
Chinese market place.
4.79 China's Imported Publications Subscription Rule accords less favourable treatment to
imported reading materials than that accorded to domestic reading materials by modifying the
conditions of competition in the Chinese marketplace to the detriment of imported reading materials.
This measure only permits distribution of imported newspapers and periodi cals, and imported books
and electronic publications in the limited distribution category via a highly restrictive subscription
regime that does not apply to domestic reading materials.
4.80 Imported reading materials suffer further comp etitive disadvantage from the fact that they
may only be distributed by a limited set of di stributors in China, i.e., wholly Chinese-owned
distributors. Domestic reading materials are subject to neither the subscription requirement nor the
limitation on who can distribute them, as clarified by the Publications (Sub-)Distribution Rule . As a
result, China accords less favourable treatment to imported reading materials than it accords to
domestic reading materials in contravention of Article III:4.
4.81 China's measures modify the conditions of compe tition in its sound recordings market to the
detriment of imported sound recordings. Specifically, Article 9 and Appendix 2 of the Network Music
Opinions provide that imported sound recordings intended for electronic distribution must be
subjected to a formal content review and approval pr ocess run by the Ministry of Culture (MOC) that
must be successfully completed before the imported products can be distributed. The like products at
issue – domestic sound recordings intended for electronic distribution that have Chinese copyright
owners – are not covered by this mandatory regulat ory process as a precondition to their distribution.
The measure provides that employees of the domes tic sound recording's publisher can review the
content in-house, and then simply register the reco rding with MOC at the time the recording is ready
for distribution.
4.82 The Internet Culture Rule further perpetuat es this disparate treatment by providing for
asymmetrical content review requirements that decidedly favour domestic over imported sound
recordings intended for electronic distribution. In contrast, Article 19 of the Internet Culture Rule
states that domestic Internet cultural products are to be reviewed by their domestic distributor's
internal content examination system. Article 16 further provides that such domestic products only
need to be registered with MOC within 60 days after being distributed.
4.83 The 2001 Audiovisual Products Regulation and the Audiovisual Products Importation Rule
echo this discriminatory content review require ment. These two measures impose additional content
review requirements on imported products as compar ed to like domestic products resulting in
distorted competitive conditions that disadvantage imported sound recordings vis-à-vis domestic like
products.
4.84 China's regime for the distribution of films for theatrical release also creates discriminatory
competitive conditions that harm imported products. First, the Film Enterprise Rule and the Film
Distribution and Exhibition Rule only permit imported films for theatrical release to be distributed by
two state-controlled enterprises, China Film Group a nd Huaxia. In contrast, domestic films can be

distributed by these two enterprises as well as by any of the other film distributors established in
China.
4.85 Second, the two state controlled distributors that are the only option for distributing imported
films are explicitly required by law to support the distribution and exhibition of domestic films.
These requirements treat imported films less favourably than domestic films. The distribution
opportunities afforded to domestic films are radically different, involving access to the complete
range of distribution channels.
6. China's measures regarding product distribution are inconsistent with China's
obligations under the Accession Protocol
4.86 The Imported Publications Subscription Rule , the Publications (Sub-)Distribution Rule , the
Network Music Opinions , the Internet Culture Rule , the 2001 Audiovisual Products Regulation , the
Audiovisual Products Importation Rule , the Film Regulation, the Film Enterprise Rule and the Film
Distribution and Exhibition Rule are also inconsistent with paragraph 5.1 of Part I of the Accession
Protocol with respect to imported publications, imported hard copies of sound recordings intended for
electronic distribution, and imported films for theatrical release. As these measures are all
inconsistent with Article III:4 of the GATT 1994, they are likewise in breach of Section 5.1 of Part I
of the Accession Protocol.
4.87 These measures are also inconsistent with China' s obligations under paragraph 1.2 of Part I of
the Accession Protocol, to the extent that it incorporates commitments in paragraph 22 of the Working
Party Report. As these measures are inconsistent w ith China's obligations under Article III:4 of the
GATT 1994 regarding national treatment with respec t to imported and domestic products, they are
consequently inconsistent with Section 1.2 of Part I of the Accession Protocol and paragraph 22 of the
Working Party Report.
7. Conclusion
4.88 For the foregoing reasons, the United States resp ectfully requests that the Panel find that
China's measures, as set out in the US panel request are inconsistent with China's obligations under
the Accession Protocol, the GATS, and the GATT 1994. The United States further requests, pursuant
to Article 19.1 of the DSU, that the Panel recommend that China bring its measures into conformity
with its obligations under the Accession Protocol, the GATS, and the GATT 1994.
B. F
IRST WRITTEN SUBMISSION OF CHINA
1. Introduction
4.89 The United States is essentially attempting to justify its complaint against alleged trade
restrictions in China for cultural products in the hope of obtaining enhanced market access, prospect
of more liberal markets and stronger commercia l opportunities. However, the United States is
feigning to ignore the unique nature of the goods and services concerned by this proceeding. Cultural
goods and services have in common the fact of being vectors of cultural identity and values and, as
such, of justifying the implementation of specific, yet WTO compliant, regulatory measures.
4.90 The United States further attempts to unduly ex tend China's commitments beyond that which
was negotiated and agreed upon at the time of its accession to the WTO. Such commitments,
however, have been clearly defined at the time of China's WTO accession and reflect China's
intention to implement a sustainable liberalization consistent with its legitimate policy objectives in
the cultural sector.

4.91 The present dispute concerns (i) reading ma terials (books, newspapers, periodicals and
electronic publications) and their corresponding distribution services, (ii) audiovisual products,
including so-called "audiovisual home entertainm ent products" and "sound recordings" and their
corresponding distribution services, (iii) network music services (inaccurately described as "electronic
distribution services" by the United States) consisting in the dissemination of music via the Internet
and (iv) motion pictures for theatrical release.
4.92 With regard to trading rights in the sector of motion pictures for theatrical release, the United
States is unjustified to base its claim on an alleged violation by China of its commitments in the area
of trade in goods, insofar as it ignores the fact th at motion pictures for theatrical release cannot be
qualified as goods. The same is true for the importa tion of audiovisual products used for publication.
For reading materials and audiovisual products, the Un ited States fails to take account of China's right
to regulate trade in a manner consistent with the WTO Agreement, including Article XX of the
GATT.
4.93 In the same vein, concerning distribution servi ces, the United States fails to present to the
Panel the true scope and nature of China's WTO commitments applicable to services involving
cultural products and is furthe r unjustified in arguing that China is violating GATS Article XVII
concerning reading material distribution services, as well as GATS Articles XVI and XVII,
concerning audiovisual product distribution services. Its claim under GATS Article XVII in respect
to the so-called "electronic distribution of sound r ecordings" is based on an unjustified extension of
the scope of China's GATS commitments in an atte mpt to include new and distinct services, i.e.
network music services.
4.94 For product distribution, the United States is unjustified in arguing that China is violating
Article III:4 of the GATT since the US claim fails to take account of the fact that the regulation
relevant to certain sectors (motion pictures for thea trical release and network music services) cannot
be scrutinized under the rules applicable to trade in goods, or, for reading materials, is based on a
misrepresentation of China's measures and/or the competitive situation between the products.
2. Trading rights
(a) Motion pictures for theatrical release
4.95 The United States based its claim with regard to trading rights in the sector of motion pictures
for theatrical release inter alia on the Film Distribution and Exhibition Rule . Since these rules were
not explicitly, or even implicitly, referred to in the US panel request, they cannot be considered to
have been adequately identified in the meaning of Article 6.2 DSU and are thus outside the Panel's
terms of reference.
4.96 The US claim is based on Paragraphs 5.1, 5. 2 and 1.2 of China's Accession Protocol and
paragraphs 83 and 84 of the Work ing Party Report, which only cove r trade in goods. However, the
United States fails to establish that motion pictur es for theatrical release are goods. In fact, the
commercial exploitation of motion pictures through th eatrical release consists of the organization of
public projections involving three main service provi ders, i.e. producers, distributors, and movie
theatres.
4.97 The importation and distribution of foreign motion pictures is organized on the basis of
copyright licensing agreements where the producer grants the distributor the right to use copies of the
motion picture in order to organize its distribution fo r the period of time and in the territories agreed
with the producer.

4.98 Motion pictures are imprinted on cinematographic film. The distributor will receive copies of
materials (including prints, soundtracks, and adve rtising materials) in order to organize the
distribution of the motion picture within its licensed territory. At the end of the period of release, the
distributor will either (i) return all delivered materials as well as all materials created by the
distributor or (ii) destroy all materials.
4.99 A motion picture, consisting of a sequence of pictur es that is projected on to a screen in rapid
succession and accompanied by a soundtrack, is per se intangible and cannot be possessed. Motion
picture distributors do not buy the motion picture as such. Likewise, movie-goers do not buy the
motion picture as such, but only the right to attend the projection. The commercial value of the
motion picture lies in the revenue generated by th e services provided for its exploitation, and not in
the fixed revenue generated by the sale of goods . Motion pictures for theatrical release cannot
therefore be considered as goods, i.e. "items that are tangible and capable of being possessed", as
specified by the Appellate Body.
4.100 While the delivered materials that "carry" the motion picture are traditionally tangible items
(motion pictures, however, are increasingly stored and transmitted digitally and no longer "carried" in
reels), the existence of these materials, that are merely accessories to a service, does not allow treating
motion pictures as goods.
4.101 The above qualification of the motion picture bus iness as a service is confirmed by the main
relevant international classification instruments. The activities involved in the exploitation of motion
pictures for theatrical release are classified as services, and the only "goods" category relating to
motion pictures is the film reel, which is described as an accessory to such services.
4.102 While the claim by the United States is only about trade in goods, the Chinese regulations
challenged by the United States, i.e. the Film Regulation; the Film Enterprise Rule , do not treat the
importation of motion pictures as the importati on of goods, but as a licensing service for the
exploitation rights of motion pictures for their theatrical distribution.
4.103 It should further be recalled that in its Schedule to the GATS China made an additional
commitment concerning the "importation of motion pictures for theatrical release". This commitment
confirms that (i) the concept of "importation" used by China in the context of the regulation of the
motion picture business refers to services, and that (ii) measures affecting the importation of motion
pictures do not fall under WTO provisions relating to the importation of goods.
4.104 Because motion pictures for theatrical release are not goods, the challenged measures cannot
be scrutinized under paragraphs 5.1, 5.2 and 1.2 of China's Accessi on Protocol and paragraphs 83 and
84 of the Working Party Report which refer only to trade in goods.
(b) Audiovisual products used for publication
4.105 The United States is basing its claim on paragrap hs 5.1, 5.2 and 1.2 of China's Accession
Protocol and paragraphs 83 and 84 of the Work ing Party Report that only cover trade in goods,
wrongly assumes that the importation of improperly called "unfinished" audiovisual products is
importation of goods. As the United States itself specifies, "unfinished audiovisual products are
master copies to be used to publish and manufactur e copies for sale in China". These master copies
carry an audiovisual content that is subject to a copyright licensing agreement between the foreign
rights holder and a Chinese publisher. Consequently, the importation of audiovisual products used for
publication does not correspond to the importation of goods, but to copyright licensing.
4.106 In other words, the "right to import" audiovisual products used for publication consists of the
right to enter into a copyright agreement for the publ ication of copies of an audiovisual content, and

not of the right to import goods. Consequently, the measures governing trade with audiovisual
products used for publication cannot be scrutinized under paragraphs 5.1, 5.2 and 1.2 as well as
paragraphs 83 and 84 of the Working Party Report of China's Accession Protocol, the legal basis of
the US claim, which only refer to trade in goods.
(c) Reading materials and audiovisual products, including sound recordings
4.107 China's regime for the importation of the above cultural goods is designed to guarantee an
effective and efficient application of the content re view decided by China and is in full compliance
with China's WTO rights and obligations.
4.108 The cultural goods have a major impact on societ al and individual morals as emphasized in
particular in the UNESCO Convention on the Protec tion and Promotion of the Diversity of Cultural
Expressions.
4.109 It is of vital interest for China to impose a high level of protection of public morals through an
appropriate content review mechanism that prohibits any cultural goods with a content that could have
a negative impact on public morals.
4.110 Since the review on imported cultural goods needs to be carried out at the border, but also
because the administrative authorities are not in a pos ition to carry out a comprehensive and thorough
content review by themselves without creating undue delays, there is an allocation of tasks, for the
exercise of the content review, between the relevant administrative authorities and selected
importation entities. The first are responsible for administering and supervising the content review
process. The second are required by the challenged measures to conduct content review and are
selected, based on their capacity relating to conten t review to avoid the importation of cultural
products with content having a negative impact on pub lic morals. The importation entity shall review
the content of reading materials envisaged for im portation and decide whether or not the reviewed
goods shall be imported in the case of reading materi als or be submitted to the relevant administrative
authority for final approval in the case of electronic publications and audiovisual products.
4.111 The selection process allows the relevant admini strative authority to ensure that (i) each
selected entity has an appropriate organizational st ructure, (ii) each selected entity has a reliable,
competent and capable personnel, (iii) the entities fi nally selected ensure an appropriate geographical
coverage, and that (iv) the number of selected entities remains limited.
4.112 Paragraph 5.1 of China's Accession Protocol requires China to liberalize the right to trade, but
nevertheless allows China to limit the right to trad e through its right to regulate trade in a manner
consistent with the WTO Agreement, including Ar ticle XX of the GATT. The challenged selection
process is justified by Article XX of the GATT a nd thus consistent with the WTO Agreement.
Paragraph 5.1's right to regulate trade is the e xpression of the WTO general exception to Members'
obligations, which leaves room for the implementa tion of public policies and is crucial for the
preservation of China's sovereignt y. Paragraph 5.2 of China's Accession Protocol as well as
paragraphs 83 and 84 of the Work ing Party Report on China's Accession, which are closely linked to
paragraph 5.1 of China' Accession Protocol, shall al so apply "without prejudice" to China's right to
regulate trade in a manner consistent with the WTO Agreement.
4.113 The challenged Chinese regulations establishing a system of selection of importation entities
are necessary to protect public morals and fully justified under Article XX (a) of the GATT.
4.114 The selection of importation entities is designed to protect public morals in China. In fact,
China has decided not to allow the importation of cultural goods, the content of which could have a
negative impact on public morals, especially those that depict or vindicate violence or pornography.

Then, the measures establish a content review mechanism for imported cultural goods, based on a
selection of importation entities that ensures an effective contribution of these entities to the content
review.
4.115 The selection of importation entities is also necessary for the protection of public morals in
China. Pursuing a high level of protection, i.e. prohibiting importation of cultural goods negatively
impacting public morals through effective content review, is of vital importance for China. Its
importance is clearly affirmed by the challenged measures and further illustrated by the sanctions
imposed in case of infringements.
4.116 The selection of importation entities contributes to the pursued aim in various ways.
According to the relevant regulations, the im portation entities to be selected must have an
organizational structure and competent personnel en suring that the content review be conducted both
efficiently and effectively. The importation entities' geographical presence within China and its
coherence with the State's plans guarantees no entry gate into the Chinese market is overlooked.
Finally, the limited number of importation entities enables the government authorities to exercise
efficient control over and cooperate effectively with importation entities.
4.117 The selection of importation entities has limited impact on trade in cultural goods. While
primarily aimed at content review, the selection and supervision of importation entities also focus on
their capacity to avoid disruption of the normal tr ade flow. The correct implementation of content
review by these entities helps to minimize undue de lay of importation. Figures about import volume
further demonstrate the lack of trade distortion.
4.118 The selection of importation entities is also a pplied in a reasonable manner and in full
compliance with the requirements set by the "Chap eau" of Article XX of the GATT, insofar as it is
not applied in a manner constituting a means of arb itrary or unjustifiable discrimination. Indeed,
when considering China's regulatory framework in its entirety, it appears that domestic publishers
must also be approved by the administrative authorities, on the basis of content review related
requirements.
4.119 Given the fact that the selection of importati on entities is based on requirements adapted to
the need to ensure an efficient content review while limiting its collateral trade effects, it cannot
therefore be viewed as a disguised restriction to inte rnational trade. Further, this is evidenced by the
import statistics for reading mate rials and audiovisual products, wh ich show that the number of
imported titles has been steadily increasing.
4.120 Justified under Article XX (a) of the GATT, the challenged measures do not violate China's
obligations under paragraphs 5.1, 5.2, 1.2 of Chin a's Accession Protocol and paragraphs 83 and 84 of
the Working Party Report on China's Accession.
3. Distribution services
4.121 In its first written submission, the United States challenges certain specific requirements
applying to foreign entities wishing to establish in the activity of distribution of reading materials and
audiovisual products, i.e. (i) requirement that fore ign entities have no record of laws or regulations
violations in the past three years for being authorized to invest in the activity of distribution of reading
materials (so-called "pre-establishment legal complia nce"), (ii) approval process to engage in the
distribution of reading materials and audiovisual products, and (iii) "Decision making criteria" (such
as "friendliness", "great capability", "standardized management", "advanced technology" and "reliable
investment") that the approval agency, including both General Administration of Press and
Publication ("GAPP") and Ministry of Culture, w ould apply in the examination and approval of
Chinese-foreign joint ventures for the distribution of reading materials and audiovisual products.

4.122 Considering that these claims were not addressed in the US panel request and that the related
measures were not addressed in this regard, they cannot be considered to be within the Panel's terms
of reference and should therefore be disregarded. As far as the rema ining claims relating to allegedly
discriminatory prohibitions and/or discriminatory requirements are concerned, including the above
identified claims should they be found to be within the Panel's terms of reference, they should be
rejected as being unfounded.
(a) Reading materials
(i) Alleged discriminatory prohibitions
4.123 The United States provided the Panel with an in accurate picture of the different Chinese
concepts relating to distribution.
4.124 Fa Xing is the generic term covering the different features of distribution. It covers two
distinct distribution channels: Zong Fa Xing and Fen Xiao. Fen Xiao corresponds to the traditional
conception of distribution through wholesaling (Pi Fa) and retailing (Ling Shou).
4.125 The United States' description of Zong Fa Xing as a compulsory step of the distribution chain
before wholesaling by any distributor is therefore incorrect since Zong Fa Xing is a comprehensive
"top to bottom" distribution channel, distinct from the traditional distribution channel. Accordingly,
the translation of Zong Fa Xing by the United States as "master distribution" is not accurate.
Similarly the translation of Fen Xiao submitted by the United States, i.e. "sub-distribution", is also
inaccurate insofar as it insinuates that Fen Xiao , which is in fact an autonomous "top to bottom"
distribution channel (like Zong Fa Xing, but with intermediaries), would be a stage of the distribution
channel leading to Zong Fa Xing , thus ignoring the fact that both distribution channels are
autonomous distribution channels.
4.126 The United States also fails to take into account the recent legislative developments in the
sector of distribution of electronic publications. In fact, the 1997 Electronic Publications Regulation
has been replaced by the recently promulgated 2008 Electronic Publications Regulation. Considering
the above legal development, the prohibitions for foreign-invested enterprises to engage in Zong Pi Fa
and the wholesaling of electronic publications are no longer applicable, contrary to the US assertion in
its first written submission.
4.127 China, in fact, never intended to include Zong Fa Xing in the scope of distribution services.
What China actually committed under Sector 4B of its Schedule to the GATS was and still is
wholesale, which is a sub-category of Fen Xiao.
4.128 A proper interpretation of the commitments undertaken by China under Sector 4B
("wholesaling") reveals that Zong Fa Xing can not be considered as wholesaling. "Distribution Trade
Services" of which wholesaling is a sub-sector have been defined by China in Annex 2 of its Schedule
to the GATS as being "characterized as reselling me rchandise". "Reselling" is defined as "selling (a
thing) again, esp. commercially". Consequently, a product being resold must have been previously
sold.
4.129 Zong Fa Xing may be operated by two types of entities, either the publisher itself for its own
publications or by an approved Publication Zong Fa Xing entity commissioned by the publisher. In
the case where the publisher itself operates Zong Fa Xing for its own publications, the Zong Fa Xing
operation cannot be qualified as a distribution trade service as it is not a "reselling operation", but a
direct sale to the end-consumer. In cases where an entrusted Publication Zong Fa Xing entity operates
Zong Fa Xing of reading materials, it will itself sell the reading materials to the end-consumer without
relying on further intermediaries.

4.130 Therefore, the US claims related to the prohib ition for foreign invested entities to engage in
Zong Fa Xing and Zong Pi Fa as well as wholesale of electronic publications should be rejected.
(ii) Alleged discriminatory requirements
4.131 When read in conjunction, Paragraphs (2) a nd (3) of Article XVII of the GATS make clear
that the mere fact that a Member establishes a formally different treatment between domestic and
foreign services and service suppliers cannot suffice to establish a violation of Article XVII of the
GATS. In fact, as clearly established by Paragraph (3) of Article XVII, a formally different treatment,
which is in itself not prohibited by the GATS, may only be considered as vi olating Article XVII, "if
its modifies the conditions of competition in favour of services or service suppliers of the Member
compared to like services or service suppliers of any other Member".
4.132 The United States in its first written submission has only addressed the first element of the
above required demonstration wit hout putting forward any element evidencing a modification of the
conditions of competition resulting from the alleged different treatment.
4.133 The United States, when asserting that the regi stered capital requirements for domestic and
foreign-invested enterprises engaging in the whol esaling of reading materials are different, only
provides a partial picture of the applicable regime . The United States omits to mention that according
to the 1993 Company Law , shareholders of a wholly Chinese-owned company must contribute the
entire registered capital contribution before its est ablishment, while foreign-invested enterprises can
contribute the capital requirements in several separ ate instalments after its establishment. This
treatment of foreign-invested enterprises cannot be considered as affecting the conditions of
competition.
4.134 As far as the requirement of operating terms is concerned, the United States neglects that,
even though foreign-invested enterprises are subject to a fixed term of operation, they are free to
extend that term under normal and transparent co nditions. The only requirements are that the
extension must be agreed by all investors, all Boar d Directors, and comply with the laws, regulations
and policies on foreign investment applicable at the time of extension. Thus, the approval is almost
automatic and only for the purpose of verifying the intention of investors and compliance with the
applicable foreign investment policy which need to be compatible with China's GATS commitments.
This requirement cannot be considered as affecting the conditions of competition.
4.135 As far as the approval process is concerned, both wholly Chinese-owned enterprises and
foreign-invested enterprises must go through GAPP approval procedures and the State Administration
for Industry and Commerce registration procedures. The only difference relating to the approval
process therefore lies in the fact that foreign-inv ested enterprises will have to submit an additional
application, i.e. to the Ministry of Commerce ("MOFCOM"). As far as the time-limits for both
approval procedures are concerned, it appears that they are almost identical (only a 5-days difference).
4.136 As far as the implication of MOFCOM in th e approval process is concerned, it should be
recalled that pursuant to China's Schedule to th e GATS, and in particular to its horizontal
commitments, China expressly limited its commitm ents on market access by indicating that "In
China, foreign-invested enterprises include forei gn capital enterprises (also referred to as wholly
foreign-owned enterprises) and joint venture ente rprises and there are two types of joint venture
enterprises: equity joint ventures and contractual joint ventures."
4.137
Through this limitation, China preserved its right to enforce the laws and regulations
governing these corporate forms at the time of its a ccession to the WTO. These laws and regulations
already provided for the approval processes of fo reign-invested enterprises by MOFCOM that the

United States is challenging. In any event, the a pproval process cannot be considered as affecting the
conditions of competition.
(b) Audiovisual products
(i) The US claim under Article XVI of the GATS
4.138 The United States has provided the Panel with an inaccurate description of the challenged
measures, by asserting that the Chinese party to a Sino-Foreign joint venture engaging in the
wholesaling of audiovisual products must hold at least 51 per cent of the shares.
4.139 However, the relevant challenged measures refe r to the rate of distribution of profit and
allocation of loss in contractual joint ventures. According to these measures, in the sector of
audiovisual products distribution, and consistent ly with China's Schedule to the GATS, foreign
investment is limited to the form of contractual join t ventures. In such corporate forms, the allocation
of profit and loss is negotiated in the contract between the partners, and can be freely determined.
4.140 Article XVI of the GATS does not impose any obligations on WTO Members to insert any
limitations with respect to the rate of profit and loss allocation in their Schedule to the GATS. Thus,
the relevant Chinese measures challenged cannot be found to be violating Article XVI of the GATS.
(ii) The US claims under Article XVII of the GATS
4.141 Similarly to its claim regarding the distributio n of reading materials, the United States has
only addressed the formal differences in the treatment of foreign and domestic competitors without
putting forward any element evidencing a modifi cation of the conditions of competition resulting
from the alleged different treatment as required by paragraph (3) of Article XVII of the GATS.
4.142 As far as the allegations regard ing the equity participation are concerned, China recalls that
these provisions' limitations refer to the rate of distribution of profit and allocation of loss in
contractual joint ventures. Even though there are fo rmally different treatments regarding the rates of
profit and loss allocations among shar eholders within the contractual joint venture engaging in the
distribution of audiovisual products, this does not impact the actual conditions of competition to the
detriment of such contractual joint ventures.
4.143 As far as the limitation of the operating terms is concerned, the United States neglects that,
even though foreign-invested enterprises are subject to a fixed term of operation, they are free to
extend that term under normal and transparent co nditions as explained in the context of reading
materials distribution services. This formally different treatment does not affect the conditions of
competition.
4.144 As far as the approval process is concerned, an assessment of the relevant legal framework
reveals that foreign-invested enterprises have to undergo only four subsequent approval stages, not six
as alleged by the United States. Similarly to the expl anations provided by China in the context of the
US claim related to the distribution of reading materials, China, by limiting its commitments to certain
corporate forms (inter alia equity joint ventures and contractual joint ventures), preserved its right to
impose a MOFCOM approval to foreign-invested en terprises. In any event, the approval process
cannot be considered as affecting the conditions of competition.
4.145 Contrary to what the United States asserts, i.e. that foreign partners in the contractual joint
venture may not contact Chinese government agencies during the approval process, none of the
provisions of the Audiovisual (Sub-)Distribution Rule
 expressly prohibits the foreign partners from
contacting the relevant authorities in the cour se of the approval process and thus from actively

participating in that process. Therefore, no forma lly different treatment between foreign-invested
enterprises and domestically-owned distributors exists.
4.146 As far as the US claim regarding the potentia l requests by the approval authorities for so
called "other document" during the approval process is concerned, there is no different treatment
between foreign-invested and domestically-owned enterprises insofar as the latter also face similar
potential additional requirements.
(c) Sound recordings
4.147 The United States is wrongly asserting that what it has chosen to label "electronic distribution
of sound recordings", which in fact corresponds to network music services, could be qualified as a
means of delivering "sound recording distribution se rvices", thus allegedly be ing covered by China's
relevant commitments under Sector 2D of its Schedule to the GATS.
4.148 Network music services are, in fact, a new type of service, which emerged virtually around
2001, totally different in kind from the "sound recording distribution services" committed by China,
thus not being covered by its commitments.
4.149 There are a number of significant differences between network music services and
"traditional" sound recording distribution servi ces as committed by China. The most evident
difference lies in the fact that, contrary to "tra ditional" sound recording distribution, network music
services do not supply the users with sound recordings in physical form, but supply them with the
right to use a musical content. Apart from this fundamental difference, it further appears that not only
the infrastructure and operation of both businesses, but also the perception of the consumers with
regard to the separate offers, significantly differ.
4.150 China also established new and distinct regulator y regime for this newly arisen service. The
first regulation in this field, the Internet Culture Rule in 2003, sets up the conditions for the
establishment of Internet cultural entities, estab lished a content review mechanism for imported
cultural works, and stipulated sanctions for any unlawful service activity. The Network Music
Opinions further provides specific procedures for the re gulation of the market access of network
music service, the enhancement of the supervisi on over prohibited content, and the enforcement of
intellectual property rights.
4.151 The United States in its first written submission failed to make a comprehensive interpretation
of China's relevant commitments, i.e. the releva nt market access and national treatment commitments
for "sound recording distribution services" under Sector 2D which China has provided to the Panel.
4.152 The ordinary meaning of "sound recording distribution services" refers to the marketing and
supply of a specific category of goods, i.e. goods c ontaining recorded music, such as CDs or other
physical supports. Network music services, however, which consist basically of the transmission of
intangible content to users via the Internet, cannot be considered as falli ng under China's relevant
commitments under Sector 2D of its Schedule to the GATS.
4.153 China's commitment referring to "sound recording distribution services" in Sector 2D should
further be read in light of the entire Schedule to which it belongs, i.e. other entries in different sub-
sectors, as well as the related Annexes included in China's Schedule to the GATS. Sector 4A-4E of
China's Schedule, which covers the general category of "dis tribution services" refers to the definition
of "distribution services" provided in Annex 2 of its Schedule to the GATS, which refers to the action
of reselling merchandise. This reference provides fu rther relevant guidance for the interpretation of
the specific entry of "sound recording distribution services" in Sector 2D.

4.154 When interpreted against this specific contex t, the sub-sector "sound recording distribution
services" must be considered as covering the dist ribution of a specific category of goods, i.e. goods
containing recorded music, such as CDs or other physical carriers, and cannot be interpreted as
covering the supply of network music services.
4.155 Finally, when considering the circumstances prev ailing at the time of the conclusion of the
services negotiations concerning China's accession, it appears that none of the parties involved can
actually have had the intention of including a commi tment related to a virtually inexistent service
category, i.e. network music services.
4.156 The principle of "technological neutrality", on which the US claim is actually based, has no
textual basis in the WTO legal framework and is far from being a principle generally agreed upon
among WTO Members.
4.157 Even if the principle of "technological neutrality " could be taken into consideration by the
Panel, quod non, the analysis of the United States is flawed since it is based on the erroneous premise
that network music services constitute a means of delivery for sound recordings distribution services
as committed by China.
4.158 According to the US acceptation of this princi ple, a commitment inserted into a Member's
schedule regarding a particular service sector should ex tend to all means of delivery of that particular
service unless an express limitation has been inserte d into the Schedule for one or more delivery
modes, including potential or non-existing ones at the time of conclusion of its Schedule to the GATS.
In US – Gambling , however, the Panel limited the scope of the so-called principle of "technological
neutrality" to "possible" means of delivery. New services or new means of delivery not existing at the
time of the conclusion of a Member's Schedule to the GATS cannot reasonably be considered as
"possible". Any other interpretation would le ad to open-ended, unpred ictable and therefore
unsustainable commitments.
4.159 Unduly extending the scope of this contentious principle would be against the principle of
progressive liberalization as reflected in the Prea mble to the GATS and would preclude Members,
especially developing Members, from making further commitments.
4.160 A distinct service, such as network music services, which have not been offered for
liberalization at the time of the negotiation of th e Schedules for the simple reason that they hardly
existed at that time, cannot be committed post hoc through the dispute settlement process. This is all
the more true in view of the fact that new services appeared following the development of information
technologies are currently subject to ongoing discussions within the WTO which are far from creating
consensus among Members.
4.161 The principle of in dubio mitius supports a restrictive interpretation of China's GATS
commitments. The principle of in dubio mitius indeed requires that sovereign State obligations
pursuant to treaties, such as China's GATS commitment s, be interpreted restrictively. The Appellate
Body in EC – Asbestos stated that an adjudicatory body, and therefore a Panel, "cannot lightly assume
that sovereign states intended to impose upon themse lves the more burdensome, rather than the less
burdensome, obligation by mandating conformity or compliance with such standards, guidelines and
recommendations." Applying this principle to the present case, China's GATS commitments must not
be interpreted as covering network music services.
4.162 Considering the above, it appears that China did not include so-called "electronic distribution
of sound recordings" in its GATS commitments and that therefore the challenged measures do not
violate Article XVII of the GATS.

4. Product distribution
(a) Reading materials
4.163 In its panel request, the United States alleged that China acted inconsistently with Article III:4
of the GATT (and with paragraph 5.1 and para graph 1.2 of China's Accession Protocol) by
establishing different distribution opportunities fo r imported and domestic reading materials.
However, the United States had not raised such concerns in its request for consultations.
4.164 As the Panel in Korea – Commercial Vessels clarified, "the scope of the request for
establishment is governed by, and may not exceed, the scope of the consultations that actually took
place between the parties". It follows that the US request to examine claims under Article III:4 of the
GATT with regard to imported reading materials is inconsistent with Articles 4 and 6 of the DSU,
thus not within the terms of reference.
4.165 Should the Panel decide to examine the Unite d States claims' concerning reading materials
under Article III:4 of the GATT, it should be underlined that the United States challenges, in its first
written submission, several issues in relation to th is claim which were not mentioned in its panel
request.
4.166 First, it challenges the mandatory subscription regime applying to impor ted reading materials
as well as the conditions, limitations and process a pplicable to persons wishing to subscribe to
imported reading materials. However, in its panel re quest, the United States had not raised this issue.
The initial claim of the United States related, in fact, to the prohibition imposed on foreign service
suppliers to distribute imported reading material s and its restrictive effect on the distribution
opportunities of these reading materials. The subscr iption regime as such and the conditions imposed
on subscribers of imported reading materials are clearly a distinct issue.
4.167 Moreover, the United States did not, in its pa nel request, refer to provisions that would
specifically deal with the channelling requirement and the conditions imposed on subscribers of
imported reading materials. It onl y made a general reference to the Imported Publications
Subscription Rule. However, such a general reference is not sufficient to consider that the measures
concerning the conditions imposed on subscribers have been adequately identified in the meaning of
Article 6.2 of the DSU.
4.168 Secondly, the United States included electronic publications in its claims concerning reading
materials under Article III:4 of the GATT. However, it had not mentioned thes e products in its panel
request. Electronic publications, which are a different product, cannot be considered to be included in
this limitative list.
4.169 Even if the US claims were to be addressed, the United States fails to establish less favourable
treatment for reading materials.
4.170 It refers to two types of subscription systems, i. e. the one applicable to the restricted category
of reading materials and the one applicable to the non-restricted category of newspapers and
periodicals. The restricted category refers to reading materials that are prohibited from distribution in
China but which are subscribed for research pur poses. The non-restricted category refers to
newspapers and periodicals that are subject to quasi-automatic subscription. While it is true that these
two types of subscription systems are different from the rules applicable to domestic like products, the
United States must establish that these differences result in less favourable treatment.
4.171 As far as the restricted category is concerned, the subscription system applied to foreign
reading materials does not affect the conditions of competition between foreign and domestic products

in this category. Indeed, the so-called restricted category includes reading materials with prohibited
content that are not allowed to be distributed in China, but are imported by certain government
agencies and institutions for research purpose only. Therefore, the challenged measures do not
modify the competition between imported reading ma terials allowed to be distributed in China and
their domestic counterparts.
4.172 As far as the non-restricted category of newspape rs and periodicals is concerned, subscription
is granted more or less automatically, without any involvement of the State agencies. As a result,
consumers can easily buy non-restricted newspape rs by subscription. Therefore, the challenged
measures do not modify the competition between impor ted non-restricted reading materials and their
domestic counterparts.
(b) Sound recordings
4.173 In its first written submission, the United States referred, in its claim under Article III:4 of the
GATT, to two regulations that had not been mentioned in its panel request, i.e. the 2001 Audiovisual
Products Regulation and the Audiovisual Products Importation Rule.
4.174 In its panel request, the United States had only mentioned the Internet Culture Rule , the
Circular on Internet Culture, the Catalogue, the Several Opinions, and the Network Music Opinions.
4.175 The United States has therefore not properly id entified the two measures at stake in the
context of its corresponding claim in the panel requ est. The Panel should therefore conclude that
these measures do not fall within the terms of reference.
4.176 Should the Panel, however, consider that th e above measures fall within the terms of
reference, it would have to conclude that the United States failed to establish a prima facie case
showing that the relevant measures, i.e. the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule affect the so-called "electronic distribution".
4.177 Even if these two measures could be reviewed by the Panel, quod non , the United States
failed to make a prima facie case that the above identified measures affect the conditions of
distribution, insofar as Article 28 of the 2001 Audiovisual Products Regulation and Articles 16 and 14
of the Audiovisual Products Importation Rule have to be considered as border measures at the
importation stage.
4.178 The United States is trying to subsume the distribution of sound recordings in non-tangible
form under Article III:4, even though no physical goods are actually being distributed.
4.179 The concept of "distribution" within the me aning of Article III:4 of the GATT has to be
understood as only addressing trade in physical produc ts. This has been confirmed by the Panel in
Canada – Wheat . The Panel had recourse to the definition in the New Shorter Oxford Dictionary,
which defines distribution to mean "the disper sal of commodities among consumers effected by
commerce." The Panel took this to mean that "distribution" entails inter alia the supply of goods to
consumers or to on-sellers".
4.180 The commercial steps subsequent to the transfer of the content of sound recordings imported
in hard copy format into a digitized format re ady for network transmission cannot be scrutinized
under Article III:4 of the GATT as they do not invo lve any supply/transfer of goods as acknowledged
by the United States itself in its definition of so-called "electronic distribution".

4.181 The essence of the so-called electronic distri bution of sound recordings lies in the
transmission of music content over the Internet, allowi ng the user to either download the content or to
hear the content in real-time, and does not lie in the distribution of goods.
4.182 Considering the above, the challenged measures cannot be scrutinized under Article III:4 of
the GATT and paragraphs 5.1 and 5.2 of China's Accession Protocol.
(c) Motion pictures for theatrical release
4.183 The United States is trying to subsume the di stribution of motion pictures for theatrical
release under Article III:4 of the GATT, even though no physical goods are actually being distributed.
4.184 As demonstrated above, motion pictures for th eatrical release cannot be qualified as goods,
and their distribution does not consist in the distribution of a good, but in the distribution of an
intangible work through the organisation of public shows on the basis of licensing agreements
allowing their exploitation. The only goods involved in theatrical distribution services, the film reels,
are mere accessories to such services. Even though a film reel is initially imported, the materials
actually being distributed within China are copies produced after various transformations of the
motion pictures (dubbing, subtitling, etc.). Therefor e, the challenged measures cannot be scrutinized
under Article III:4 of the GATT and paragraphs 5.1 and 5.2 of China's Accession Protocol.
4.185 Even if the distribution of motion pictures were to be scrutinized under Article III:4 of the
GATT, the challenged Chinese regulations do not modi fy conditions of competition and therefore do
not violate Article III:4 of the GATT 1994.
4.186 The distribution of foreign motion pictures in Chinese movie theatres is carried out by
companies approved by SARFT. There are currently two approved distributors, China Film
Distribution Company and Huaxia Film Distribution Company.
4.187 Contrary to what the United States pretends, Chinese regulations do not establish a "duopoly"
and they do not in any way limit the number of companies that can be approved by SARFT. The Film
Regulation establishes a licensing system for the activity of distribution of motion pictures, whether
domestic or foreign, and lays down the basic conditions and procedure according to which distributors
may obtain such a licence.
4.188 In fact, there are only two approved distributors because the number of foreign motion
pictures imported into China is limited. Indeed, in conformity with its Schedule to the GATS, China
imports 20 motion pictures on a revenue-sharing basi s per year and applies screening quotas on all
foreign motion pictures (whether on a revenue-sharing or on a lump-sum basis).
4.189 It follows that the distribution system applied in China for foreign motion pictures, although
different from the one applied for domestic motion pi ctures, is appropriate in view of the limited
number of foreign motion pictures that are imported into China.
4.190 The two distributors approved by SARFT ensure the smooth distribution of all foreign motion
pictures imported into China. This is all the mo re true than these two distributors are amongst the
biggest and most efficient distributors of domestic motion pictures in China.
4.191 Moreover, foreign motion pictures are distributed on a large scale and in the most important
markets. In 2007, all of the 50 foreign motion pict ures were distributed onto the mainstream market,
i.e. in urban areas and on a nation-wide basis. By contrast, most Chinese motion pictures do not have
access to these nation-wide and large-scale distribution networks.

4.192 Foreign motion pictures do not face less favourable screening opportunities than domestic
motion pictures; in particular, American blockbusters occupied the peak peri ods (especially summer)
and 80 per cent of the screen capacity. Fore ign motion pictures enjoy better distribution and
screening opportunities than domestic motion pictures. This is especially true for foreign motion
pictures on a revenue-sharing basis, which are of ten potential blockbusters, and for which Chinese
distributors have a clear interest in ensuring the distribution as efficiently as possible.
4.193 The absence of less favourable treatment of fo reign motion pictures clearly appears from the
box office figures provided in the Annual Report of Ch ina Film Industry for 2007, which reveal that
Chinese blockbusters totalled 16.19 per cent of th e box office of the mainstream market whereas
foreign blockbusters totalled 25.21 per cent. In view of this reality, the requirement established by
Chinese regulations to support domestic films, which serves the sole purpose of implementing
screening quotas, also does not alter conditions of co mpetition. In fact, it is rather a safety net for
domestic motion pictures, which merely allows them to remain in the competition.
5. Conclusion
4.194 For the reasons set forth in this submission, China requests the Panel to reject the claims
raised by the United States.
C. O
RAL STATEMENT OF THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF THE
PANEL
1. Introduction
4.195 This dispute involves several measures th at implicate a number of China's WTO
commitments.
4.196 Briefly, the US concerns focus on three issues. First, with respect to trading rights, China
committed in its Accession Protocol to grant all fo reign enterprises, all foreign individuals, and all
enterprises in China the right to import reading ma terials, audiovisual home entertainment products
such as videocassettes, VCDs and DVDs, sound recordi ngs and films for theatrical release into China.
However, China's measures ensu re that state-owned Chinese importation monopolies and oligopolies
preserve their exclusive rights to import, since fo reign companies are categorically prohibited from
importing reading materials, AVHE products, sound recordings and films for theatrical release into
China. The measures that impose these restrictions breach China's trading rights commitments.
4.197 Second, China inscribed market access and na tional treatment commitments with respect to
both distribution services and audiovisual services in its Services Schedule. China's distribution
services commitments were supposed to open full oppor tunities for foreign-invested enterprises to
supply reading material wholesaling services in China. Likewise, China's audiovisual services
commitments allow Chinese-foreign contractual joint ventures to engage in AVHE and sound
recording distribution services. Chinese measures, however, prohibit foreign-invested distributors
from supplying many services in these sectors. Where foreign-invested distributors are permitted to
supply a service, Chinese measures subject these distributors to discriminatory requirements. The
challenged measures are inconsistent with the market access and national treatment commitments in
China's Services Schedule within the meaning of Articles XVI and XVII of the GATS.
4.198 Third, China committed to provide national treatment with respect to imported goods
pursuant to both the GATT 1994 and China's Accessi on Protocol. However, China's measures
concerning several of the products at issue – namely reading materials, films for theatrical release, and
hard copies of sound recordings intended for electronic distribution – create discriminatory
commercial hurdles for imported products. For ex ample, many imported reading materials are

subjected to a restrictive and discriminatory sub scription regime. Furthermore, while both Chinese
and foreign enterprises can distribute domestic Chinese products, only Chinese enterprises can
distribute imported reading materials. Similarl y, imported and domestic hard copies of sound
recordings intended for electronic distribution face dis tinctly different content review regimes, with a
significantly more onerous regime imposed on imports . Finally, only two state-controlled distributors
are permitted to distribute imported films, and the distribution contract does not permit the negotiation
of key commercial terms. By contrast, domestic films have the full range of distributors at their
disposal, and their distribution contracts are subj ect to full competitive negotiation. As China's
measures accord imported products less favourable tr eatment than like domestic products, they are
inconsistent with Article III:4 of the GATT 1994 and paragraphs 5.1 and 1.2 of China's Accession
Protocol.
2. Trading rights: films for theatrical release, unfinished AVHE products and unfinished
sound recordings are goods subject to China's trading rights commitments
4.199 Since the parties agree that trading rights in the Protocol refer to the import (and export) of
goods, one should begin with an analysis of whet her cinematographic film qualifies as a good for
purposes of the Accession Protocol. First, the GATT h as made clear for more than half a century that
exposed cinematographic film crossing national border s is a good. This agreement, which applies to
trade in goods, includes a specific provision on films for theatrical release in Article IV, which is
entitled "Special Provisions relating to Cinematograph Films."
4.200 China's position also has a number of other majo r flaws. According to China, the alleged
"intangible" nature of films disqualifies them as goods. However, even if China were correct that
"tangibility" is the key element of a "good," the United States is, in fact, challenging measures that
prohibit foreign-invested enterprises from importing hard-copy cinematographic film, which are
tangible items. China concedes this point in its first written submission.
4.201 International classifications of products al so demonstrate the long-standing practice of
Members treating films as goods. The Harmonize d Commodity Description and Coding System
(HS), which only covers goods, describes products under heading 3706, and the United Nations'
Central Product Classification (CPC) does classify cinematographic film as a good in Subclass 3895,
in addition to classifying the associated services (in subclass 96113).
4.202 China's next assertion, that films are not goods because they are sold through a series of
associated services, would have serious systemic implications, if accepted. In essence, China would
negate the existence of a good, whenever it is clo sely connected to a series of services. China uses a
similar line of reasoning to contend that the ch allenged measures simply deal with a copyright
licensing service for motion pictures rather than the importation of goods. Even if certain provisions
of China's measures regulate copyright licensing, this does not change the fact that other provisions in
these measures directly prohibit foreign-invested entities from importing films.
4.203 China also asserts that its GATS commitments w ith respect to films demonstrate that films
are subject exclusively to the disciplines of the GATS, and fall outside the scope of China's Accession
Protocol or the GATT 1994. Again, there is no fo undation for this assertion in the text of the WTO
Agreement, and the Appellate Body has rejected this line of reasoning. In Canada – Periodicals, the
Appellate Body concluded that while a periodical ma y be comprised of elements that have services
attributes i.e., editorial content and advertising cont ent, "they combine to form a physical product –
the periodical itself." Finally, China's own customs regime recognizes that films are goods.
4.204 Second, China similarly argues that unfin ished AVHE products a nd unfinished sound
recordings, often called "masters," are not goods . For the reasons articulated above, China's
arguments with respect to unfinished AVHE products and sound recordings are also unavailing.

There is once again no textual basis for this asser tion. Furthermore, the 2007 Harmonized System,
(implemented under the Harmonized System Conven tion, to which China has been a party since
1993) describes products under HS heading 8523, whic h makes clear that these products are goods.
The CPC also classifies "recorded media for sound or other similarly recorded phenomena" other than
films under goods subclass 47520. In addition, as w ith films, China treats these products as goods.
China's tariff schedule, which has not yet implem ented the 2007 changes to the HS, incorporates the
description of this product under HS heading 8524.
4.205 Moreover, China asserts that its measures do not regulate the right to import master copies of
AVHE products or sound recordings, but simply deal w ith rights to enter into copyright agreements.
As with films, China may have provisions regulati ng copyright licensing, but this does not change the
fact that other Chinese provisions directly regulate who can import the good subject to that licensing.
3. Trading rights: China's measures are inconsistent with its trading rights commitments
and are not justified under any exceptions
4.206 China does not contest the US arguments con cerning the inconsistency of the challenged
measures with its trading rights commitments relate d to reading materials, finished AVHE products,
and finished sound recordings. Indeed, China asser ts, but fails to demonstrate, that its measures
governing these products are justified under several exceptions.
4.207 China begins its efforts to try to justify its measures by invoking the UNESCO Convention on
the Protection and Promotion of the Diversity of Cultural Expressions and a related UNESCO
Declaration. However, China fails to note that the UNESCO Convention expressly provides:
"Nothing in this Convention shall be interpreted as modifying the rights and obligations of the parties
under any other treaties to which they are parties." In any event, nothing in the text of the WTO
Agreement provides an exception from WTO disciplin es in terms of "cultural goods," and China's
Accession Protocol likewise contains no such exception.
4.208 China then argues that its "right to regulat e trade in a manner consistent with the WTO
Agreement," provided in the first clause of para graph 5.1 of the Accession Protocol, justifies its
wholesale carve out of the Products in dispute here from its trading rights commitments. First, if
China's reading of its right to regulate trade allowe d China to deny the right to import to all foreign
and all private Chinese enterprises for entire categori es of products at will, then China would have
eliminated its trading rights commitment altogether, not simply "regulated trade."
4.209 Second, China's expansive reading of its right to "regulate" is inconsistent with the structure
and operation of paragraph 5.1, read as a whole. China's expansive interpretation of the right to
regulate trade would make the sp ecific mechanisms in Annexes 2A and 2B superfluous, since they
serve precisely the same function China appears to claim flows from its right to regulate trade.
4.210 Turning to China's assertion that its measur es denying trading rights are justified under
Article XX(a) of the GATT 1994, the United States submits, without prejudice to the question of
whether Article XX applies to China's Accession Protocol, that China has not met its burden to
demonstrate that its measures satisfy the requirements of this article. Content review, China's concern
here, is independent of importati on and can be performed by individuals or entities unrelated to the
importation process at any time before, during or after that process.
4.211 The measures at issue are not "necessary" within the meaning of Article XX, and they do
constitute "arbitrary or unjustifiable discriminati on" and a "disguised restriction on international
trade." As the Appellate Body has stated, "a 'nece ssary measure is...located significantly closer to the
pole of 'indispensable' than to the opposite pole of si mply 'making a contribution to'." Given the utter
absence of a nexus between the challenged measures and the protection of public morals, China's

measures denying trading rights lie far too distan t from the pole of indispensability to qualify as
"necessary" within the meaning of Article XX. Th e Appellate Body has not found a measure to be
necessary where there is a "reasonably available WTO-consistent alternative". Here, there are many
such alternatives at hand. Indeed, China's "in- house" content review regime for domestic producers
offers a fully WTO-consistent alternative to China's measures.
4.212 China's arguments regarding the chapeau of Article XX are equally unpersuasive. As applied,
China's measures ban foreign and private Chinese importers from the business of importing the
Products into China, thereby protecting the business interests of a limited group of Chinese state-
owned enterprises. One further aspect of China' s chapeau analysis deser ves mention. China's
statement that domestic producers of reading materials, finished AVHE products, and finished sound
recordings are confronted with limitations comp arable to those on foreign producers is most
remarkable, and does not reflect the facts.
4. Trade in services: China's measures proh ibiting foreign-invested enterprises from
engaging in master distribution, master wholesale and wholesale of reading materials
are inconsistent with Article XVII of the GATS
4.213 As part of its claims under Article XVII of the GATS, the United States challenges four sets
of discriminatory prohibitions on foreign-invested enterprises engaging in the wholesale of reading
materials. China only attempts to address the fourth set of US concerns – i.e., China's discriminatory
prohibition on foreign-invested enterprises engaging in the master distribution of books, newspapers
and periodicals and the master wholesale and wholesale of electronic publications.
4.214 China contends that it made no commitment with respect to master distribution in Sector 4B
of its Services Schedule. However, as China conced es, master distribution is a form of distribution
that is synonymous with master wholesale ( Zong Pi Fa ). Several Chinese regulations and other
sources confirm, in turn, that master distribution is also known as "first-level wholesale", and is the
right to organize the distribution of a particular reading material, which includes the right to designate
which "second-level wholesalers" may distribute the publication in a certain region of China. Thus,
master distribution or "first-level wholesale" is in cluded in China's commitments under Sector 4B of
its Services Schedule.
4.215 China also contends that the 1997 Electronic Publications Regulation was replaced in April
2008, rendering the concept of master wholesale "obs olete" and removing the prohibition on foreign
investment in the wholesale of these products. Ho wever, the measure cited by China replacing the
1997 Electronic Publications Regulation does not in fact replace the key provisions of this measure
involving the distribution of electronic publications. Of course, even if China's new measure had
replaced the old regulation, the United States would continue to seek a findi ng with respect to the
1997 Electronic Publications Regulation that was included in the US panel request.
5. Trade in services: China's services commitmen ts cover the electronic distribution of
sound recordings
4.216 Turning to China's argument with respect to the electronic distribution of sound recordings
and China's obligations under Article XVII of the GATS, China's defence to this claim rests on the
argument that China did not undertake commitments in its Services Schedule with respect to the
electronic distribution of sound recordings, but only with respect to distribution of hard-copy sound
recordings.
4.217 Consistent with Article 31 of the Vienna Convention on the Law of Treaties, one should
begin with an analysis of the ordinary meaning of the relevant terms of China's commitments. In

Sector 2D of its Services Schedule, China inscrib ed no limitations on market access or national
treatment under mode 3 with respect to "sound recording distribution services."
4.218 The ordinary meaning of "recording" is "the action or process of recording audio or video
signals for subsequent reproduction" or "recorded material." Thus, the ordinary meaning of
"recording" does not distinguish between recordings of sound stored on physical media or those
stored electronically. Distribution of sound recordings thus includes distribution of any recorded
sound, whether in hard-copy or electronic.
4.219 The definitions of certain terms in the GATS provi de relevant context for the interpretation of
China's commitments. Article I:3(b) of the GA TS defines services broadly to "includ[e] any service
in any sector except services supplied in the exer cise of government authority." In addition,
Article XXVIII(e)(i) defines "sector" to mean "with respect to a specific commitment, one or more, or
all, sub-sectors of that service as specified in a Memb er's Schedule." In light of the ordinary meaning
of "sound recording distribution" and the context, China's national treatment commitments in this
sector include the electronic distribution of sound recordings.
4.220 China contends that the relevant context for the interpretation of China's commitments under
Sector 2D is Annex 2 to its schedule, and that Annex 2 demonstrates that "distribution services" only
include distribution of tangible items such as hard-copy sound recordings. However, nothing in
China's schedule provides that Annex 2 even applies to Sector 2D, in contrast, for example to Sector
4. More significantly, Article XXVIII(b) of the GATS defines "supply of a service" as including "the
production, distribution, marketing, sale and delivery of a service."
4.221 Because an analysis of the relevant treaty terms pursuant to Article 31 does not leave the
meaning of the terms of China's GATS schedul e ambiguous, obscure, or unreasonable, there is no
need to resort to supplementary means of interpretation. Even if this were not the case, an analysis of
the supplementary means of interpretation under Article 32 confirms the US interpretation under
Article 31 that China's services commitments cover the electronic distribution of sound recordings.
4.222 China contends that the electronic distribu tion of sound recordings was a new phenomenon
that did not exist at the time of China's accession. In fact, China's premise is false. An analysis of the
"circumstances of [the] conclusion" of China's a ccession reveals that the electronic distribution of
sound recordings was a reality long before China's accession and that China itself was aware of this
development.
4.223 Even if China were correct that it did not intend to make a commitment with respect to the
electronic distribution of sound recordings, in US – Gambling, the panel made clear that a Member's
intent is not relevant in discerning whether the Me mber has a commitment with respect to a particular
means of delivery. Because China did not expl icitly exclude electronic distribution of sound
recordings from its national treatment obligati ons under mode 3, China's services commitments
include this form of distribution.
4.224 The US interpretation of China's schedule is also consistent with the principle of
technological neutrality, which China attempts to di smiss. China engages in a lengthy but fruitless
discussion of the ways in which the mechanics of distributing hard-copy media containing music
versus electronic distribution differ. At the end of the day, this discussion only confirms the point that
electronic distribution of sound recordings merely constitutes a modern means to supply an existing
service.
4.225 In addition, if China's argumen ts were accepted, WTO Members could invoke this reasoning
to evade services commitments any time a new means of delivering a service was developed. On the
other hand, the principle of technological neutrality is consistent with the concept that the GATS is

sufficiently dynamic so that Members need not re negotiate the Agreement or their commitments in
the face of ever-changing technology.
6. Trade in goods: China's measures regarding the distribution of hard-copy sound
recordings intended for electronic distribution are inconsistent with Article III:4 of the
GATT 1994
4.226 China makes several unsuccessful arguments in attempting to rebut the US claim under
Article III:4 with respect to hard-copy sound recordi ngs intended for electronic distribution. First,
China misunderstands the US claim here by ar guing that the electronic distribution of sound
recordings is not covered by the GATT 1994, b ecause the GATT 1994 only covers trade in goods.
However, the US claim applies only to measures affecting imports of hard-copy media containing
sound recordings that are intended for electronic di stribution after importation. The claim does not
deal with the provision of electronic distribution services.
4.227 China also asserts that the challenged measures are "border measures" at the importation stage
and therefore do not affect the distribution of products that have already been imported. China's
argument is misplaced. The Ad Note to Article III of the GATT 1994 provides that internal measures
applicable to both an imported product and the dom estic like product that are enforced for imported
products upon importation are internal measures, not border measures. In this case, the measures at
issue impose content review-related legal requirements on both imported and domestic hard copy CDs
that they must fulfil before distribution inside China.
4.228 This conclusion is in fact confirmed by Chin a's next argument, which turns its assertions
regarding "border measures" on their head. China ar gues that the rationale behind the content review
requirements for imports is to ensure that in th e process of transferring content from the hard copy
format to the digital format, Chin a seeks to ensure that the conten t "has not been altered during its
conversion into digital format." China provides no support for this assertion, but this claim does
reveal that China does not view this measure as a "border measure," since the conversion into digital
form will only occur during the internal distribution process inside China.
7. China's measures are properly before the Panel and are within the Panel's terms of
reference
4.229 Finally, China raises numerous obj ections regarding the Panel's terms of reference. First, in
response to the US trading rights claims regarding fi lms for theatrical release, China contends that the
Film Distribution and Exhibition Rule is a measure that is not within the Panel's terms of reference,
because it was not identified in the US panel request. The Film Distribution and Exhibition Rule is
included in the US panel request with respect to the trading rights claims. The US panel request
describes the measures at issue as the failure to "allow[] all Ch inese enterprises and all foreign
enterprises and individuals to have the right to import into the customs territory of China the
following products (collectively, the "Products"): films for theatrical release ... ." The Film
Distribution and Exhibition Rule is a legal instrument that falls within the scope of the measure
described by this narrative.
4.230 Moreover, under Section I of the US panel re quest, which addresses trading rights, the United
States identified a series of measures – such as the Film Regulation and the Film Enterprise Rule –
involved with China's trading rights regime, an d included, as well in this connection, "any
amendments, related measures or implementing measures". The Film Distribution and Exhibition
Rule is closely and directly related to both the Film Regulation and the
Film Enterprise Rule , which
all explicitly address the importation of films for theatrical release.

4.231 Furthermore, as the panel stated in Japan – Film , measures that are not specified in a
Member's panel request can nonetheless be included in that request if they are "subsidiary or closely
related to" measures that are specified in that request. Here again, the Film Distribution and
Exhibition Rule is closely related to both the Film Regulation and the Film Enterprise Rule in that it
focuses specifically on, and elaborates upon, the film import regime addressed in these two measures.
4.232 China also asserts that the Several Opinions , the Importation Procedure and the Sub-
Distribution Procedure should not be examined by the Pa nel. However, these measures are
specifically identified in the US panel request and are part of the Panel's terms of reference. They are
each legally binding on the agenci es that issued them, represent the type of legal document widely
used in routine administration, and are fully recognized in the Chinese administrative law regime.
4.233 Moreover, China erroneously asserts that three discriminatory requirements – pre-
establishment legal compliance, approval process, and decision-making criteria applicable to the
distribution of reading materials and AVHE products – are not within the Panel's terms of reference
because they were not spelled out in the US panel re quest. Consistent with Article 6.2 of the DSU,
Section II of the US panel request identified a ll of the measures that provide for these three
problematic requirements – i.e., the Publications (Sub-)Distribution Rule , the Sub-Distribution
Procedure, the Audiovisual (Sub-)Distribution Rule, and the Several Opinions.
4.234 China also raises two sets of procedural objections with respect to certain elements of the US
Article III:4 claim regarding reading materials. First, China argues th at the US claim under
Article III:4 of the GATT 1994 regarding different distribution opportunities for imported reading
materials was not addressed during consultations and, therefore, is not part of the Panel's terms of
reference. This objection is without merit, as the legal bases contained in a party's consultation
request and panel request need not be identical. As the Appellate Body concluded in Mexico – Rice, a
"precise and exact identity" between the legal base s included in a consultation request and those
included in a panel request is not required.
4.235 Second, China contends that certain aspects of the discriminatory treatment accorded to
reading materials – that is, aspects related to China's subscription regime for imported reading
materials, to the conditions imposed on subscrib ers, and to electronic publications – were not
mentioned in the US panel request and are not meas ures included in the Panel's terms of reference.
However, China's objection in this Article III:4 contex t is unavailing. Article 6.2 of the DSU requires
the identification of each measure relevant to a par ticular claim, but does not require the complaining
party to identify each individual provision of the relevant measure.
4.236 The US panel request specifically identifies the measures at issue, and those measures in turn
include provisions setting forth the discriminatory aspects raised in China's objection – i.e. (1) China's
discriminatory subscription regime is provided for in the Imported Publications Subscription Rule ;
(2) the conditions imposed on subscrib ers are also provided for in the Imported Publications
Subscription Rule ; and (3) China's discriminatory treatme nt of imported electronic publications is
provided for in the 1997 Electronic Publications Regulation, and the Publications Regulation.
4.237 Finally, China argues that the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule are not in the Panel's terms of reference for purposes of the US claims
under Article III:4 because these measures were no t included in the US panel request. The 2001
Audiovisual Products Regulation and the Audiovisual Products Importation Rule are within the
Panel's terms of reference. First, these two instruments fall within the scope of the narrative in the US
panel request describing the measure at issue. S econd, the section of the US panel request dealing
with the GATT 1994 includes the Internet Culture Rule, the Circular on Internet Culture, the Network
Music Opinions , the Catalogue, and the Several Opinions as well as "any amendments, related
measures, or implementing measures." The 2001 Audiovisual Products Re gulation and Audiovisual

Products Importation Rule are closely related to the other measu res specifically listed in that request
and therefore are within the Panel's terms of re ference. Finally, these measures also properly fall
within the Panel's terms of reference under the Panel's reasoning in Japan – Film.
D. O
RAL STATEMENT OF CHINA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL
1. Introduction
4.238 China is of the view that this dispute is fundamentally about three sets of issues. Firstly, this
dispute is about the attempt of the United States to unduly extend the scope of China's commitments
beyond what was negotiated and agreed, by invoking rules which are not applicable to the present
case and by blurring the scope of the goods and services subject to the present dispute.
4.239 This dispute is, secondly, about the right of China to regulate trade in cultural goods in
accordance with legitimate policy objectives, as provi ded for by WTO disciplines, including China's
Accession Protocol.
4.240 Finally, this dispute requires a correct and precise understanding of the Chinese legislation
and regulatory framework applicable to the cultural goods and services concerned. The United States,
indeed, has based most of its claims on an inaccura te interpretation of the Chinese measures, and has
repeatedly drawn inappropriate legal conclusions.
4.241 Moreover, the United States in its first wr itten submission has addressed certain Chinese
measures or even new claims, which it did not address either in the panel request or in its request for
consultations. China would like to refer the Panel to the detailed arguments of terms of reference
made by China in its first written submission in this respect.
4.242 In addition, in light of the ambiguous or even inconsistent way in which the United States has
defined the scope of its claims, China urges the Pa nel to carefully examine the products and services
at issue in order to establish whether the United States has properly met its obligation to establish a
prima facie case of violation.
2. Products/service at issue and applicable rules
(a) The importation of motion pictures for theatrical release
4.243 The United States, by remaining ambiguous about the definition of the product at issue, and
thus about the scope of its claim, is suggesti ng that the Panel scrutinize the Chinese measures
governing the importation of motion pictures for theat rical release under the rules applicable to trade
in goods, i.e. the right to trade pursuant to paragraph 5.1 of China's Accession Protocol.
4.244 This is incorrect. Chinese measures should, in stead, be examined under the rules applicable
to services.
4.245 China has always regulated the exploitation of motion pictures for theatrical release as a
service activity. This is reflected in China's commitments under Sector 2D of its GATS Schedule.
4.246 The way China has regulated the exploitation of motion pictures for theatrical release is in
line with the business reality of this sector. The e xploitation of a motion picture for theatrical release
consists in the first place in the exploitation of the intangible feature that it contains, i.e. an artistic
works that is to be finally projected in movie theatres.

4.247 The basic features of the international moti on picture business clearly reveal that the
commercial interests of this business lie in the e xploitation of artistic works through a series of
services. The commercial exploitation of motion pict ures for theatrical releas e mainly involves three
categories of service providers: the producers, the distributors and the movie theatre operators.
4.248 Under this commercial chain, the distribution of motion pictures is organized on the basis of
copyright licence agreements through which the producer grants the distributor the right to use copies
of the motion picture in order to organize its distribution.
4.249 The producer provides the distributor with the ma terials necessary for the distribution of the
motion picture in movie theatres. The distributor will receive copies of the so-called master negative,
as well as other related delivery materials, such as s oundtracks or advertising materials, in order to
organize the distribution of the motion picture on its territory.
4.250 At the end of the period of release, all licensed rights will in principle immediately revert to
the producer and the distributor will, at the producer 's choice, either return or destroy the delivered
materials as well as the materials created by the distributor.
4.251 It results from the above that the exploitati on of motion pictures for theatrical release,
including their importation, should fall under the ru les applicable to trade in services and not under
those applicable to trade in goods. China does not deny that exploiting motion pictures may involve
the importation of film reels. However, in such cases, the film reel is merely an accessory linked to
the motion picture distribution service.
4.252 An examination of the challenged measures unde r paragraphs 5.1, 5.2 and 1.2 of China's
Accession Protocol as well as paragraphs 83 and 84 of the Working Party Report would undermine
China's expressly reserved right under its GATS schedule to regulate motion picture business.
(b) The distribution of motion pictures for theatrical release
4.253 Even though no physical goods are actually bei ng distributed, the United States is claiming
that the distribution of motion pictures should be scrutinized under Article III:4 of the GATT 1994.
4.254 Article III:4 of the GATT deals with measures affecting the "internal sale, offering for sale,
purchase, transportation, distribution or use" of goods. In the context of Article III:4 of the
GATT 1994, the term "distribution" refers to the process of supplying goods to on-sellers or
consumers.
4.255 Distribution of motion pictures for theatrical release does not involve the sale of goods. What
is ultimately purchased by movie-goers is the right to attend the screening and all that they retain are
memories of the show. It follows clearly from the above that the theatrical distribution of motion
pictures cannot be qualified as the distribution of go ods within the meaning of Article III:4 of the
GATT 1994.
4.256 Finally, China would like to emphasize, should th e Panel consider – despite the elements just
presented – that Article III:4 could be relevant in th is specific context, that the allegations of less
favourable treatment claimed by the United States are unfounded since they are not supported by the
facts demonstrated in China's first written submission.
(c) Audiovisual products used for publication
4.257 The category of "audiovisual products used for p ublication" refers in fact to master copies
with audiovisual content that are to be published in China via copyright licensing agreements.

4.258 These master copies carry an audiovisual conten t that is subject to a copyright licensing
agreement between the foreign rights holder and a Ch inese publisher. The master copy is used for the
sole purpose of making copies in accordance with the licence agreement. The importation of the
master copy is thus only an accessory of the copyright licensing.
4.259 The challenged measures do not regulate the importation of goods. Rather, they regulate the
importation of audiovisual products used for publication as the licensing of the right to make copies of
an audiovisual content.
4.260 Therefore, the US claim under paragraphs 5.1, 5.2 and 1.2 of China's Accession Protocol, as
well as paragraphs 83 and 84 of the Working Party Re port, lacks any legal basis as far as audiovisual
products used for publication are concerned.
(d) Network music services
4.261 By remaining ambiguous about the definition of the service at issue, the United States would
like the Panel to consider that China's GATS co mmitments on sound recording distribution services
cover network music services.
4.262 The United States improperly describes this activity as "electronic distribution of sound
recordings", thus attempting to assimilate it to di stribution of sound recordings in a physical form,
while it relates in fact to a different service for which China has not taken any commitments.
4.263 Network music services can be defined as the dissemination to users of music in digital
format via the Internet. The most common netw ork music services are usually known as "on-line
music download" and "on-line music streaming".
4.264 There are a number of significant differences between network music services and traditional
sound recording distribution models. The most evident difference lies in the fact that, contrary to
traditional sound recording distribution, network mu sic services do not supply the users with sound
recordings in physical form, but supply them with the right to use a musical content.
4.265 Not only the infrastructure and operation, but also the perception of the consumers of both
businesses, differ significantly. For instance, the supply of network music services is exclusively
operated via the Internet and does not need any commodity distribution infrastructure.
4.266 Moreover, consumers can, at any time a nd at any place, access, buy or receive music
immediately from any computer with Internet access, without having to visit a retail outlet. They can
download individual tracks, instead of having to buy the entire album, and create customized
compilations.
4.267 A textual interpretation of the GATS comm itments with respect to "sound recording
distribution services" refers to the marketing and supply of a specific category of goods, i.e. goods
containing recorded music materials, such as CDs or other physical supports.
4.268 One should also consider the fact that network music services hardly existed at the time of the
negotiation of China's GATS Schedule and that th e legal framework governing the distribution of
sound recordings addressed exclusively the distributi on of sound recordings in their traditional, hard-
copy format.
4.269 Finally, even assuming that the principle of technological neutrality would be relevant in this
case, its only implication would be that new means of delivering a particular service would be covered
by the commitments already undertaken for this service. This is not the case for network music

services, which are a different service and not merely another means of distribution. The difference
between network music services and traditional distri bution of sound recording is analogous to the
difference between email services and postal services. Even though same messages are being
delivered, email services are well recognized by members GATS schedules as a different service from
traditional postal services.
4.270 Unduly extending the scope of a Member's commitments to new types of services, as the US
argument would imply, would be against the principle of progressive liberalization as reflected in the
Preamble of the GATS. Consequently, unlike the committed service, a distinct service cannot be
committed post hoc through the dispute settlement process.
(e) Distribution of sound recordings intended for so-called "electronic distribution"
4.271 The United States is trying in this dispute to convince the Panel that the distribution of sound
recordings in non-tangible form should be scrutini zed under Article III:4, governing the distribution
of physical goods.
4.272 The concept of "distribution" within the meaning of Article III:4 of GATT should be
understood as only addressing distribution of physical goods.
4.273 The commercial steps subsequent to the transfer of the content of sound recordings imported
in hard copy format into a digitized format re ady for network transmission cannot be scrutinized
under Article III:4 of the GATT 1994 as they do not involve any distribution of goods.
4.274 In fact, what users are actually downloading or streaming is the digital version of the artistic
work rather than a tangible good. The essence of the so-called electronic distribution of sound
recordings lies in the transmission of music conten t over the Internet, allowing the user to either
download the content or to hear the content in real-time rather than lie in the distribution of goods.
3. China's right to regulate trade in cultural goods
4.275 The US allegation fails to take into account China's right to regulate trade in a manner
consistent with the WTO Agreement, in partic ular under Article XX of the GATT, which allows,
among other things, the adoption of specific measu res for the protection of legitimate policy
objectives, including public morals.
4.276 As vectors of identity, values and meaning, cultural goods play an essential role in the
evolution and definition of elements such as societal features, values, ways of living together, ethics
and behaviours. Cultural goods may have a negativ e impact on public morals, such as the depiction
or vindication of violence or pornography, against which minors must be specifically protected.
4.277 Considering the potential impact of cultural goods on public morals, China's longstanding
policy has been to implement a high level of protection which is reflected in a complete prohibition of
cultural goods with inappropriate content and a high level of protection against the possible
dissemination of cultural goods with a content that could have a negative impact on public morals.
4.278 To that effect, China applies a content review for the importation of cultural goods, which is
operated through a system of selection of importation entities which play an essential role in such
content review.
4.279 The selection of importation entities is necessary to achieve the objective pursued. Indeed,
their contribution to this objective, which must be assessed in light of the high level of protection and
the limited impact on trade sought by China, is reflected by the requirements of having: (i) an

importation entity with an appropriate organizational structure; (ii) a reliable and qualified personnel,
and; (iii) an appropriate geographical coverage while preserving a limited number of entities involved
in order to ensure the efficiency of the review.
4.280 Therefore, Chinese measures governing the trading rights of cultural goods do not violate
China's obligations under paragraphs 5.1, 5.2, 1.2 of China's Acc ession Protocol and paragraphs 83
and 84 of the Working Party Report.
4. Understanding of the Chinese legislation and regulatory framework applicable to
cultural goods and services
(a) No less favourable treatment for the distribution of imported reading materials under
Article III:4 of the GATT 1994
4.281 China has implemented two types of subscription systems: the first applies to the restricted
category of reading materials and the second applies to the non-restricted category of newspapers and
periodicals.
4.282 The restricted category refers to reading mate rials that are prohibited from distribution in
China but which may be acquired for subscription for research purposes. The non-restricted category
refers to newspapers and periodicals that are subject to quasi-automatic subscription.
4.283 While it is true that these two types of subscription systems are different from the rules
applicable to like domestic products, the United St ates should have established that these differences
result in less favourable treatment. However, the United States has failed to do so.
(b) Distribution services of reading materials under Article XVII of the GATS
4.284 According to the United States, China has impl emented several measures either prohibiting
foreign-invested enterprises from engaging in certa in forms of distribution or exposing foreign
investment enterprises to less favourable treatment.
4.285 As far as distribution forms are concerned, wh at is at issue are two distinct channels: Zong Fa
Xing and Fen Xiao . Fen Xiao corresponds to the traditional concept of distribution through
wholesaling (Pi Fa) and retailing (Ling Shou). By contrast, a product that is subject to Zong Fa Xing
is directly sold by Zong Fa Xing operators to the end consumers without relying on any
intermediaries.
4.286 What China actually committed under Sector 4B of its GATS Schedule was the activity of
"wholesaling", which is a sub-category of Fen Xiao . China has provided the Panel in its written
submission with the elements showing that Zong Fa Xing cannot, contrary to the US assertion, be
considered as wholesaling as committed under Sector 4B of China's GATS Schedule.
4.287 As far as the alleged discriminatory requireme nts are concerned, China reiterates that the
United States has provided the Panel with an inco mplete legal analysis under Article XVII of the
GATS.
4.288 The mere fact that the United States has provided the Panel with elements allegedly
establishing a formally different treatment between domestic and foreign invested services and service
supplier is certainly not sufficient for establishing a prima facie case of violation of Article XVII of
the GATS.

(c) No market access issue or l ess favourable treatment for the distribution of audiovisual
products
4.289 Regarding the claims based on Article XVI, the United States has provided the Panel with an
inaccurate description of the challenged measures, by asserting that the Chinese party to a Sino-
Foreign contractual joint venture engaging in the distribution of audiovisual products must hold at
least 51 per cent of the shares.
4.290 These challenged measures do not provide that the Chinese party must hold at least 51% of
the shares. Rather, these measures refer to the rate of allocation of profit and loss in contractual joint
ventures.
4.291 Article XVI of the GATS does not impose any obligations on WTO Members to insert any
limitations with respect to the rate of profit a nd loss allocation in their GATS Schedule. Thus, the
relevant Chinese measures challenged do not violate Article XVI of the GATS.
4.292 As far as the US claims related to allegedly discriminatory requirements imposed on foreign-
invested distribution enterprises are concerned, the United States, once again, has only addressed
alleged formal differences in the treatment of fore ign and domestic competitors and failed to prove a
modification of the conditions of competition resu lting from the alleged different treatment, as is
required by paragraph 3 of Article XVII of the GATS.
5. Conclusion
4.293 China respectfully requests the Panel to find that all the US claims are unfounded and
therefore shall be dismissed.
E. SECOND WRITTEN SUBMISSION OF THE UNITED STATES
1. Introduction
4.294 China made important market opening commitm ents related to reading materials, AVHE
products, sound recordings and films for theatri cal release when it a cceded to the WTO.
Unfortunately, this much anticipated liberalization s till awaits full realization, since China's laws and
policies have created major stumbling blocks, and in some cases, have thwarted it entirely.
4.295 In its previous submissions, the United Stat es has demonstrated that China's efforts to
implement its trading rights, services and goods ob ligations fall short in three respects. This
submission will show how China's arguments and procedural objections in its first written submission,
first oral statement and answers to the first set of Panel questions fail to rebut the US claims
concerning the Accession Protocol, the GATS and the GATT 1994.
4.296 First, China agreed to allow all foreign ente rprises, foreign individuals, and enterprises in
China to import reading materials, AVHE products, sound recordings and films for theatrical release
into China. Despite this commitment, China permits only selected state-owned importers to
participate in this business. China asks the Panel to find that China's commitments do not extend to
films for theatrical release, unfinished AVHE pr oducts or unfinished sound recordings, because the
commercial exploitation of these products involves associated services, so, China claims, the goods
themselves should be viewed as services. However, the Panel should decline this invitation: when
China's trading rights commitments are read in light of the GATT 1994, and are considered in light of
prior reasoning by the Appellate Body, internationa l classifications, and China's own treatment of
these products, it is evident that China's alchemy fails.

4.297 China also proffers Article XX(a) of the GATT 1994 to tr y to justify its trading rights
prohibitions, but this attempted defence fails as well. The Panel does not need to determine whether
the GATT exception in fact applies to China's meas ures, because China's measures fall far short of
satisfying the requirements of sub-pa ragraph (a), and their application fails to meet the standards in
the chapeau of Article XX. This leaves the US cl aim unrebutted; China's measures are inconsistent
with its trading rights commitments under the Accession Protocol.
4.298 Second, China prohibits foreign enterprises from supplying certain kinds of distribution
services related to reading materials and sound recordings, despite China's broad liberalizing
commitments in its Services Schedule. And where China does allow foreign enterprises to distribute
reading materials and AVHE products, China imposes discriminatory requirements favouring Chinese
competitors and also further hampers forei gn AVHE service suppliers by limiting the capital
contributions they can make. China has offered no convincing rebuttals to these US claims, making it
clear that the measures at issue are inconsistent with China's market access and national treatment
commitments under Articles XVI and XVII of the GATS.
4.299 Third, contrary to its national treatment oblig ations, China maintains two parallel, unequal
channels for the commercial exploitation of read ing materials, sound recordings and films for
theatrical release within China. In one channel, imported reading materials, sound recordings and
films for theatrical release travel through a thicke t of restrictions that devalue the commercial
opportunities available to those products. In the othe r channel, domestic products travel in the fast
lane to consumers, unfettered by the limitations imposed on their imported counterparts. China's
efforts to justify these measures are unavailing. China's measures accord imported products less
favourable treatment than like domestic products in a manner inconsistent with Article III:4 of the
GATT 1994 and paragraphs 5.1 and 1.2 of China's Accession Protocol.
2. China's measures regarding trading rights are inconsistent with China's obligations
under the Accession Protocol and Working Party Report
4.300 China's trading rights regime for reading ma terials, AVHE products, sound recordings, and
films for theatrical release is inconsistent with Ch ina's obligations contained in paragraphs 5.1, 5.2
and 1.2 of the Accession Protocol, as well as in para graphs 83 and 84 of the Working Party Report.
While China has advanced several arguments responding to this claim, none of them succeed.
(a) Goods versus services
4.301 China makes a number of erroneous arguments th at films for theatrical release, unfinished
AVHE products, and unfinished sound recordings, are not goods, and are not subject to the trading
rights disciplines. China's reasoning would tran sform all goods commercially exploited through a
series of associated services into services themselv es. As the United States has demonstrated, these
products are goods subject to the trading rights disciplines, and the relevant measures challenged by
the United States run afoul of China's trading rights commitments.
4.302 In its submissions, China argued that films for theatrical release are not goods based on
certain assertions such as: a motion picture is intangible; the commercial exploitation of motion
pictures for theatrical release occurs through a serie s of services and the tangible film is a mere
accessory of a service; and international classification instruments confirm the status of motion
pictures as a service. However, the text of the GA TT, the Appellate Body's guidance on this issue,
and China's own treatment of films as goods, all belie China's contentions.
4.303 First, the product that is the subject of the US trading rights claim is tangible, hard-copy
cinematographic film that can be used to project motion pictures in a theatre. Even if, assuming

arguendo, China were correct that "goods" must be ta ngible to qualify as goods, the product relevant
to the US trading rights claim – i.e., hard-copy cinematographic film – is tangible.
4.304 Second, China also unsuccessfully contends that films for theatrical release are not goods
because they are exploited through a series of se rvices. China argues that because the "delivery
materials" containing film are mere accessories of such services, films are not goods. If accepted,
China's argument would have serious systemic impli cations. Because the vast majority of goods are
commercially exploited through a series of associated services, China's argument would transform
virtually all goods into services. China's own cu stoms regime also demonstrates that China itself
treats films as goods.
4.305 China goes on to provide certain criteria that it says are not decisive, but claims "may help
determine whether a particular good affected by a measure regulating the supply of a service should
be treated as an 'accessory to a service'." However, these criteria merely highlight further the flaws in
China's argument. Under China's approach, a wide swath of goods would be magically transformed
into services.
4.306 China also attempts to anchor its argument that films are not goods in the Appellate Body's
guidance in EC – Bananas III concerning whether the measure at is sue affects trade in goods, trade in
services, or both. However, an analysis of th e relevant measures using the Appellate Body's
guidance, which China endorses, reveals that the me asures unambiguously affect trade in goods. In
fact, China's measures themselves refer to the importation of the good separate from and in addition to
the provision of services using the good.
4.307 China's argument that films for theatrical release are not goods is also belied by the text of the
GATT 1994. Article III:10 and Article IV of the GA TT 1994, part of the Multilateral Agreements on
Trade in Goods, deal with cinematographic films, and demonstrate a long history of treating films as
goods in the multilateral trading system.
4.308 Third, contrary to China's contentions, interna tional classifications of films demonstrate that
films for theatrical release are goods. The Harm onized Commodity Description and Coding System
(HS), which only covers goods, describes products under heading 3706 as follows: "cinematographic
film, exposed and developed, whether or not inco rporating sound track or consisting only of sound
track." Similarly, the United Nations' Ce ntral Product Classification (CPC) does classify
cinematographic film as a good in Subclass 3895, in addition to classifying the associated services (in
subclass 96113).
4.309 As with films, China argues that the "master copies" of AVHE products and sound recordings
being imported and used for reproduction, are a mere accessory of copyright licensing and therefore
are not goods. China's argument is flawed for a number of reasons.
4.310 The fact that these tangible goods carry conten t does not take them out of the category of
goods. The fact that certain provisions of the relevant measures may regulate copyright licensing
does not mean that other provisions of the same measures do not regulate the importation of the goods
themselves; indeed, other provisions do just that. Finally, the 2007 Harmonized System
(implemented under the Harmonized System Conven tion, to which China has been a party since
1993) makes clear that unfinished AVHE products and unfinished sound recordings are goods.
4.311 China's tariff schedule addresses these items in HS heading 8524. The term "unfinished
AVHE products" is intended to capture master copies of inter alia videocassettes, VCDs, and DVDs
to be used to publish and manufacture copies for sal e in China. These products would be covered by
the broad description for HS heading 8524 because th ese master copies are "records, tapes and other
recorded media for sound or other similarly recorded phenomena."

4.312 Similarly, the term sound recordings as used by the United States covers inter alia recorded
audio tapes, records, and audio CDs. The United States considers that "unfinished sound recordings"
are master copies of sound recordings, such as mast er recording discs, to be reproduced and sold in
China. These master recording discs fit within the scope of the description, "records, tapes and other
recorded media for sound or other similarly reco rded phenomena." Accordingly, these items are
treated as goods in China's own customs regime.
4.313 China concedes that it does charge customs duties for "hard-copy audiovisual product
(including sound recordings) intended for pub lication." Moreover, Article 2 of the Audiovisual
Products Importation Rule defines "audiovisual products" as "audio tapes, video tapes, records, and
audio and video CDs which have recorded content." The measure then cross-references the HS codes
for these "products," included in Annex 1 to the me asure. The CPC also classifies "recorded media
for sound or other similarly recorded phenomena" other than films under goods subclass 47520.
(b) China's measures are not justified under its right to regulate trade in a manner consistent with
the WTO Agreement or Article XX(a) of the GATT 1994
4.314 With respect to the remaining products at i ssue – i.e., reading materials, finished AVHE
products, and finished sound recordings – China co ncedes that it places limitations on its trading
rights commitments, but contends that these limitations are justified. China submits that its right to
regulate trade in a manner consistent with the WT O Agreement permits restrictions on its trading
rights commitments that are consistent with Ar ticle XX of the GATT 1994. China, however, has
failed to sustain its arguments with respect to the right to regulate and Article XX.
4.315 Contrary to China's reading of the first clause of paragraph 5.1 of its Accession Protocol, the
right to regulate trade in a manner consistent with the WTO Agreement applies to measures regulating
goods that are traded, and not to measures regulating whole categories of traders engaged in the
importation of goods.
4.316 During China's accession negotiations, WTO Members agreed to specific limitations on
China's trading rights commitments with respect to a set of listed goods. That is, only state trading
enterprises are allowed to import the goods enumer ated in Annex 2A1 and only designated importers
were permitted to import the goods enumerated in Annex 2B until December 2004. China did not list
the goods at issue in this dispute in either A nnex, and China's trading rights commitments do not
authorize China to add to these limitations af ter accession. Interpreting the first clause of
paragraph 5.1 concerning the right to regulate trade as justifying the measures at issue would render
Annexes 2A and 2B redundant.
4.317 China further contends that the measures at issue are justified by Article XX(a) of the
GATT 1994 and that they are applied in a manner cons istent with the chapeau of Article XX. As a
threshold matter, it is not necessary to determine wh ether Article XX applies to China's commitments
contained in the Accession Protocol and Working Part y Report. When faced with a similar situation
in US – Shrimp(Thailand)/US – Customs Bond Directive , the Appellate Body examined the measure
at issue on an arguendo basis, and after finding this measure did not satisfy the requirements of
Article XX, concluded that it did not need to express a view on the question of whether Article XX is
available as an affirmative defe nce for a measure found to be inconsistent with the Anti-Dumping
Agreement. Similarly, China's measures reside we ll outside of the parameters of Article XX(a), and
their application fails to meet the requirements contained in the chapeau of Article XX.
4.318 Without prejudice to whether Article XX appli es to China's commitments contained in the
Accession Protocol and Working Party Report, Chin a has not met its burden to establish that the
measures at issue satisfy this exception.

4.319 The trading rights prohibitions found in Ch ina's measures are not "necessary" within the
meaning of Article XX(a). As the Appellate Body has explained, "a 'necessary measure is ... located
significantly closer to the pole of 'indispensable ' than to the opposite pole of simply 'making a
contribution to'." China has failed to establish a nexus between prohibiting a ll foreign importers and
all privately-owned Chinese importers from importi ng the goods at issue and achieving its content
review goals. Restricting trading rights to onl y a single, or a select few, Chinese state-owned
importers is nowhere near "indispensable" to content review, and thus the restrictions on trading rights
are not "necessary" under Article XX(a).
4.320 The Appellate Body has also not found a me asure to be necessary where there is a
"reasonably available WTO-consistent alternative". In this dispute, China has numerous alternatives
to achieve its content review objectives that do not re strict the right to import. For example, foreign-
invested enterprises could conduct the content revi ew of reading materials, AVHE products, sound
recordings and films for theatrical release, after de veloping the expertise to do so by training existing
personnel or hiring experts as employees to conduct such review.
4.321 Moreover, China fails to show that the applica tion of challenged measur es is consistent with
the chapeau of Article XX. China contends that "the administrative authorities (GAPP and MOC)
need to make certain that the importation entities are able to participate effectively and efficiently in
the content review process. This can only be achieved through a selection process". Indeed, the
selection process produces results that are both arbitrarily and unjustifiably discriminatory and a
disguised restriction on trade.
4.322 First, China's selection criteria in fact go well be yond the four factors China cited in its first
written submission. China a priori requires applican ts who want to engage in the importation/content
review process for these products to be wholly state-owned enterprises.
4.323 Second, China's actual process for selecti ng import entities for these products involves a
number of non-transparent, entirely discretionary Chinese government decisions that also contribute
to the discriminatory application of this regime. To be successful, applicants subject to China's
approval process must meet the requirements of a "State plan for the total number, structure and
distribution of" importers. When the Panel asked Ch ina what the State plan is, China provided no
insights (other than to say that it is not available in written form).
4.324 Further, China imposes a completely discreti onary "designation" process to select importers
of most of the products, and in some cases, this process entirely supersedes the "approval" process
based on the four selection criteria that China described. Only importers of books and electronic
publications are simply "approved" by GAPP. Fina lly, China's contention that domestic producers of
the goods at issue are subject to content review requirements comparable to those applied to importers
is inaccurate for several reasons, and is, moreover, besides the point in a trading rights claim.
3. China's measures regarding distribution services are inconsistent with China's
obligations under the GATS
4.325 Despite China's market access and national treatment commitments in the distribution
services and audiovisual services sectors of its Services Schedule, China imposes discriminatory
prohibitions and requirements on fo reign service suppliers seeking to engage in the distribution of
reading materials, AVHE products, and sound reco rdings. These measures are inconsistent with
China's obligations contained in Articles XVI and XVII of the GATS.

(a) Reading materials
4.326 China imposes discriminatory prohibitions and requirements on foreign-invested reading
material wholesalers that modify the conditions of competition in favour of wholly Chinese-owned
reading material wholesalers.
(i) Discriminatory prohibitions
4.327 China prohibits foreign-invested enterprises from engaging in four types of reading materials
distribution: (1) distribution of imported newspa pers and periodicals, as well as imported books and
electronic publications in the limited distribution category; (2) distribution of imported books and
electronic publications in the non-limited distribution category; (3) master distribution of books,
newspapers, and periodicals; and (4) master wholesale and wholesale of electronic publications.
4.328 First, China prohibits foreign-invested enterprises from wholesaling imported newspapers and
periodicals, as well as imported books and electroni c publications in the "limited distribution
category". China's measures at issue do not fall within the terms, limitations, conditions or
qualifications on market access or national treatment that China has specified in its Services Schedule.
Accordingly, the measures at issu e are inconsistent with China's obligations under Article XVII.
China does not contest this US claim.
4.329 Second, China denies foreign-invested enterpri ses the right to engage in the wholesaling of
imported books and electronic publications in the "non-limited distribution category". As the United
States has explained, and China has confirmed, the Publications (Sub-)Distribution Rule ". . . makes
clear that only books [, newspapers and periodicals] published in China are eligible for distribution by
FIEs." China's prohibition is, therefore, inconsis tent with China's obligations under Article XVII.
Again, China does not contest this US claim.
4.330 Third, China also prohibits foreign-invest ed enterprises from engaging in the master
distribution of all books, newspa pers and periodicals, whether imported or domestic. Master
distribution falls within the meaning of "distrib ution services" under Annex 2 to China's Services
Schedule, and is covered by China's commitment s under Sector 4 of its Services Schedule.
Accordingly, China's measures are inconsistent with China's market access and national treatment
commitments inscribed under mode 3 of Sector 4 of its Services Schedule.
4.331 China itself concedes that master distribution is a type of distribution service. Indeed,
according to Annex 2 of China's Services Schedule, the "principal service" involved in a distribution
service that falls under Sector 4 is "reselling merchandise". As China has explained, master
distributors, when they are separate entities from p ublishers, themselves sell reading materials, and
are not agents of publishers. This of course means that master distributors are reselling reading
materials purchased from publishers through an initial sale.
4.332 China's contention that it did not intend to include master distribution within its distribution
services commitments is also unpersuasive. If ind eed it was China's intention to exclude master
distribution from its distribution services commitments in Sector 4 of its Services Schedule, it should
have done so with a limitation to the effect. China inscribed no such limitation with respect to master
distribution under Sector 4.
4.333 Master distribution includes wholesaling. China itself has stated that master distribution is
synonymous with "master wholesale". Moreover, China has confirmed that master distribution
involves specific services that qualify as "wholesaling" as defined in Annex 2 of China's Services
Schedule. Annex 2 provides: "whol esaling consists of the sale of goods/merchandise to retailers to
industrial, commercial, institutiona l, or other professional business users, or to other wholesalers and

related subordinated services." China has already explained that master distributors engage in the sale
of reading materials to industrial, commercial, institutional and other professional business users.
China's measures also make clear that master distri butors can also resell reading materials to "other
wholesalers", as provided for in the definition of "wholesaling" in Annex 2.
4.334 Moreover, to the extent that master distribution also could be considered to involve retailing,
master distribution is also covered by China's co mmitments under mode 3 of Sector 4C of China's
Services Schedule. China has stated on numerous o ccasions that master distribution also involves
retailing, including of primary and middle school textbooks.
4.335 Fourth, foreign-invested enterprises are also depr ived of the right to engage in the master
wholesale and wholesale of electronic publications. China responds that it has removed the
prohibition on foreign-invested enterprises from e ngaging in the wholesale of electronic publications
and has rendered the master wholesale of electroni c publications obsolete. While the United States
accepts that the 2008 Electronic Publications Regulation repealed the 1997 Electronic Publications
Regulation in 2008, the former only addresses the pro duction, publishing and importing of electronic
publications and is wholly silent with respect to distribution (including wholesale and master
wholesale).
4.336 According to China, the distribution of electronic publications is governed by the
Publications Market Rule and the Publications (Sub-)Distribution Rule . However, these measures
also prohibit foreign-invested enterprises from engaging in the master wholesale and wholesale of
electronic publications. As China itself concedes th at these two measures represent the complete set
of rights granted to foreign-invested enterprises with respect to the distribution of electronic
publications, those enterprises are only permitted to sub-distribute books, newspapers and periodicals
published in China. The right of foreign-invest ed enterprises to master wholesale and wholesale
electronic publications is not provided for in either measure.
4.337 The United States continues to seek a findi ng from the Panel with respect to the 1997
Electronic Publications Regulation even though it has been repealed by the 2008 Electronic
Publications Regulation. Moreover, the United States seeks a finding with respect to the Publications
(Sub-)Distribution Rule as it also prevents foreign-invested enterprises from master wholesaling and
wholesaling electronic publications.
(ii) Discriminatory requirements
4.338 In the limited arena where foreign-invested enterprises may engage in reading material
distribution – i.e., the sub-distribution of books , newspapers and periodicals published in China –
China imposes numerous discriminatory requirements that deprive foreign-invested wholesalers of
national treatment. China discriminates against foreign-invested wholesalers through requirements
regarding: (1) operating terms; (2) registered cap ital; (3) pre-establishment legal compliance; (4)
examination and approval; and (5) GAPP decision-making criteria.
4.339 Foreign-invested enterprises are limited to a 30-year operating term, while their wholly
Chinese-owned competitors are free of any term limitations. This places foreign-invested wholesalers
at a significant competitive disadvantage as their conti nued operations are subject to the discretion of
government authorities, and because any extension of the operating term requires the agreement of all
investors and all Board Directors, and must comply with the laws, regulations and policies on foreign
investment. Under Chinese law, each of these par ties holds a veto on extension and can use that
leverage to extract concessions from the foreign-inv ested parties. China's contention that the term
extension is "non-discretionary, automatic and simplif ied" is contradicted by Chinese law. In fact,
four Chinese measures cited by China state exp licitly that extension depends on approval by the
examining authority.

4.340 China's registered capital requirement also modifies the conditions of competition in favour of
wholly Chinese-owned sub-distributors of books, newspapers and periodicals. China does not contest
that foreign-invested wholesalers of books, newspape rs and periodicals published in China must have
RMB 30 million in registered capital, while th eir wholly Chinese-owned competitors need only
RMB 2 million. China argues, however, that this disparity does not result in less favourable treatment
because foreign-invested enterprises can contribute their registered capital in instalments, while
wholly Chinese-owned enterprises must contribute their registered capital prior to establishment. This
argument fails, however, since wholly-Chinese owne d enterprises are also permitted to contribute
their registered capital in instalments.
4.341 China's discriminatory pre-establishment le gal compliance requirement likewise accords
further less favourable treatment to foreign-invested wholesalers than to domestic suppliers. Pursuant
to this requirement, foreign-invested enterp rises are prohibited from engaging in the wholesale
distribution of books, newspapers and periodicals publis hed in China if they have any record of legal
non-compliance in the three years prior to their a pplication to engage in such services. Wholly
Chinese-owned wholesale distributors of reading ma terials, however, are not subject to this
requirement. While China argues that a similar requirement is imposed on wholly Chinese-owned
wholesalers of reading materials. – i.e. curb ing domestic suppliers' freedom of action only for
violations of one measure that result in "the admi nistrative punishment of revocation of [the entity's]
licence" – the requirement applicable to foreigners totally bars market entry for any "law or regulation
violations" or "other bad offences".
4.342 Foreign-invested wholesalers also face a f undamentally discriminatory examination and
approval process in order to enter this market. Th ey must go through a six stage process that takes at
least 90 days, whereas wholly Chinese-owned wholesal ers are treated preferentially to a three stage
process, which takes only 40 days. China contends that the MOFCOM approval process is non-
discretionary, but the text of the Publications (Sub-)Distribution Rule belies this claim – i.e., no
criteria or conditions govern how MOFCOM mak es its approval decisions. China also argues
unsuccessfully that its horizontal commitments inscrib ed in its Services Schedule preserve its right to
maintain such discriminatory requirements. Ch ina's horizontal commitment, however, provides no
such safe-harbour for its GATS-inconsistent examin ation and approval process. This inscription is a
classic GATS Article XVI:2(e) limitation, restricting the types of entities through which a service
supplier may supply a service.
4.343 Finally, GAPP's decision-making criteria for a pproving foreign-invested enterprises – which
include friendliness, great capability, standardized management, advanced technologies and reliable
foreign investment – modify the conditions of comp etition by subjecting foreign-invested applicants,
but not wholly Chinese-owned applic ants, to additional hurdles that must be overcome in order to
enter the Chinese market place.
(b) AVHE products
4.344 China maintains several measures that are inconsistent with its market access and national
treatment obligations for foreign-invested service distributors of AVHE products. These measures are
therefore inconsistent with Article XVI:2(f) and Article XVII of the GATS.
(i) Article XVI
4.345 China's measures are inconsistent with Article XVI of the GATS because: (1) China made a
market access commitment in its Services Schedule under mode 3 that Chinese-foreign contractual
joint ventures would be permitte d to engage in the distribution of AVHE products upon China's
accession; (2) China did not inscribe any limitations on the participation of foreign capital with
respect to Chinese-foreign contractual joint ventur es engaged in the distribution of AVHE products;

and (3) China's measures limit the pa rticipation of foreign capital in Chinese-foreign contractual joint
ventures engaged in the distribution of AVHE products.
4.346 China's contentions to the contrary fail to rebut the US claim. China does not even address
the language in the Foreign Investment Regulation and the Several Opinions that directly supports the
US position. China initially appears to concede the validity of the US interpretation of the Catalogue
and the Audiovisual (Sub-)Distribution Rule , by stating that the relevant measures "provide that the
Chinese party to a Sino-Foreign joint venture enga ging in the wholesaling of audiovisual products
must hold at least 51 per cent of the shares."
4.347 However, China then contends, contrary to the US description of these measures, that the
measures actually regulate the "rate of distribution of profit and allocation of loss," not the level of
participation of foreign equity in contractual joint ventures. Based on this assertion, China then states
that Article XVI does not require Members to inscr ibe limitations with respect to profit and loss
allocation in their services schedules. However, China does not provide any textual basis for its
conclusion that the explicit limitations on the per centage of shares that the foreign party may hold
should be construed instead as a limitation on the a llocation of profit and loss between the parties to
the joint venture.
(ii) Article XVII
4.348 China also fails to rebut the US claim that China maintains discriminatory requirements on
Chinese-foreign contractual joint ventures engaged in the distribution of AVHE products and that
these discriminatory requirements are inconsistent w ith China's obligations u nder Article XVII of the
GATS. China discriminates against foreign-invested distributors of AVHE products through
requirements regarding: (1) equity participation limits; (2) oper ating term; (3) pre-establishment
legal compliance; (4) examination and approval; and (5) decision-making criteria.
4.349 First, China provides discriminatory treatment to foreign service suppliers by requiring that
the foreign party to a Chinese-foreign contractual joint venture hold no more than 49 per cent of the
shares while the Chinese party can hold up to 100 per cent and no less than 51 per cent of the shares.
China repeats its argument that the measures identifie d by the United States actually regulate the rate
of allocation of profit and loss. The inability to hold a majority position in a joint venture severely
disadvantages foreign suppliers by depriving them of important control over the operation of the
AVHE product distribution venture, while Chinese suppliers do not face such a disadvantage. China's
restrictions on foreign capital participation in jo int ventures engaged in the distribution of AVHE
products have the potential to restrict foreign inv estors' freedom to implement their strategic vision
and realize their goals for the enterprise where the vi sion and goals are inconsis tent with those of the
Chinese party to the joint venture.
4.350 Second, China also requires that foreign-inv ested entities engaged in the distribution of
AVHE products face a 15-year operating term while wholly Chinese-owned AVHE distributors are
not subject to such a limitation. China does not di spute that foreign-invested entities are subject to a
limitation on their operating term. Foreign-invested entities face greater uncertainty and cost in the
continuity of their operations than wholly Chinese-owned entities. This operating term limitation also
modifies conditions of competition to the detriment of the foreign-invested distributors because
extension requires the agreement of all investors, all Board Directors and the laws, regulations and
policies on foreign investment. Furthermore, extension is far from automatic and depends upon a new
round of examination and appr oval, procedures under which government authorities have the
authority to disapprove requests for extension.
4.351 Third, China also maintains discriminatory re quirements with respect to pre-establishment
legal compliance, which accord less favourable treatme nt to foreign-invested distributors than to like

domestic service suppliers. Although China raises certa in procedural arguments with respect to these
measures, China does not dispute that these meas ures provide for discriminatory treatment for
foreign-invested enterprises in breach of Article XVII.
4.352 Fourth, China also accords less favourable treatme nt to foreign-invested entities than wholly
Chinese-owned entities engaged in the distributi on of audiovisual products by placing more
administrative burdens on foreign-invested entiti es as it relates to the examination and approval
process.
4.353 While China's horizontal commitments in its Services Schedule provi de a definition of
foreign-invested enterprises, those horizontal entr ies contain no language that qualifies or limits
China's national treatment obligations. Nor does China's horizontal commitment provide any such
safe-harbour for China's GATS-inconsistent examin ation and approval process. Indeed, as China
itself recognizes, this type of entry fits with in the scope of the market access provision of
Article XVI:2(e) of the GATS. China's argume nt that the laws and regulations governing the
approval process were in place at the time of Ch ina's accession is also unavailing as the relevant
question is whether China currently maintains any measures that are inconsistent with China's GATS
obligations.
4.354 China also disputes certain aspects of the appr oval process as set forth by the United States
for Chinese-foreign contractual joint ventures e ngaged in the distribution of AVHE products.
However, what China's argument betrays is that foreign-invested distributors face a more burdensome
process for becoming an approved entity than wholly Chinese-owned entities. China also contends
that the measures do not modify the conditions of competition to the detriment of foreign services or
service suppliers. However, Article XVII:3 contains no safe-harbour for discriminatory measures that
only modify the conditions of competition in fa vour of domestic entities by a supposedly small
amount.
4.355 Fifth, China also requires that the relevant authorities, in approving applications from foreign-
invested joint ventures, give priority to foreign-invested enterprises displaying the friendliness, capital
strength, management standardization, and technolog ical advancement of foreign-invested applicants
in making their determinations. These additional conditions are only imposed on the approval process
for foreign-invested entities and are not applicab le to wholly Chinese-owned entities. China has
elected not to advance substantive arguments with respect to these discriminatory requirements.
(c) Sound recordings
4.356 China has failed to establish that the electronic distribution of sound recordings is beyond the
scope of its services commitments for sound recording distribution services. In Sector 2D of its
Services Schedule, China scheduled no market acce ss or national treatment limitations under mode 3
for Chinese-foreign contractual joint ventures enga ged in sound recording distribution services.
However, China maintains several measures that acc ord less favourable treatment to foreign-invested
entities engaged in the electronic distribution of sound recordings. By doing so, these measures are
inconsistent with Article XVII of the GATS.
4.357 China does not address the US claims that th e measures at issue treat foreign-invested
enterprises differently from wholly Chinese-owned en tities. Instead, China's defence to this claim
rests on the argument that China did not undertake co mmitments in its Services Schedule with respect
to the electronic distribution of sound recordings, but only with respect to distribution of hard-copy
sound recordings. China's arguments are without merit.
4.358 First, an analysis of the term "sound record ing distribution services" in China's Services
Schedule under Articles 31 and 32 of the Vienna Conve ntion on the Law of Treaties confirms that the

electronic distribution of sound recordings is within the scope of China's commitments. In particular,
with respect to supplementary means of interpre tation under Article 32 of the Vienna Convention,
China has failed to establish that the electroni c distribution of sound recordings was a "new"
phenomenon at the time of its accession and thus beyond the scope of its commitments on sound
recording distribution services.
4.359 Second, even if China were correct that it could not have been aware of electronic distribution
of sound recordings as a commercial reality at the time of its WTO accession, China has failed to
establish that the electronic distribution of sound reco rdings is more than a new means of supplying
an existing service. China argues that the releva nt question is not whether a service is "new" but
rather whether it is "different" from services for which a Member has made commitments.
4.360 China goes on to argue that certain factors s hould be considered in determining whether a
service is different. There is no textual basis in the GATS for the application of these factors to an
analysis of the meaning of a Member's services commi tment. In addition, the United States has set
forth examples in previous submissions demonstrating the flaws in Ch ina's attempt to characterize the
electronic distribution of sound recordings as different from distribution of sound recordings in hard-
copy format.
4.361 China's proposed (but utterly non-textual) "c riteria" fail to effectively distinguish among
services, and thus these "criteria" fail to suppor t China's argument. Indeed, many of China's
arguments merely corroborate the conclusion that the electronic distribution of sound recordings is a
different means of supplying sound recording distribu tion services, rather than an altogether different
service. Since the electronic distribution of sound recordings is within the scope of China's sound
recording distribution services commitments, China's measures according discriminatory treatment to
foreign service suppliers of such services are inconsistent with Article XVII of the GATS.
4. China's measures regarding the internal sale, offering for sale, purchase, distribution
and use of products are inconsistent with China's obligations under Article III:4 of the
GATT 1994
4.362 China's measures governing the internal sale, o ffering for sale, purchase, distribution and use
of imported reading materials, hard copies of imported sound recordings intended for electronic
distribution, and imported films for theatrical rel ease are inconsistent with Article III:4 of the
GATT 1994.
(a) Reading materials
4.363 China treats imported reading materials less fa vourably than domestic reading materials.
These measures: (1) confine most categories of im ported reading materials to a single distribution
channel; (2) impose onerous conditio ns on those seeking to obtain imported reading materials; and
(3) strictly limit which enterprises are permitted to distribute imported reading materials. Domestic
reading materials do not face these restrictions.
4.364 First, China requires all imported newspapers and periodicals, as well as imported books and
electronic publications in the "limited distribution category", to be distributed only through a highly
restrictive subscription regime. All other distributi on channels are denied to these imported products.
Domestic reading materials, however, can be di stributed through subscription as well as through a
wide variety of other distribution channels.
4.365 Second, China imposes higher burdens on those seeking to obtain imported reading materials,
thereby treating imported reading materials less favour ably than like domestic reading materials.
Where imported and domestic reading materials ar e obtained through subscription, the requirements

imposed on subscribers of imported reading materi als are more onerous, requiring examination and
approval of the subscriber, which delays and possi bly prevents the receipt of the imported reading
material by the subscriber.
4.366 Third, China restricts all imported newspape rs and periodicals, as well as imported books and
electronic publications in the "limited distribution category", to distribution by Chinese wholly state-
owned distributors. Similarly, China restricts all imported books and electronic publications in the
"non-limited distribution category" to wholly Chin ese-owned distributors. In contrast, domestic
reading materials can be distributed by a wide array of distributors that are best suited to the particular
needs of the reading material in question. Ch ina has not provided any substantive arguments
challenging this third aspect of the US claim.
4.367 China contends that restricting these importe d reading materials to distribution through
subscription is non-discriminatory, because the "limited distribution category" includes reading
materials with prohibited content used by certain government agencies and institutions for research
purposes.
4.368 However, China provides no support for its asser tion that the "limited distribution category"
consists of reading materials with prohibited content. In fact, China's proposed interpretation is
inconsistent with Chinese law, which makes distri buting prohibited content in China illegal. China
also argues that the use of the term "entity" in the relevant measure supports its assertion that only
government agencies and institutions are permitted to subscribe to reading materials in the "limited
distribution category". China's interpretation of "entity" would mean that government agencies and
institutions are the only wholly Chinese-owned en tities permitted to obtain imported newspapers and
periodicals in the "non-limited distribution category". China's newly minted defence would render
China's subscription regime for imported reading materials more, rather than less, discriminatory.
4.369 China also argues that newspapers and periodi cals in the "non-limited distribution category"
are subject to "quasi-automatic subscription" with "no rejection of applications" and "without the
involvement of state agencies". Despite this cont ention, China's argument conflicts with the express
provisions of its own law. In a ddition, China fails to address the fact that imported newspapers and
periodicals in the "non-limited distribution category" are only available to consumers through
subscription, while domestic newspapers and periodicals are available through a myriad of channels.
(b) Sound recordings
4.370 China has failed to rebut the US claim under Article III:4 of the GATT 1994 relating to
imports of sound recordings intended for electronic distribution. Contrary to China's obligations
under Article III:4, China's measures impose a more onerous content-review regime on imports of
sound recordings intended for electronic distribution than for domestic sound recordings.
4.371 First, China considers that the electronic distribution of sound recordings is not covered by
the GATT 1994 because the GATT 1994 only covers trade in goods. In making this argument, China
misunderstands the US claim, which only applies to measures affecting imported hard-copy media
containing sound recordings that are intended for electronic distribution. The US claim does not
include a challenge to any measure's treatment of services or service suppliers involved in the
electronic distribution of sound recordings. Accordingly, China's discussion of the distinction
between goods and services is not relevant to this claim.
4.372 China's statements regarding the nature of the products are likewise unavailing. The
distribution of copyrighted materials – whether inco rporated into hard-copy sound recordings sold in
hard copy or distributed electronically – always involves one or more intellectual property rights with

respect to the copyrighted material. This fact does not demonstrate that the products and measures
fall outside the purview of Article III of the GATT 1994.
4.373 China also asserts that the challenged measures are "border measures" at the importation stage
and therefore do not "affect[]" the distribution of products that have already been imported. This
assertion is erroneous and ignores the Ad Note to Arti cle III of the GATT. In this case, the measures
impose a content review regime on all sound record ings intended for electronic distribution. For
imports, the content review procedures are administ ered upon importation. This does not transform
the measures into measures to which Article III:4 is inapplicable.
4.374 The hard-copy sound recording is often provided to an Internet Culture Provider ("ICP") or
Mobile Content Provider ("MCP") who makes an a dditional copy in hard-c opy format of the sound
recording, transforms the sound recording into a format that can be transmitted electronically, and
then transmits the reformatted sound recording elect ronically. Before distributing a sound recording
electronically, the ICP or MCP must go through th e delay and administrative burden of a content
review process that the ICP or MCP need not go through for domestic like products. Accordingly, the
relevant measures affect the "sale, offering for sal e, purchase, distribution or use" of such products
within the meaning of Article III:4.
(c) Films for theatrical release
4.375 China's regime for the sale, offering for sale, purchase, distribution or use of films for
theatrical release likewise accords less favourable treat ment to imported products within the meaning
of Article III:4. China's measures provide that im ported films can only be distributed by one of two
state-controlled enterprises – China Film Group an d Huaxia. Furthermore, commercial negotiations
do not determine the terms of distribution or whic h of these two distributors will handle the imported
film. Domestic films do not face these limitations.
4.376 China's principal argument with respect to the US claim under Article III:4 for films for
theatrical release is that such items are not goods subject to the GATT 1994 disciplines. As set forth
in the US first oral statement and above, China's contention that films are not goods is untenable.
China also argues that films cannot be "distribut ed" within the meaning of Article III:4 because
"distribution" is limited to the supply of goods to on -sellers or consumers. China's interpretation of
the term "distribution" in Article III:4 is flawed. Accordingly, China has faile d to establish that there
is no distribution under the meaning of Article III:4.
4.377 China also argues that imported films for theatri cal release are not subject to less favourable
treatment. However, China's regime governing the di stribution of films for theatrical release entails a
number of significant disadvantages that accord impor ted films less favourable treatment than that
accorded to domestic films.
4.378 While China contends that there is no mandatory duopoly for the distribution of imported
films in China, it admits that only two entities are currently designated to distribute such films.
Regardless of whether this duopoly is mandatory, it is discriminatory nonetheless. Further, China's
contention that there is no mandatory duopoly does not withstand scrutiny. The Film Distribution and
Exhibition Rule expressly provides for such a duopoly, and the Domestic Film Distribution and
Exhibition Rule confirms that China Film Group and Huaxia are the only two distributors of imported
films in China.
4.379 China further submits that the number of approved distributors of imported films is limited by
SARFT because the number of films imported into Chin a is limited. China's attempt to justify its
actions by suggesting there is a reasonable correla tion between the quantity of films imported into

China and the quantity of available distributors, however, only confirms that imported films receive
less favourable treatment than that accorded to domestic films.
4.380 Even leaving aside the discriminatory nature of the actual distribution ratios, China cannot
justify its limits on the number of distributors fo r imported films based on the limits China has
imposed on the number of films imported into China. WTO Members are not permitted to provide
less national treatment in the case of limited imports and more national treatment in the case of many
imports. Article III:4 provides that each importe d product must be accorded treatment no less
favourable than that accorded to each domestic product.
4.381 China goes on to argue that the trade impact of its discriminatory distribution regime does not
rise to the level of less favourable treatment unde r Article III:4. However, consistency with
Article III:4 is not determined on the basis of out comes or trade effects. Article III:4 protects
opportunities, not outcomes. Limiting imported f ilms to two distributors, which do not permit
negotiation on key commercial terms, while domestic films have access to all available distributors on
commercial terms, is a fundamental denial of equal opportunity.
4.382 In addition, Article III:4 does not allow Members to balance off less favourable treatment in
one area with more favourable treatment in anothe r area in order to achieve some kind of "net"
national treatment. Thus, the fact that China asserts (again without any supporting evidence) that the
payment of taxes and other costs by China Film Group or Huaxia may result in imported films
receiving a higher per centage of total box office receipts, does not justify the discriminatory non-
negotiable terms imposed on imported films by one of two distributo rs, while domestic films are free
to choose among all distributors and negotiate their contracts as they wish.
4.383 Finally, China submits that China Film Group and Huaxia are only obligated to comply with
China's screen quota and that these two distributors are not required to support domestic films in any
other way. China proffers no evidence to substa ntiate this contention, and China's position does not
withstand scrutiny. China's requirement that China Film Group and Huaxia actively support domestic
films is not limited to complying with the screening quota, and include metrics for supporting
domestic films that have no direct relationship with the screening quota.
5. China's measures regarding the internal sale, offering for sale, purchase, distribution
and use of products are inconsistent wi th China's obligations under the Accession
Protocol
4.384 For the reasons explained above and in prev ious US submissions, the relevant Chinese
measures are inconsistent with Article III:4 of the GATT 1994. As a consequence, these measures are
also inconsistent with paragraphs 5.1 and 1.2 of Part I the Accession Protocol with respect to imported
reading materials, imported hard copies of sound reco rdings intended for electronic distribution, and
imported films for theatrical release.
6. The Panel's terms of reference
4.385 China also objects to the inclusion of several of its measures, as well as one of the US claims,
in the Panel's terms of reference. As explained in the US first oral statement and the US answers to
the first set of Panel questions, China's objections are unavailing. For the reasons cited above and in
previous US submissions, the United States respec tfully requests that the Panel dismiss China's
procedural objections and rule on these measures a nd this claim, which are all properly before the
Panel and within its terms of reference.

7. Conclusion
4.386 The United States respectfully requests the Panel to find that China's measures at issue are
inconsistent with China's oblig ations under the Accession Protocol , the GATS and the GATT 1994.
The United States further requests, pursuant to Arti cle 19.1 of the DSU, that the Panel recommend
that China bring its measures into conformity w ith its obligations under the Accession Protocol, the
GATS, and the GATT 1994.
F. SECOND WRITTEN SUBMISSION OF CHINA
1. Introduction
4.387 The claims made by the United States in this case are characterized by a persistent failure to
recognize the unique nature of the cultural goods that are the subject of its claim, and a fundamental
misinterpretation of the extent of the commitments made by China on its accession to the WTO.
4.388 In its first oral statement and in its answers to the Panel's questions, the United States, in
attempting to further substantiate its claims in li ght of China's arguments, only succeeded in showing
the weaknesses and flaws inherent in its claims.
4.389 China respectfully asks the Panel to take partic ular note of instances where the United States
has changed the subject of its case and is pursuing di fferent claims from those or iginally set out in its
panel request. This is particularly true for the following:
(a) With respect to the US claim concerning trading rights and distribution opportunities
for motion pictures for theatrical release, the United States has tried to move its target
from motion pictures for theatrical release to cinematographic films;
(b) With respect to the US claim concerning distribution opportunities for sound
recordings and motion pictures for theatrical release, the United States tries to change
the basis of its claim in order to suppor t its argument that the Chinese measures are
inconsistent with Article III: 4 of the GATT.
4.390 Despite this manoeuvring, the United States fail s to rebut China's contentions that (i) the
claims concerning trading rights and distributio n opportunities for motion pictures for theatrical
release relate to measures regulating trade in ser vices and (ii) the Chinese measures relating to sound
recordings and motion pictures for theatrical release do not affect the distribution of goods within the
meaning of Article III: 4 of the GATT.
4.391 With respect to the US clai m concerning distribution services for sound recordings, China
reiterates that "sound recording distribution servi ces" in China's GATS Schedule only covers the
distribution of sound recording in physical form, a nd not network music services, which is a distinct
service.
4.392 Concerning China's justification of the measur es required to implement its content review
system, China maintains that it is entitled to put in place a system designed to ensure the rigorous
exclusion of all cultural content that would ha ve a negative impact on public morals and will
demonstrate that the United States has failed to meet its burden of proof in establishing that any
WTO-consistent alternative was reasonably available to China.
4.393 With respect to the terms of reference of the Panel, China will demonstrate that the "catch-all"
approach developed by the United States is inconsis tent with the requirements of Article 6.2 of the
DSU.

2. Terms of reference
4.394 The United States, in its first oral statement and in its answers to the Panel's questions, tries to
justify the inclusion of claims which China believ es to be beyond the scope of the Panel's terms of
reference, based on the following arguments:
(a) For measures which the United States has fail ed to mention in its panel request, the
United States contends that such measur es were properly identified, because they
have the same effect as measures which it had identified in its panel request;
(b) It also argues, with regard to these measur es allegedly "identified by their effects",
that they were included in the panel requ est because they fell wi thin the category of
so-called "related" or "implementing" measures as mentioned in the panel request;
(c) With respect to the "discriminatory re quirements" and "different distribution
opportunities" which the United States fails to mention in its panel request, it now
seeks to suggest that they were properly br ought before the Panel simply because it
mentioned the relevant measures and WTO ob ligations alleged to be breached in the
panel request.
4.395 However, China considers that these arguments by the United States are not consistent with
the requirements set out in Article 6.2 of the DSU and are without merit.
4.396 At the outset, it should be underlined that the Appellate Body ruled that, when faced with an
issue relating to the scope of its terms of reference, a panel must "scrutinize carefully the request for
establishment of a panel to ensure its compliance wi th both the letter and spirit of Article 6.2 of the
DSU".
4.397 In this regard, it should be recalled that th e Appellate Body has consistently held that
Article 6.2 of the DSU imposes "requirements of pr ecision" in the request for the establishment of a
panel, which serve the due process objective of put ting the other parties sufficiently on notice that
"specific measures" are going to be challenged, and on what legal basis.
4.398 Although the United States had consulted extens ively with China about and had explicitly
identified those measures at issue in certain secti ons of its panel request, it nevertheless failed to
identify them in other sections in the same pa nel request. China and other parties should not
reasonably be expected to have noticed from th e US panel request that these measures would be
challenged also in relation to other claims.
4.399 Following the same logic, the United States also fails to identify explicitly all "discriminatory
requirements" and "different distribution opportuniti es" that it seeks to cha llenge under the relevant
measures and unreasonably expects China and other pa rties to have had sufficient notice that the
United States may target any other "requirements" and "opportunities" when it deems appropriate to
do so at a later stage.
4.400 With respect to the measures allegedly identif ied by their effects, China submits that
describing the alleged effects of a measure does not amount to "identifying the specific measure" and
does not satisfy the "requirement of precision". I ndeed, following the US approach would (i) entail
that the complaining party may smuggle into the terms of reference any measure not previously
identified by alleging that it shares the same effect s as a measure originally identified in its panel
request and (ii) place on the responding party the burden of establishing which measures may have
such challenged effects, whereas it is precisely disputing that its measures have such alleged effects.

4.401 With respect to the US argument that these me asures allegedly "identified by their effects
were included in the panel request merely because th ey fell within the category of so-called "related"
or "implementing" measures, China submits th at this "catch-all" approach would minimize
unreasonably the burden of the comp laining party and prejudice China's due process right to be
sufficiently informed of the measures which are challenged by the United States.
4.402 Finally, with respect to the US suggestion that "discriminatory requirements" and "different
distribution opportunities" were prope rly brought before the Panel by vi rtue of the fact that there are
complaints made in relation to measures mentione d in the panel request, is not supported by the
wording of Article 6.2 or by past WTO practice. First, as held by the Appellate Body in Japan – Film
and US – Carbon Steel, the mere reference to regulations in the panel request does not imply that each
and every aspect of these regulations has been challe nged. Secondly, China submits that Article 6.2
of the DSU requires the complaining party to identi fy the basis of its comp laint by identifying the
issues that arise in relation to particular regulations . Therefore, the mere reference to a regulation in
the panel request without putting it in relation with th e legal issue does not satisfy the "requirement of
precision" and does not respect the "letter and the spirit of Article 6.2 of the DSU".
4.403 It follows that the United States is attempting to extend the scope of the dispute in a manner
inconsistent with the due process requirements of Ar ticle 6.2 of the DSU. China thus respectfully
requests the Panel to dismiss the US attempt to incl ude them at this late st age, and its underlying
arguments.
3. Trading rights
(a) Motion pictures for theatrical release
(i) The United States should not be permitted to change the subject of its claim
4.404 In its panel request and in its first written s ubmission, the United States made its claim with
regard to trading rights for "film for theatrical releas e". By contrast, in its first oral statement and its
answers to the Panel's questions, the United Stat es has moved its target towards "cinematographic
film".
4.405 In doing so, the United States, in an atte mpt to identify a good which could justify
scrutinizing the Chinese measures under the WTO di sciplines on goods, tries to play with the
ambiguity of the term "film" in order to change the object of its claim.
4.406 The term "film" has a dual meaning as it can refer either to an artistic work or to a material on
which this artistic work may be recorded. This dual meaning of the term "film" explains why two
different concepts are used in international classifi cations, in order to distinguish the artistic work on
the one hand, and the material on the other hand . These two concepts are "motion pictures for
theatrical release" (referring to the artistic work ) and "cinematographic film", (referring to the
material).
4.407 In line with these international classifications, the Chinese measures at issue also make a clear
distinction between "motion pictures for theatrical release" and "cinematographic film", and clearly
specify that they apply to the former.
4.408 Therefore, the Chinese measures relate to th e importation of motion pictures, not to the
importation of cinematographic film as such, i.e. the material.
4.409 In view of the above, it appears that the Unite d States, by using the unusual term "film for
theatrical release" in its panel request and its firs t written submission and by subsequently shifting to

"cinematographic film", attempts to play with the dual meaning of the term "film" and to blur the
distinction between "motion pictures for theatrical release" and "cinematograph films".
4.410 However, despite such manoeuvring by the Un ited States in order to bring the Chinese
measures concerning motion pictures for theatrical release under the WTO disciplines on goods, it is
clear that motion pictures for theatrical release ca nnot be considered as equating to cinematographic
films since the terms describe different concepts, and since motion pictures for theatrical release may
be transmitted without a cinematographic film, and are intended only for public shows in theatres.
4.411 Furthermore, the US attempt in its answers to the Panel's questions to further switch the
subject of its claim from "cinematographic film" to "hard-copy" cinematographic films is fruitless
since cinematographic film is always in hard-copy.
4.412 The United States' newly described claim in r espect of cinematographic film or hard-copy
cinematographic film should not be found to fall under the terms of reference of the Panel. In these
circumstances, the United States no longer pursues the establishment of a prima facie case with regard
to its claim about films for theatrical release, which should therefore be dismissed.
(ii) The Chinese measures should only be scrutinized under the GATS, not under WTO disciplines
on goods
4.413 First, it must be underlined that the Chinese measures regulate the services involved in the
exploitation of motion pictures for theatrical release. They regulate the importation of motion pictures
as part of the supply of such services. Thus, the Chinese measures relate to trade in services, not trade
in goods.
4.414 These Chinese measures only affect cinematogra phic film as an accessory to the services
related to the exploitation of motion pictures for th eatrical release, and therefore cannot be scrutinized
under WTO disciplines on goods.
4.415 Contrary to what the United States and some thir d parties have argued, the mere existence of
goods used in relation to an activity cannot in it self justify the application of WTO disciplines on
goods to measures affecting such activity.
4.416 Indeed, the WTO jurisprudence indicates that: (i) a measure affecting the supply of services
and involving goods could fall under the GATS exclusiv ely, the GATT exclusively or both; and (ii)
whether the GATS, the GATT or both should apply is to be determined on a case by case basis.
4.417 China submits that a measure regulating the supply of a service, although it may have an
impact on a good which is only an accessory to that service, should be scrutinized under the
disciplines on trade in services only.
4.418 Cinematographic film should be treated as an accessory to the services related to the
exploitation of motion pictures. This accessory nature of cinematographic film is characterized by the
following aspects:
(a) It is not in itself an object traded in its own right;
(b) The exploitation of motion pictures for theatrical release through a series of services
does not require a transfer of ownership of cinematographic film;

(c) The supply of the cinematographic film is part of the provision of the services of
exploitation of motion pictures for theatrical release and cannot be considered
independently from these services;
(d) It has no own commercial value in the context of exploitation of motion pictures for
theatrical release, and does not generate re venue other than the revenue arising from
the supply of these services.
4.419 It is not possible to consider that the Chinese measures affect cinematographic film
independently of the regulation of the services re lated to the exploitation of motion pictures for
theatrical release. The right to import cinematographic film exists only as a logical outcome of the
right to import a motion picture for theatrical release. Therefore, the Chinese measures should be
examined only under the GATS.
4.420 Contrary to what the United States asserts, the fact that Article IV of the GATT deals with
cinematographic films does not invalidate this conclusion.
4.421 Article IV of the GATT, which deals with scr een quotas, relates to trade in services, as
recognized by the GATT Secretariat. Furthermor e, Article IV contains disciplines on certain
measures regulating services related to the exploitation of motion pictures for theatrical release since
the purpose of screen time limitations is to reserve a certain exhibition time for domestic motion
pictures for theatrical release, that is the artistic work, and not for the cinematographic film per se.
4.422 Consequently, Article IV of the GATT does not support the applicability of the WTO
disciplines applicable to goods to the Chinese measures.
4.423 Moreover, an examination of the relevant measures under rules governing trade in goods
would lead to an incoherent interpretation of China's WTO commitments.
4.424 China has not made any commitment under the GATS in respect of motion picture
distribution services. China's additional commitm ent in sector 2D, whereby China allows the
importation of a limited number of motion pictures for theatrical release on a revenue-sharing basis, is
subject to "compliance with China's regulations on the administration of films". This indicates that
China has reserved the right to maintain its regulatory framework governing the administration of
films, which includes the ability to maintain a designation system for the importation of motion
pictures for theatrical release.
4.425 China's commitments represent a single set of right s and obligations, so that the trading rights
commitment under its Accession Protocol and its GATS Schedule must be read as a coherent whole.
4.426 As consistently held by the Appellate Body, all applicable provisions of a treaty must be
interpreted in a way that gives meaning to all of th em, harmoniously. It follows that China's trading
rights commitment under its Accession Protocol canno t be interpreted as covering the importation of
motion pictures for theatrical release since it w ould undermine China's abovementioned reserved
right.
(b) Reading materials and audiovisual products, including sound recordings
(i) China's right to invoke Article XX of the GATT to justify limitations on trading rights
4.427 The United States attempts to present China's right to regulate trade in a manner consistent
with the WTO Agreement as a mere justification fo r a "wholesale carve out of the Products in dispute
… from its trading rights commitments", risking the "e limination" of such commitments. In so doing,

it has not taken account of the fact that all word s in paragraph 5.1 should be given their proper
meaning.
4.428 In particular, both China's commitment with resp ect to the right to trade and China's reserved
right to regulate trade in a manner consistent with the WTO Agreement should be given their
respective full meanings in order to be interprete d correctly and to avoid diminishing China's rights
and obligations, as required by Article 3.2 of the DSU.
4.429 The US argument is based on the erroneous assumption that respecting China's right to
regulate trade would open the door to the exclusion of "entire categories of product at will" from the
scope of its trading rights commitments, thus making Annexes 2A and 2B meaningless.
4.430 However, contrary to the US assertion, the "w ithout prejudice" clause of paragraph 5.1 does
not create a right to exclude products from the scope of China's trading rights commitments, but rather
to adopt and maintain measures consistently with the WTO Agreement. It follows that the potential
restrictions may only result from the application of other provisions of the WTO Agreement, which
are implemented through measures which also meet all the relevant requirements set out in such
provisions.
4.431 The "without prejudice clause" thus aims at providing the basis for a coherent reading
between China's commitments, on the one hand, a nd China's reserved right to implement certain
policy objective through the adoption of WTO consistent measures, on the other hand.
4.432 Indeed, China's trading rights commitments under paragraph 5.1 do not rule out the
application of measures limiting such trading rights and their justification under the Article XX of the
GATT. China's right to implement such restricti ons or prohibitions as a way of protecting its public
morals is unquestionable and fully covered by Article XX of the GATT. Thus, it is clear that in some
circumstances, the achievement of this aim will n ecessarily imply the limitation of the right to import
goods into China.
4.433 In the instant case, the United St ates is in fact complaining ab out the effects of a measure
which is fully consistent with another provision of the WTO Agreement. To that extent, China
submits that Article XX of the GA TT is unarguably part of the WTO Agreement and is thus relevant
in the context of paragraph 5.1 of China's Accession Protocol.
4.434 The reference to the WTO agreement in the "w ithout prejudice" clause confirms the right to
regulate trade in a manner consistent not only with the WTO Agreement itself, but also with any other
agreements which are part of it (as is the GATT 1994) . Also, the reference to the WTO Agreement in
the context of paragraph 6.1 cannot have a di fferent meaning from that in the context of
paragraph 5.1, as alleged by the EC. In fact, what paragraph 6.1 implies is that in the context of the
Accession Protocol, "WTO Agreement" refers to all agreements that are inco rporated into the WTO
Agreement and are an "integral part" of it.
4.435 Such an interpretation ensures a balance betw een China's rights deriving from its accession to
the WTO, and other WTO Members' rights deriving from China's accession commitments. Thus, the
obligation of China to conform to the requirement s set out by the relevant provisions of the WTO
Agreement, such as Article XX of the GATT, ensures that China will not exercise its right to regulate
in a manner that would undermine other Members' rights.
4.436 To that extent, the "without prejudice" clause is comparable to the chapeau of Article XX of
the GATT. It is also the recognition on the part of WTO Members of the need to maintain a balance
of rights and obligations between China's right to regulate trade on the basis of other provisions of the
WTO Agreement and China's trading rights commitm ents. To deny China the right to rely on

Article XX of the GATT would thus significantly affect the balance of rights and obligations reflected
in the Accession Protocol to the detriment of China.
4.437 Finally, because the Marrakech Agreement it self does not contain any provisions which
address the issue of measures adopted by Members w ith respect to the regulation of trade, it is
difficult to see how a WTO Member could "regulate trade in a manner consistent with the WTO
agreement" other than by reference to specific pr ovisions of the various agreements which are an
"integral part" of the WTO Agreement.
4.438 It follows that paragraph 5.1 of the Accession Protocol allows China to maintain measures
which are justified under Article XX of the GATT and which may result in limitation on the right to
trade.
(ii) The Chinese measures meet the requirements of Article XX of the GATT
4.439 Determination of whether a measure is neces sary in the sense of Article XX of the GATT
should be made through a process of weighing and bala ncing of a series of factors. Such a process
begins with an assessment of the relative importan ce of the interests and values furthered by the
challenged measure, before turning to the other fact ors, including the contribution of the measure to
the realisation of the ends pursued and its restrictive impact on international trade.
4.440 China notes that it is not disputed by the Un ited States and the third parties that the
preservation of public morals is a crucial policy issue of primary importance for China.
4.441 China wishes to recall that WTO Members are free to set the level of protection or
enforcement they see fit. In this respect, the level of protection sought by China is that of a complete
prohibition within its territory of any cultural conten t that could, by colliding with the standards of
right and wrong conduct specific to China, have a negative impact on public morals. In order to
enforce such level of protection, it is necessary for China to review the content of all imported cultural
goods.
4.442 China understands that what is disputed by the United States and the third parties is not
China's right to perform a content review of all im ported cultural goods, but the fact that such content
review must be performed (i) at the importation st age, (ii) by the importation entities (iii) which can
only be state-owned enterprises meeting certain criteria.
4.443 However, such aspects of the challenged measu res are necessary to achieve the level of
protection and enforcement sought by China.
4.444 China has already explained why and how th e selection process permits the selection of
entities fulfilling certain criteria which guarantee that th e content review is performed in an effective
and efficient manner that allows the achievement of the level of protection sought by China while not
causing undue delay in the trade of cultural products.
4.445 In addition, China would like to highlight that achievement of the intended result requires not
only that the content review is performed in an e ffective and efficient manner, but also requires the
prevention of any possibility of circumvention of the content review in order to avoid any
dissemination of unauthorized cultural contents, whether intentional or inadvertent.
4.446 In this respect, China considers that the conten t review of imported cultural products must be
implemented at the importation stage, i.e. before any possible dissemination of their content. China
has accordingly entrusted the importing entities with the task of performing the content review which
also minimizes the risk of fraud or failure to present the imported cultural product for content review.

4.447 State-owned enterprises are entrusted with the content review not only because China
considers that only state-owned enterprises should be called on to bear the cost of the review, which
relates solely to the public interest, but also becau se they are the only entities considered to fulfil the
necessary technical and organizational requirements, as set out in the relevant Chinese regulations.
4.448 With respect to the objectives pursued, China submits that no reasonable WTO-consistent
alternatives are available.
4.449 The United States tries to invoke WTO-consiste nt alternatives consisting in the possibility
that foreign-invested enterprises could conduct the co ntent review before, during or after importation,
through development of the expertise, training of existing personnel or hiring of experts or domestic
Chinese entities. It attempts to find support for its proposal in the so-called "in-house" content review
applicable to domestic publishers.
4.450 China recalls that, as held by the Appellate Body , any alternatives rai sed by the complaining
party must be "reasonably available". The Appellate Body has made clear that an alternative measure
is not reasonably available where (i) it is merely theo retical in nature, or (ii) it does not preserve for
the responding Member its right to achieve its desire d level of protection with respect to the objective
pursued.
4.451 China submits that the United States has failed to present any reasonably available alternative
meeting the Appellate Body's criteria.
4.452 The level of protection that China seeks to enforce cannot accommodate dissociation between
the importation business and the performance of the content review. The content review must be
performed at the importation stage, before any cultural product is imported into China's territory.
4.453 Foreign entities and individuals cannot carry out the content review. Foreign entities may not
fully understand the concept of public morals as held by China. In addition, they are not registered in
China according to China's laws and regulations, and ca nnot properly be held liable for any failure to
prevent cultural goods with prohibited content being imported into China. It is impossible for the
Chinese government to review and control the capac ity of each importer registered in China to
conduct the content review.
4.454 In light of these considerations, the alte rnatives raised by the United States are only
theoretical.
4.455 The United States also refers to the possibility that foreign-invested enterprises could develop
expertise for the content review concerning a particular product. This would be incompatible with the
high level of protection sought by China, which re quires the content review to be performed in a
harmonized manner.
4.456 Training existing personnel or hiring experts w ould require the State to review and supervize
the quality and standard of such training or expe rts' qualifications, which is impossible since the
number of importers would be pot entially unlimited. An effective and efficient content review
mechanism cannot be accommodated with an excessively large number of entities, should the right to
import be granted to each applicant.
4.457 Considering the high level of protection sought by China, the risk s associated with the
approach suggested by the United States and the extraordinary burden placed on China in order to
attempt to implement it make such option theoretical in nature. Therefore, the alternative raised by
the United States cannot be considered to be "reasonably available".

4.458 Further, China submits that hiring Chinese comp anies to perform the content review does not
appear to be a practicable solution either. Havi ng a different entity to conduct the importation and the
content review respectively would result in undue de lays in trade and/or lowering the efficiency and
effectiveness of the content review.
4.459 Finally, China would like to stress that the in -house content review applicable to domestic
publishers, as suggested by the United States, wo uld not be of assistance in the case of imported
products. China notes that the domestic publisher conducting an in-house content review under this
regime can only be a wholly state-owned entity, the establishment of which requires approval by the
competent government agency on the basis of its capability to conduct the content review.
4.460 Applying such a regime to a foreign publisher would require the publisher to carry out its own
content review of its publication in the exportin g country. This would require the relevant
government agency to examine and supervise a ll such foreign publishers' capability of conducting
content reviews based on Chinese standards. Such requirements clearly falls outside the jurisdiction
of the Chinese authorities and would cause unacceptable costs or substan tial technical difficulties. In
addition, the foreign publishers, without a comm ercial presence in China, could not be held
responsible in the case of violation of the conten t review requirements, which would undermine the
effectiveness of the content review.
4.461 For all these reasons, the alternatives sugg ested by the United States do not constitute
"reasonably available" alternatives. The United States has thus failed to meet its burden of proof that
less trade restrictive, WTO-consistent alternatives are "reasonably available" to China.
4.462 Turning to the requirements of the chapeau, Ch ina submits that, in light of the above, the
potential limitation on the number and type of entities that may be granted the right to import the
products at stake is justified by its necessity in order to achieve the policy objectives pursued by
China.
4.463 China submits that there is no arbitrary or unjustifiable discrimination between domestic and
foreign enterprises. The United States appears to allege that discrimination would result from the
different ways in which the content review is performed for domestic and imported products.
However, China has shown that the United States' unfounded assertion in this regard is irrelevant
since the subject of this dispute is not the content review system, but the selection of certain entities to
import cultural products.
4.464 Further, there is also no discrimination be tween foreign and Chinese producers of reading
materials and audiovisual products, including sound recordings, since the requirements laid down by
the Chinese laws and regulations are equally applicable to both categories of companies.
4. Distribution services
(a) The United States has put forward contradictory de finitions and aims to broaden the scope of
the present dispute
4.465 China would like to emphasise that the United States attempts to either create confusion as to
the product at stake or to broaden unduly the scope of the present dispute beyond its panel request.
4.466 First, the United States has adopted a confusing position with respect to the definition of
"sound recordings" in the course of the present dispute. Indeed, it is apparently not willing to provide
a consistent definition of the term, given that, de pending on the legal issue at stake, sound recordings
might sometimes be physical goods and sometimes intangible items as best serves its case.

4.467 Secondly, the United States is broadening the scope of the dispute beyond its panel request by
switching from the concept of "digital distribution of sound recordings" to that of "electronic
distribution of sound recordings".
4.468 China emphasizes that the measures at stake ex clusively govern the supply of network music
services over the Internet. Consequently, any attemp t to include various other technical means in the
scope of the present dispute should be dismissed.
(b) The scope of "sound recordings distribution servi ces" in China's GATS schedule is limited to
the distribution of sound recordings in physical form
4.469 In its first written submission, the United States alleges that China's commitments in relation
to "sound recording distribution services" under Sector 2D cover what the United States has chosen to
label "electronic distribution of sound recordings", properly "network music services" as described by
China in its first written submission.
4.470 China reiterates that a proper interpretation of China's commitments in Sector 2D confirms
that these commitments are limited to the distribution of sound recordings in physical form.
4.471 Since, as demonstrated by China, "distributi on services" refers to the marketing and supply of
goods and commodities, "sound recordings distributi on services" does not cover the transmission of
intangible content to users via the Internet.
4.472 This conclusion is further confirmed by the sp ecific meaning that China attributes to the
concept of "distribution services" in Annex 2 of its GATS Schedule.
4.473 China further notes that the Republic of Korea, in its answers to the Panel's questions,
submitted that its commitment on "record production and distribution services (Sound Recordings)" in
Sector 2D of its GATS Schedule only covers the pr oduction and distribution of sound recordings in
physical form.
4.474 Finally, the only examples put forward by th e United States concerning the reality of online
music business at the time of China's accession to the WTO relate to unauthorized download offers.
(c) Network music services are distinct from the distribution of sound recordings in physical
form
4.475 The US assertion that network music services are covered by China's commitment on "sound
recording distribution services" is based on the assumption that dissemination of music in digital
format through the Internet is a mere "means of delivery" of the "sound recording distribution
services".
4.476 The United states relies on the so-called princi ple of "technological neutrality", according to
which the GATS does not limit the technologically po ssible means of delivery of a service, to claim
that since China has not imposed any limitations as regards the means of delivery of the relevant
committed service, its commitment also applies to the so-called "electronic distribution of sound
recordings".
4.477 At the outset, China would like to recall that the principle of "technological neutrality" is still
under consideration among Members and that the in terpretation of this principle provided by the
Panel in US – Gambling has not been confirmed by the Appella te Body. In addition, following the
US logic would conflict with the principles of th e GATS, including the "positive list approach" and

the "request/offer approach", by introducing ne w services into a Member's GATS Schedule without
going through any negotiation process.
4.478 Turning to the question of whether dissemina tion of music through the Internet would be a
simple "means of delivery" of "sound recording distribution services", China submits that the so-
called principle of technological neutrality is irre levant in the present dispute since network music
service is not merely adopting a new technological "means of delivery" to deliver sound recording
services.
4.479 In the present dispute, China would like to submit that the following factors clearly
demonstrate that the network musi c service is a service which significantly differs from the sound
recording distribution service.
(i) Operational characteristics
4.480 First, one should focus on the operational ch aracteristics of the relevant services when
distinguishing one service from another, that is, the economic activities that the supply of the service
requires.
4.481 Network music services, on the one hand, and sound recording distribution services (as
committed by China), on the other hand, do not sh are the same operational characteristics. The
traditional sound recording distribution business in volves distribution networks, which handle the
distribution, marketing and sales of the sound recordi ngs. It requires the establishment of a logistical
infrastructure ensuring the usual ac tivities associated with trade, inter alia sorting and assembling of
goods, packing, breaking bulk, repacking in smaller lots, storage, shipment, and the managing of sale
outlets.
4.482 The structure of network music services differs significantly from the traditional physical
distribution of sound recordings. The supply of network music services is at present exclusively
operated via the Internet, and requires, not the establishment of a commodity distribution
infrastructure, but a robust hosting and aggregation infrastructure. Further, it requires a range of
support technologies.
4.483 Differences in the constraints applicable to both activities are further reflected by the different
skills required to carry out these distinct activities. While for traditional distribution, chain and supply
managers, salespersons, etc. are required, network music services re ly on IT specialists to operate
their systems.
4.484 All of the above matters demonstrate that there are significant intrinsic differences between
distribution of sound recordings in physical form and network music services.
(ii) End-uses and consumers' perceptions
4.485 Whether two services share the same characteristics may further be assessed against their end-
uses and consumers' perception of them. This cr iterion reflects the function of the service from the
consumers' perspective, that is, the benefit that the consumer derives from the service being supplied.
4.486 Distribution of sound recordings in physical form and network music services do not perform
the same functions from the consumers' perspec tive. The essential function of sound recording
distribution services is the acquisition of certain physical goods such as CDs, cassette tapes etc., while
the essential function of network music services is th e acquisition - at any time and from anywhere -
of certain intangible data which can be decoded with a computer or other device to play music works.

(iii) International classifications
4.487 Finally, the fact that network music services are a separate and distinct service from sound
recording distribution services as described in Chin a's first written submission is further evidenced by
the draft of CPC Ver.2, which is currently under negotiation.
4.488 Indeed, the draft of the revised CPC identifies two separate and distinct categories of services,
namely (i) musical audio download and streamed audi o content; and (ii) distributive services related
to goods containing recorded music, which corres pond respectively to network music services and to
traditional distribution of sound recording as described by China in its first written submission.
4.489 The fact that CPC Ver. 2 identifies two separate and distinct categories and classifies them in
completely different sections clearly shows that they are by nature separate and distinct services.
4.490 It follows from all the above arguments that ne twork music services and distribution of sound
recording services are distinct and separate services . Accordingly, the US argument that China's
commitment on "sound recording distribution servi ces" covers network music services in the absence
of a limitation concerning a specific means of delivery is based on the false assumption that network
music services are a mere means of delivery and is therefore unfounded.
5. Product distribution
(a) Sound recordings
4.491 In its first written submission, the United Stat es claims that the allegedly more burdensome
content review requirements applied to hard-copi es of imported sound recordings intended for
electronic distribution are inconsistent with Article III:4 of the GATT 1994.
4.492 In the course of the present dispute, the United St ates has further asserted that Article III:4 of
the GATT 1994 covers measures that may affect "a va riety of elements in the chain from importation
to consumption including sale, offering for sale, purch ase, distribution or use" of a particular physical
product.
4.493 Therefore, as these different "elements" correspond to different stages in the process of supply
of the relevant product, they would necessarily all relate to the product as it was imported.
4.494 Considering that the imported product identified by the United States is a hard copy of sound
recordings intended for digital distribution, the alleged "less favourable distribution opportunities"
would then logically relate to the imported hard copies intended for electronic distribution.
4.495 However, what the United States is targeti ng in its panel request and its first written
submission is what it calls the "electronic distribution of sound recordings".
4.496 The United States recognizes that the movement of the imported product (the hard copy) in
the Chinese market stops at the moment it is acquired by the Internet Culture Provider.
4.497 By contrast, its content, which has been transf erred by the Internet Culture Provider into a
digital format and which is subject to the content review, is transmitted through the Internet.
4.498 Therefore, distribution allegedly affected by the content review requirements does not relate
to the hard-copy, which is the good actually being imported, but to the digitalized content.

4.499 The formally different treatment identifie d by the United States does not affect the
"distribution" of hard copies and can therefor e not be scrutinized under Article III:4 of the
GATT 1994. In fact, what the United States suggests should be compared is the allegedly different
treatment applied to digitalized content.
4.500 Following the reasoning of the United States would entail major systemic implications,
insofar as it would amount to applying rules on trade in goods to services provided over the Internet.
4.501 As already sufficiently demonstrated by China, th e term "distribution" within the meaning of
Article III: 4 of the GATT relates to physical products.
4.502 Further, China would like to comment on the erroneous interpretation of the term
"distribution" in the context of Article III:4 of the GATT 1994 provided in the course of the
proceeding by the United States and Japan. Contrary to what they argue, the use of the term " inter
alia" by the Panel in Canada – Wheat Exports and Grain Imports does not suggest that the term
"distribution" must be understood as having a broade r meaning than the supply of goods, but merely
indicates that the Panel, when referring to the dictionary in order to determine the ordinary meaning of
"distribution", chose the economic definition from among others.
4.503 Faced with such obvious inconsistencies, th e United States is attempting now to shift its
ground in its claim from "distribution" of the hard copy to the "use" of the hard copy.
4.504 The Unites States' answers to th e Panel's questions shows that it has abandoned its claim
related to the distribution opportunities as put forward in its panel request for th e simple reason that it
cannot establish a prima facie case in this respect.
4.505 China is of the view that no provision in th e DSU authorizes a compla ining party to change
the legal basis of its claim in its answers to the Panel's questions. Therefore, the United States' newly
described claim should be dismissed.
(b) Motion pictures for theatrical release
4.506 As highlighted above, the United States, in th e course of the proceedings, is attempting to
change the subject of its claim from motion pictures for theatrical release to cinematographic film.
The US claim about the distribution of cinematographi c film is not within the scope of the terms of
reference of the Panel and should not be examined by it.
4.507 As demonstrated by China, the distribution of motion pictures for theatrical release consists of
services that do not involve the distribution of goods in the meaning of Article III:4 of the
GATT 1994, which the United States has not tried to re but. Even if the cinematographic film itself
were to be considered under Article III: 4 of the GATT, quod non , it is not the imported
cinematographic film which is "distributed".
4.508 As China has demonstrated in its first writte n submission, the Chinese measures regulate the
distribution of motion pictures for theatrical release, not cinematographic film. Distribution of motion
pictures for theatrical release, which consists in th e provision of a service, cannot be characterized as
distribution of goods in the meaning of Article III:4 of the GATT 1994 because it relates to the
exploitation of an intangible artistic work thro ugh the organization of public shows and does not
involve the supply of goods to consumers.
4.509 The United States is attempting to base its argument on the erroneous assumption that the
Chinese measures regulate the distribution of cinema tographic film. This erroneous assumption itself
cannot support its claim under Article III: 4 of the GATT 1994.

4.510 The United States itself recognizes and describes in detail that imported cinematographic film
is not the good being distributed by the motion picture distributor. The imported internegative or
interpositive produced by the licensor is provided by the licensor to the distributor to produce in the
laboratory the prints for distribution to local cinemas for theatrical exhibition of the film. The
cinematographic film actually distributed is different from the film originally imported, save that they
both carry the same motion picture.
4.511 Therefore, even if cinematographic film could be considered to be distributed in the meaning
of Article III:4 of the GATT 1994, it would not be the imported cinematographic film which is
"distributed".
6. Conclusion
4.512 For the reasons set out in this submission, Chin a requests the Panel to reject the claims made
by the United States.
G. O
RAL STATEMENT OF THE UNITED STATES AT THE SECOND SUBSTANTIVE MEETING OF THE
PANEL
1. Introduction
4.513 The United States will now present further view s on the reasons why th e Chinese measures at
issue are inconsistent with Ch ina's obligations under the Accession Protocol, the GATS and the
GATT 1994. Where China has endeavoured to rebut th e US claims, it has fallen short, while other
US claims have received no response. Likewise, Chin a has failed to sustain its burden with respect to
the defences it has raised.
2. Trading rights: films for theatrical release, unfinished AVHE products and unfinished
sound recordings are goods subject to China's trading rights commitments
4.514 China's most recent attempt to claim that fi lms for theatrical release are not goods merely
restates China's previous unsuccessful arguments on this same issue. First, China's contention that the
United States has shifted the focus of its claim is baseless. Througho ut this dispute, the US claims
have related to the product that the relevant Chinese measures regulate in a manner that is inconsistent
with China's trading rights commitments. The US claims from the beginning have related to an
integrated product that includes a carrier medium car rying content that can be commercially exploited
by projection in a theatre.
4.515 China's attempt to artificially separate goods containing content from the content itself fails to
overcome the US claims. Beginning with the te xt of the WTO Agreement, Article IV of the
GATT 1994, an agreement relating to trade in goods, refers to the "exhib ition of cinematographic
films" in relation to screen quotas. The provision makes clear that when discussing the commercial
exploitation of the artistic work in a theatre, th e GATT 1994 uses the term "cinematographic film",
not motion pictures. Article III:10 of the GATT 1994 provides an exception for films to the national
treatment obligations set forth in the other paragraphs of Article III. The GATT's national treatment
obligations apply only with respect to goods; thus, an exception to those obligations also applies only
to goods.
4.516 In addition, China points to the language in the HS description of the product as referring to
cinematographic film "for the projection of motion pictures." However, this language demonstrates
that the Harmonized System contemplates a physical product with integrated content that may be
commercially exploited in a particular way. Th is HS description does not take films out of the
category of goods, but instead confirms that film s containing content to be exploited are goods.

China's accession schedule of tariff concessions, in corporates the HS description of these products
under heading 3706.
4.517 China's discussion of the terms in its own measur es is also unavailing. China contends that
the Chinese term used in these measures, Dian Ying , translates to "motion picture" rather than
"cinematographic film." China goes on to conclude that the Film Regulation "provides that the
importer of motion pictures ... instead of the im porter of cinematographic film ... requires
designation." China has conceded that such products – the carrier medium containing content – must
go through "customs clearance" as part of the importation process. Thus, the motion picture, i.e., the
content, is part of the integrated product that is treated as an importable good for purposes of China's
measures.
4.518 China also repeats its argument that because films are a mere accessory to a service, measures
relating to importation should be analysed exclusiv ely under the GATS, rather than the trading rights
disciplines. China's reasoning is flawed and has be en rejected by the Appellate Body. In a related
argument, China asserts that a good that is an acce ssory to a service cannot be scrutinized under the
WTO disciplines on goods. First, there is no textual basis in the WTO Agreement for China's
assertion that a good used to provide a service is no longer a good. Similarly, China's proposed
criteria for determining when a good is a mere accessory of a service have no textual basis in the
GATT 1994 or the GATS and do not create a principled rationale for distinguishing among different
kinds of goods.
4.519 In addition, China's repeated argument that th e relevant measures regulate copyright licensing
as opposed to the importation of films is without merit. While certain provisions of these measures
may regulate copyright licensing, other provisions of these measures also regulate the importation of
films. As the Appellate Body has made clear, a measure regulating both goods and services may be
analysed under the goods and services disciplines.
4.520 China's attempt to use its services commitments with respect to motion pictures as a shield for
its trading rights-inconsistent measures is meritless. These services commitments in no way "reserved
[China's] right" to maintain measures that are inconsistent with its trading rights commitments – let
alone the right "to maintain a designation system for the importation of motion pictures for theatrical
release." The text of China's Services Schedul e has no relevance to whether China's measures
restricting who may import films are inconsistent with China's trading rights commitments.
4.521 With respect to unfinished AVHE products and unfinished sound recordings, China appears
to have abandoned its contention that such products are not goods subject to its trading rights
commitments. China's previous arguments in this regard are without merit.
3. Trading rights: China's measures regarding reading materials, finished AVHE
products and finished sound recordings are not justified under its right to regulate trade
in a manner consistent with the WTO Agreement or Article XX of the GATT 1994
4.522 Turning to reading materials, finished AVHE products and finished sound recordings, and
China's affirmative defence to the US trading ri ghts claims regarding them, China has failed to
establish its prima facie case. China is unable to de monstrate that the measures at issue are justified
by the first clause of paragraph 5.1 of its Accession Protocol or by Article XX of the GATT 1994.
4.523 Regarding the first clause of paragraph 5.1 referring to the "right to regulate trade in a manner
consistent with the WTO Agreement," China's s econd written submission states that the right to
regulate trade is distinct from the exceptions c ontained in Annexes 2A and 2B of the Accession
Protocol, but asserts that the right to regulate trade permits it to impose limitations on its trading rights
commitments identical to those contained in Annexes 2A and 2B.

4.524 The "right to regulate trade" clause applies to measures addressing the goods being traded,
rather than the traders of those goods. As is clear from paragr aph 84(b) of the Working Party Report,
regulating the right to trade includes applying WTO-consistent require ments concerning import
licensing, technical barriers to trade, and sanitary and phytosanitary measures. Thus, the right to
regulate trade in a WTO-consistent manner is fundame ntally different from the "right to regulate the
right to trade in a manner consistent with the WTO Agreement." It is the "right to regulate the right to
trade" that China seeks to read into paragraph 5.1 in order to justify depriving all foreign importers of
the right to trade on the basis of national origin.
4.525 While the United States agrees with China's statem ent that the "right to regulate trade" clause
is distinct from the exceptions contained in Annexes 2A and 2B, the United States does not agree with
China's contention that both the "right to regulat e trade" clause and Annexes 2A and 2B permit China
to reserve certain products per se to state trading. Under China's expansive reading of the "right to
regulate trade" clause, these Annexes would be rende red redundant. China argues that the "right to
regulate trade" clause and Annexes 2A and 2B pr ovide for different limitations on China's trading
rights commitments. Yet, China also asserts that Annexes 2A and 2B subject goods to state trading,
while the "right to regulate trade" clause also subjects goods to state trading.
4.526 While the United States does not concede its av ailability, China's Article XX defence is
likewise without merit. China argues without success that denying all foreign importers and
privately-held importers in China the right to im port the products at issue is "necessary to protect
public morals" based on the following four asserted requirements for its content review system: first,
content review must be performed in association w ith importation; second, content review must be
performed by importers; third, importers must be Chinese wholly state-owned enterprises as no other
entities are capable of conducting content review; and fourth, content reviewing entities must be
limited in number so that individual reviewers can be "examined and supervised" by the Chinese
government.
4.527 The United States proposes several reasonably-avai lable WTO-consistent alternatives. By
training or hiring content review experts, fore ign-invested enterprises could conduct the content
review of the products they import. The Chinese Government could conduct the review of products
imported by foreign-invested importers. Foreign-invested importers could also hire domestic Chinese
entities with the appropriate expertise to perform th e necessary review. While China contends that its
four system requirements demonstrate that the WTO-consistent alternatives proposed by the United
States are not practicable, China's own system as described to the Panel does not meet these
requirements.
4.528 First, despite China's assertions that content review cannot be disassociated from importation,
China's own system de-links these unrelated activiti es. Second, contrary to China's contentions,
importers are not integral to the content review process. Third, reserving importation exclusively to
Chinese wholly state-owned enterprises is also unnec essary. Content review in China is performed
principally, if not exclusively, by the Chinese G overnment for imported products, and not by wholly
state-owned enterprises. Fourth, the number of content reviewing entities does not need to be
drastically limited as China suggests. The larg e number of content review entities for domestic
products shows that it is not overly burdensome or too costly to "examine and supervise" the
individual reviewers working at these entities to achie ve China's desired level of enforcement. In
sum, China's content review system differs substa ntially from a system meeting the four purported
requirements described in its submissions. In f act, the only significant difference between China's
system and the reasonably available WTO-consistent alternatives proposed by the United States is that
China reserves importation to wholly state-owned enterprises.
4.529 Likewise, China's concerns regarding cost are addressed under the US proposals. Two of the
US proposals – either having the foreign importers and privately held importers in China conduct

content review after obtaining the necessary expertise, or having these importers hire domestic entities
with the appropriate expertise to conduct content re view – would require minimal additional costs.
These proposals essentially involve substituting forei gn importers and privately held importers in
China into the roles currently play ed by the state-owned importers. The third US proposal – having
the Chinese Government conduct all content review – would also require minimal additional costs, as
much of the content review of imported products is already performed by the Chinese Government,
and the Chinese Government is already bearing the costs of these activities.
4.530 China's arguments regarding alleged problems associated with the examination and
supervision of reviewers are also misplaced. On th e burden of such examination and supervision, the
content review system applicable to domestic products demonstrates China's ability and willingness to
oversee hundreds of domestic content review entiti es. Moreover, a system in which government
officials review the content of products imported by foreign importers and privately-held importers
would impose no additional structural burden, b ecause these reviewers are already in place and are
being examined and supervised in the context of the review of imported products.
4.531 China's objections regarding its alleged inabilit y to assert jurisdiction under the US proposals
are unavailing. Under the US proposals in which th e Chinese Government or enterprises in China are
conducting content review, China's ability to assert jurisdiction is clear. China asserts that no entity
would be willing to conduct content review on beha lf of other entities because the responsibility and
penalties involved are too great. This ignores China's arguments that state-owned enterprises are the
only entities capable of reviewing products manufactured by other producers.
4.532 China has likewise failed to show that th e application of its measures satisfies the
requirements of the chapeau of Article XX. Instead, China simply directs the Panel to its arguments
with respect to Article XX(a). However, even if a measure is "necessary", its application must also
constitute neither a "means of arbitrary or unjustifia ble discrimination" nor a "disguised restriction on
international trade". The United States has demons trated that China's measures fall far short of the
chapeau's requirements.
4. Trade in services: China's services commi tments cover the master distribution of
reading materials
4.533 Exhibit US-99 illustrates the United States' rebu ttal arguments regarding master distribution
and its inclusion of "wholesaling" within the meaning of Annex 2 of China's Services Schedule.
5. Trade in services: China's services commitmen ts cover the electronic distribution of
sound recordings
4.534 With respect to the electronic distribution of sound recordings, China's measures accord less
favourable treatment to foreign-invested entities engaged in the electronic distribution of sound
recordings than to wholly Chinese-owned distribut ors, thereby contravening Article XVII of the
GATS. China's principal defence rests on the argu ment that the electronic distribution of sound
recordings is outside the scope of China's services commitments.
4.535 China unsuccessfully attempts to apply an analys is of the ordinary meaning of the relevant
terms under the customary rules of interpretation refl ected in Article 31 of the Vienna Convention on
the Law of Treaties. China's c ontention that the term "distribut ion" can only encompass distribution
of goods is belied by the text of the GATS, which explicitly contemplates distribution of a service in
Article XXVIII(b). China's reliance on Annex 2 of its Services Schedule is of little utility in
explaining the meaning of the term "distribution" in Sector 2D of China's schedule.

4.536 With respect to supplementary means of in terpretation under Article 32 of the Vienna
Convention, China has failed to pr ovide any support for its assertion that the electronic distribution of
sound recordings was unknown at the time of it s accession to the WTO. China ignores the
considerable evidence adduced by the United States showing that the electronic distribution of sound
recordings was known to China and other WTO Members before China joined the WTO.
4.537 As for China's contention that the "sole rea lity" abroad and in China was "unauthorized
download offers", these assertions are contradicted by the evidence submitted in this dispute. China's
assertion that it is unaware of the existence of the joint venture between the Chinese government and a
Houston-based company to supply music online is also contradicted by the facts.
4.538 Even if China were correct that the electr onic distribution of sound recordings was unknown
at the time of its WTO accession, China fails to establish that the electronic distribution of sound
recordings is a new service rather than a new mean s of supplying an existing service. China argues
that the electronic distribution of sound recordings is an altogether new service from the distribution
of sound recordings in hard-copy such that tech nological neutrality is not relevant. China has
articulated certain criteria that it maintains should "be taken into consideration when distinguishing
one service from another." However, there is no textual basis in the GATS for the application of these
criteria to an analysis of a Member's services commitments.
4.539 First, China argues that the "operational characteristics" differ as between the electronic
distribution of sound recordings and the distribut ion of sound recordings in hard-copy because
distributors must set up different infrastructure and employ personnel with different skills. These
differences also exist between different means of supplying a particular service, which will often
involve different distribution infrastructure and personnel. The same flaw plagues China's second
criterion – end-uses and consumer perceptions. Consumers may perceive different means of
supplying a service differently depending on how that means of supply fits with their preferences. A
difference in the consumer's perceptions does not necessarily suggest that two different services are
involved.
4.540 With respect to the international classifica tions of services, China appears to take a
contradictory position regarding th e relevance of such classification instruments by relying on
instruments that support its argument and dismissing those that are disadvantageous to its position.
China claims that W/120 and the Provisional CPC are not binding on Members and have little utility
in determining the meaning and scope of China' s commitments. China also argues that the
classification of "online audio content" in CPC Ver. 2 shows that the electronic distribution of sound
recordings is distinct from other sound recording distri bution services. This is in spite of the fact that
CPC Ver. 2 is still in draft, is not the version of the CPC that was the basis for any of China's services
commitments, and has not been accepted by WTO Members as relevant for Members' services
commitments.
4.541 With respect to China's contentio n that the relevant measures only relate to the distribution of
sound recordings over the Internet, and not through "other electromagnetic means," China refers only
to one of the measures relevant to the US GATS cl aim on electronic distribution of sound recordings.
However, Article I(1) of the Network Music Opinions , which China does not discuss, refers to the
network music market as encompassing "music produc ts transmitted through such wired or wireless
media as the internet and mobile communications." Moreover, an interpretation of the Network Music
Opinions posted on the Chinese Ministry of Cu lture's website states that in the Network Music
Opinions, "music was defined for the first time, refe rring to music products as transmitted through the
Internet, mobile communication network as well as other wired and wireless media ... ."

6. Trade in goods: China's measures regarding the internal sale, offering for sale,
purchase, distribution and use of the products are inconsistent with Article III:4 of the
GATT 1994
(a) Sound recordings intended for electronic distribution
4.542 China has also failed to rebut the US prima fa cie case that the measures regulating hard-copy
sound recordings intended for electronic distribu tion accord less favourable treatment to imported
products than to domestic like produc ts in contravention of Article III:4 of the GATT 1994. China's
first erroneous assertion is that the US claim rela tes to the treatment accorded to the electronic
distribution of sound recordings. The US claim relates to China's less favourable treatment of
imported hard-copy sound recordings intended for electronic distribution. China's discussion that an
Article III:4 claim can only relate to a good, which must be a tangible item, is irrelevant.
4.543 In addition, China's contention that the releva nt measures do not affect the distribution of
hard-copy sound recordings because these measures onl y relate to sound recordings in a format
suitable for electronic distribution misses the mark. First, China provides no citations to any of the
relevant measures – let alone a textual analys is – to support this assertion. Moreover, the Network
Music Opinions provides that the content review requirement is "[i]n regard to imported audiovisual
products (including those officially published and distributed) whose content has already been
examined by the Ministry of Culture and are to be transmitted over the information network." The
Internet Culture Rule , on which the Network Music Opinions is based, refers to "[a]udiovisual
products ... produced or reproduced by the use of cer tain technological means to disseminate over the
Internet." Since hard-copy sound recordings are a type of "audiovisual product," the term
"audiovisual products," encompasses hard-copy sound recordings that may be disseminated
electronically.
4.544 China's argument that the discriminatory cont ent review requirement does not affect the
distribution of the hard-copy, but only the "digitalized content," reflects an overly narrow view of the
national treatment obligation in Ar ticle III:4. Under Article III:4, a measure must be affecting the
import's movement through the chain from production to consumption, including the "sale, offering
for sale, purchase, transportation, distribution or use" of the imported product. Moreover, the
"affecting" requirement is interpreted broadly.
4.545 In the case of hard-copy sound recordings inte nded for electronic distribution, the relevant
measures affect the imported products within the m eaning of Article III:4. Specifically, before the
ICP or MCP can distribute an imported product electronically, it must submit the sound recording for
content review, a requirement not faced by do mestic sound recordings intended for electronic
distribution. The fact that the hard-copy sound reco rding is converted after importation into a format
that can be distributed electronically does not mean that the Chinese measures do not accord less
favourable treatment to the imported products. The steps involved in moving the product from
importation to the next stage (i.e., from importation to the ICP or MCP, then to the Ministry of
Culture for content review, and then back to the ICP or MCP) are part of the distribution of the
product. Accordingly, by imposing an administrative hurdle on only the imported products before the
ICP or MCP can move the product further downstr eam, the relevant Chinese measures adversely
affect the conditions of competition for the imported product.
4.546 In addition, a finding that a measure that accords less favourable treatment to imports does
not "affect" the distribution of the product merely because there is further processing of the product
downstream would undermine the discipline of Ar ticle III:4 by allowing a loophole in the national
treatment obligation.

4.547 Finally, there is no basis for China's contenti on that the United States has changed its claim
by showing that the relevant measures affect th e use of the imported product, rather than the
distribution. The US panel request provides, "[i] t thus appears that sound recordings imported into
China in physical form are treated less favourably than sound recordings produced in China in
physical form ... The measures at issue therefore app ear to be inconsistent with China's obligations
under Article III:4 of the GATT 1994." As provided in Article 6.2 of the DSU, the panel request
provides a brief summary of the legal basis suffici ent to set forth the problem presented by the
relevant measures clearly.
4.548 China also provided a discussion of its view of the translation of the relevant measures. The
United States provides a response to China's argume nts in Exhibit US-102. Through its discussion of
the translations, China seeks to argue that Article 14(1) of the Audiovisual Products Importation Rule
and Article 28 of the 2001 Audiovisual Products Regulation relate to the import of audiovisual
products rather than imported audiovisual products . China argues that th ese measures establish
conditions for importation and are thus border measures. China's translation is unsupported by an
analysis of the ordinary meaning of the relevant Chinese terms. Regardless of the translation issues,
these measures are not border measures. Ad Note to Article III of the GATT 1994 makes clear that a
regime that applies to both imported and domes tic products is not a border measure because the
measure is enforced at the border with respect to imports. As the GATT 1994 provides, the fact that
the content review requirement is enforced at the border for imported product does not transform the
measures into border measures.
(b) Films for theatrical release
4.549 China erroneously contends that the relevant measures do not affect the distribution of the
relevant product within the meaning of Article III:4 of the GATT 1994. These measures restrict
which entities may import films and which entities may distribute imported films. The term
"affecting" in Article III:4 has been interpreted broadly to encompass "law s or regulations which
might adversely modify the conditions of competition between domestic and imported products." The
discriminatory treatment applicable to importe d films adversely modifies the conditions of
competition in favour of the domestic product because domestic films do not face the same limitations
on their distribution opportunities as those faced by imported films. This suffices to establish that
China's measures are inconsistent with China's ob ligations under Article III:4. In addition, the
concept of distribution in Article III:4 is broad and encompasses a range of activities required to move
a product downstream. The fact that there ma y be changes to the product downstream does not
change the fact that the imported film faces l ess advantageous distribution opportunities than a
domestic like product.
7. China has not sustained its claim under Article 6.2 of the DSU with respect to the
Panel's terms of reference
(a) China's Film Distribution and Exhibition Rule, 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule are within the Panel's terms of reference
4.550 China's second submission characterizes one of the US arguments regarding the Film
Distribution and Exhibition Rule , the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule as relating to measures with the "same effects". The United States,
however, makes no such argument. Instead, the United States argues that these measures are included
in the Panel's terms of reference as they are laws and regulations through which the WTO-inconsistent
legal regime described in the US panel request is put into place.
4.551 China goes on to contend unsuccessfully that these three measures are not included in the
Panel's terms of reference, despite the fact that they are closely and directly related to measures

identified in the US panel request. First, the United States has shown that these three measures are
included in the US panel request because they fall within the cl ause incorporating amendments,
related measures and implementing measures contained in the US panel request. China ignores the
panel report in EC – Bananas III . Second, the United States has shown that the three measures are
"subsidiary or closely related to" measures cited in the US panel request, and are thereby included in
the Panel's terms of reference pursuant to the reasoning of the panel in Japan – Film.
(b) China's discriminatory requirements and differe nt distribution opportunities are within the
Panel's terms of reference
4.552 China's second written submission then turns to China's claims that discriminatory
requirements and different distribution opportunities imposed on foreign-invested enterprises are not
within the Panel's terms of refere nce with regard to th e US claims under Article XVII of the GATS.
China's contentions that its discr iminatory requirements are outside of the scope of the US panel
request are without merit. First, the US pane l request explicitly refers to "discriminatory
requirements" and "discriminatory limitations" in th e context of the US claims regarding reading
materials, and "requirements" and "discriminatory limitations" in the context of the US claims
regarding AVHE products. Second, the US panel re quest explicitly enumerates all of the measures
that contain the challenged discriminatory requirement s. Contrary to China's contention, Article 6.2
does not require panel requests to identify each in dividual provision of each challenged measure.
Finally, China maintains its misplaced reliance on the reports in Japan – Film and US – Carbon Steel,
while ignoring the points made in this context by the United States.
4.553 In its first written submission, China contende d that the US Article III:4 claim regarding
restrictions on distribution opportunities for imported reading materials was outside of the Panel's
terms of reference, because it was not included in the US Consultation Request. China has offered no
response to the US arguments explaining why this clai m is included in the Panel's terms of reference,
including with respect to the Appellate Body's reasoning in Mexico – Rice.
8. Translation
4.554 China provided a discussion of the translation of certain measures in an exhibit submitted
with its second written submission. The United States responds to China's discussion of these
translation issues in Exhibit US-102.
H. ORAL STATEMENT OF CHINA AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL
1. Introduction
4.555 In its second written submission, the United States h as tried to further substantiate its claims
and to rebut China's arguments, and even sometim es to expand the subject of its claim beyond what
was initially included in its panel request and its first written submission.
4.556 China believes that the claims of the United St ates, far from being clear-cut, are based on an
erroneous reading of the WTO Agreements, in cluding China's accession documents, or on a
misrepresentation of the facts.
4.557 Concerning trading rights for films for theat rical release, the US second written submission
focuses all its efforts on demonstrating that cinematogr aphic film is a good, a fact which is irrelevant
in this case and has never been disputed by China. This does not help the US case, because it is the
measures at stake which determine what WTO rules are applicable.

4.558 As regards sound recordings distribution service s, China's commitments are limited to sound
recordings in physical form, and do not cover ne twork music services. The United States fails to
establish that network music services are not a service distinct from the distribution of sound
recordings in physical form. China has brought further evidence demonstrating that these two
services are clearly distinct and that network music services were not covered by China's
commitments under GATS.
4.559 With respect to product distribution for sound recordings intended for electronic distribution,
the United States tries to convince th e Panel that the subject of its cl aim relates not to the exploitation
of music over the Internet, but rather to an alle ged less favourable treatment of the imported hard-
copy of sound recordings. However, an analysis of the United States' contentions made throughout
these proceedings reveals that this is not in fact the subject of its claim.
4.560 With respect to product distribution for moti on pictures for theatrical release, the United
States has likewise attempted to move the target of its claim to cinematographic film. However, this
does not help its case since imported cinematographic film is not "distributed" within the meaning of
Article III:4 of the GATT 1994.
4.561 In addition to the above, the United States provi des an unacceptably restrictive picture of the
rights which China derived from its WTO Accession ( especially its right to regulate trade in a manner
consistent with the WTO Agreement) and makes an inaccurate presentation of the relevant Chinese
laws and regulations (especially on distribution services for reading materials).
2. Terms of reference
4.562 The United States has sought to develop a case th at goes far beyond what was set out in its
panel request in three respects.
4.563 Firstly, the United States has challenged meas ures which it failed to mention in its panel
request. When confronted with this failing, it cont ended that such measures were properly identified,
because they have the "same effect" as measures de scribed in its panel request. China submits that
describing the alleged effects of a measure does not amount to "[identifying] the specific measure"
and does not satisfy the "requirement of precision" imposed on parties to a dispute. Moreover, the
alleged effects are the subject of the dispute on wh ich findings are yet to be made. Considering that
the responding party normally disputes that its meas ures have the effects alleged by the complaining
party, it is unreasonable to expect the responding pa rty to identify measures based on their alleged
effects.
4.564 Secondly, the United States argues that these me asures were included in the panel request
because they fall within the category of so-called "r elated" or "implementing" measures as mentioned
in the panel request. However, accepting this ar gument would prejudice China and other parties' due
process right to be sufficiently informed of the me asures which are challenged by the United States.
It would also have the effect of minimizing unreasonably the burden of the complaining party, which
would only be required to identify one specific measure followed by a "catch-all" expression such as
"as well as any amendments, related measures, or implementing measures".
4.565 Thirdly, the United States has raised totally ne w claims with respect to distribution services
and "different distribution opportunities", which it entir ely failed to mention in its panel request. It
now seeks to suggest that they were properly broug ht before the Panel simply because it mentioned
the relevant measures and WTO obligations alleged to be breached in the panel request. However,
this argument is not supported by the wording of Article 6.2 of the DSU or by previous WTO
jurisprudence.

4.566 China therefore respectfully requests the Pane l to make findings only on the basis of the
claims advanced in the US panel request, and to i gnore the additions that the United States has sought
to make to its claim since that document.
3. Trading rights
(a) Motion pictures for theatrical release
4.567 In its panel request and in its first written s ubmission, the United States made its claim with
regard to trading rights for "films for theatrical rel ease". However, since its first oral statement, it
instead seeks to refer to "cinematographic film". This is an attempt to play with the dual meaning of
the generic term "film" (which can refer either to th e carrier or to the content), in an attempt to bring
the Chinese measures under the WTO disciplines on goods.
4.568 Contrary to what the United States suggests, "motion pictures for theatrical release" (i.e.
artistic works intended to be shown in theaters) ar e different from cinematographic film. The Panel
should dismiss any attempt by the United States to change the subject of its claim because it goes
beyond the Panel's terms of reference, and the Panel should treat the United States' abandonment of its
previous assertions as a failure by the United States to establish its case.
4.569 Moreover, the United States' attempt to focu s on the existence of a good (which has never
been denied by China) does not help the US case. In the case of measures which affect an activity
involving goods and services, China respectfully s ubmits that the starting point for the Panel's
analysis should be to examine how the measure s affect these goods and services, and not merely
whether these goods and services exist. In particular , it is necessary to consider whether the measures
affect trade in goods as goods or the supply of services as services, and consequently whether they fall
under WTO rules on goods, WTO rules on services or both.
4.570 The commercial exploitation of motion pictures fo r theatrical release is realized through a
series of services. The United States persistently inte rprets the term "film" as used in the relevant
Chinese measures as referring to the physical carrier, cinematographic film, when in fact the term as
used in the measures refers to the artistic work. The measures regulate the exploitation of motion
pictures through the organization of public shows through a series of services, and regulate the
importation of motion pictures for theatrical release as part of these services. Therefore, the measures
regulate the provision of services and not the supply of goods.
4.571 Further, in the context of theatrical release of motion pictures, cinematographic film is not
itself the object of trade. It is not exploited as su ch but merely follows the services involved in this
theatrical release as an accessory to such services. China has demons trated that the Chinese measures
do not affect cinematographic film independently from the regulation of services but only as a logical
outcome of this regulation.
4.572 The United States refers to several situations which are allegedly similar to the case of
cinematographic films. However, these examples repeat the mistake of focusing on the product,
rather than the relevant measure. If such an appr oach was, for example, applied to a lottery ticket
imported in order to organize lotteries, it would l ead to the conclusion that measures which regulate
the approval of entities allowed to organize lotteri es, i.e. an entertainment service, fall under WTO
rules on goods when they affect the importation of the lottery ticket. Howe ver, such a conclusion
would completely overlook the fact that the tic ket has no other purpose than to provide lottery
services.

(b) China is entitled to put in place a system allowing it to review the content of imported cultural
products
4.573 China notes that the United States does not appear to dispute that China has a sovereign right
to put in place a system designed to review and c ontrol the content of cultural goods that enter its
territory. The United States also does not appear to dispute that China is entitled to decide the level of
protection that it requires.
4.574 China has decided that the control of cultural c ontent is a matter of fundamental importance,
and that it requires a complete exclusion from its te rritory of materials which could have a negative
impact on public morals. The right to set such sta ndard of enforcement and to put in place a system
that will maintain such standard is unquestiona ble and recognized also by the Appellate Body
jurisprudence.
4.575 In its second written submission, the United Stat es attempts to unduly restrict the scope of
China's explicitly reserved right to regulate trade in a manner consistent with the WTO Agreement by
suggesting that the "without prejudice" clause in pa ragraph 5.1 of China's Accession Protocol allows
China to regulate goods that are traded, but not to regulate categories of traders engaged in the
importation of goods. In fact, the "without prejudice" clause in paragraph 5.1 confirms China's right
to regulate trade, not the right to regulate goods. Contrary to the United States' assertion, the "without
prejudice" clause of paragraph 5.1 thus does not create a right to exclude products from the scope of
China's trading rights commitments, but rather to a dopt or maintain measures consistently with the
WTO Agreement.
4.576 China's right to regulate trade is therefore diffe rent to the exceptions listed in Annex 2A and
Annex 2B of the Accession Protocol. While Annex es 2A and 2B reflect the negotiated right of China
to preserve State trading for a certain number of products and sectors, China's right to regulate trade is
the expression of a general right of WTO Member s to maintain certain measures and to pursue
legitimate objectives.
4.577 The Appellate Body has consistently held that "a treaty interpreter must read all applicable
provisions of a treaty in a way that gives meaning to all of them, harmoniously". Thus, both China's
commitment with respect to the right to trade and China's explicitly reserved right to regulate trade in
a manner consistent with the WTO Agreement should be given their respective full meanings in order
to avoid diminishing China's rights and obligations.
4.578 The United States also argues th at China has failed to establish a nexus between importation
and content review. However, the level of prot ection sought by China is that of a complete
prohibition within its territory of all cultural content which could have a negative impact on public
morals. In China's view, this justifies implementin g the content review at the importation stage, i.e.
before any possible dissemination of the content of these products in China.
4.579 The United States further alleges that China h as numerous alternatives to achieve its content
review objectives that would not result in a limita tion on the right to import. However, the United
States fails to identify precisely any WTO consistent alternative which would allow China to enforce
the same level of protection than the current measures at issue.
4.580 The United States goes on to submit that the Chinese measures at issue do not meet the
requirements of the chapeau of Article XX of the GATT and are applied in a manner which
constitutes a means of arbitrary or unjustifiable discrimination, or a disguised restriction on
international trade, because the relevant importa tion entities are required to be wholly state-owned
entities. However, China considers that only stat e-owned enterprises should be called on to bear the
cost of the review, which relates solely to the pub lic interest. In addition, state-owned enterprises are

the only entities currently considered to fulfil the technical and organizational requirements set out in
the relevant Chinese laws and regulations.
4.581 The requirements referred to by the United St ates are clearly laid down in the Chinese laws
and regulations. There is therefore nothing "opaque" or "disguised" about such requirements.
4. Distribution services
(a) Zong Pi Fa no longer exists
4.582 After the adoption in 1999 of the Interim Provisions on the Administration of the Publications
Market, Zong Pi Fa no longer exists. The two notices refe rred to by the United States are not legal
instruments adopted by a government agency and ca nnot be used to interpret the relevant Chinese
measures.
(b) Alleged discriminatory requirements
4.583 In respect of allegedly discriminatory requirements, the United States must show, not merely
that foreign-invested enterprises are treated differe ntly from domestic enterprises, but also that they
are treated less favourably - in other words, that the different requirements alter the conditions of
competition with domestic services and services suppliers. However in fact, none of the requirements
cited by the United States places foreign-invested enterprises at any disadvantage in the market place.
4.584 The approach of the United States is to engage in unfounded speculation about situations in
which these requirements could act to the detriment of the foreign invested entity. However, these
speculations are flawed. For example:
(a) The US argument that foreign-invested en terprises have twice as many chances of
being rejected in the context of the approvals process, simply because they are (on the
United States' case) required to obtain six approvals rather than three, is logically
flawed;
(b) The limitations on the operating terms of fore ign-invested enterprises in China which
are criticized by the United States are in fact adopted to protect the reasonable
expectations and interests of such ente rprises by guaranteeing their business activity
within the approved business scope and operating term;
(c) The United States' suggestion that the exte nsion of the operating term is anything
other than non-discretionary, automatic and simplified is incorrect . As long as the
application for extension satisfies the three conditions set out in the relevant
regulations, the examining authority is obliged by law to grant approval.
(c) Network music services are not covered by China's commitments under the GATS
4.585 China's commitment under Sector 2D of its Schedule to the GATS in respect of "sound
recording distribution services" only covers the supply of sound recordings in physical form. It does
therefore not extend to the supply of music over the internet.
4.586 "Distribution" traditionally refers to the supply of goods rather than to the dissemination of
content over the internet. As a result, China i nvites the Panel to accept its definition of "sound
recording distribution services" under the general rule of interpreta tion contained in Article 31 of the
Vienna Convention.

4.587 While the United States attempts to show that "electronic distribution of sound recordings"
was not a new phenomenon at the time of China's accession to the WTO, the evidence it cites in
support of this contention in fact shows that netw ork music services did not constitute an established
business embedded in a legal framework at the relevant tim e, either in the United States, or in China.
Further, the United States fails satisfy its burden of proof and substantiate its claim that the so-called
"electronic distribution of sound recordings" is a mere means of supplying "sound recording
distribution services" which China has committed under Sector 2D of its Schedule to the GATS.
4.588 China invites the Panel to adopt the criteria it has put forward in its answers to the Panel's
questions as useful guidelines when determin ing the boundary between a (committed) service
delivered by a new means of delivery and a dis tinct service not committed. "A service" committed
remains the same service even if this service is s upplied by a new technological means. However, the
so-called "electronic distribution of sound recordin gs" cannot be considered to be the same service
initially committed by China under Sector 2D of its Schedule to the GATS, when applying the criteria
suggested by China.
4.589 Besides the essential operational characteristics, the perception of the consumer of the two
services, which includes the result of the supply of the service for the consumer, is also different.
When supplied with network music services, the end- consumer obtains a significantly different result
from that obtained from the distribution of sound recordings in physical form, i.e. he or she is granted
access to certain intangible data which can be decoded with a computer or other devices to play music
works.
4.590 In addition, the CPC Ver. 2 classifies s ound recording distribution services and network
music services under completely different sections (o ne-digit level), showing that they are by nature
separate and distinct services. Previous versions of the CPC also distinguish between the distribution
of physical items (i.e. goods) and the transmission of intangible items.
5. Product distribution under Article III:4 of the GATT 1994
4.591 The United States has attempted to extend the scope of its claim under Article III:4 of the
GATT 1994. In its panel request, the United States challenged allegedly less favourable distribution
opportunities for imported cultural products. In its an swers to the questions of the Panel, the United
States extended its ambit to less favourable opportunities not only with respect to the distribution, but
also to the use of, in particular, imported sound recordings. In its second written submission, the
United States is now alleging that the Chinese measur es at stake affect the internal sale, offering for
sale, purchase, distribution or use of sound recordings for electronic distribution.
4.592 China submits that the United States should not be allowed to change its claim in this manner,
and asks the Panel to find that the United States has accordingly failed to establish a prima facie case
of violation of Article III:4 of the GATT, since it fails to identify precisely which situation covered by
Article III:4 of the GATT (and the similar provisions of the Accession Protocol) is relevant in respect
of the challenged measures.
(a) Reading materials
(i) Newspapers, periodicals, books and electronic publications in the "restricted category"
4.593 The restricted category includes reading materi als with prohibited content used by certain
government agencies and institutions for research pur poses. Contrary to the US assertions, China has
provided ample support for this fact.

4.594 In addition, the United States is incorrect to refer to the Publications Market Rule to draw
conclusions about subscriptions to imported publications in this category, as these provisions only
apply to publications in the market sales system, i.e. books and electronic publications in the
unrestricted category. Therefore, Article 24 of the Publications Market Rule cannot be used to
interpret the Imported Publications Subscription Rule, a measure on the subscription system.
4.595 As the restricted category includes prohibited or illegal publications that cannot be distributed
in Chinese market, the approval of entities to be able to subscribe to publications in the restricted
category is determined by GAPP on a case-by-case basi s and in fact, may only be granted to certain
government agencies and institutions.
(ii) Newspapers and periodicals in the unrestricted category
4.596 Newspapers and periodicals in the unrestricted category are subject to "quasi-automatic
subscription" with "no rejection of applications" and "without the involvement of state agencies".
4.597 The United States seeks to attack thes e propositions by reference to the Imported Cultural
Products Rule. However, these measures are not directly applicable to importation and subscription
activities, given that the last paragraph of these me asures provides that "[a]fter the release of these
Measures, all departments shall sort out and amend ru les and regulations that run contrary to them".
In fact, the Imported Publications Subscription Rule are the rules currently adopted and relied upon
by GAPP to regulate the subscription to imported publications. No government approval is required
for the subscription to publications in the unrestricted category pursuant to this measure.
(b) Sound recordings intended for electronic distribution
4.598 The United States seeks to assert that its claim "only applies to measures affecting imported
hard-copy media containing sound recordings that are intended for electronic distribution
" and "does
not include a challenge to any measure's treatment of services or service suppliers involved in the
electronic distribution of sound recordings".(emphasis added)
4.599 In fact, the US previous complaint has been about allegedly less favourable opportunities for
the digital transmission of imported music over the Internet.
4.600 As China has maintained throughout these proceed ings, "distribution" within the meaning of
Article III:4 of the GATT only relates to the supply of goods, so the US claim must be dismissed.
4.601 Moreover, by redefining the target of its claim as being the imported hard-copy sound
recording, the United States is in fact arguing th at the Chinese measures affecting the content of
imported hard-copy sound recordings should also be considered as measures affecting "the internal
sale, offering for sale, purchase, distribution or use of" hard-copy sound recordings and thus fall under
Article III:4 of the GATT. Following this errone ous logic of the United States would mean that
GATT rules would apply to any measure regulating services related to - intangible - content as long as
there exists a physical carrier capable of being tr aded, since such a measure would always have the
alleged effect on its carrier. This interpretation is untenable when one considers, for example, the
effect it would have in the context of the broadcasting of foreign music.
(c) Motion pictures for theatrical release
4.602 The United States affirms that its claim is about the distribu tion of cinematographic film,
rather than motion pictures for theatrical release. This allegation is contradictory with the United
States' challenges to aspects of th e distribution regime which pertain to motion pictures, and not
cinematographic film.

4.603 If one accepts that the US claim in fact concerns the distribution of motion pictures for
theatrical release, such distribution, which consists of the provision of services for the organization of
the release in theatres of intangibl e artistic works, cannot be characterized as the distribution of goods
falling under Article III:4 of the GATT. However, ev en if the cinematographic film was to be taken
into account, the United States itself admits that the imported cinematographic film is not the good
being distributed by the motion picture distributor.
4.604 In respect of the United States' attempt to s how an alleged discriminatory treatment between
imported and domestic motion pictures, China responds as follows.
4.605 Firstly, the allegation that the distribution of imported motion pictures is controlled by a
"duopoly" is erroneous. Neither the Film Regulation, nor any other Chinese laws or regulations, nor
SARFT itself, place any quantitative restriction on th e companies that may be approved to distribute
imported motion pictures.
4.606 Secondly, imported motion pictures in fact enjoy equivalent, if not better, distribution
opportunities. The United States argues that the Pa nel should not examine the trade impact of the
measures, because "consistency with Article III: 4 is not determined on the basis of outcomes or trade
effects." However, the Appellate Body in Korea – Beef considered that the trade impact of a measure
could be a relevant element for the analysis under Article III:4.
4.607 For these reasons, the United States has failed to demonstrate that the Chinese measures entail
a less favourable treatment of the distribution of imported motion pictures for theatrical release in the
meaning of Article III:4 of the GATT.
6. Conclusion
4.608 China respectfully reiterates its request that the Panel finds all the US claims unfounded and
therefore dismisses them in their entirety.
V. ARGUMENTS OF THE THIRD PARTIES
A. A
USTRALIA
1. Introduction
5.1 Australia wishes to address: whether "films for theatrical release" and "unfinished audiovisual
products" are "goods" within the meaning of the Protoc ol; how "China's right to regulate trade in a
manner consistent with the WTO Agreement" relat es to "the right to trade" in the context of
paragraph 5.1 of the Protocol; the applicability and scope of the "public morals" exception of
Article XX of the GATT; some matters relating to China's GATS obligations; and a matter relating
to the US claims under Article III:4 of the GATT. Australia reserves its position in relation to any
matter not addressed in this statement.
2. "Films for theatrical release" and "unfinished audiovisual products"
5.2 China has questioned whether "films for theatrical release" and "unfinished audiovisual
products" are "goods" covered by the relevant co mmitments of its Protocol. Notwithstanding its
arguments, the information provided by China indicates that the specific items at issue in the dispute
are goods within the meaning of the Protocol.

5.3 China states that "motion pictures for theatrical release" are subject to "customs clearance of
the delivery materials for the purpose of the distribution of motion pictures to Chinese distributors and
theatres". In Australia's view, that statement presumes that the items are goods.
5.4 China also states that, in respect of "audiovisual products for publication", "the master copy
would then be returned or destroyed", and refe rs to a model Production and Sales Contract. The
model contract in turn requires that the master copy be crushed under supervis ion, or returned to the
copyright owner of the master copy. Australi a understands that such conditions could only be
fulfilled if the master copy exists in physical form, in which case it would be a good.
5.5 However, the Panel may consider that the items at issue in the dispute are not necessarily
physical goods. In that event, Australia does not consider content separate from carrier media to be a
good to which the right to trade would apply.
3. "China's right to regulate trade in a manner consistent with the WTO Agreement"
vis-à-vis "the right to trade"
5.6 Paragraph 5.1 of the Protocol provides in relevant part: "[w]ithout prejudice to China's right
to regulate trade in a manner consistent with th e WTO Agreement, … all en terprises in China shall
have the right to trade in all goods throughout the cu stoms territory of China … Such right to trade
shall be the right to import and export goods. …"
5.7 "The right to trade" within the meaning of the Protocol is a necessary prerequisite for the
application of the WTO Agreement. There must be a right to import and export goods to and from
China before China can have a right to regulat e trade in a manner consistent with the WTO
Agreement. Moreover, Australia believes that its view is supported by the opening phrase of
paragraph 5.1: "without prejudice to". A right to trade must exist for there to be the possibility of
detriment to China's rights under the WTO Agreement.11
5.8 Accordingly, in Australia's view, it is not open to China to restrict or limit "the right to trade"
within the meaning of the Protocol, that is, the right to import and export goods, on the basis of its
"right to regulate trade in a manner consistent with the WTO Agreement".
4. The applicability and scope of the "public morals" exception of Article XX of the GATT
5.9 It follows that Australia does not consider Chin a is able to invoke Article XX of the GATT to
justify a restriction or limitation on "the right to trade" within the meaning of the Protocol.
Article XX is only potentially available in respect of measures adopted subsequent to the right to trade
having been granted.
5.10 Moreover, Australia notes that the Accession Protocol is an integral part of the WTO
Agreement, but not of the GATT. The language of Article XX makes clear that it may only be
invoked in respect of measures that violate another GATT provision.
5.11 The Panel may nevertheless wish to explore th e potential applicability of Article XX in more
depth. In that event, Australia notes that the mean ing of the term "public morals" was considered by
the Panel in US – Gambling . That Panel considered that the term denoted "standards of right and
wrong conduct maintained by or on behalf of a commun ity or nation". Further, that Panel considered
that the concept of "public morals", as well as the concept of "public order" as used in Article XIV of
GATS, "can vary in time and space, depending upon a range of factors, including prevailing social,

11 The New Shorter Oxford English Dictionary , Ed. Lesley Brown, Clarendon Press, Oxford, 1993,
Vol. 2, page 2333, defines the phrase "without prejudice" as "without detriment to any existing right or claim".

cultural, ethical and religious values". The US – Gambling Panel's findings provide useful guidance
for consideration of the "public morals" exception in the context of Article XX of the GATT.
5.12 Australia agrees that cultural values can contri bute to the public morals prevailing in a WTO
Member. However, not all items having genuine cu ltural value to a Member will automatically be
encompassed by the term "public morals" within the meaning of Article XX. Consider the example of
books, which have cultural value in Australia. The f act that books have cultural value in Australia
would not automatically give Australia the right to control the import of all books to protect public
morals in Australia. Rather, Australia would have to show a relationship between the cultural value
of books to Australia and the standards of right and wrong conduct maintained in Australia.
5.13 It is incumbent upon China to show that there exists a relationship between the cultural value
of the items at issue, that is, between reading materials and audiovisual products, including sound
recordings, and the standards of right and wrong conduc t maintained in China. In Australia's view,
China is not able to rely on the cited UNESCO instru ments to demonstrate such a relationship. China
has not taken account of the aspirational status of the UNESCO Universal Declaration on Cultural
Diversity. At the same time, it has ignored Artic le 20(2) of the Convention on the Protection and
Promotion of the Diversity of Cultural Expressions . Article 20(2) states: "[n]othing in this
Convention shall be interpreted as modifying right s and obligations of the Parties under any other
treaties to which they are parties."
5.14 Further, the Appellate Body has several times considered the standard established by the word
"necessary" in Article XX. Most recently, in Brazil – Retreaded Tyres , the Appellate Body
reaffirmed its earlier findings on the "necessity" test in US – Gambling when it said:
"… the weighing and balancing process inherent in the necessity analysis 'begins with
an assessment of the 'relative importance' of the interests or values furthered by the
challenged measure' …, and also involves an assessment of other factors, which will
usually include 'the contribution of the meas ure to the realization of the ends pursued
by it' and 'the restrictive impact of the measure on international commerce'."
12
5.15 Australia does not comment on the level of content review of the items at issue considered
necessary by China. However, Australia agrees with the view expressed by the European
Communities that it is the content of the material its elf which is subject to review, not the entity or
individual conducting the review. China has not shown that its desi red level of content review cannot
be achieved through alternative means that would have a less-restrictive impact on the right to trade.
5. China's GATS obligations
5.16 Australia would like to comment on three matters with respect to China's obligations in
relation to the GATS.
5.17 Firstly, China has not scheduled any national treatment limitations on its scheduled
commitments in relation to Distribution Services and Audiovisual Services. In relation to its
scheduled commitments, China is therefore obliged to extend national treatment as required by
Article XVII of the GATS to the services and service suppliers of other Members. Australia notes
that China's national treatment obligation applies to a "foreign-invested enterprise" insofar as such an
enterprise remains a "juridical person of another Member" as defined in Article XXVIII(m) of the
GATS.

12 Appellate Body Report on Brazil – Retreaded Tyres, para. 143.

5.18 Secondly, China claims that is has not scheduled, and "never intended to include", a
commitment in relation to a particular type of wh olesale distribution channel. Australia recalls that
the US – Gambling dispute involved an analogous situation concerning whether the United States had
scheduled commitments in respect of gambling and betting services. In that dispute, the Appellate
Body made a number of relevant findings:
"… the task of identifying the meaning of a concession in a GATS Schedule, like the
task of interpreting any other treaty text, involves identifying the common intention
of Members";
13
… [Article I:3(b) of the GATS] … defines ' services' very broadly, as including 'any
service in any sector except services supp lied in the exercise of governmental
authority";14
… the GATS definition of 'sector' provides th at any reference to a 'sector' means –
unless otherwise specified in a Member's Schedule – a reference to all of the
subsectors contained within that sector";
15 and
[t]he Scheduling Guidelines … make clear that parties wanting to use their own
subsectoral classification or definitions … were to do so in a 'sufficiently detailed'
way 'to avoid any ambiguity as to the scope of the commitment'."16
5.19 In Australia's view, if the contested wholesale distribution channel is "generally covered by
CPC 61, 62, 63 and 8929" as referred to in Annex 2 to China's Schedule, it is a distribution service in
respect of which China has made market access commitments. Having regard to the Appellate Body's
findings in US – Gambling , China would need to have explicitly excluded the contested wholesale
distribution channel from the scope of its commitments for its claim to succeed.
5.20 The third matter on which Australia would like to comment concerns China's claims that
"network music services" are not covered by its Schedule commitments for sound recording
distribution services. China defines "network mu sic services" as "the dissemination of music in
digital format through the Internet to users."

5.21 Australia does not agree that "network music se rvices are … a new service totally different in
kind from the 'sound recording distribution services' committed by China …" The sub-sector "sound
recording distribution services" is not definitionally limited in regard to the methods of distribution
covered. Accordingly, having regard to the Appellate Body's findings in US – Gambling as
previously outlined, China would need to have expressly limited its commitments to particular
methods of distribution for its argument to succeed.
5.22 In any case, distribution of sound recordings ov er the Internet was occurring for some years
before China acceded to the WTO, as China itself acknowledges in its reference to the file-sharing
platform "Napster". Not all such distribution in fringed copyright or related rights, for example,
copyright on some material may have expired. Even when such distribution did infringe copyright
and related rights, that infringing activity did not invalidate the Internet's status as a means of
distribution.

13 Appellate Body Report on US – Gambling, para. 160.
14 Appellate Body Report on US – Gambling, para. 180.
15 Appellate Body Report on US – Gambling, para. 180.
16 Appellate Body Report on US – Gambling, para. 203.

6. Article III:4 of the GATT
5.23 With respect to the US claim under Article III: 4 of the GATT, Australia has earlier expressed
its view that content separate from ca rrier media is not a good. Accordi ngly, to the extent that the US
claim is based on content being a product distinct from a carrier medium, Australia does not consider
that the US claim can succeed.
B. E
UROPEAN COMMUNITIES
1. Introduction
5.24 The European Communities makes this third pa rty written submission because of its systemic
interest in the correct interpretation of the GATT 1994 and the GATS.
2. Trading rights and China's WTO Accession protocol
5.25 The United States stated in its submission that China has committed to provide all enterprises
in China and all foreign enterprises and foreign indi viduals the right to trade in all goods except those
listed in Annexes 2A and 2B of China's Accession Protocol, and that these commitments extend to
what the United States terms as "the Products, i. e. reading materials (including books, periodicals,
newspapers and electronic publications), AVHE products (including videocassettes, VCDs and
DVDs), sound recordings and films for theatrical rel ease, as none of the Products is listed in either
Annex." Through a variety of measures, China refu ses to permit any foreign enterprises or foreign
individuals to import the Products, and likewise only allows a subset of enterprises in China – i.e.
wholly state owned Chinese enterprises approve d or designated by the Chinese government – to
import the Products. This is inconsis tent with China's obligations contai ned in Part I, paragraphs 5.1,
5.2 and 1.2 of the Accession Protocol, as well as in paragraphs 83 and 84 of China's Working Party
Report.
5.26 China argues that it has the right, under paragr aph 5.1 of the Accession Protocol, to impose
restrictions and conditions to the grant of trading ri ghts, such as the limitation of the right to import to
a number of selected entities, provided that these measures are consistent with Article XX of the
GATT, especially Article XX(a) which relates to measures that are necessary to protect public morals.
5.27 In the view of the European Communities, Article XX of the GATT 1994 does not directly
apply to China's Accession Protocol commitments, due to the fact that even if they are an integral part
of the WTO Agreement, they are not a part of the GATT 1994. The GATT 1994 is obviously also an
integral part of the WTO Agreement, but it is a di fferent part amongst the various "parts" referred to
in Article II:2 of the WTO Agreement. This makes sense, as it should only be logically possible to
invoke exceptions within the specific agreement in which they are contained.
5.28 However, even in a scenario in which the GATT 1994 regime is deemed to be applicable to
the measures at issue, China would still have to satis fy the requirements set out in Article XX of the
GATT 1994. In the opinion of the European Communities, what is really at issue in this dispute is not
the system of content review in China, but whether the "trading rights" of non-Chinese enterprises and
individuals are being adversely a ffected through the application of Chinese measures which restrict
the importation of reading materials and other audiov isual products, specifically, and only, to certain
entities. The European Communities contends that th is results in a discriminatory treatment against
non-Chinese enterprises, which also has the effect of protecting Chinese enterprises from competition
from foreign enterprises.
5.29 Moreover, the stringent requirements that the Chinese measures impose on the importing
entities, do not meet the "necessity" test criteria as required by Article XX of the GATT 1994 and

further developed by reports of the Appellate B ody, and that the Chinese measures in question are
having an extremely "restrictive impact on interna tional commerce". The EC contends that it would
still be possible for the Chinese authorities to implement a content review system, without almost
completely restricting the right to trade in goods su bject to content review to a restricted number of
Chinese entities.
3. China's commitments in the distribution sector under the GATS and its schedule of
specific commitments
5.30 The European Communities refers to China's commitments in the Distribution Sector, as set
out in its Schedule of Specific Commitments, and to China's explanations about the meaning of the
term "Fa Xing", which according to China is a generic term covering different features of distribution,
then further sub-divided into "two distinct distribution channels", to which it refers as "Zong Fa Xing"
and "Fen Xiao." It also referred to China's cont ention that it intended to include " Zong Fa Xing " in
the scope of its distribution services commitments in the GATS.
5.31 The European Communities recalls that, as observed by the Appellate Body in US-Gambling,
the task of ascertaining the meaning of a concessi on in a Schedule, "involves identifying the common
intention" of WTO Members. It seems that the attempt to define " Zong Fa Xing " as a distinctively
Chinese concept with no equivalent in English does no more than to create confusion. It is not
uncommon in Europe and elsewhere th at publishers sell their products directly to their consumers, or
through agency agreements with sub-distributors. Moreover, the use of a "distinctively Chinese
concept" or terminology in Chinese legislation does not imply that the services covered under this
concept or term do not fall under the relevant GATS sector or sub-sector.
5.32 The European Communities is of the op inion that China's definition of " Zong Fa Xing" is not
necessarily relevant for the question of whether the relevant activities fall within China's distribution
commitments. Entities offering " Zong Fa Xing " do conduct activities that would fall under China's
distribution commitments, both under wholesaling a nd retailing services, depending on the factual
situation and the users that are supplied. Excluding " Zong Fa Xing " commitments would have
required an explicit exclusion in China's GATS Sche dule. China's measures restricting non-Chinese
enterprises in the distribution sector are inconsistent with – at least – Article XVII of the GATS and
with China's Schedule of Specific Commitments.
4. "Technological neutrality" under the GATS and the reading of China's Schedule of
Specific Commitments on Audiovisual Services
5.33 The European Communities supports the position th at the GATS is generally neutral vis-à-vis
technology ("technological neutrality"). The GATS principles apply to the delivery of services by
electronic means. Market access and national tr eatment commitments made by WTO Members in
their GATS Schedules of Commitments guarantee the market access and national treatment
conditions which bind each WTO Member for those services can be provided in a "traditional"
format, but also through electronic means.
5.34 This would mean that service suppliers ar e free to supply these services unrestrictedly,
through any means of delivery. Moreover, th e rapid changes evident in modern technology
essentially mean that there are cha nges in the way that services are delivered and that these changes
are continuous.
5.35 The European Communities cannot agree with th e view expressed by China that the new
changes in digital technologies and communicati on networks have necessarily resulted in the
emergence of an entirely new type of services se ctor, which China refers to as "network music

services". It also does not agree with China's argume nt that the "principle of technological neutrality
is irrelevant in the present case".
5. The classification on "videos, including entertainment software and distribution
services"
5.36 The European Communities notes with interest the comments of the United States on the
coverage of "videos, including entertainment software and distribution services" and argues that these
services are regarded as audiovisual services for the purpose of regulatory and support policies of the
European Communities.
6. Applicability of Article III.4 of the GATT 1994 to services
5.37 In the opinion of the European Communiti es, Article III:4 of the GATT 1994 is only
applicable to domestic measures subsequent to im portation of the goods, and has no relevance to the
issue of "trading rights". The European Commun ities does not support the US line of argument based
on the assessment of the discriminatory nature of national measures regarding film distribution for
theatrical release and the electronic distribution of sound recording, against the background of
Article III:4 of the GATT 1994.
5.38 It considers that these two categories are to be considered a "service" and that it is under the
GATS that any assessment of national measures cha llenged under WTO rules should be carried out.
The European Communities also holds the view that electronic "deliveries" or transmissions are part
of the supply of a service, and therefore issues aris ing in this area ought also to be assessed under the
GATS.
C. J
APAN
1. Article III:4 of the GATT 1994 is applicable to the measures challenged by the
United States
5.39 Japan considers that China's measures affe cting audiovisual products (including sound
recordings) and films for theatrical release that are imported on tangible media – such as CDs, DVDs,
and exposed developed cinematographic film – are measures subject to Articles II, III:4, and XI of the
GATT 1994 and paragraphs 5.1, 5.2, and 1.2 of the Accession Protocol.
5.40 Article III:4 of the GATT 1994 by its terms appli es to "products … imported into the territory
of any other contracting party." The national treat ment obligation imposed by Article III:4 applies "in
respect of all laws, regulations and requirements affecting their internal sale, offering for sale,
purchase, transportation, distribution or use." Tran sportation and distribution are indeed services, and
other services also "use" imported products, but the dr afters of Article III:4 decided to include these
services in Article III:4 – because banning or discrimina ting against transportation, distribution or use
of imports is one of the most effective ways to shut down the market for imported goods.
17
5.41 The US claims under Article III:4 concern Chinese laws, regulations, and requirements that
"affect" the distribution of imported "products" and acco rd less favourable treatment to them than to
like products of Chinese origin. The classic statem ent of the meaning of Article III:4, in the GATT
panel Italy – Agricultural Machinery , explains that by using the word "affecting", the drafters

17 See Analytical Index of the GATT (updated 6th ed. 1995), pp. 181-182 (discussing discrimination in
internal transportation of imported goods). As relevant precedents, see Panel Report on Canada – Periodicals,
paras. 5.32-5.39; this finding was not appealed; Panel Report on Korea – Various Measures on Beef ,
paras. 639, 685, 705; Appellate Body Report on Korea – Various Measures on Beef, para. 148.

"intended to cover ... also any laws or regulations which might adversely modify the conditions of
competition between the domestic and im ported products on the internal market ".18 Endorsing this
approach, the Appellate Body has interpreted "aff ecting" broadly to mean "has 'an effect on.'" 19 By
this standard, Article III:4 applies to the Chinese measures at issue.
5.42 The term "distribution" in Article III:4 must al so be construed broadly. "Distribution" is
defined as "[t]he action of spreading or dispersing throughout a region," 20 and this meaning suggests
no limit to the types of distribution covered by Article III:4. Because Article III:4 addresses any
measure that may adversely modify the conditi ons of competition between domestic and imported
products, "distribution" in the sense of Article III:4 must be construed to include all channels by
which a good may be "spread[] or dispers[ed]" to consumers.
5.43 The Appellate Body has also found that content does not detract from the conclusion that an
object is a good. In Canada – Periodicals, the Appellate Body found a periodical to be a good despite
the fact that it is comprised of content stati ng that "a periodical is a good comprised of two
components: editorial content and advertising cont ent. Both components can be viewed as having
services attributes, but they combine to fo rm a physical product -- the periodical itself".
 The fact that
tangible media (such as film reels) may be an "accessory" to the provision of a service does not mean
that trade in such tangible media is trade in servi ces. A car is a good, not a service, even if it is
imported solely for use in a car rental service.
5.44 The GATS does not change the scope of Article III:4 as the Appellate Body settled this
question in Canada – Periodicals . Japan considers that although the Chinese measures at issue may
affect both trade in goods and trade in services, th e aspects of those measures that affect trade in
goods are appropriately addressed by Article III:4 of the GATT 1994, and there is a "category of
measures that could be found to fall within the scope of both the GATT 1994 and the GATS."21
5.45 China further argues that Article III:4 is inapplicable because its content review measures stop
importation of products into China. This argument reflects a basic misunderstanding of Article III and
of the Note Ad Article III. If China maintains a content review regime and enforces content review
"at the time or point of importation," these measures are still "subject to the provisions of"
Article III:4.
2. It is unclear whether China has demonstrated that its restrictions on trading rights are
"necessary to protect public morals"
5.46 China justifies its measures which permit onl y wholly state-owned Chinese enterprises
approved or designated by the Chinese Government to import reading materials and audiovisual
products by Article XX(a) of the GATT 1994. While the Appellate Body has c onsistently held that
Article XX requires a two-tiered analysis, Chin a bears in the present dispute the burden of
establishing a prima facie case that the measures ch allenged by the United States are: (1) "necessary
to protect public morals"; and (2) not applied in a manner that constitutes "arbitrary or unjustifiable
discrimination" or "a disguised restriction on intern ational trade." In order to satisfy its burden under
the first part of this analysis, China must establis h that the challenged measures are: (a) designed to
"protect public morals"; and (b) "necessary" to do so.

18 GATT Panel Report on Italy – Agricultural Machinery, para. 12 (emphasis added).
19 Appellate Body Report on EC – Bananas III, para. 220; Appellate Body Report on Canada – Autos,
para. 158; Appellate Body Report on US – FSC (Article 21.5 – EC), paras. 209-210.
20 The New Shorter Oxford English Dictionary (4th ed. 1993), page 709.
21 Appellate Body Report on EC – Bananas III, para. 221. See also Appellate Body Report on Canada
– Autos, para. 159.

5.47 It is not clear whether China has met its burden. First, China has argued only that its broader
content review mechanism is consistent with Artic le XX (a) framing its arguments in reference to the
entirety of its censorship regime. Second, it is not clear whether China has established that its
measures are "necessary" to protect public morals.
22 China must establish a prima facie case of
necessity by weighing and balancing a series of f actors, including the importance of prohibiting
content that could negatively impact public morals, the contribution made by the challenged measures
to the protection of public morals, and the impact of the challenged measures on imports or exports.23
5.48 Although China provides a discussion of these factors, the discussion focuses largely on the
efficiency and effectiveness of the measures to ward achieving its stated goal of preventing the
importation of cultural goods with in appropriate content. Japan considers that it is not enough to
demonstrate necessity and that the Panel should caref ully weigh and balance all factors, including the
trade-restrictive effects of the challenged measures. In doing so, the weighing and balancing process
must consider "whether a WTO-consistent altern ative measure which the Member concerned could
reasonably be expected to employ is available, or whether a less WTO-inconsistent measure is
reasonably available."24
5.49 In addition, China relies upon the Cultural Di versity Convention to support its Article XX
affirmative defence of its discriminatory and trad e-restrictive measures affecting trade in goods. 25 As
Article 20 of the Cultural Diversity Convention prov ides explicitly, the Cultural Diversity Convention
cannot modify any of China's rights or obligations under the WTO Agreement or China's Protocol of
Accession, including under Articles III, XI, and XX of the GATT 1994. Accordingly, Japan is of the
view that the Panel must apply Article XX without taking the Convention into account.
3. Commitments on "sound recording distributio n services" include the distribution of
digital recordings over the Internet
5.50 China argues that the distribution of sound recordings over the Internet is "a new and
radically different category of audiovisual services recently emerged in the course of technological
development" and that these "new services" are out side the scope of China's commitments on sound
recording distribution services. However, Japan c onsiders that China's existing commitments cover
the distribution of sound recordings over the Internet.
5.51 The notion that new services are necessarily unbound is troubling because China's GATS
Schedule is largely delineated in reference to th e 1991 Provisional CPC, and as the Appellate Body
stated in US – Gambling , the Provisional CPC is "exhaustive." The only questions are: (1) where
within the Provisional CPC a service is covered; and (2) whether a new service falls within the scope
of an existing commitment.
5.52 To automatically assume that any new service is outside existing commitments would destroy
much of the value of the GATS in providing a stab le environment for innovation and growth in trade
in services. It should not be necessary to negotia te a new commitment every time a service business
invents a new variation on a service. Otherwise, the objective of the GATS negotiations, to "establish
a multilateral framework of principles and rules for tr ade in services with a view to the expansion of

22 The Appellate Body has held that a "necessary" measure is not limited to that which is
"indispensable"; however, a "necessary" m easure is "located significantly clos er to the pole of 'indispensable'
than to the opposite pole of simply 'making a contribution to'." Appellate Body Report on Korea – Various
Measures on Beef, para. 161.
23 See Appellate Body Report on US – Gambling , para. 306; Appellate Body Report on Korea –
24 Appellate Body Report on Dominican Republic – Import and Sale of Cigarettes, para. 70.
25 China's first written submission, paras. 129-135.

such trade," 26 would be frustrated, as the GATS would progressively lose its relevance to actual
business models in the service economy.
5.53 As the Panel Report on US – Gambling concluded that "a market access commitment for
mode 1 implies the right for other Members' s uppliers to supply a service through all means of
delivery".27 Japan agrees that the same logic applies to China's market access and national treatment
commitments under mode 3. China's commitment in cludes distribution of sound recordings through
all means, including via the Internet or telecommunications networks.
5.54 In the light of the ordinary meaning of "sound recording distribution", China's assertion that
"sound recordings" include only those on physical support, such as a vinyl or optical disk, is incorrect.
Also, in the light of the circumstances of conclusion of the treaty, it is concluded that its commitment
includes distribution of sound recordings via the Inte rnet. In the case of China's GATS commitments,
the relevant period for evaluating China's commit ments was the period up to 10 November 2001, the
date when China's terms of accession were multilaterally agreed. Although China asserts that Internet
distribution of sound recordings emerged as a busin ess only after China negotiated its commitment on
sound recording distribution, at the time that Chin a and its WTO trading partners agreed on China's
commitments on sound recording distribution in N ovember 2001, there were very substantial
activities in China and elsewhere distributing sound recordings over the Internet. Thus, distribution of
sound recordings over the Internet was entirely "p ossible" at the time China concluded its GATS
Schedule, and was not a "new service[] or new means of delivery not existing at [that] time".
D. REPUBLIC OF KOREA
1. Introduction
5.55 Korea has systemic interests in the interpretation and application of various provisions of the
GATT and GATS, which are extensively discussed in this controversial dispute.
2. Legal arguments
(a) The challenged measures at issue seem to affect both trade in goods and trade in services, and
thus could be covered by both GATT and GATS
5.56 One of the key issues contested by the parti es in this dispute is whether the challenged
measures are to be regarded as affecting both trade in services and trade in goods (as the United States
argues), or only trade in services (as China argues). The parties' different views are particularly
presented with respect to motion pictures for theatrical release.
5.57 Korea tends to agree that main characteristi cs of the motion pictures for theatrical release are
somewhat closer to services. It is true that mo tion pictures for theatrical release are not sold as
merchandise and the dissemination is usually im plemented by standard theatrical distribution
contracts where ownership and possession are restrict ed. Korea is not sure, however, whether these
elements necessarily negate the existence of impact on the "product" containing the services to be
provided. To the extent a product and services are co mbined in one physical form, regulation of the
one could necessarily affect the other. In short, Korea is not completely persuaded that the motion
pictures as goods can be separated from the services associated with the motion pictures.

26 GATS preamble, clause 2.
27 Panel Report on US – Gambling, para. 6.285 (finding adopted without appeal). The US – Gambling
panel also said that this finding was "in line with the principle of technological neutrality," which "seems to be
largely shared among WTO Members." Ibid.

(b) The measures appear to constitute a violation of national treatment as provided in Article III
of the GATT and it is not entirely clear whether the measures can be justified under
Article XX of the GATT.
5.58 To the extent that the challenged measures al so affect trade in goods, the discriminatory
treatment of China concerning the importation of the products could constitute violation of the
national treatment under Article III of the GATT. Th e fact that only Chinese state-owned enterprises
are authorized to import these products, that the im ported products face state-imposed discriminatory
treatment in distribution, and that the imported products go through more stringent content review
could apparently lead to the violation the national treatment of these products.
5.59 Previous GATT and WTO precedents indicate that the national treatment principle under
Article III is a broad concept whic h can be implicated when fore ign product encounters unfavourable
treatment that negatively affects competitive conditi on in the market. The situation alleged by the
United States may well support possible violation of the national treatment principle.
5.60 Assuming the existence of violation of Article III of the GATT, China then argues that its
measures are justified under Article XX of the agreement, particularly as a measure necessary to
protect public morals. However, Korea submits that the Panel should carefully carry out analyses of
specific elements, as pronounced by the precedents, to confirm that the challenged measures are
indeed justified as necessary to achieve such goals. Simple assertions that cultural goods are identical
with public morals and that permitting only a few st ate-owned enterprises to import certain product is
necessary to protect public morals may not suffice to meet these thresholds.
(c) China's argument based on UNESCO Cultural Dive rsity Convention and its various domestic
legislation is misplaced
5.61 In its first written submission, China refers to the UNESCO Convention on the Protection and
Promotion of the Diversity of Cultural Expressi ons ("Cultural Diversity Convention") adopted in
October 2005 to stress that cultural goods are di fferent from other non-cultural goods and that the
Members preserve more leeway in regulating th ese goods. Korea, however, notes that reference to
the Cultural Diversity Convention fails to support the proposition offered by China. Not only the
Cultural Diversity Convention itself precludes a situ ation where the convention is somehow used as a
ground to justify alleged violations of the WTO Ag reements, but also relevant provisions of the DSU
explicitly prohibits a panel from accepting such an argument.
(d) The challenged measure constitutes a violation of Article XVII of the GATS
5.62 The United States also argu es that China violates, inter alia, Article XVII of GATS when it
applied discriminatory prohibitions in the distribution process of these products. In this area,
however, the factual descriptions of the two partie s show a significant degree of discrepancy. This
discrepancy needs to be carefully examined by the Panel. Only af ter the factual issues are clarified
can the Panel reach a reasonable decision. Korea only offers its comment on some framework issues.
5.63 First, Korea agrees with China that paragraphs (2) and (3) of Article XVII of the GATS make
clear that the mere fact that a Member establish es a formally different treatment between domestic
and foreign services and service suppliers does not necessarily lead to the violation of Article XVII of
the GATS. Instead, what matters is whether conditio ns of competition have been modified in favour
of the domestic services and service suppliers as a result of different treatment.
5.64 In addition, in its submission China points out inaccurate description of different types of
distribution activities in China. According to China, there are two types of distribution channels in
China:
Zong Fa Xing and Fen Xiao . China then explains that only the latter corresponds to

distribution through wholesaling and retailing. Zong Fa Xing , on the other hand, argues China, is
distinct and separate from traditional distribution cha nnels in that a single distributor individually and
directly faces all the consumers and that there does not exist an equivalent term in English. Korea
submits that the Panel needs to look into the terms in the China Accession Protocol and other
preparatory documents to determine the exact parame ters of the China's obligation under the GATS.
Korea reiterates that proper evaluation of the claims based on the GATS requires verification and
confirmation of the factual information first.
VI. INTERIM REVIEW
6.1 Pursuant to Article 15.3 of the DSU, the findi ngs of the final panel report must include a
discussion of the arguments made by the parties at the interim review stage. This Section of the Panel
Report provides such a discussion. As Article 15.3 ma kes clear, this Section forms part of the Panel's
findings.
A. BACKGROUND
6.2 The United States and China separately requested an interim review by the Panel of certain
aspects of the Interim Report issued to the parties on 20 April 2009. 28 Neither party requested an
interim review meeting. However, the parties ma de use of the opportunity to submit further written
comments on each others' requests.29 On 23 June 2009, the Panel issued its Final Report to the parties
on a confidential basis.
B. PARTIES' REQUESTS FOR CHANGES TO THE INTERIM REPORT
6.3 Below, the Panel will address the parties' requests for changes to the Interim Report. Unless
otherwise indicated, the references below are to paragraph or footnote numbers appearing in the
Interim Report.
1. Terms of reference
(a) Comments by the United States
6.4 The United States requests that the Panel make an addition to the last sentence of
paragraph 7.35 to fully reflect the United States' argument that the Film Distribution and Exhibition
Rule was issued subsequent to and is also subsidiary and closely related to the Film Regulation.
6.5 China argues that the Film Distribution and Exhibition Rule was promulgated prior to the
Film Regulation . China argues that the reference the Un ited States makes to its submissions in
support of its request are inapposite because they either refer to the United States' claim under
Article III:4 of the GATT 1994 or only refer to both measures as being adopted prior to the date of
establishment of this Panel. China therefore re quests that the Panel refrains from inserting this
particular part of the sentence at the end of paragraph 7.35.
6.6 The Panel takes note that the United States did indeed, in its first oral statement and in its
answer to Panel question No. 2, argue that the Film Distribution and Exhibition Rule was subsidiary
and closely related to the Film Regulation. We also note that although the United States did put the
dates of adoption of the various measures in parent heses next to their names in its response to Panel
question No. 2, it made no specific argument about the Film Distribution and Exhibition Rule being
issued subsequent to the Film Regulation . We have reviewed the other submissions and oral

28 Letters of the parties of 12 May 2009.
29 Letters of the parties of 2 June 2009.

statements of the United States and cannot find such an argument. Therefore, we have modified the
paragraph to include the United States' argument that the Film Distribution and Exhibition Rule is
subsidiary and closely related to the Film Regulation, but we have not included any reference to the
Film Distribution and Exhibition Rule being issued subsequent to the Film Regulation.
6.7 The United States requests that the Panel make additions to paragraph 7.62 to reflect more
fully its reliance on the reasoning of the panel in Japan – Film with respect to why the
2001Audiovisual Products Regulation and the Audiovisual Products Importation Rule are within the
scope of the United States' claim under Article III:4 of the GATT 1994.
6.8 China notes that the United States at no point see ms to have made an argument that the 2001
Audiovisual Products Regulation and the Audiovisual Products Importation Rule "are so closely
related to measures identified in the US panel requ est that China was given adequate notice of their
inclusion in the US claim". China's review of the United States' submissions finds no wording which
suggests such a strong logical relationship as the one incorporated in the statement which the United
States requests the Panel to add. China therefore re quests the Panel to refrain from any addition with
respect to paragraph 7.62 of its Interim Report, or at least to limit such addition.
6.9 The Panel has made appropriate changes to paragra ph 7.62 to reflect more accurately the
arguments of the United States.
6.10 The United States asks the Panel to modify the final sentence of paragraph 7.79 because it
believes the characterization of th e United States' response to Panel question No. 124 is incomplete
and may lead to confusion.
6.11 The final sentence of paragraph 7.79 in the In terim Report states, "We specifically asked the
United States to explain why it included the measures by name in Parts I and II of the panel request
and not in Part IV. The United States did not provide a reason for this inconsistency."
6.12 The United States recalls its response to the Panel question No. 124, in which it explained that
the Audiovisual Products Regulation and the Audiovisual Products Importation Rule were not
explicitly identified, but that they were nonetheless included in Part IV of the US panel request, as
part of the narrative and as part of the phrase "any amendments, related measures, or implementing
measures". The United States also cited the panel's reasoning in Japan – Film , to argue that the
Audiovisual Products Regulation and the Audiovisual Products Importation Rule
 were included in the
US claim, because these measures are "closely related to measures" specifically identified in the US
panel request.
6.13 The United States requests that the Panel delete the sentence "The United States did not
provide a reason for this inconsiste ncy" and instead insert a reference to the portion of its response to
Panel question No. 124 which refers to the narrati ve and to the phrase "any amendments, related
measures, or implementing measures."
6.14 China notes that, here again, the language used by the United States in its response to
question 124 appeared to be far less affirmative th an the language it would like the Panel to insert in
the text of its report. In particular, China submits that the United States was never as categorical as to
clearly affirm that the 2001 Audiovisual Products Regulation and the Audiovisual Product
Importation Rule were included in part IV of its panel request.
6.15 China therefore respectfully requests the Pa nel to refrain from making the modification
sought by the United States. In addition, China notes that the Panel, in footnote 105 under
paragraph 7.79, has already made reference to the explanation provided by the United States in
response to question No. 124.

6.16 The Panel notes that the United States did provide an explanation in its answer to Panel
question No. 124 with respect to its contention that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule were included in Part IV of its Panel request via the narrative
description in that part and the reference to "a ny amendments, related measures or implementing
measures" and that this was referred to in foot note 107 under paragraph 7.79 . The Panel has added
this additional elaboration on the United States' answer to the main text of paragraph 7.79. However,
the United States did not address the specific issue th at the Panel was referring to in paragraph 7.79,
namely why the United States included those measures by name in Parts I and II of the panel request
but not in Part IV.
6.17 The United States requests that the Panel modify the second sentence of paragraph 7.83 to
reflect that China has not limited the corporate fo rm of foreign-invested enterprises engaging in the
distribution of reading materials in China to Chinese-foreign contractual joint ventures, and that the
MOC approval procedures under China's measures apply to all foreign entities.
6.18 China notes that the wording of the Interim Report seems to reflect paragraph 238 of China's
first written submission, which in turn reflects paragraph 137 of the United States' first written
submission. The latter refers clearly to Chinese-forei gn contractual joint ventures. The issue raised by
China relates to the fact that a sp ecific claim by the United States was not properly before the Panel.
Thus, it is unclear for what reason the wording of such US claim, as rebutte d by China and analyzed
by the Panel, should be subject to any modification.
6.19 The Panel notes that the Several Opinions , which contains the "decision making criteria"
applied by the GAPP in approving foreign-invested entities to distribute reading materials, does not
contain a limitation on the corporate form of the fore ign-invested enterprises. However, China is
correct that in paragraph 138 of the United Stat es' first written submission, the United States
recognized that the "decision making criteria" applied by the MOC relate to the approval of Chinese-
foreign contractual joint venture. Nevertheless, in order to avoid grouping the regimes governing
reading materials and audiovisual products together , the Panel has made the appropriate modification
to the paragraph to reflect the two distinct legal regimes being discussed.
6.20 The United States requests that the Panel modify paragraph 7.177 to fully reflect all of the
relevant provisions of the Several Opinions that the United States raised in this dispute. Specifically,
the United States requests that the Panel make reference to Articles 1 and 4 of the Several Opinions as
they relate to the United States' claims that the Several Opinions is inconsistent with China's GATS
obligations.
6.21 China has not commented on the United States' request.
6.22 The Panel has made appropriate additions to paragraph 7.177.
(b) Comments by China
6.23 China notes that the Panel has explained in footnote 65 to paragraph 7.34 that, as a general
rule, when referring to one of China's laws, regulat ions or documents, it utilized the US translation
where the Panel did not identify a translation issue, the resolution of which appeared to be necessary
in order to make its findings. China seeks a clarific ation in this regard. China believes that in the
absence of such an issue, a reason for generally favouring one party's translation over the other's
needs to be given.
6.24 The United States does not agree with China's request regarding footnote 65, particularly
given that China has not explained why additional elaboration from the Panel is necessary. First,
China has not identified any specific instances in wh ich different translations are available that are

material and that have not already been identifie d and addressed by the Panel. Second, the United
States argues that the Panel's description of the translation review process as well as the Panel's
discussion regarding the translation of several key term s, such as distribution, sub-distribution, master
distribution, and master wholesale, addresses the issues raised by China.
6.25 The United States views the Panel's discussion of the translation issues in this dispute as
sufficient. Accordingly, the United States respectfully requests that the Panel decline China's request.
6.26 The Panel recalls that both the United States and Ch ina submitted English translations of all
of the challenged measures as well as some other Ch inese legal documents. China provided the Panel
with English translations of some of the measures at issue in this dispute. In some instances, China
specifically identified concerns it had with the United States' translation of particular provisions or
terms. In other instances, China provided no specific explanation as to why it had provided a
differing translation or as to why its translation shou ld be preferred. Neither did the Parties address
these particular differences in their joint attempt to resolve the other issues of translation. We also
note that the Panel has examined both versions of th e translations of China's measures to confirm that,
with respect to the relevant provisions, there are no material or significant differences between the
translations provided by both parties. Indeed, the Panel in question 150 and Annex A to the second
set of Panel questions identified a variety of instances where the parties had provided differing
translations of provisions of China's measures or di sputed the meaning of particular terms which were
material to resolving the dispute. For those provi sions, as explained in footnote 65, the Panel referred
to either the agreement of the pa rties to the use of a particular translation or to the independent
translator.
6.27 The Panel notes that the fact that it has often referred in its findings to the United States'
translations of China's measures does not mean that the Panel is favouring the United States'
translation over the one provided by China or concl uding that the US translations are definitive or
authoritative. At any rate, China did have the possi bility to rebut them. Rather, it seemed impractical
to systematically refer to both translations throug hout the report. The Pane l also recalls that the
United States as complaining party bears the burde n of proving its claim, which includes providing
evidence of the content of the challenged measures.
6.28 The Panel has made appropriate changes to foot note 65 to further clarify the reasons stated
above.
6.29 China requests that the Panel change the last sentence of footnote 67 to paragraph 7.39, to
make reference to the date of promulgation of the Film Regulation in addition to the date of the State
Council decision and the date the measure took eff ect. China believes this change will properly
reflect its argument that the Film Distribution and Exhibition Rule pre-dates the Film Regulation.
6.30 The United States has not commented on China's request.
6.31 The Panel has made the appropriate changes to the footnote in question.
6.32
 China points out that the first sentence of paragraph 7.206 seems to have something missing
from it. In the Interim Report the sentence reads as follows: "China argues that the Importation
Procedure is merely a webpage which and that a ll the requirements contained in this webpage are
requirements established by applicable published regula tions". China requests that the Panel add the
phrase "is intended to provide guidance for applicants" after the word "which."
6.33 The United States seeks to revise China's request for modification to this paragraph. The
United States argues that China did not provide suppor t for, or citations to its argument on the record
as part of its request for modification. The Unite d States notes that China argued in its answer to

Panel question 147 that the Importation Procedure and the Sub-Distribution Procedure are "...aimed
at facilitating the application process." In order to reflect the arguments that China has actually made,
the United States respectfully requests that the Panel use that phrase in modifying the first sentence of
paragraph 7.206.
6.34 The Panel recognizes that the sentence was grammatically incorrect and requires
modification. However, the Panel does not believe that China's suggested change is the most
appropriate. We also note that the United States' suggested change is contained in the immediately
succeeding sentence and would therefore result in a redundancy. The Panel has simply deleted the
word "which" from the sentence. We believe this a ccurately reflects China's argument with respect to
the particular point being discussed in paragra ph 7.206 and fixes the grammatical error in the
sentence.
2. US claims regarding China's trading rights commitments
(a) Comments by the United States
6.35 The United States requests that the Panel modify pa ragraphs 7.251 and 7.252. The United
States points out that wholly foreign-owned ente rprises are not referenced. The United States
considers that they should be mentioned to avoi d potential confusion about the scope of the phrase
"all enterprises in China".
6.36 China has not commented on the United States' request.
6.37 The Panel notes that wholly foreign-owned enterpri ses are referenced at paragraph 7.251.
The Panel has nonetheless made appropriate changes for greater clarity at paragraphs 7.251 and 7.252.
6.38 The United States requests that the Panel clarify the summary of the United States' position
at paragraph 7.278 by making three suggested additions to the paragraph.
6.39 China submits that paragraph 7.278 appears to ad equately reflect the content of the United
States' responses to question No. 160(a) and (b). China is of the view that this particular paragraph of
the Interim Report is not about providing another presentation or a reiteration of the US arguments,
but about the Panel's perception of these arguments and the reasoning the Panel has chosen to adopt in
response. China notes that the arguments deve loped by the United Stat es have already been
summarized previously in the Panel's Interim Report, e.g., at paragraphs 7.242 and 7.243. China does
not find anything inaccurate in the Panel's findings, in particular in light of the United States' answer
to question No. 160(a). China is therefore of the vi ew that there is no need to amend this particular
paragraph of the Interim Report.
6.40 The Panel has accepted two of the suggested cha nges to paragraph 7.278 and rejected a
further suggested change, as the relevant argument is reflected at paragraph 7.279.
6.41 The United States believes that the summary of its cl aims at paragraphs 7.326 and 7.327
would benefit from additional clarification. The United States therefore requests that the Panel make
specified changes to its summary of the US claims.
6.42 China considers that it is unclear whether the United States has properly made a claim that
the measures in question prohibit "all enterprises in China (other than Chinese wholly state-owned
enterprises)" from importing reading materials, AVHE products, sound recordings and motion
pictures for theatrical release. Absent a more explic it reference to such claim in the US first written
submission, China is of the view that the Panel should exert caution and refrain from amending its
Report on that particular point.

6.43 The Panel has made appropriate changes at paragraphs 7.326-7.328. The Panel recalls in this
connection that paragraphs 7.326- 7.328 merely provide an overview of the US claims and that the
specific claims are addressed in greater detail at paragraphs 7.333 and following. The Panel also
notes that the United States' response to questions Nos. 1 and 151 indicate that for some of the
measures at issue the US claims relate to trading rights of foreign-invested enterprises in China and
privately invested enterprises in China.
6.44 The United States notes that the Panel's discussion of the Catalogue at paragraphs 7.346-
7.349 concludes, inter alia , that Articles X.2 and X.3 of the Catalogue cannot, by themselves, give
rise to a breach of the provisions cited by the Un ited States. According to the United States, this
conclusion is based on the Panel's incorrect view that the Catalogue has no independent legal effect.
The United States asserts that the legally operative nature of Articles X.2 and X.3 is uncontested
between the parties. The United States also comm ents on the Panel's statement that China in its
response to a Panel question
30 did not substantiate its assertion that the Catalogue has independent
legal effect, saying that the Panel's question did not request substantiation. The United States
requests, therefore, that the Panel revise its discussion of the Catalogue to eliminate the implication in
paragraph 7.346 that the Catalogue has no independent legal effect and find that Articles X.2 and X.3
are inconsistent with 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a) and 84(b).
6.45 China believes that the conclusions reached by the Panel fall within its margin of
appreciation and should therefore be left unchanged. China further states that while the Catalogue
has independent legal effects, China does not see any material misrepresentation in the Panel's
reasoning that it is the combined reading of both the Catalogue and the Foreign Investment
Regulation which seems to give rise to the alleged breach of China's obligations.
6.46 The Panel begins by recalling that pursuant to Article 11 of the DSU, the function of panels is
to make an "objective assessment" of the matter be fore them. Consequently, the parties' common
assessment in relation to a particular issue is, therefore, not in and of itself dispositive.
6.47 In the present case, the Panel's analysis takes account of the views expressed by the parties
and the evidence on the record, which consists of the texts of the Catalogue and the Foreign
Investment Regulation. In considering these elements, the Pa nel noted that little or no substantiation
was provided by the parties in support of their re spective views. It should be observed in this
connection that the United States is wrong to assert th at the Panel did not request substantiation of
responses to Panel questions. The Panel's questi ons were sent to the parties with a general
introductory note instructing them, inter alia , "to provide sufficient elaboration of all replies".
Nevertheless, the Panel has made appropriate changes at paragraphs 7.346-7.349 so as to focus its
analysis on the United States' assertion that the Catalogue forbids, or bans, foreign-invested
enterprises from engaging in the importation of rele vant products into China. Corresponding changes
were made at paragraph 7.362 which deals with the Foreign Investment Regulation.
6.48 The United States believes that the summary of its pos ition at paragraph 7.381 would benefit
from additional clarification. The United States th erefore requests that the Panel make specified
changes to its summary of the United States' position.
6.49 China refers the Panel to its comments on the US comments on paragraphs 7.326-7.327,
which appear to be also applicable to the US co mments on paragraph 7.381. China requests the Panel
to refrain from inserting any wording which does not seem to be explicitly supported by appropriate
references to the parties' submissions as made in the course of the Panel proceedings and which would
result in making the scope of the US claims broader than it actually was or has explicitly been debated
before the Panel.

30 China's response to question No. 173.

6.50 The Panel notes that its summary is based on paragr aph 35 of the United States' first written
submission, which the United States fails to refere nce in its comment. Nevertheless, the Panel has
made appropriate changes at paragraph 7.381.
6.51 The United States requests that the Panel make explicit at paragraph 7.385 the two
inconsistencies referred to in the third sentence of the paragraph in order to clarify their nature.
6.52 China responds that it does not necessarily object to the request by the United States to insert
additional clarification of its claim, provided th e suggested amendments co rrespond to the way these
arguments have been laid down in the various US submissions made in the course of the Panel
proceedings. China submits that there would be a n eed to amend the proposed modified text in order
to reflect more accurately the content of paragrap hs 254 and 255 of the United States' first written
submission.
6.53 The Panel has made appropriate changes at paragraph 7.385.
6.54 The United States requests that the Panel modify paragraphs 7.465 and 7.467 to reflect the
fact that the US claim with respect to Articles 50 and 51 of the 1997 Electronic Publications
Regulation is not limited to the commitment concerning the "non-discretionary" grant of trading rights
under paragraph 84(b), but also cove rs paragraphs 5.1, 5.2, 83(d) and 84(a) as well. According to the
United States, Articles 50 and 51 amount to a prohibition on the right to import electronic publications
for all enterprises in China (other than Chinese wholly state-owned enterprises), all foreign enterprises
and all foreign individuals. The United States submit s that by conditioning trading rights on the state
plan, which only Chinese wholly state-owned enterp rises can satisfy, China denies the right to import
electronic publications to all enterprises in China (other than Chinese wholly state-owned enterprises),
all foreign enterprises and all fore ign individuals. In the United States' view, Articles 50 and 51 are,
therefore, inconsistent with paragraphs 5.1, 5.2, 83(d) and 84(a).
6.55 The United States argues that this reading of th e US claim is confirmed in paragraphs 45 and
46 of the US first written submission, which accordi ng to the United States explain that conditioning
the right of to import electronic publications on the plan for total number, structure and deployment
"... reconfirms the prohibition on any foreign-inv ested enterprise or foreign individual, or any
privately-owned enterprise, engaging in the impor tation of electronic publications". The United
States further points to paragraph 259 of the US first written submission (which states that Articles 50
and 51 "... limit which enterp rises may engage in the importation of electronic publications..."),
paragraph 227 (which states that "China refuses to permit any foreign enterprises or foreign
individuals to import the Products, and likewise onl y allows a subset of enterprises in China – i.e.,
wholly state-owned Chinese enterprises approved or designated by the Chinese Government – to
import the Products" and that "[t]he measures establis hing China's current trading rights regime for
the Products are, therefore, inconsistent with China' s obligations contained in … paragraphs [5.1, 5.2,
83 and 84]") and paragraph 270 (which states that "[t]he foregoing sections of this Part IV have
demonstrated that China's measures restricting th e right to import into China reading materials,
AVHE products, sound recordings, and films for theatri cal release, are inconsistent with Part I,
paragraphs [5.1, 5.2, 83 and 84]" and that the Unite d States, therefore, "requests that the Panel find
that China's measures identified in this Part IV are inconsistent with China's trading rights obligations
under the Accession Protocol, which are an integral part of the WTO Agreement").
6.56 China observes, firstly, that it is totally unclear , especially from paragraph 46 of the United
States' first written submission, whether the United States has made a claim that Articles 50 and 51
impose a prohibition. China points out that at para graph 46 of its first wr itten submission, the United
States draws the general conclusion, with respect to the 1997 Electronic Publications Regulation as a
whole, that it "reconfirms the prohibition of any fo reign-invested enterprise or foreign individual or
any privately-owned Chinese enterprise, engaging in the importation of electronic publications".

However, China considers that it is impossible to infer from this very broa d and general allegation
whether it refers specifically to Articles 50 and 51 of the 1997 Electronic Publications Regulation, or
to Article 8 of the 1997 Electronic Publications Regulation , which is also described under
paragraph 45 of the US first written submission.
6.57 China further notes that paragraph 227 of the Un ited States' first written submission, to which
the United States refers, contains only a very gene ral introductory statement concerning the alleged
effects of the challenged Chinese measures on trading ri ghts. In China's view, it is interesting to note
that in its quotation of paragraph 227 of its own first written submission, the United States has omitted
to reproduce the very first words of that paragr aph: "Through a variety of measures, however, China
refuses to permit […]". China notes th at here again, the United States fails to link any of the claims it
describes specifically to Articles 50 and 51 of the 1997 Electronic Publications Regulation.
6.58 China considers that in view of the lack of a basis behind the United States' contention that it
has raised a claim that Articles 50 and 51 are inconsis tent with paragraphs 5.1, 5.2, 83 and 84, the
Panel should reject the United States' request for modification of paragraphs 7.465 and 7.467. China
submits that the United States should not be allowe d to distort the presentation of its arguments in
order to derive benefits from the Panel's Report with respect to claims which it has failed to make in
the first place in the course of the Panel proceedings.
6.59 The Panel begins by noting that paragraph 259 of the United States' first written submission
specifically addresses the alleged inconsistency of the 1997 Electronic Publications Regulation with
China's trading rights commitments. Paragraph 259 states in relevant part: "By conditioning trading
rights on Chinese Government plans fo r structuring these activities …, the 1997 Electronic
Publications Regulation is inconsistent with China's trading rights commitments. It injects qualifying
criteria and government discretion into a process that China committed to be "non-discretionary".
6.60 As we also point out at paragraph 7.467 of the Interim Report, paragraph 259 identifies only
one commitment with which China is alleged to be acting inconsistently – the commitment
concerning the "non-discretionary" grant of trading rights. We further note that the sentence
identifying this particular commitment does not begin with a word like "and", "in addition",
"moreover", "also", etc. Such a word would have indicated that additional commitments are relevant
to the US claim concerning Articles 50 and 51. We note that paragraph 269 of the US first written
submission uses precisely such an approach – it contai ns the phrase "not only, but also". We further
observe that paragraph 259 does not use words like "first", "second", etc. to indicate multiple bases
for the US claim. This is what the United St ates did in the paragraphs immediately preceding
paragraph 259, in the context of its claims concerning the Publications Regulation.
31 Therefore, the
text of paragraph 259 does not indicate to us that commitments other than the commitment to grant
trading rights in a "non-discretionary" way are relevant to the claim concerning Articles 50 and 51.
6.61 As we also point out at footnote 349 of th e Interim Report, Panel question No. 154(b)
specifically inquired about paragraph 259 and th e US claim concerning Articles 50 and 51. The
United States' response re-stated the claim b ased on the commitment concerning the "non-
discretionary" grant of trading rights. In addition, it identified one further claim based, it seems, on
paragraphs 5.2 and 84(b), since the United States al leged "discrimination" ag ainst foreign importers
and privately-held importers in China. Having identified the two commitments, the United States'
response concluded as follows: "Thus, by cond itioning trading rights on GAPP's plan for the
structuring of these importation activities, the 1997 Electronic Publications Regulation is inconsistent
with China's trading rights commitments". Thus, th ere is no suggestion in the United States' response
that other commitments are alleged to have been br eached. In contrast, as we note at paragraph 7.459

31 United States' first written submission, paras. 255-257.

of the Interim Report, in its response to Panel qu estion No. 153, the United States did suggest that
Article 8 is inconsistent with, inter alia, paragraphs 5.1, 83(d) and 84(a).
6.62 Regarding the United States' reference to paragr aphs 45 and 46 of its first written submission,
we note that paragraph 45 refers to Articles 8 and 50-60 of the 1997 Electronic Publications
Regulation. Paragraph 46 states that "[t]hus, the 1997 Electronic Publications Regulation
implements the restrictive approval and li censing requirements contained in the [ Publications
Regulation] and the Importation Procedure" and that "[ i]n so doing, it reconfirms the prohibition on
any foreign-invested enterprise or foreign indivi dual, or any privately-owned Chinese enterprise,
engaging in the importation of electronic publications ". As an initial matter, we have difficulty
understanding how the existence of a licensing and a pproval requirement confirms the existence of a
prohibition on "any" of the enterp rises or individuals mentioned. Furthermore, we note that neither
paragraph 45 nor paragraph 46 puts forw ard a claim of inconsistency. Also, we recall that the United
States' response to Panel question No. 154(b) does not mention any claim under paragraphs 5.1, 83(d)
or 84(a), nor does it assert that the State plan imposes, or amounts to, a "prohibition".
6.63 The United States also refers to paragraphs 227 and 270 of the US first written submission.
Paragraph 227 refers to "the measures establishi ng China's current trading rights regime".
Paragraph 227 does not, however, state that each of th e measures at issue is inconsistent with each of
the provisions identified. Similarly, paragraph 270 re fers to "the measures iden tified in this Part IV"
as being inconsistent with "China's trading rights obligations". Here agai n, paragraph 270 does not
say that each of the measures at issue is inconsis tent with each of the trading rights obligations
identified.
6.64 Finally, we note that in response to Panel qu estion No. 1, the United States identified Articles
8 and 50-55 of the 1997 Electronic Publications Regulation as provisions claimed to be in breach of
China's trading rights commitments and paragraphs 5.1, 5.2, 83(d) and 84(a)-(b) as relevant
commitments. As explained above, in its subseque nt responses to Panel questions, the United States
did not indicate that paragraphs 5.1, 83(d) and 84(a) were relevant to its claim concerning Articles 50
and 51. It did suggest, however, that these paragraphs were relevant to its claim concerning Article 8.
6.65 In the light of the above considerations, the Panel declines to modify paragraphs 7.465 and
7.467.
6.66 The United States requests that the Panel reconsider its views expressed at paragraphs 7.470-
7.477. The United States recalls that Article 50 of the 1997 Electronic Publications Regulation
directs GAPP to draw up plans for the total numbe r, structure and deployment of importers of
electronic publications. The United States argues that Article 50 provides no guidelines or other
criteria for drawing up those plans, so they ar e formulated and applied according to the unknown
preference of GAPP. In addition, the United States argues that China itself has confirmed to the Panel
that the designation process is exclusively at the government's own initiative and on the government's
own initiative and discretion. The United States asser ts that at paragraphs 7.470 and 7.471 the Panel
did not take into account these arguments. The Unit ed States requests the Panel to find that Articles
50 and 51 of the 1997 Electronic Publications Regulation are discretionary in a manner inconsistent
with paragraph 84(b).
6.67 China submits that the request by the United Stat es for review by the Panel of its findings
with respect to these paragraphs is misplaced. The Panel findings under paragraphs 7.470 and 7.471
are clear in establishing that in carrying out th e approval process, GAPP has to apply the criteria
which are laid down in Articles 50 and 51 of the 1997 Electronic Publications Regulation . China
argues that the United States does not provide an y elements establishing that the GAPP would
approve import entities by applying different criteria than the ones which are laid down in Articles 50
and 51 of the 1997 Electronic Publications Regulation , and is therefore not establishing that such

entities would be approved in a discretionary way. China therefore considers that the request by the
United States for a finding that Articles 50 and 51 ar e discretionary in a manner inconsistent with
paragraph 84(b) is unwarranted and should be rejected by the Panel.
6.68 The Panel notes that a similar issue is addressed at paragraphs 7.429-7.431, which explains
the somewhat less detailed treatment of the issue at paragraphs 7.471 and 7. 472. At any rate, the
Panel has taken the first argument concerning the ab sence of specific guidelines into account. This
said, in an effort to make this more explic it, the Panel has made appropriate changes at
paragraphs 7.471 and 7.472 in response to the United States' comment. Regarding the second
argument concerning designation, the Panel notes that the provisions at issue do not provide for a
designation system, which has been confirmed by China in response to a question from the Panel.
32
The Panel does not therefore find it appropriate to address this argument.
6.69 The United States requests that the Panel revise paragr aphs 7.529, 7.536, 7.542 and 7.643
where the Panel stated that the Film Regulation and the 2001 Audiovisual Products Regulation , by
regulating the activity or business of importing film s or audiovisual products, regulate the supply of a
service. The United States argues that the statements raise a number of questions which were not
addressed by the parties. The United States submits that deleting the statements would in no way
interfere with the Panel's analysis and conclusions regarding the arguments made by China. The
United States notes that the Panel's reasoning does no t rely on the view that the business of importing
constitutes the supply of a service.
6.70 China submits that the request of the United Stat es, which would lead to the suppression of
important parts of the Panel's reasoning, is based on a misrepresentation of both China's arguments
and the reasoning of the Panel. The Panel's reasoni ng does not seem to be based on a general analysis
of whether importation, in the abstract, is a service. Rather, the Panel appears to have limited its
analysis and conclusion to the question whether the activity of importing films or audiovisual
products intended for publication is a service, and to have reached a positive conclusion in this
respect. China finds this part of the Panel's reas oning to reflect the arguments made by China that
films and audiovisual products intended for publicati on are imported into China as part of a service.
China also notes that, even if the relevant excer pts of the Panel's reasoning could be viewed as
considering that importation, in general, is a ser vice, a substantial amount of support could be found
in this respect. China notes, for instance, that f ootnote 6 of Chin a's Services Schedule, under Sector
4B, provides that "the restrictions on Mode 1 sh all not undermine the rights of WTO Members to the
right to trade as stipulated in Chapter 5 of China's Protocol of Accession to the WTO". According to
China, this explicit exclusion suggests that importa tion may be regulated as a service activity. China
is therefore of the view that the United States' reque st for modification of the relevant paragraphs of
the Interim Report should be rejected by the Panel.
6.71 The Panel has made appropriate changes at paragra phs 7.529, 7.536, 7.542 and 7.643, taking
into account that some of the statements are not essential.
6.72 The United States requests that Panel add a clarification in footnote 382 which is attached to
paragraph 7.529. The United States considers th at without the clarification, confusion could
potentially arise because the United States challenge d the relevant aspect of Article 5 – that in
accordance with Article 5 only films which have been approved may be imported – under Article III:4
of the GATT 1994.
6.73 China is of the view that it is sufficiently clear th at this particular finding of the Panel relates
to the wider context of the United States' claims concerning trading rights. In addition, it is unclear on
what basis the United States considers that the relevant aspects have been challenged under its

32 China's response to question No. 40.

Article III:4 claim. China notes in this regard that the United States does not make any explicit
reference to any of its submissions before the Pa nel in support of its contention. China therefore
believes that there is no reason for granting the requested modification.
6.74 The Panel has added the requested clarification in footnote 382 which accompanies
paragraph 7.529. The Panel notes that the United States referenced Article 5 of the Film Regulation
in the footnotes of the section of its first written submission dealing with its claim under Article III:4
of the GATT 1994.
6.75 The United States requests that the Panel delete the l ast sentence of paragraph 7.609 which
originated in paragraph 53 of the United States' first written submission.
6.76 China has not commented on the United States' request.
6.77 The Panel has deleted the last sentence of paragraph 7.609.
6.78 The United States requests changes at paragraphs 7. 612 and 7.626 which concern the United
States' claims regarding the 2001 Audiovisual Products Regulation. The United States would like the
Panel to add at paragraph 7.612 that, in the United States' view, the designation and approval
requirements are also inconsistent with paragraphs 5.1, 5.2, 83(d) and 84(a) because they deny all
enterprises (other than Chinese wholly state-owned enterprises), all foreign enterprises and all foreign
individuals the right to import audiovisual products . With regard to paragraph 7.626, the United
States submits that it has identified the relevant provisions of the 2001 Audiovisual Products
Regulation to which the US claim relates and why inc onsistencies arise under these provisions. Thus,
the United States requests the Panel to find that Articles 8-10 and 27-28 of the 2001 Audiovisual
Products Regulation are inconsistent with paragraphs 5.1, 5.2, 83(d), 84(a) and 84(b).
6.79 The United States asserts that its claim is that Articles 8-10 and 27-28 impose prohibitions on
the right to trade by subjecting all importers seek ing to import audiovisual products to approval and
designation requirements. More specifically, the Un ited States asserts that its claim is that China's
approval process for unfinished audiovisual product importers (Articles 8-10 and 28) and its
designation process for finished audiovisual product importers (Article 27) deny all enterprises in
China (other than Chinese wholly state-owned enterprises), all fo reign enterprises and all foreign
individuals the right to import AVHE products and s ound recordings into China. The United States
points out that in paragraphs 261 and 266-267 of its first writte n submission, it argues that only
Chinese wholly state-owned enterprises can be appr oved to import unfinished audiovisual products.
Likewise, paragraphs 261 and 267 of the US firs t written submission state that only one Chinese
wholly state-owned enterprise – the CNPIEC – has been designated to import unfinished audiovisual
products.
6.80 In the United States' view, Articles 8-10 and 27- 28 are inconsistent with paragraphs 5.1 and
5.2 and paragraphs 83 and 84, because they amount to a prohibition on the right to import audiovisual
products for all enterprises in Ch ina (other than Chinese wholly st ate-owned enterprises), all foreign
enterprises and all foreign individuals, and becau se they introduce discretion into the process of
granting trading rights.
6.81 China notes that this United States' request is very similar to that raised with respect to
paragraphs 7.326 and 7.327 and rests largely on the same references to the Un ited States' first written
submission. China would like to recall that para graphs 261 and 266-267 of the United Sates' first
written submission do not support the allegation that the United States has properly made a claim that
"all enterprises in China (other than wholly state-owned enterprises), all foreign enterprises and all
foreign individuals" are being denied the right to import audiovisual products intended for publication
and finished audiovisual products. China submits that here again, the United States is trying to

substantiate a claim which it did not properly rais e in its various submissions and that the Panel
should refrain from letting the United States derive benefits from the Panel Report with respect to
claims which were not properly ma de in the first place. More sp ecifically, China requests that the
Panel refrain from accepting any of the proposed modifications and from making the additional
determinations which are requested by the United States.
6.82 The Panel begins with the US claim concerni ng audiovisual products imported for
publication ("unfinished" audiovisual products). The United States asserts that it raised a claim with
respect to Articles 8-10. This assertion directly contradicts the United States' response to Panel
question No. 1. Question No. 1 inter alia asked the United States to indicate or clarify which specific
provisions of the measures being challenged were in breach of China's trading rights commitments.
In relation to the 2001 Audiovisual Products Regulation , the United States identified Articles 5, 27
and 28. It made no mention of Articles 8-10.
6.83 In its first written submission
33, the United States had mentioned Articles 8-10 and contended
that they provide that importers of audiovisual products intended for publication must by approved by
the Chinese Government. However, Articles 8-10 are contained in Chapter II of the 2001 Audiovisual
Products Regulation which is entitled "Publishing". Specifically, Articles 8-10 deal with the
establishment of "audiovisual publishing entities". Th ey do not speak to the activity of importing or
audiovisual products imported for publication. This is not surprising since the activity of importing is
addressed in Chapter IV of the 2001 Audiovisual Products Regulation, which includes Articles 27 and
28, and also in Chapter I, namely in Article 5 which distinguishes between the activities of publishing
and importing.
6.84 The United States has never explained why and how Articles 8-10 in its view are relevant to
the activity of importing audiovisual products intended for publication. Footnote 476 of the Panel's
Interim Report already indicates that it is not clear to the Panel that Articles 8-10 are relevant.
Furthermore, as noted, the United States, when asked to identify the specific provisions being
challenged, made no mention of Articles 8-10, but included Article 5. The Panel inferred from these
elements that with respect to audiovisual produc ts intended for publication, the United States was
raising a claim under Articles 5 and 28, and not Articles 8-10 and 28. This made sense since Article 5
plainly deals with who may import the relevant products and establishes an approval requirement
("licensing" requirement).
34 Moreover, the Panel subsequently asked another question of the United
States regarding "the US claim in relation to Article 5 of the Audiovisual Regulation". 35 The United
States in its response did not state that it was not raising any claim under Article 5.
6.85 Based on these considerations, we see neither a need nor a justification to make findings on
whether Articles 8-10 are inconsistent with China's trading rights commitments.
6.86 Having regard to the US claim concerning audi ovisual products imported for publication, the
United States also requests the Panel to find that Arti cle 28 is inconsistent with paragraphs 5.1, 5.2,
83(d), 84(a) and 84(b) in the same way as Artic les 8-10 and 27, namely because it amounts to a
prohibition on the right to import audiovisual produc ts for all enterprises in China (other than Chinese
wholly state-owned enterprises), all foreign ente rprises and all foreign individuals, and because it
introduces discretion into the process of granting trading rights. In our view, paragraphs 7.661 and
7.662 of the Interim Report adequately address the US claim concerning Article 28. As a result, we
also do not see any need to modify paragraph 7.626 of the Interim Report.

33 United States' first written submission, footnote 166.
34 We note that the United States itself seems to conf irm this at para. 55 of its comments on the Interim
Report when it says that "Article 7 of the Audiovisual Products Importation Rule imposes the same approval
requirement as is contained in Articles 5 and 28 of the 2001 Audiovisual Products Regulation …".
35 Panel question No. 155.

6.87 Regarding the US claim concerning Article 5, which claim also relates to audiovisual
products imported for publication, we note that the United States' comments are quite confusing. At
paragraph 50 of its comments, the United States menti ons the Panel's findings with respect to Articles
5, 27 and 28. It then refers to its comments on paragraph 7.612 of the Interim Report, which are about
Articles 8-10 and 27-28, and says that the Panel should therefore find that Articles 5, 27 and 28 are
inconsistent with paragr aphs 5.1, 5.2, 83 and 84. Paragraph 51 of the US comments then goes on to
request that "[f]or the reasons explained above", the Panel should find that Articles 8-10 and 27-28 are
inconsistent with paragraphs 5.1, 5.2, 83 and 84. It is not clear to us from these comments that the
United States requests the Panel to find that Article 5 is inconsistent with para graphs 5.1, 5.2, 83 and
84(a).
6.88 At any rate, as we point out at paragraph 7. 626 of the Interim Report, the United States'
response to question No. 1 mentions paragraphs 5.1, 5.2, 83 and 84(a), but provides no explanation as
to why a breach is claimed to occur. The United States' first written submission specifically addresses
the alleged inconsistency of the 2001 Audiovisual Products Regulation with China's trading rights
commitments at paragraphs 261 and 262. Only pa ragraph 262 explains why an inconsistency is
alleged to arise with China's trading rights commi tments, and the only commitment that is identified
at paragraph 262 is the commitment to grant trading rights in a "non-discretionary" way
(paragraph 84(b)). As we point out in footnote 462 of the Interim Report, paragraph 261 argues that
the approval requirement serves a gate-keeping function. However, as we also explain, paragraph 261
does not put forward any claim of inconsistency b ased on this argument. Indeed, paragraph 262 does
not open with words like "also", "moreover", "in addition", etc.
36 In other words, there is no
indication that paragraph 261 is intended to put forward a claim of inconsistency that is separate from
the United States' claim that China fails to grant trading rights in a "non-discretionary" way.
6.89 We also note paragraphs 227 and 270 of the US first written submission which we have
discussed in relation to a different US comment. To recall, paragraph 227 refers to "the measures
establishing China's current trading rights regime". Paragraph 227 does not, however, state that each
of the measures at issue is inconsistent with each of the provisions identified. Similarly,
paragraph 270 refers to "the measures identified in this Part IV" as being inconsistent with "China's
trading rights obligations". Here again, paragraph 270 does not say that each of the measures at issue
is inconsistent with each of the trading rights obligations identified.
6.90 We, therefore, see no reason to modify paragra ph 7.626 of the Interim Report insofar as it
concerns Article 5. In any event, it is difficult to see how Article 5 could be said to impose a
"prohibition" on the right to trade for all importers except Chinese wholly state-owned enterprises. In
fact, the United States itself points to measures other than the 2001 Audiovisual Products Regulation
– namely, the Publications Regulation and the Imported Cultural Product Rule – in support of its
assertion. It is those other measures which app ear to establish that the business of importing
audiovisual products intended for publication is to be conducted by wholly state-owned enterprises.
6.91 We now turn to the US claim concerning finish ed audiovisual products, i.e., the claim with
respect to Article 27. The United States requests the Panel to find that Article 27 is inconsistent with
paragraphs 5.1, 5.2, 83 and 84(a). In considering th is request, we refer to what we have said above at
paragraphs 6.88-6.89 with regard to Article 5. We further recall that in footnote 456 of the Interim
Report we point out the US argument that the desi gnation requirement serves a gate-keeping function.
However, as the footnote also explains, para graph 261 does not put forward any claim of
inconsistency based on this argument.

36 We recall our earlier observation that, elsewhere, th e United States' first written submission does use
such words, or indicates multiple claims by making a numbered list (e.g., at para. 254 of the US first written
submission).

6.92 Therefore, as with respect to Article 5, we see no reason to modify paragraph 7.626 of the
Interim Report insofar as it concerns Article 27. And as with Article 5, it is at any rate difficult to see
how Article 27 could be said to impose a "prohibition" on the right to trade for all importers except
Chinese wholly state-owned enterprises. We not e that the United States' first written submission
states that only the CNPIEC "has been designated"
37. This is different from what the United States
now says in its comments, which is that Article 27 prohibits importers other than wholly state-owned
enterprises from being designated. Furthermore, th e United States itself points to measures other than
the 2001 Audiovisual Products Regulation – namely, the Imported Cultural Product Rule and the
Circular on Uniform Anti-Fake Logo on Audiovisual Products – in support of its assertion. It is those
other measures which appear to establish that the business of importing finished audiovisual products
is to be conducted exclusively by the CNPIEC.
6.93 Finally, since paragraphs 261 and 262 of th e United States' first written submission do not
contain any statement to the effect that an incons istency with China's trading rights commitments is
claimed on the grounds that the designation and ap proval requirements deny all enterprises in China
(other than Chinese wholly state-owned ones), all foreign enterprises and all foreign individuals the
right to import audiovisual products, we do not fi nd it appropriate to add such a statement to
paragraph 7.612 of the Interim Report. We also not e that paragraph 7.613 already refers to the US
claim under paragraphs 5.1, 5.2, 83 and 84(a).
6.94 The United States makes a related comment on paragra ph 7.670 which concerns the United
States' claims regarding the Audiovisual Products Importation Rule . Paragraph 7.670 parallels
paragraph 7.626 concerning the 2001 Audiovisual Products Regulation . The United States submits
that it disagrees with the Panel and that it has de monstrated that Articles 7, 8, 9 and 10 of the
Audiovisual Products Importation Rule are inconsistent with paragra phs 5.1, 5.2, 83(d) and 84(a).
The United States therefore requests the Panel to fi nd that Articles 7-10 are inconsistent with the
aforementioned paragraphs. The United States asse rts that the approval requirement in Article 7
(concerning audiovisual products intended for pub lication) and the designation requirement in
Articles 8, 9 and 10 (concerning finished audiovisual products) deprives all enterprises in China (other
than wholly state-owned enterprises), all foreign ente rprises and all foreign individuals of the right to
import these products into China, and treats all fo reign individuals and enterprises less favourably
than Chinese wholly state-owned enterprises.
6.95 China notes at the outset that the United States' allegation that it has raised a claim of
inconsistency with paragra phs 5.1, 5.2, 83(d) or 84(a) with respect to the Audiovisual Products
Importation Rule appears to be based on the assumption that it has also raised such claim with respect
to the 2001 Audiovisual Products Regulation . However, as explained in China's comments on the
United States' comments on paragraph 7.612, China considers that the United States has not properly
raised such a claim. Thus, in China's view, it has to be assumed that the United States has also failed
to raise a similar claim with respect to the Audiovisual Products Importation Rule . China considers
that the Panel's finding in this respect is correct and accurately reflected in paragraph 7.670, especially
considering the Panel's reference to the United Stat es' response to question No. 1. China therefore
requests the Panel to dismiss the United States' comments on paragraph 7.670.
6.96 The Panel recalls that paragraph 7.670 refers to th e United States' response to question No. 1.
The response mentions a claim under paragraphs 5.1, 5.2, 83 and 84(a), but provides no explanation
as to why a breach is claimed to occur. The Un ited States' first written submission specifically
addresses the alleged inconsistency of the Audiovisual Products Importation Rule with China's trading
rights commitments at paragraph 263. It only states, however, that the Audiovisual Products
Importation Rule is inconsistent with China's co mmitments in the same way as the 2001 Audiovisual
Products Regulation.

37 United States' first written submission, para. 261.

6.97 Since we have declined to modify paragraph 7.626 of the Interim Report, which parallels
paragraph 7.670, we see no reason to modify paragraph 7.670. In any event, it is difficult to see how
Articles 7-10 could be said to impose a "prohibition" on the right to trade for all importers except
Chinese wholly state-owned enterprises. As noted above, the United States itself points to measures
other than the 2001 Audiovisual Products Regulation or the Audiovisual Products Importation Rule in
support of its assertion. It is those other measur es which appear to estab lish that the business of
importing audiovisual products is to be conducted by wholly state-owned enterprises.
6.98 The United States requests that the Panel modify paragraph 7.654 so as to take into account
that the second sentence of Article 27 of the 2001 Audiovisual Products Regulation refers to
individuals.
6.99 China has not commented on the United States' request.
6.100 The Panel has made appropriate changes at paragraph 7.654.
6.101 The United States requests changes at paragraphs 7.725, 7.728, 7.733, 7.750-7.751, 7.753,
7.755, 7.757, 7.762, 7.764-7.767, 7.789-7.790, 7.795-7.796, 7.818-7.819, 7.834, 7.882, 7.889, 7.895,
7.901-7.903, 7.916-7.917 as well as paragraph 2.1. Specifically, the United States notes that the Panel
and parties define the term "reading materials" as including electronic publications. To avoid creating
the impression that electronic publications are not a type of reading material for the purpose of this
dispute, the United States requests that the Panel clarify the above-noted paragraphs.
6.102 China has not commented on the United States' request.
6.103 The Panel has made appropriate changes at paragr aphs 7.725, 7.728, 7.733, 7.750-7.751,
7.753, 7.755, 7.757, 7.762, 7.764-7.767, 7.789-7.790, 7.795-7.796, 7.818-7.819, 7.834, 7.901-7.903,
7.916-7.917 as well as paragraph 2.1.
6.104 The United States requests that the Panel modify the first sentence of paragraph 7.744 in
order to reflect more precisely the US reference to the Appellate Body's approach to Article XX in US
– Customs Bond Directive.
6.105 China notes that it fails to see to what extent th e requested modification would have the merit
of making the United States' position clearer than it is already reflected in the finding of the Panel.
Thus, China suggests that there is no need for the Panel to modify this particular finding.
6.106 The Panel has made appropriate changes at paragraph 7.744.
6.107 The United States requests that the Panel modify the first sentence of paragraph 7.765 in
order to reflect the GAPP's review of the catalogue of publications which publication import entities
must submit before importing them. The United States recalls that this is provided for in Article 45 of
the
Publications Regulation.
6.108 China notes that the Panel's statement at paragra ph 7.765 is not made by reference to the
United States' submissions, but reflects the Panel's own reasoning which appears to be sufficiently
clear. Thus, China submits that the addition sugg ested by the United States does not seem to be
necessary. Further, China argues that the suggest ed addition appears also to be incorrect and
somewhat misleading, since nothing in Article 45 of the Publications Regulation provides for any
review by the GAPP of the catalogue of publications intended for importation to which the importer's
review and its subsequent decision to import woul d be subject. China notes that Article 45 of the
Publications Regulation only provides that the importer must submit the catalogue of publications
intended for importation for registration purpose. China agrees that in case the GAPP finds prohibited

content, it may intervene by notifying the importer of any publications which shall be prohibited or
deferred from being imported. However, China notes that the importer's review and its subsequent
decision to import are not generally dependent upon any GAPP decision. China points out in this
context that Article 45 does not use words such as "subject to" or "review". Thus, China considers
that the Panel should refrain from making the modification sought by the United States.
6.109 The Panel has made appropriate changes at paragr aph 7.765 to take account of Articles 44
and 45 of the Publications Regulation.
6.110 The United States requests that the Panel delete the second sentence of paragraph 7.817. The
United States considers that the sentence in questi on, which comments on the fact that the exception
in relation to "public morals" is the first exception identified in Article XX, could give rise to possible
misinterpretation. The United States also argues that the Panel's analysis would be unaffected by the
requested deletion.
6.111 China suggests that the Panel has adequately characterized the importance of public morals in
this particular paragraph and does not consider that there is a need to amend the Panel's findings in
this respect.
6.112 The Panel notes that the United States has not explained how the sentence in question could
give rise to misinterpretation. The Panel does not consider that the said sentence lends itself to
misinterpretation and, therefore, does not agree to delete it. The Panel has, nonetheless, slightly
rephrased the sentence in question.
(b) Comments by China
6.113 China requests that the Panel modify paragraph 7.330 in order to describe more accurately
China's argument as relating to the fact that the measures regulating the importation of motion
pictures for theatrical release should not be scrutinized under the rules applicable to trade in goods.
6.114 The United States has not commented on China's request.
6.115 The Panel has made appropriate changes at paragraph 7.330.
6.116 China requests that at paragraph 7.410 the Panel u se the word "layout" rather than the word
"distribution", since that term is used in the translation of the relevant Chinese regulations. China also
argues that the term "distribution" has multiple meanings and may cause confusion.
6.117 The United States does not agree with China's suggest ed change to paragraph 7.410 to
replace the term "distribution" with the term "l ayout". The United States submits that the term
"distribution" is the most appropria te term in this context and, unlike the term "layout", will not lead
to confusion. In contrast, the United States consid ers that the term "layout"" – e.g., the internal
arrangement of constituent parts, such as in a ci rcuit board or an office space – does not accurately
convey the appropriate meaning in this context. The United States notes that while China indicates
that it used the term "layout" in its translation of the relevant Chinese regulations, the United States
notes that the US translation uses the term "distribution". The United States recalls that China had the
opportunity to identify any translation concerns dur ing the extensive translation review process, and
chose not to raise this issue.
6.118 The Panel does not consider that the English term "layout" is less likely to create confusion
than the term "distribution". Nonetheless, the Panel has deleted the term "distribution" at
paragraph 7.410.

6.119 China requests that the fourth sentence at paragr aph 7.434 should be changed so as to reflect
the fact that China's confirmation was given with respect to newspapers and periodicals and to avoid
any ambiguity.
6.120 The United States has not commented on China's request.
6.121 The Panel has made appropriate changes at paragraph 7.434.
6.122 China requests that the Panel add a reference to China's response to question No. 25(b) in
footnote 325, which is attached to paragraph 7.434.
6.123 The United States does not agree with China's suggested change to footnote 325. In the
United States' view, footnote 325 is correct as written. The United States notes that China's answer to
Panel question No. 25(b) does not support the proposition that the "GAPP designates publication
import entities at its own initiative and that there is no application process". The United States points
out that China's answer to Panel question No. 25(b ) addresses a different issue, i.e., which importers
are subject to what government selection process. Accordingly, the United States requests that the
Panel decline China's request to modify footnote 325.
6.124 The Panel notes that China's response to question No. 25(b) is referenced in footnote 324 of
the Interim Report. Also, the response to question No . 25(b) does not seem to be directly relevant to
the sentence to which footnote 325 is attached. As a result, the Panel does not find it appropriate to
make the requested change.
6.125 China requests that the Panel add to its summary of China's position at paragraph 7.502 in
order to reflect fully China's arguments.
6.126 The United States has not commented on China's request.
6.127 The Panel has made appropriate changes at paragraph 7.502.
6.128 China requests that footnote 383, which is attach ed to paragraph 7.530, should be completed
by adding a reference to paragraph 35 of China's second written submission.
6.129 The United States has not commented on China's request.
6.130 The Panel has made the requested change in footnote 383 which accompanies
paragraph 7.530.
6.131 China requests that the Panel delete the last sentence of footnote 402 which relates to
paragraph 7.552. China considers that its comme nts on the United States' response to question No.
199(b) do not make a similar point.
6.132 The United States has not commented on China's request.
6.133 The Panel has deleted the last sentence of footnote 402, which is attached to paragraph 7.552.
6.134 China requests that the Panel change the second sen tence of paragraph 7.569 to reflect that
China made no mention of the role of the SARFT. China further requests that the Panel clarify
footnote 415 along similar lines.
6.135 The United States does not agree with China's suggested change to paragraph 7.569. The
United States notes that China's request suggests that SARFT's role as the initiator of the designation

process has not been confirmed. According to the Un ited States, this is contradicted by China's own
measures and its answers to Panel question No. 25( a) and 25(b) as well as Panel question Nos. 170
and 171. The United States argues that in its answ ers to Panel question No. 25(a) and 25(b), China
confirms that designation occurs exclusively thro ugh the government's own initiative. The United
States further notes that China reiterates in its an swers to Panel question Nos. 170 and 171 that those
seeking to import films must be designated by SARFT. Accordingly, the Unit ed States requests that
the Panel decline China's request to modify the second sentence of paragraph 7.569.
6.136 The Panel has made appropriate changes at paragrap h 7.569 and the attached footnote 415 to
reflect the fact that China has not explicitly mentioned the SARFT.
6.137 China requests the Panel to change the thir d sentence of paragr aph 7.637 and the
accompanying footnote 460. China submits that its responses to question Nos. 25(b) and 40 did not
mention the scope of Article 5. China contends that it did not indicate in its responses that Article 5
applies only to audiovisual products imported for publication. China considers it worth noting,
however, that its response to question No. 31(a) pointed out that "audiovisual products" in the 2001
Audiovisual Products Regulation encompass audiovisual products used for publication. China thus
requests that the Panel state that China appears to acknowledge that Article 5 applies to audiovisual
products imported for publication. China also requ ests that the Panel in footnote 460 refer to China's
response to question No. 31(a).
6.138 The United States requests that the Panel decline Chin a's request. At the same time, the
United States notes that the Panel assessed China' s approval process with respect to importers of
audiovisual products imported for publication. The United States submits that China's comments on
paragraph 7.637 result in the need for the Pane l to assess the consistency of Article 5 of the 2001
Audiovisual Products Regulation with paragraph 84(b) also with respect to finished audiovisual
products.
6.139 The United States notes that at paragraph 7.637, the Panel concluded that it would analyse
Article 5 as it applies to audiovisual products impor ted for publication, but not to finished audiovisual
products. The United States asserts that in sup port of this conclusion, the Panel relied on its
understanding of China's apparent view that Article 5 applies only to audiovisual products imported
for publication. The United States considers that China's comments on the Interim Report clarify that
its arguments do not support the Panel's conclusion.
6.140 The United States further argues that in addition to its understanding of China's apparent view
of the scope of Article 5, the Panel also relied on the apparent limitations of the US claim with respect
to that article. The United States contends that its claim is not, however, limited to audiovisual
products imported for publication. The United States notes that the Panel refers to paragraphs 261
and 262 of the US first written subm ission in support of its view rega rding this perceived limitation.
Yet, according to the United States, paragraphs 261 and 262 do not limit the US claim in respect of
Article 5 to audiovisual products imported for public ation. Rather, these paragraphs address China's
designation and approval requirements set forth in the 2001 Audiovisual Products Regulation . The
United States notes that it explained in paragraphs 52 through 54 of its first written submission that
Article 5 applies to all audiovisual products, with the importation of finished audiovisual products and
audiovisual products imported for publication covere d by specific articles. In addition, the United
States recalls that the US answer to Panel question No. 155 confirms that Article 5 applies to both
finished audiovisual products and audiovisual products imported for publication.
6.141
 In the light of China's clarification, the Unite d States requests that the Panel decline China's
request and that the Panel revise its analysis a nd findings (under paragraph 84(b)) with respect to
Article 5 to include finished audiovisual products.

6.142 The Panel begins by noting that China incorrectly describes its response to question No.
31(a). That response refers to Article 2 of the Publications Regulation. It does not refer to the 2001
Audiovisual Products Regulation. The regulation at issue, however, is the latter one. The Panel does
not, therefore, find it appropriate to reference Chin a's response to question No. 31(a). In response to
China's comment, the Panel has, however, deleted footnote 460 and has made appropriate changes to
paragraph 7.637. The Panel notes that China does not seem to disagree that Article 5 applies to
audiovisual products imported for publication.
6.143 Regarding the US comments, the Panel reca lls that the United States was given an
opportunity to request changes. Thus, the United St ates could have requested the Panel to revise its
analysis and findings with respect to Article 5 to include finished audiovisual products. The United
States did not do so. We fail to see how the chang es requested by China "result in the need" for the
Panel to make changes not requested by China. I ndeed, as is clear from paragraph 7.637, even before
China's comments, the United States' position has been that Article 5 covers both finished audiovisual
products and audiovisual produc ts imported for publication. 38 Thus, China's comments do not result
in a change in the United States' own position. Moreove r, the United States is incorrect in saying that
the Panel's analysis of the claim concerning Ar ticle 5 depended on the Panel's understanding of
China's apparent view that Article 5 applies only to audiovisual products imported for publication.
Paragraph 7.637 merely addresses the issue of whether Article 5 covers audiovisual products imported
for publication because they are the products at issue in the United States' claim. Thus, we see no
basis for accepting the United States' request, made for the first time in response to China's comments,
that the Panel revise its analysis and findings with respect to Article 5 so as to include finished
audiovisual products.
6.144 We also note that in its comments on China's comments, the United States contends that its
claim concerning Article 5 is not limited to audi ovisual products imported for publication. As
indicated above, we decline the Un ited States' request to make chang es in response to this comment.
At any rate, we do not agree with the United States' contention. It is clear from paragraphs 261 and
262 of the US first written submission that the Un ited States is challenging a designation requirement
for finished audiovisual products and an approval requirement for audiovisual products intended for
publication. The United States identified Article 27 as the relevant designation requirement and
Articles 8-9 as the relevant approval requirement. 39 As our discussion above concerning the US
comment on paragraphs 7.612 and 7.626 explains, Articles 8-9 do not a ppear to be relevant to the
activity of importing audiovisual products intended fo r publication. In any event, the United States
subsequently identified, in its response to questi on No. 1, Article 5 as a provision being challenged,
and it no longer identified Articles 8-9 as provisions be ing challenged. In our view, Article 5 can be
considered an approval requirement inasmuch as it stat es that a permit, or licence, is needed in order
to import audiovisual products. Also, the text of Article 5 is different from, e.g., Article 27 which
uses the concept of "designation". The United St ates in its first written submission could have
identified Article 5 alongside Article 27 as a designa tion requirement. However, the United States
chose not to do so.40 The fact that China in our view enjoys discretion as to the entities to be licensed
does not make it wrong to refer to Article 5 as an approval requirement, partic ularly considering the
fact that only Article 27 uses the concept of "designation".

38 United States' response to question No. 155.
39 United States' first written submission, footnote 166.
40 We also recall that the United States' response to question No. 1 continued to identify Article 27.
The change indicated by the United States' response concerned Articles 8-10, which were no longer identified as
provisions being challenged, and Article 5, which wa s identified for the first time as a provision being
challenged. Thus, it is reasonable to assume that Ar ticle 5 replaced Articles 8-10, since the latter provisions
were no longer identified.

6.145 This understanding, i.e., that the US claim in respect of Article 5 concerns audiovisual
products intended for publication and that the US cl aim in respect of Article 27 concerns finished
audiovisual products is consistent with, and parallels, our understanding of the US claims in respect of
Articles 7 and 8 of the Audiovisual Products Importation Rule . We further note that we asked the
United States whether its claim concerning Article 5 "relate[s] to finished or unfinished AVHE
products". The United States did not reply to this question about the US claim. Instead, the United
States addressed the product scope of Article 5, sta ting that Article 5, in its view, relates to both
finished audiovisual products and audi ovisual products intended for publication.
41 Since
paragraphs 261 and 262 of the US first written submission clearly limit the claim regarding the
approval requirement to audiovisual products intended for publication, and since Article 5 in our view
can be considered to set forth an approval requi rement, and taking account of the other circumstances
mentioned, including the fact that the United States identified only Article 27 as a designation
requirement and that only Article 27 uses the concept of "designation" as well as the US claims
concerning Articles 7 and 8 of the Audiovisual Products Importation Rule , we consider that the US
claim concerning Article 5 is limited to audiovisual products intended for publication.
6.146 China requests that the Panel change the second sentence of paragraph 7.708 in order to
reflect more accurately China's position. China not es that it is correct that it has not invoked the
provisions of Article XX(a) to justify its measur es regulating the importation of motion pictures for
theatrical release and audiovisual products intended for publication, and that it has not developed
specific arguments in this respect. China states, however, that this does not mean that it does not view
these specific measures as also covered by its "right to regulate trade" in a WTO-consistent manner as
laid down in paragraph 5.1 of the Accession Protoc ol. In order to avoid any ambiguity, China
therefore suggests to modify the sentence.
6.147 The United States does not agree with China's suggested change to paragraph 7.708. The
United States notes that China's proposed revision is entirely inconsistent with its arguments before
the Panel. The United States observes that at no point did China express a view that its measures
regulating the importation of films for theatrical release and audiovisual products intended for
publication are covered by its "right to regulate trade" in a WTO-consistent manner. The United
States considers that the Panel accurately explai ns that China argued on numerous occasions that its
trading rights commitments do not apply to th e importation of films for theatrical release and
audiovisual products intended for publication. Th e United States notes that China similarly argued
that audiovisual products intended for publication are not covered by its trading rights commitments,
contending that, as the challenged measures regulate a service, i.e., the licensing of copyrights for
publication of audiovisual content, China's commitm ents concerning the right to import goods do not
apply to such measures. Accordingly, the Unite d States requests that the Panel decline China's
request to modify the second sentence of paragraph 7.708.
6.148 The Panel declines to make the requ ested changes at paragraph 7.708. The Panel notes that
China has not argued that its measures regulating the importation of motion pictures for theatrical
release and audiovisual products intended for publica tion are covered by its "right to regulate trade"
under paragraph 5.1. Indeed, China's comment fails to identify any such earlier argument. As is
pointed out, inter alia, at paragraphs 7.493, 7.620 and 7.725 of the Interim Report, on which China
has not commented, China's position in respect of the relevant measures has been that they regulate
services and, therefore, are not subject to the trad ing rights commitments set forth in the Accession
Protocol. The Panel notes that the interim review stage is not the appropriate time to present new
arguments that could have been put forward earlier . The Panel therefore refrains from addressing this

41 United States' response to question No. 155. At para. 18 of the US comments on China's comments,
the United States appears to confirm that its response do es not discuss the US claim when it says that "the US
answer to Panel question 155 confirms that Article 5 applies to both finished audiovisual products and
audiovisual products imported for publication".

new argument. In any event, China provides no expl anation as to why and how the relevant measures
are covered by China's "right to regulate trade".
6.149 China requests that the Panel add a reference to Article 3 of the 2008 Electronic Publications
Regulation at paragraphs 7.753 and 7.757, since Article 3 also contains a reference to prohibited
contents.
6.150 The United States has not commented on China's request.
6.151 The Panel recalls paragraph 7.726 of the Interim Re port which lists the measures covered by
China's Article XX defence. Neither the 1997 Electronic Publications Regulation nor the 2008
Electronic Publications Regulation are among these measures. The Panel also recalls
paragraph 7.453, where it is explained that th e measure to be examined in this case is the 1997
Electronic Publications Regulation , not the 2008 Electronic Publications Regulation. For these
reasons, the Panel does not find it appropriate to refer to the 2008 Electronic Publications Regulation.
Nevertheless, the Panel has added a clarification at paragraphs 7.753 and 7.757.
6.152 China points out that at paragraph 7.778 the Pa nel uses the term "sub-distribution". China
submits that the term "sub-distribution" does not appear in China's translation of the Audiovisual
(Sub-)Distribution Rule. China instead uses the term "distribution".
6.153 The United States recalls the Panel's discussion at pa ragraph 7.931 of the Interim Report,
which specifically addresses the term "(sub-)distribution" . In that paragraph, the Panel stated that it
will use the term "(sub-)distribution" with respect to the title of certain measures which contain the
term Fen Xiao, as does the Audiovisual (Sub-)Distribution Rule . Moreover, the United States notes
that the Panel explained that it would use "wholesale and retail" to specify the relevant activities under
discussion with respect to (sub-)distribution. The United States further argues th at to the extent that
China's comment is understood as a request to re-ope n the translation discussion regarding this term
so as to replace the term "sub-distribution" with "distribution" or Fen Xiao at paragraph 7.778, the
United States notes that this translation issue has been resolved as described in paragraph 7.931.
Accordingly, the United States requests that the Panel not replace "sub-distribution" with
"distribution" or Fen Xiao.
6.154 The Panel notes that the US claim in respect of Article 21 concerns the right to import and
not the type of "distribution" in which Chinese- foreign contractual joint ventures may engage.
Having said this, the Panel at paragraph 7.778 has added a footnote to note China's different view,
indicating China's proposed translation of Article 1 and referring to paragr aph 7.931 regarding the
translation of the Chinese term Fen Xiao.
6.155 China requests that at paragraph 7.829 the Panel repl ace the term "distribution" with the term
"layout".
6.156 The United States argues that for the reasons set fort h in its comments on China's comments
on paragraph 7.410, it requests that the Panel decline China's request to modify the second sentence of
paragraph 7.829.
6.157 The Panel does not consider that the term "layout" is less likely to create confusion than the
term "distribution". Paragraph 156 of China's first written submission refers to "geographical
coverage". In order to avoid any potential confusion, the Panel at paragraph 7.829 has added the term
"geographical coverage" in brackets.

6.158 China requests that the Panel correct a refere nce to China's second written submission in
footnote 565 which accompanies paragraph 7.854. Ch ina points out that the reference should be to
China's first written submission.
6.159 The United States has not commented on China's request.
6.160 The Panel has made appropriate changes to footnote 565, which is attached to
paragraph 7.854.
3. Claims under the GATS
(a) Comments by the United States
6.161 The United States requests that the Panel modify the first sentence of paragraph 7.1012 to
specify that the wholesaling of reading materials (e.g. books, newspapers, periodicals, electronic
publications) is covered by China's commitments under "Wholesale Trade Services" (Sector 4.B).
6.162 China has not commented on the United States' request.
6.163 The Panel notes that the claim with respect to master distribution concerns only books,
newspapers and periodicals and that what needs to be determined is whether these products fall within
the scope of China's commitments on "Wholesale Trade Services" (Sector 4.B). The Panel therefore
considers that the original text of paragraph 7.1012 is appropriate.
6.164 The United States requests that the fourth sentence of paragraph 7.1037 be modified so that it
does not state that the Foreign Investment Regulation gives legal effect to the Catalogue.
6.165 China has not commented on the United States' request.
6.166 The Panel has made appropriate changes to paragraph 7.1037.
6.167 The United States requests that the Panel replace the term "publications" with the term
"reading materials" in paragraph 7.1068 for the sake of consistency.
6.168 China has not commented on the United States' request.
6.169 The Panel has made appropriate changes to paragraph 7.1068.
6.170 The United States requests that the last sentence of paragraph 7.1117 be modified because it
is not clear as a general matter that by inscribing limitations in their Services Schedule WTO
Members necessarily consider those inscriptions to be discriminatory.
6.171 China has not commented on the United States' request.
6.172 The Panel has made the requested clarification.
6.173 The United States requests that the second sentence of paragraph 7.1174 be modified so as to
more accurately track the US statements regarding the meaning of the term "sound recording".
6.174 China has not commented on the United States' request.
6.175 The Panel has made the requested clarification.

6.176 The United States requests that the sixth sentence of paragraph 7.1204 and the first sentence
of paragraph 7.1340 be modified, with respect to th e scope of Sector 4 of China's Services Schedule
because, in its view, a decision on the full scope of this sector is unnecessary in order to decide the
meaning of China's commitments in Sector 2.D of its Schedule.
6.177 China responds that China's GATS Schedule, in particular Sector 4, provides relevant context
for the interpretation of the entry "sound recording distribution services" in Sector 2.D.
6.178 The Panel has not made the requested modification. The original text properly reflects the
Panel's understanding of the scope of Sector 4 of China's Services Schedule.
(b) Comments by China
6.179 China requests that the Panel modify the first se ntence of paragraph 7.1068 to use the past
tense because the measure in question was repealed.
6.180 The United States has not commented on China's request.
6.181 The Panel has made the requested modification.
6.182 China requests that the Panel make changes to th e summary of China's argument provided at
paragraph 7.1235 to add that China also denies the commercial reality of network music services.
6.183 The United States has not commented on China's request.
6.184 The Panel has made appropriate changes to paragraph 7.1235.
6.185 China requests that the Panel make changes to th e summary of China's argument provided at
paragraph 7.1238 to reflect China's position more ac curately. According to China, it did not assert
that the common intention regarding China's serv ices commitments was formed by the time the
bilateral negotiations were conclude d, i.e., by 15 November 1999. Rather, China merely defined the
time-period within which the negotiations on its GATS Schedule took place.
6.186 The United States disagrees with China's comments on this paragraph. Referring to China's
first written submission, the United States notes that China did consider that 15 November 1999 was
the relevant date for determining the intention of the parties regarding the meaning of China's services
commitments for sound recording distribution services.
6.187 The Panel has modified the first sentence of paragraph 7.1238 by quoting China's answer to a
Panel question. The Panel has made further changes to this paragraph so as to enhance clarity and to
indicate that the negotiations of China's GATS Schedule were not concluded on 15 November 1999 as
claimed by China.
6.188 China requests that the Panel modify paragra ph 7.1254 to ensure that China's position is
reflected in a more accurate manner. China explai ns that it relied on those "factors", not in support of
its interpretation of "sound recording distributio n services", but only to rebut the United States'
argument.
6.189 The United States responds that no revisions to the In terim Report are necessary based on
China's comment related to this paragraph. The United States indicates that China merely provides a
point of clarification, without providing the Pane l with any suggestions for modifying the Interim
Report.

6.190 The Panel has deleted the wording "and not from other external tests or theories" in the
second sentence of paragraph 7.1254 and made an editorial change.
6.191 China requests that paragraph 7.1259 be modified because China had recourse to those
"factors" only to rebut the United States' argument. China indicates that it has never contended that
two distinct services could not be classified under the same entry.
6.192 The United States responds that no revisions to the In terim Report are necessary based on
China's comment related to this paragraph. The United States indicates that China merely provides a
point of clarification, without providing the Pane l with any suggestions for modifying the Interim
Report.
6.193 The Panel has deleted the last two sentences of pa ragraph 7.1259, for clarity, and has made
some editorial changes to the paragraph.
6.194 China requests that the Panel modify paragraph 7.1262 to avoid any ambiguity about China's
position when referring to CPC version 2.
6.195 The United States responds that no revisions to the In terim Report are necessary based on
China's comment related to this paragraph. The United States indicates that China merely provides a
point of clarification, without providing the Pane l with any suggestions for modifying the Interim
Report.
6.196 The Panel has not modified paragraph 1262. The Panel considers that the original text
clearly reflects its view and gives rise to no confusion or ambiguity about China's position.

4. Claims under Article III:4 of the GATT 1994
(a) Comments by the United States
(i) Reading materials
6.197 The United States requests that the Panel modify the first sentence of paragraph 7.1504 to
reflect that the Publications (Sub-) Distribution Rule governs not only foreign-invested enterprises
seeking to engage in the sub-distri bution of books, but also those fo reign-invested enterprises seeking
to engage in the sub-distribution of newspapers and periodicals.
6.198 China has not commented on the United States' request.
6.199 The Panel has made the appropriate modification to the first sentence of paragraph 7.1504.
6.200 The United States suggests that the Panel replace the term "publications" in paragraph 7.1530
with "reading materials" in order to maintain the consistent use of the latter term as explained in
footnotes 111 and 775 of the Interim Report.
6.201 China has not commented on the United States' request.
6.202 The Panel has replaced the term "publications" in paragraph 7.1530 with the term "reading
materials".

(ii) Sound recordings
6.203 The United States requests that the Panel clarify in the second sentence of paragraph 7.1546
that the United States arguments with respect to the content review process applicable to imported
products relate to that process being "more onerous" than the one applicable to domestic products.
6.204 China understands that in paragraph 7.1546 the Pane l refers to the United States' response to
Panel question No. 123( b), which only refers to a "more onerous" regime with respect to the Network
Music Opinions.
6.205 China recalls that the 2001 Audiovisual Products Regulation imposes a content review
requirement for sound recordings to be imported in hard copy format, such content review taking
place prior to importation. In turn, pursuant to the Network Music Opinions, the digitalized version of
the music previously embedded in the hard copy format also undergoes a content review.
6.206 According to China, it follows that what th e United States complains about is, on the one
hand, the existence of a content review imposed exclusively on imported hard copies prior to
importation and, on the other ha nd, an allegedly more onerous content review regime for the
digitalized content previously embedded in an im ported hard copy which is in the marketplace.
Therefore, the Panel's statement is correct and co mplete insofar as it relates to the content review
undergone by the hard copy sound recording.
6.207 China respectfully submits that the request by the United States to insert additional wording is
likely to result in confusion concer ning the existence of two distinct content review processes. Should
the Panel accept the request for modification suggested by the United States, the Panel should clarify
that this statement is valid only in connecti on with digitalized products and insofar as the Network
Music Opinions is concerned, in accordance with the full statement of the United States.
6.208 The Panel notes that in paragraphs 369-372 of its first written submission the United States
refers to the content review processes for im ported hard-copy sound recordings under both the
Network Music Opinions and the 2001 Audiovisual Products Regulation as being "more onerous" than
the ones applied to domestic products . The Panel does recognize that the paragraph as originally
worded could lead to some confusion as to whethe r there are actually two different content review
regimes being referred to. The Panel has modified paragraph 7.1546 in a manner which it believes
accurately reflects the United States' argument as well as clarifies that two different content regimes
are being challenged.
6.209 The United States requests that the Panel add additional portions of its response to Panel
question No. 247(c) to paragraph 7.1638 so as not to omit certain important context.
6.210 China acknowledges that the United States' re sponse to Panel question No. 247(c)
encompasses the relevant sentence. However, Chin a believes that this sentence does not reflect the
context in which the United States' statement was made, but only aims at creating confusion.
6.211 China maintains that the Panel rightly notes in paragraph 7.1641 of the Interim Report that the
United States uses the term "product" interchangeably to refer both to the hard copy (which is the
imported product subject of its claim) and the digitalized content.
6.212 According to China, due to this lack of preci sion, this sentence does not add anything to the
Panel's reasoning, but would create confusion. China submits that insofar as the "distribution" of the
hard-copy is concerned, which is the subject of the Panel's examination und er this paragraph, the
statement of the Panel is sufficient.

6.213 The Panel recognizes that the sentence referred to by the United States is part of the United
States' response to Panel question No. 247(c). For this reason, in an effort to fully reflect the United
States' argument we will add the sentence to paragr aph 7.1638. However, as China points out, the
statement highlights the United States' lack of consis tency with respect to its use of the term "the
product" to refer to both the like "imported product" th at is the subject of its claim as well as further
processed or downstream products. This lack of cl arity can be confusing. The Panel addressed the
confusion caused by the United States' response to Panel question No. 247(c) as well as other
instances in the United States' submissions in para graph 7.1641. However, in the interest of
completeness, the Panel has modified the footnote accompanying paragraph 7.1638 to reflect its
interpretation of the additional sentence that has been added to the paragraph.
(iii) Films for theatrical release
6.214 The United States considers that a brief summary of its argument with respect to
discriminatory treatment of imported films for theat rical release resulting from the alleged imported
film distribution duopoly should be included in paragraph 7.1658.
42 The United States also requests
that its arguments with respect to the Domestic Film Distribution and Exhibition Rule be introduced in
paragraph 7.1658.43
6.215 Specifically, the United States requests that the Panel refer to its argument that the Domestic
Film Distribution and Exhibition Rule confirms that China Film Group and Huaxia are the only two
distributors of imported films in China. The United States also suggests that the texts of Article III(1),
IV(II)(1) and V(1) of the Domestic Film Distribution and Exhibition Rule be included in a footnote to
paragraph 7.1658.
6.216 China recalls that the paragraph of the Interim Report for which the United States requests
modification, as well as the part of the Interi m Report it belongs to, only concerns what allegedly
creates a duopoly, not whether or how this duopoly allegedly discriminates against imported films.
China argues that arguments related to the allege d discriminatory treatment of imported films should
not be included in this part of the report. Chin a also submits that the references quoted by the United
States do not support any of the United States' requests for modification.
6.217 With respect to the United States' request concerning the alleged establishment of the
duopoly, China submits that the Panel has fully reflected the United States' argument that the
challenged measures create a duopoly, by notably citi ng the content of such measures. Consequently,
China submits that granting the United States' request is unnecessary.
6.218 Additionally, China submits that quoting the content of the full articles of the Chinese
measures as the United States proposes would create inc onsistency with the rest of the Panel Report.
China would also like to stress that the United States itself does not cite the content of these articles in
any of its submissions. In any case, the United States has never cited Article V(1) of Exhibit US-40 to
support its argument that Exhibit US-40 confirms the duopoly. China respectfully requests the Panel,
should it decide to insert the proposed footnote, no t to introduce any reference to Article V(1) of
Exhibit US-40.
6.219 Considering the above, China submits that in troducing the requested modification (with a
plethora of quotations of this regulation in footnotes) in paragraph 7.1658 of the Interim Report would
only misrepresent the United States' claim.

42 See e.g. United States' first written submission, paras. 201-222 and 397-409.
43 United States' first written submission, para. 203 (footnote 136) and 220; United States' response to
Panel questions Nos. 125(d) (paras. 247(footnote 168), 24 8, 251(footnote 172)); United States' second written
submission, paras. 202 and 213; and United States' response to Panel question No. 248 (para. 230).

6.220 The Panel first notes that paragraph 7.1658 already ge nerally refers to the United States'
argument that the alleged "duopoly" results in discriminatory treatment of imported films for
theatrical release. We are not persuaded by China's submission that arguments related to
discriminatory treatment should not be included in this part of the Report. We think that including
more explanation of the United States' argument on this point may promote clarity. We also note that
the United States, in paragraph 202 of its second written submission and in its response to Panel
question No. 248, referred to the Domestic Film Distribution and Exhibition Rule as confirming the
existence of the "duopoly".
6.221 With respect to the suggested footnote, we agree with China that it is unnecessary to cite the
full texts of each of these articles as it would be in consistent with the rest of the Report and because
Exhibit US-40 is part of the Panel record. We also note that in support of its arguments with respect
to the Domestic Film Distribution and Exhibition Rule confirming the existence of the duopoly the
United States only cited Articles III.1 and IV.II.1. Th ere is a reference to Article V.1 in footnote 136,
but this relates to the less favourable treatment that the United States believes the measure provides
through the requirement that China Film Group a nd Huaxia give priority to domestic films.
Therefore, the Panel only cites Articles III.1 and IV .II.1 in the new footnote. As the Panel is
including additional argumentation by the United States in the Final Report, we also consider that it is
appropriate to explain our unders tanding of the relevance of the Domestic Film Distribution and
Exhibition Rule to our analysis. Therefore, we ha ve also made appropriate changes to
paragraph 7.1682 of the Report.
(b) Comments by China
(i) Sound recordings
6.222 China believes that the Panel's summary in paragraph 7.1547 misrepresents China's
argument. China contends that it did not argue that "the distribution of sound recordings imported in
hard copy, but intended for so-called "electronic distribution" cannot be scrutinized under the rules
governing trade in goods", but rather that what the United States actually targets is not the distribution
of the hard copy intended for so-called "electronic distribution", but the "distribution" of digitalized
content, and that such "distribution" of the dig italized content cannot be scrutinized under the rules
governing trade in goods.
6.223 Therefore, China requests that the Panel modify paragraph 7.1547 and adopt the above more
accurate representation of China's argument.
6.224 The United States has not commented on China's request.

6.225 The Panel has reviewed paragraph 7.1547 and the ensu ing paragraphs of the Interim Report.
The Panel has also reviewed Chin a's arguments in its submissions. The Panel notes that the sentence
China requests the Panel to modify is based on pa ragraph 550 of China's first written submission.
Specifically, paragraph 550 reads:

"Contrary to what the United States is alleging, the distribution of sound recordings
imported in hard copy, but intended for so- called "electronic distribution", cannot be
scrutinized under the rules governing trade in goods."
6.226 The Panel also notes that the argument that China would like the Panel to insert in
paragraph 7.1547 is already reflected in paragra ph 7.1550. The Panel does not believe the requested
modification is necessary or useful.

6.227 China maintains that the Panel's statement in pa ragraph 7.1551 that "China identifies a
systemic concern that, pursuant to the United Stat es' logic, GATT rules would apply to any measure
regulating services related to – intangible – content as long as there exists a physical carrier capable of
being traded, since such a measure would always have the alleged effect on its carrier" does not
accurately reflect China's concern which was actua lly expressed in respect of the United States'
argument that measures affecting an intangible must be considered as affecting inter alia the
distribution of its physical carrier. Therefore, Ch ina respectfully requests the Panel to modify its
statement to reflect China's submissions.
44

6.228 The United States has not commented on China's request.
6.229 The Panel notes that the first sentence of paragraph 7.1551 is meant to reflect China's
arguments in paragraph 201 of its second written submission which reads:
"The formally different treatment identified by the United States does not affect the
'distribution' of hard copies and can therefore not be scrutinized under Article III:4 of
the GATT. In fact, what the United States suggests should be compared is the
allegedly different treatment applied to digitalized products. Following the United
States' logic would entail major systemic implications, insofar as it would amount to
applying rules on trade in goods to services provided over the Internet."
6.230 The Panel also notes that the second sentence of paragraph 7.1551 reflects China's arguments
in paragraphs 152 and 153 of its second oral statement, which read:
"Moreover, by redefining the target of its claim as being the imported hardcopy sound
recording, the United States is in fact arguing that the Chinese measures affecting the
content of imported hardcopy sound reco rdings should also be considered as
measures affecting "the internal sale, offering for sale, purchase, distribution or use
of" hardcopy sound recordings and thus fall under Article III:4 of the GATT.
Following this erroneous logic of the Un ited States, would mean that GATT rules
would apply to any measure regulating servi ces related to – intangible - content as
long as there exists a physical carrier capabl e of being traded, since such a measure
would always have the alleged effect on its carrier."
6.231 The Panel has made appropriate modifications to paragraph 7.1551 to reflect more accurately
the arguments made by China.
(ii) Films for theatrical release
6.232 China requests that the Panel delete the reference to designated distributors of imported films
in the last sentence of paragraph 7.1667 because th e relevant measures set up an approval system, not
a designation system.
6.233 The United States has not commented on this request.
6.234 The Panel has made the requested deletion.
6.235 China notes that the Panel, in paragraphs 7.1668-7.1691 when analyzing the United States'
claim based on Article III:4 of the GATT 1994 with r espect to films for theatrical release, considers
that the United States has brought a claim that China's rules and regulations, as applied, also create a

44 See China's second oral statement, paras. 152-153.

duopoly of film distribution. China notes that the United States' claim, as contained in particular in the
US consultation requests, the panel request a nd the United States' written submissions, always
appeared to be linked to the content of the Chinese measures at stake, and not to their application.45
6.236 China therefore submits that the US did not raise the " as applied" claim which has been
analyzed by the Panel. Since this "claim" was not brought before the Panel, there appears to be no
need for the Panel to reflect it and make a corres ponding analysis in the Interim Report. If the Panel
believes that such analysis is n ecessary, China respectfully requests th e Panel to clarify the basis on
which it considers that there is a properly raised "as applied" claim requiring the analysis it has
carried out.
6.237 The United States does not agree with China's contentio n that the United States' claim under
Article III:4 of the GATT 1994 with respect to f ilms for theatrical release is limited to China's
measure as such, thereby excluding an "as-applied" challenge. At no time, whether in its consultation
requests, panel request or submissions, did the Unite d States confine its Article III:4 claim to China's
measures at issue as such. The United States relies on its supplemental Cons ultation Request and on
its panel request to support its position that its claim was not limited to an "as such" claim.
6.238 The United States also points to its arguments in its first written submission as well as its
subsequent submissions to the Panel to argue that it did indeed raise the issue of the application of
China's measures with respect to the distribution of imported films.
6.239 The United States maintains that it did raise a claim under Article III:4 with respect to the
application of China's measures governing the distri bution of imported films as compared to domestic
films. Accordingly, the United States asks that the Panel decline China's request with respect to
paragraphs 7.1668 through 7.1691.
6.240 The Panel first recalls its finding in paragraph 7.1667, which China has not commented on,
that the "measure" challenged by the United States is the distribution "duopoly" which it claims
provides for discriminatory treatment of imported fi lms. The United States' claim is based on the
operation of the three challenged measures. Chin a has argued that the "duopoly" was created by
circumstance and not by any action attributable to China. As noted in the Interim Report, for the
United States to prove that the "duopoly" is a "meas ure" attributable to China it must demonstrate
either that the measures on their face establish th e alleged "duopoly" or that through their operation
and decisions made by the government of China that China has, in fact, created the alleged "duopoly".
We note that the United States did not explicitly limit its claim to an "as-such" one. We also note that
the United States provided argumentation in its writte n submissions to the Panel with respect to the
distribution duopoly being discriminatory rega rdless of whether it was mandated by China's
measures.46 Therefore, the Panel considers that it is appropriate to address whether the measures,
even if they do not create a duopoly on their face, ar e operated by China in such a manner that they
create a duopoly in fact. We recognize that the term "as applied" carries with it certain connotations
that might cause confusion. Therefore, although we have not deleted the discussion in
paragraphs 7.1668–7.1691 we have made modifications in paragraphs 7.1671, 7.1684, 7.1685, 7.1689,
7.1690 and in the heading to section VII.E.4(a)(ii) to reflect that we are discussing whether China
established a de facto "duopoly" for the distribution of imported films for theatrical release.

45 For instance, the US supplementary request for consultations mentions that: "The measures at issue
appear to establish a dual distribution system for films for theatrical release" . The panel request is equally
silent concerning the inclusion of a claim concerning the way the Chinese measures are applied. The US first
written submission (see for example para. 398) also makes clear that in the US view, the dual distribution
system is established by the measures, as such.
46 United States' second written submission, para. 201; United States' response to question No. 258.

5. Other changes to the Interim Report
6.241 The Panel has made a number of other changes which were not specifically requested by the
parties. These changes were made to eliminate typographical errors or to edit the Report.
VII. FINDINGS
A. G
ENERAL ISSUES
1. Burden of proof
7.1 We recall the general principles applicable to burden of proof in WTO dispute settlement, i.e.,
that a party claiming a violation of a provision of a covered agreement by another Member must assert
and prove its claim. 47 We also recall that any party who asserts a fact, whether the claimant or the
respondent, is responsible for providing proof thereo f. This is in conformity with generally accepted
canons of evidence in civil law, common law, and, in fact, in most jurisdictions, that the burden of
proof rests upon the party, whether complaining or defending, who asserts the affirmative of a
particular claim or defence. If that party adduces evidence sufficient to raise a presumption that what
is claimed is true, the burden then shifts to th e other party, who will fail unless it adduces sufficient
evidence to rebut the presumption.48
7.2 These general canons also apply in WTO disput e settlement, such that once a complaining
party has made a prima facie case, the burden of proof moves to the defending party, which must in
turn counter or refute the claimed inconsistency. 49 The Appellate Body explained, in Canada – Dairy
(Article 21.5 New Zealand and US II) that:
"as a general matter, the burden of proof rests upon the complaining Member. That
Member must make out a prima facie case by presenting sufficient evidence to raise a
presumption in favour of its claim. If the complaining Member succeeds, the
responding Member may then seek to rebut this presumption. Therefore, under the
usual allocation of the burden of proof, a responding Member's measure will be
treated as WTO- consistent, until sufficient evidence is presented to prove the
contrary."
50
7.3 It is also well to remember that "a prima facie case is one which, in the absence of effective
refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the
complaining party presenting the prima facie case."51
7.4 The Appellate Body also has clarified that in the context of WTO dispute settlement "[a]
prima facie case must be based on "evidence and legal argument" put forward by the complaining
party in relation to each of the elements of the claim. A complaining party may not simply submit
evidence and expect the panel to divine from it a claim of WTO-inconsistency. Nor may a
complaining party simply allege facts without relating them to its legal arguments."52

47 Appellate Body Report on US – Wool Shirts and Blouses, p. 16, DSR 1997:I, 323 at 337.
48 Appellate Body Report on US – Wool Shirts and Blouses, p. 14, DSR 1997:I, 323 at 335.
49 Appellate Body Report on EC – Hormones, para. 98.
50 Appellate Body Report on Canada – Dairy (Article 21.5 New Zealand and US II), para. 66.
51 Appellate Body Report on EC – Hormones, para. 104.
52 Appellate Body Report on US – Gambling, para. 140.

7.5 Precisely how much and precisely what kind of evidence will be required to establish such a
presumption will necessarily vary from measure to measure, provision to provision, and case to
case.53
7.6 Given this general rule, it is the complainant in a given case who initially bears the burden of
proof to establish a prima facie case of inconsistency of a measure with a provision of a WTO covered
agreement, before the burden of showing consistency with a pr ovision or defending it under an
exceptional provision (e.g. Article XX of the GATT 1994) shifts to the defending party.
7.7 In the present case, therefore, it is the United States who has the initial burden of proof to
establish a prima facie case of alleged inconsistencies of China's measures with the various provisions
it has cited, including China's Protocol of Accession, Article XVI and XVII of the GATS and
Article III:4 of the GATT 1994. With respect to the US claims regarding China's trading rights
commitments in the Protocol of Accession, China, as the party making an affirmative defence of its
measures under Article XX(a) of the GATT 1994, bears the initial burden of proof.
2. Treaty interpretation
7.8 Article 3.2 of the DSU directs panels to cl arify the existing provisions of the covered
agreements "in accordance with customary rules of interpretation of public international law". It is
well settled in WTO case law that the principles codified in Articles 31 and 32 of the Vienna
Convention on the Law of Treat ies ("Vienna Convention") are such customary rules. 54 These
provisions read as follows:
"Article 31: General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and
purpose.
2. The context for the purpose of the inte rpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:
any agreement relating to the treaty which was made between all the parties in
connection with the conclusion of the treaty;
any instrument which was made by one or more parties in connection with the
conclusion of the treaty and accepted by the other parties as an instrument related to
the treaty.
3. There shall be taken into account, together with the context:
any subsequent agreement between the par ties regarding the interpretation of the
treaty or the application of its provisions;
any subsequent practice in the applica tion of the treaty which establishes the
agreement of the parties regarding its interpretation;
any relevant rules of international law applicable in the relations between the parties.

53 Appellate Body Report on US – Wool Shirts and Blouses, p. 14, DSR 1997:I, 323 at 335.
54 Appellate Body Report on US – Gasoline, p. 17, DSR 1996:I, 3 at 15-16; Appellate Body Report on
India – Patents (US), para. 45; and Appellate Body Report on US – Shrimp, para. 114.

4. A special meaning shall be given to a term if it is established that the parties so
intended.
Article 32: Supplementary means of interpretation
Recourse may be had to supplementary me ans of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine the
meaning when the interpretation according to article 31:
leaves the meaning ambiguous or obscure; or
leads to a result which is manifestly absurd or unreasonable."
55
7.9 We shall apply these principles in interpreti ng the relevant provisions of the covered
agreements.
B. PRELIMINARY ISSUES
7.10 In its first written submission to the Panel on 20 June 2008, China raised a number of
objections. First, China argued that several measur es challenged by the United States are outside the
Panel's terms of reference. S econd, China argued that several requirements named by the United
States in its first written submission were likewise out side the Panel's terms of reference. Third,
China argued that the US claim under Article III :4 of the GATT 1994 with respect to China's
treatment of "reading materials" was outside the Panel's terms of reference because it was not
consulted on. China went on to argue that if the Pa nel found the claim within its terms of reference,
the US aspects of that claim dealing with electr onic publications and with subscription requirements
on purchasers of reading materials were nevertheless outside the Panel's terms of reference. Finally,
China asked the Panel to refrain from examining three "measures" identified in the US panel request.
7.11 The United States has disputed each of these objections and argues that all of the measures,
requirements, claims, and products are properly before the Panel.
7.12 China did not request that the Panel make a preliminary ruling on these matters.
Nevertheless, the resolution of these objections is a prerequisite for the Panel moving forward with a
substantive analysis of the US claims. Therefore, we will address these issues first, before moving on
to the substance of the US claims.
1. Article 6.2 of the DSU
7.13 China's objections centre, primarily around whet her the US panel request, in light of the
claims and arguments presented by the United Stat es in its first written s ubmission and subsequent
submissions, is consistent with the obligations set fo rth in Article 6.2 of the DSU. Therefore, we will
first undertake an analysis of the obligations set fo rth in Article 6.2 and then turn to whether the
United States has complied with those obligations in its panel request in this case.
7.14 Article 6.2 of the DSU provides as follows:
"The request for the establishment of a pane l shall be made in writing. It shall
indicate whether consultations were held, identify the specific measures at issue and

55 The Vienna Convention on the Law of Treaties (the "Vienna Convention"), done at Vienna, 23 May
1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.

provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly. In case the applicant request s the establishment of a panel with other
than standard terms of reference, the written request shall include the proposed text of
special terms of reference".
7.15 In Korea – Dairy, the Appellate Body explained that Article 6.2 contains four distinct
obligations with respect to the panel request:
"The request must: (i) be in writing; (ii) indicate whether consultations were held;
(iii) identify the specific measures at issue; and (iv) provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly."
56
7.16 The two obligations that have been implicated by China's arguments in this dispute are the
latter two. Therefore, we will examine what is requ ired of a party to satisfy the obligations to: (i)
identify the specific measures at issue; and (ii) provide a brief summary of the legal basis of the
complaint. The Appellate Body has explained that these two requirements are intended to ensure that
the complainant present[s] the problem clearly in the panel request.57
(a) Identify the specific measure at issue
7.17 For purposes of compliance with Article 6.2 it is necessary for the complaining party to
identify the measures at issue. Although it may be su fficient to identify a measure by its form, (i.e.,
by the name, number, date and place of promulgation of a law, regulation, etc. ...) this is not the only
manner of identification which could serve to satisfy the obligation in Article 6.2 of the DSU. A
measure may also be identified by its substance 58, e.g. by providing a narrative description of the
nature of the measure, so that what is referred to adjudication by a panel may be discerned from the
panel request.59
7.18 Additionally, references in a panel request to amendments, related measures, or implementing
measures have been considered to sufficiently identify measures not specifically named within a panel
request to fulfil the requirements of Article 6.2, such that the un-named measures were considered to
be within a panel's terms of reference. 60
7.19 The Panel in Japan – Film also examined this issue. In that case Japan requested that the
panel determine that eight measures were outside its terms of reference because they were not
mentioned in either the consultations or the pane l request. The panel ultimately determined that
because the measures implemented a broad framework law that was identified in the panel request and
because the panel request specified the form and circumscribed the possible content and scope of such
implementing measures that the eight measures were with in its terms of reference. In its finding that
panel reiterated that, even in such circumstances, the identification of the measure must be such that
the responding party has been adequately notified of the case against it. Specifically, the panel
reasoned that:
"To fall within the terms of Article 6.2, it seems clear that a 'measure' not explicitly
described in a panel request must have a clear relationship to a 'measure' that is
specifically described therein, so that it can be said to be 'included' in the specified

56 Appellate Body Report on Korea – Dairy, para. 120
57 Appellate Body Report on US – Continued Zeroing, para. 160.
58 Panel Report on Argentina – Footwear (EC) , para. 8.40; also Panel Report on EC – Approval and
59 Appellate Body Report on US – Continued Zeroing, para. 168.
60 Appellate Body Report on European Communities – Bananas III, para. 140.

'measure'. In our view, the requirements of Article 6.2 would be met in the case of a
'measure' that is subsidiary or so closely re lated to a 'measure' sp ecifically identified,
that the responding party can reasonably be found to have received adequate notice of
the scope of the claims asserted by the complaining party. The two key elements --
close relationship and notice -- are inter-related: only if a 'measure' is subsidiary or
closely related to a specifically identified 'measure' will notice be adequate."
61
7.20 Therefore, in determining whether a reference to measures which amend, are related to, or
implement measures explicitly listed in a panel requ est is sufficient to satisfy the requirements of
Article 6.2 a panel must analyse whether the measures that the complaining party is contesting were
identified such that the respondent party received "adequate notice."
62 In conducting its analysis of
whether the respondent party received "adequate notice" a panel must remain mindful of its obligation
to examine the panel request as a whole and in light of attendant circumstances.63
(b) Provide a brief summary of the legal basis of the complaint
7.21 Article 6.2 of the DSU requires a complainant to provide a brief summary of the legal basis of
its complaint. In US – Oil Country Tubular Goods Sunset Reviews, the Appellate Body found that the
term legal basis in Article 6.2 of the DSU refers to the claim made by the complaining party.64
7.22 The Appellate Body has also clarified that a cl aim "sets forth the complainant's view that the
respondent party has violated, or nullified or impaired the benefits arising from, an identified
provision of a particular agreement."
 65
7.23 Although a complainant must provide a "summary" of the legal basis of its complaint, this
does not mean, however, that the complainant is requ ired, in its request for establishment, to set out
the arguments in support of a particular claim. We consider that there is a significant difference
between the claims identified in the request for the establishment of a panel, which establish the
panel's terms of reference under Ar ticle 7 of the DSU, and the arguments supporting those claims.
While a claim sets forth the complainant's view that the respondent party has violated, or nullified or
impaired the benefits arising from, an identified pr ovision of a particular agreement, arguments are
what is adduced by a complaining party to demonstrate that the responding party's measure does
indeed infringe upon the identified treaty provision. 66 The arguments in support of a claim may be set
out and progressively clarified in the first written submission, the rebuttal submission and the first and
second panel meetings with the parties. 67 By contrast a party may not use its submissions to "cure" a
deficient panel request.68
(c) Sufficient to present the problem clearly
7.24 The Appellate Body has explained that the requi rements in Article 6.2 to identify the specific
measures at issue and the provision of a brief su mmary of the legal basis of the complaint "are
intended to ensure that the complaining party 'present[s] the problem clearly' in its panel request."69

61 Panel Report on Japan – Film, para. 10.8.
62 Panel Report on EC – Bananas III, para. 7.27; also Panel Report on US – Carbon Steel, para. 8.41.
63 Appellate Body Report on Korea – Dairy , paras. 124-127; also Appellate Body Report on US –
Carbon Steel, para. 127.
64 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews, para. 162.
65 Appellate Body Report on Korea – Dairy, para. 139.
66 Appellate Body Report on Korea – Dairy, para. 139.
67 Appellate Body Report on EC – Bananas III, para. 141.
68 Ibid., para. 143; Appellate Body Report on United States – Carbon Steel, para. 127.
69 Appellate Body Report on US – Continued Zeroing, para. 160.

7.25 The "problem" is not solely the obligations in the covered agreements nor the respondent
Member's measures but rather wh ether the respondent Member's measures comport with those
obligations. Therefore, to sufficiently present the problem clearly, a complaining Member must
"plainly connect the challenged measure(s) with th e provision(s) of the covered agreements claimed
to have been infringed, so that the respondent part y is aware of the basis for the alleged nullification
or impairment of the complaining party's benefits." 70 As the Appellate Body has explained, "[o]nly
by such connection between the measure(s) and the relevant provision(s) can a respondent "know
what case it has to answer, and ... begin preparing its defence".71"72
(d) Relationship between the panel request and the Panel's terms of reference
7.26 The particular importance of compliance with the two latter obligations in Article 6.2 was
highlighted by the Appellate Body which has explained that together the identification of the specific
measure and the legal basis of the complaint compri se the "matter referred to the DSB" which forms
the basis for a panel's terms of reference under Article 7.1 of the DSU.73
7.27 The terms of reference have two essential purposes: first, to give the parties and third parties
sufficient information concerning the claims at issu e in the dispute to allow them an opportunity to
respond to the complainant's case; and second, to establish the jurisdiction of the panel by defining the
precise claims at issue in the dispute. 74 The first of these purposes is concerned with the due process
rights of the respondent and third parties involved in a particular dispute, while the second is
concerned with ensuring that a panel does not exceed its limited mandate as set forth in the DSU.
7.28 The Appellate Body has previously found that the obligation to a fford due process is
"inherent in the WTO dispute settlement system" 75 and it has described due process requirements as
"fundamental to ensuring a fair and orderl y conduct of dispute settlement proceedings". 76 It has
concluded that:
"[T]he protection of due process is an essen tial feature of a rules-based system of
adjudication, such as that established under the DSU. Due process protection
guarantees that the proceedings are conducted with fairness and impartiality, and that
one party is not unfairly disadvantaged with respect to other parties in a dispute."77
7.29 Moreover, as confirmed by the Appellate Body in US – Gambling , ensuring that the due
process rights of parties are respected is required by Article 11 of the DSU. 78
7.30 With respect to the second purpo se of the obligations set forth in Article 6.2 of the DSU to
delineate the four corners of a panel's mandate, the Appellate Body has observed that the vesting of

70 Appellate Body Report on US – Oil Country Tubular Goods Sunset Review, para. 162.
71 (footnote original) Appellate Body Report on Thailand – H-Beams, para. 88.
72 Appellate Body Report on US – Oil Country Tubular Goods Sunset Review , para. 162; see also
Appellate Body Report on Brazil – Dessicated Coconut, p.20, DSR 1997:I, 167 at 186.
73 Appellate Body Report on Guatemala – Cement I , paras. 69-76; see also Appellate Body Report on
US – Carbon Steel, paras. 125-127.
74 Appellate Body Report on Brazil – Desiccated Coconut, p. 22, DSR 1997:I, 167 at 186.
75 Appellate Body Report on Chile – Price Band System, para. 176. See also Appellate Body Report on
Mexico – Corn Syrup (Article 21.5 – US), para. 107.
76 Appellate Body Report on Thailand – H-Beams, para. 88.
77 Appellate Body Report on US – Continued Suspension, para. 433.
78 The Appellate Body in US – Gambling held that "[A]s part of their duties, under Article 11 of the
DSU, to "make an objective assessment of the matter" before them, panels must ensure that the due process
rights of parties to a dispute are respected." (Appellate Body Report on US – Gambling, para. 273.)

jurisdiction in a panel is a fundamental prerequisite for lawful panel proceedings.
79 Therefore, a panel
must scrutinize carefully the request for establishmen t of a panel to ensure its compliance with both
the letter and the spirit of Article 6.2 of the DSU.80
7.31 Compliance with the requirements of Article 6. 2 must be determined on the merits of each
case, having considered the panel request as a whol e, and in the light of attendant circumstances. 81
When reviewing a panel request, "it is important when examining the consistency of part of the
request for establishment with Article 6.2 of the DSU, not to examine parts of this request in isolation.
. . . the request must be considered as a whole, and the different claims in the request for
establishment must be read in their context."82
7.32 In this case the Panel's terms of reference, consistent with Article 7.1 of the DSU, are:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document WT/DS363/5, the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."
83
2. Measures China alleges are outside the Panel's terms of reference
7.33 China alleges that, because the United States did not identify the Film Distribution and
Exhibition Rule with respect to its claim regarding China's trading rights commitments under the
Accession Protocol in its panel request, the measure is outside the Panel's terms of reference.
7.34 China also argues that the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule are not properly before the Panel with respect to the US claims on China's
compliance with Article III:4 of the GATT 1994 with respect to sound recordings intended for
electronic distribution.84
7.35 The United States, in its first oral statement presented two arguments as to why the disputed
measures are in fact identified in the US panel requ est and therefore included within the Panel's terms
of reference. First, because of the narrative d escription that accompanied the list of measures that
were identified by name. Second, because the US at the end of the list of measures included the
phrase "as well as any amendments, related measures or implementing measures." The United States
relies on the panel reports in EC – Bananas III and Japan – Film for the proposition that use of such

79 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US), para. 36.
80 Appellate Body Report on EC – Bananas III, para. 142.
81 Appellate Body Report on Korea – Dairy , paras. 124-127; also Appellate Body Report on US –
Carbon Steel, para. 127
82 Panel Report on Mexico – Anti-dumping Measures on Rice, para. 7.31 (original footnote omitted).
83 United States' panel request WT/DS363/5.
84 The Panel notes that its analysis will, of course , require reference to the content of China's laws,
regulations, and other documents. Because the United Stat es is the complaining part y and bears the burden of
providing evidence of the content of the Chinese measures being challenged, as a general rule, when referring to
one of China's laws, regulations or documents the Pa nel will utilize the US translation, unless the specific
provision is one which the parties agreed to utilize Ch ina's translation or if based on the advice of the
independent translator the Panel finds that the US translation is inappropriate. However, we have reviewed both
translations and may refer to China's versions to confir m our understanding of the measures. Our citation to the
US translation should not be construed as necessarily implying that it is an authoritative translation of China's
measures or that we believe the United States is in a be tter position to provide an English translation of China's
internal measures. For a list of the measures as well as the corresponding exhibit numbers please see Annex A-
2 to this Report.

phrases in panel requests can serve to adequately identify measures for the purposes of Article 6.2
even if they are not explicitly listed in the panel request.85 The United States also argues that the Film
Distribution and Exhibition Rule is subsidiary and closely relate d to measures specifically identified
in Part I of the US panel request, such that it can be said to be included in these measures.
7.36 China responds that a measure cannot be identified with precision based on a description of
the alleged effects of a measure. In China's view the US approach would imply that the complaining
party may smuggle into the terms of reference any m easure not previously identified by alleging that
it shares the same effects as a measu re originally identified in its panel request. This would leave
scope for ambiguity and misinterpretation of the cl aim which is not permitted by Article 6.2 of the
DSU.
7.37 Additionally, China argues that the alleged effect s of the measure as set forth in the narrative
are precisely the subject of the dispute at hand. China maintains that as the responding party normally
disputes that the measures have the effects alleged by the complaining party, it is unreasonable to
expect the responding party to establish which measur es may have such alleged effect. As a matter of
systemic concern, China submits that such a burde n as is implied by the United States is not imposed
by any provision in the DSU.
7.38 As to the use of such phrases as "any amendments, related measures or implementing
measures" to include measures not explicitly listed in a panel request, China considers that measures
cannot properly be put in issue merely because the Un ited States refers to "related" or "implementing"
measures in the panel request, as this would prejudice China and other parties' due process right to be
sufficiently informed of the measures which are ch allenged by the United States. China argues that
the United States' argument would have the eff ect of minimizing unreasonably the burden of the
complaining party in this regard, so that it woul d only be required to identify one specific measure
followed by a "catch-all" expression such as "as well as any amendments, related measures, or
implementing measures", as used by the United States in its panel request in the present dispute.
7.39 China argues that the United States' relia nce on the Appellate Body Report in EC –
Bananas III is inapposite. China argues that all the meas ures which were considered to be within the
Panel's terms of reference in that case through the use of the phrase "subsequent EC legislation,
regulations and administrative measures [. . .] wh ich implement, supplement and amend that regime"
were subsequent to the named EC regulation, which is not the case with respect to the Film
Distribution and Exhibition Rule which pre-dates both the Film Regulation and the Film Enterprise
Rule.86 Additionally, China contends that all the measures at issue in EC – Bananas III included a
specific reference to the regulation named in the panel request thus allowing one to make an explicit
link between the subsequent measure and the origin al regulation on which it is based or to which it
relates.
(a) Whether the Film Distribution and Exhibition Rule is within the Panel's terms of reference
7.40 China argues that the Film Distribution and Exhibition Rule was not explicitly, or even
implicitly, referred to in the United States' panel re quest in relation to United States' claim concerning

85 Specifically, the United States relies on the Panel Report on EC – Bananas III, paras. 7.22-7.27 and
Panel Report on Japan – Film, paras. 10.8-10.9)
86 We note that the Exhibit US-21 does not contain the date of promulgation of the Film Distribution
and Exhibition Rule . Exhibit CN-12 which contains China's version of the same document lists the
promulgation date as 18 December 2001. We note that both Exhibit US-20 and Exhibit CN-11 which contain
the Film Regulation list the date of the State Council decision as 12 December 2001 with the promulgation date
being 25 December 2001 and the measure taking effect on 1 February 2002.

trading rights and therefore cannot be considered to ha ve been adequately identified in the meaning of
Article 6.2 the DSU.
7.41 The United States maintains that the measure was identified in the narrative description of its
claim as well as by its reference to any amendments, related measures or implementing measures in
its panel request.
7.42 The Panel notes that it is undisputed that the United States, in the section of the panel request
regarding China's trading rights commitments, did not explicitly name the Film Distribution and
Exhibition Rule. Therefore, we must determine if it was identified in some other way which would be
consistent with the requirement in Article 6.2 of the DSU to identify the specific measures at issue.
(i) The narrative
7.43 The United States' claim with respect to China's trading rights commitments under the
Accession Protocol is listed in Section I of the panel request under the heading "Trading Rights". The
section has the following introductory paragraph:
"The United States considers that China is acting inconsistently with its obligations
under its protocol of accession to the World Trade Organization
87 ('WTO') and under
the GATT 1994 by not allowing all Chinese enterprises and all foreign enterprises
and individuals to have the right to import into the customs territory of China the
following products (collectively, the 'Products'): films for theatrical release,
publications ( e.g., books, magazines, newspapers, and electronic publications),
audiovisual home entertainment products (e.g., video cassettes and DVDs), and sound
recordings."
88
7.44 The United States contends that the Film Distribution and Exhibition Rule is a legal
instrument that falls within the scope of the meas ure described by this narrative. In response to a
question from the Panel, the United States also argued that the Film Distribution and Exhibition Rule
also falls within the scope of "the second sentence of the second paragraph of Part I of the US panel
request"89, which reads "China reserves to certain Chinese state-designated and wholly or partially
state-owned enterprises the right to import the Products."90
7.45 China contends that the United States cannot use a statement which alludes to the effects of a
measure to serve the purpose of identifying that measure to the respondent party as the respondent
party will naturally believe that its measure does not have such effects.
7.46 The Panel agrees that this might be true if a measure were described merely by an alleged
WTO-inconsistency, however we do not think that is the case with this particular narrative.
91 Rather
the two paragraphs in the US panel request refer to the substantive nature of the specific measures at
issue i.e., the prohibition on enterprises other than Chinese state-designated and wholly or partially
state-owned enterprises from importing films for theatrical release.

87 Protocol on the Accession of the People's Republic of China , WT/L/432, 23 November 2001 (the
"Accession Protocol").
88 United States' panel request, WT/DS363/5.
89 United States' response to question No. 2.
90 United States' panel request, WT/DS363/5.
91 For example if the United States had merely iden tified those Chinese measures which provide less
favourable treatment to imported products without sp ecifying the manner or content of the alleged less
favourable treatment, China could not be expected to have had notice of which particular measures the United
States was concerned with.

7.47 The Panel recalls, as noted in paragraph 7.25 above, the important aspect of compliance with
the requirement to identify the specific measure at i ssue is to identify it with sufficient particularity
that the responding party can discern from the pane l request what has been referred to a panel for
adjudication.92 It is also important to consider all aspects of the panel request when determining
whether such identification has taken place. Therefor e, we will look not just at the formal names of
measures, but also at the narrative descriptions provided by the complaining party in its panel request.
7.48 Therefore, the question before us is whether that narrative describes the Film Distribution and
Exhibition Rule with sufficient precision that China could discern from the panel request what the
United States referred to this Panel for adjudication.
7.49 The first two Articles of the Film Distribution and Exhibition Rule read as follows:
"I. The purpose of reforming the film di stribution and projection mechanisms is
to establish effective mechanisms that are be neficial to the distribution and projection
of outstanding domestically produced films so that they occupy a strong position in
the market, layers of distribution are redu ced, channels for distribution are increased,
the circulation of films is promoted, and the interests from film production,
distribution, and projection are reasonably di stributed. The reform shall uphold and
promote micro-level competitiveness, and en sure enhancement of the principle of
macro-management, give full play to the backbone role played by State owned
channels for film distribution and projecti on, and increase the impact of films and
their radiation capacity on the market.
"II. Continue to uphold the principles of "unifying imports and using imports to
generate exports" and "relying on our own and using it for our own." Taking
examination of the distribution and projec tion of domestically produced films as a
prerequisite, adjust the supply mechanis m for imported films and maintain the
separation of importing and distribution of films. Establish China Film Group film
import/export company, and entrust it to unify importing of films consigned from
foreign countries, Hong Kong, Macao, and Ta iwan, while also fulfilling part of the
administrative functions such as selecting films, preliminary examinations,
submission for examination at higher levels, contract negotiations, customs and taxes,
payments and settling accounts, supplying films, box office figures, and market
supervision. An appropriate amount s hould be taken from the overall box office
receipts of each imported film and used to offset the circulation and administrative
costs of rural films, children's films, an d for the development and import and export
of science and educational films."
93
7.50 The second article of the Film Distribution and Exhibition Rule establishes the China Film
Group film import/export company and entrusts it to "unify importing of films consigned from foreign
countries, Hong Kong, Macao and Taiwan." The Ne w Shorter Oxford English Dictionary defines
"unify" as to "make, form into, or cause to become one; reduce to unity or uniformity." 94 It therefore,
seems to us, in this context, that entrusting China Film Group film import/export company to "unify"
imports of foreign films means that only Chin a Film Group film import/export company may import
films.
95

92 Appellate Body Report on US – Continued Zeroing, para. 168.
93 Film Distribution and Exhibition Rule, (Exhibit US-21).
94 New Shorter Oxford English Dictionary, L. Brown (ed.) (Clarendon Press 1993), Vol. II, p. 3489.
95 We note that China has not disputed the US contention that only the China Film Group import/export
company is designated to import films for theatrical release.

7.51 The narrative description of the US claim in the panel request is concerned with China "not
allowing all Chinese enterprises and all foreign enterp rises and individuals to have the right to import
into the customs territory of China" film s for theatrical release. Given that the Film Distribution and
Exhibition Rule provides that all imports of films will be unified by the China Film Group film
import/export company, the Film Distribution and Exhibition Rule fits within the narrative description
of the specific measures at issue set forth by the United States in Part I of its panel request. However,
this does not mean that the Film Distribution and Exhibition Rule was adequately identified as a
specific measure at issue in this dispute as required by Article 6.2 of the DSU.
7.52 We must also determine whether taking the pa nel request as a whole and in light of the
attendant circumstances, the narrative description in Part I of the US panel request means that China
could reasonably conclude, that the Film Distribution and Exhibition Rule was a specific measure at
issue with respect to the United States' complaint regarding China's trading rights obligations.
(ii) Adequate notice
7.53 The Panel recalls that one of the essential purposes of the requirements in Article 6.2 of the
DSU is to "give the parties and third parties suffici ent information concerning the claims at issue in
the dispute to allow them an opportunity to respond to the complainant's case."
96 This information
includes the measures which are being challenged. We note that this requirement serves to fulfil the
due process rights of the respondent. Due process requir es that a panel, in any dispute, ensure that
"one party is not unfairly disadvantaged with respect to other parties in a dispute" 97 otherwise the
panel risks acting inconsistently with its own obligations as set forth in Article 11 of the DSU. 98
7.54 Adequate notice to a respondent is not determined by examining one part of the panel request
in isolation, but rather by considering the re quest as a whole, and in the light of attendant
circumstances.99 We also recall that the Appellate Body h as explained that the different claims in the
request for establishment must be read in their context.100
7.55 Looking at the US panel request as a whole an d not examining the claim with respect to
China's trading rights obligations in isolation, raises concerns as to whether China received adequate
notice that United States was challenging the Film Distribution and Exhibition Rule . In particular we
note that the United States listed th e measure by name in Part III of its panel request which relates to
the US claims under Article III:4 of the GATT 1994.
7.56 The inclusion of the measure in Part III of the pa nel request is an indication to us as well as to
China and the third parties that the United Stat es was aware of and capable of identifying the Film
Distribution and Exhibition Rule through its formal name. 101 The United States, in response to a
question from the Panel, regarding why the measure w as included in Part III of the panel request and
not Part I states that "it became clear upon further re finement of the translation that it also directly
regulates the importation of films into China." We find this justification unavailing. The United
States had other options available to it to account fo r any uncertainty in the content of the Chinese
measures which would not have left China unsure as to the nature of the case against it.

96 Appellate Body Report on Brazil – Desiccated Coconut, p. 22, DSR 1997:I, 167 at 186.
97 Appellate Body Report on US – Continued Suspension, para. 433.
98 Appellate Body Report on US – Gambling, para. 273.
99 Appellate Body Report on US – Carbon Steel, para. 127.
100 Panel Report on Mexico – Anti-dumping Measures on Rice, para. 7.31 (original footnote omitted).
101 We note that the panel in its report on India – Additional Duties, noted that the United States argued
that the use of phrases such as "any amendments, rela ted measures or implementing measures" were meant to
refer to any measures of which the complaining party was not aware at the time of th e panel request. (Panel
Report on India – Additional Duties, para. 7.50.)

7.57 First, the United States could have referenced the Film Distribution and Exhibition Rule in its
claim with respect to China's Trading Rights commitm ents to ensure that it was within the Panel's
terms of reference and then, upon "further refine ment of the translation" made a final decision
whether to present argumentation on that measure under that claim. We note that nothing prevents a
party from not pursuing a claim that is within a panel's terms of reference.
7.58 Alternatively, the United States could have held off filing a panel request when it did not have
a full understanding of the measures it wished to cha llenge and what alleged in consistencies with the
covered agreements might be caused by those meas ures. Unlike in many domestic court systems,
there is no statute of limitations in WTO dispute settlement that would require the United States to file
its case by a date certain or lose its standing to br ing its claim. Therefore, the United States could
have waited until it was comfortable with the accuracy of its translation of China's measures before it
brought its claim.
7.59 In addition to the panel request itself we also look to the attendant circumstances which
include the fact that the United States and Ch ina consulted on this measure as well as the Film
Regulation and the Film Enterprise Rule.
102 China knew, therefore, that the United States was aware
of the Film Distribution and Exhibition Rule and its contents. More importantly, China also saw that
the United States had explicitly included a challenge to that very measure in Part III of its panel
request.
7.60 Considering the text of the panel request as a w hole as well as the attendant circumstances, it
was reasonable for China to reasonabl y infer that the exclusion of the Film Distribution and
Exhibition Rule from Part I of the panel request was deliberat e in view of its explicit inclusion in Part
III.103 Therefore, China could infer in good faith that the omission of reference to the Film
Distribution and Exhibition Rule in Part I meant that the United States was not challenging the Film
Distribution and Exhibition Rule under this claim. 104 Accordingly, despite the description in the
narrative or even the reference to "amendments , related measures, or implementing measures" 105,

102 Although, the United States consulted on this measure with respect to its claim under Article III:4 of
GATT 1994, as noted by the United States with respect to China's objection to the inclusion of the Article III:4
of GATT 1994 claim with respect to "reading materials" infra, this does not detract from the fact that such
consultations demonstrate that th e United States was aware of the Film Distribution and Exhibition Rule and
that China knew and relied on this awareness.
103 We note that our interpretation is consistent with the general legal canon of construction expressio
unius est exclusio alterius which holds that to express or include one thing implies the exclusion of the other or
of the alternative (Black's Law Dictionary, 8th ed., B.A. Garner (ed) (West Group 2004), p. 620); also Ian
Brownlie, Principles of Public International Law , 6th ed. (2003) p. 602, 604. We note that in its response to
question No. 17, the United States itself relies on this principle with respect to wh ether "motion pictures" are
audiovisual products under Chinese law. Specifically, the United States argued
"The exclusion of "motion pictures" from the restricted category of foreign investment in the
distribution of audiovisual products, in conjunction with the corresponding absence of any
exclusion for "motion pictures" from the prohibited category of foreign investment in the
importation of audiovisual products, demonstrates that motion pictures are considered by
China to be audiovisual products."
104 Panel Report on US – Upland Cotton , paras. 7.151 -7-152 (finding that after consultations on
cottonseed payments for the y ears 1999 and 2000 the lack of a referenc e to the appropriating law for the 1999
payments in Brazil's panel request indicated that it was not challenging those payments and they were therefore,
outside the panel's terms of reference).
105 We are cognizant that the United States put forward two reasons as to why the Film Distribution
and Exhibition Rule was identified as a specific measure at issue in its panel request. Because we determined
that the Film Distribution and Exhibition Rule fit within the narrative description in the panel request we did not
examine whether it also fit within the US reference to "any amendments, related measures, or implementing
measures." We note howe ver, that even if the Film Distribution and Exhibition Rule could fit within the
category of an amendment, related measure, or implementing measure of the Film Regulation and/or the Film

China in our view did not receive adequate notice that the Film Distribution and Exhibition Rule is
within the scope of the US claim with respect to China's commitments on trading rights in the
Accession Protocol. As notice to the respondent of the claims being made ag ainst it is a fundamental
purpose of the obligations in Article 6.2 of the DSU, we conclude that the US panel request, in this
respect, does not comply with Article 6.2 of the DSU and that the Film Distribution and Exhibition
Rule is outside our terms of reference with respect to the US claim regarding China's trading rights
commitments under the Accession Protocol.
(b) Whether the 2001 Audiovisual Products Regulation and the Audiovisual Products
Importation Rule are within the Panel's terms of reference
7.61 China argues that because the United States in its panel request, only mentioned the " Interim
Regulations on Internet Culture Administration ", the "Circular of the Ministry of Culture on Relevant
Issues of Implementation of the Interim Re gulations on Internet Culture Administration ", the
"Catalogue for Guidance of Foreign Investment Industries ", the " Several Opinions […] on
Introducing Foreign Investment into the Cultural Sector ", and the " Several Opinions on the
Development and Regulation of Network Music " it did not properly identify the 2001 Audiovisual
Products Regulation and Audiovisual Products Importation Rule .
106 Therefore, China requests that
the Panel should therefore conclude that these measures do not fall within its terms of reference.
7.62 The United States maintains that the narrative description of its claim as well as its reference
to any amendments, related measures or implemen ting measures in the panel request fulfilled its
obligations under Article 6.2 to identify the specific measures at issue. The United States recalls the
panel report in Japan – Film and argues that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule are closely related to measures identified in the US panel
request such that they can be said to be included in these measures, including those that fall within the
scope of the term "amendments, related measures, or implementing measures" in the panel request.
Thus, according to the United States, China had adequate notice that the 2001 Audiovisual Products
Regulation and the Audiovisual Products Importation Rule were included in the US claim under
Article III:4 with respect to sound recordings.
7.63 The Panel notes that it is undisputed that the United States, in the section of the panel request
regarding China's conformity with its obliga tions under Article III:4 of the GATT 1994, did not
explicitly name the 2001 Audiovisual Products Regulation or the Audiovisual Products Importation
Rule. Therefore, we must determine if they were identified in some other way which would be
consistent with the requirement in Article 6.2 of the DSU to identify the specific measures at issue.
(i) The narrative
7.64 The US claim with respect to the distribution of sound recordings is contained in Section IV
of the panel request, which reads:
"The United States considers that China is acting inconsistently with its obligations
under the GATT 1994 and the Accession Protocol by providing distribution
opportunities for sound recordings imported into China in physical form that are less
favourable than the distribution opportun ities for sound recordings produced in
China.

Enterprise Rule , we would still have had to conduct the same analysis with respect to whether China had
received adequate notice and would have reached the same conclusion with respect to that element of the case.
106 See United States' panel request WT/DS363/5, p.8.

China appears to require that sound recordings imported into China in physical form
but intended for digital distribution must undergo content review by the Chinese
Government prior to such distribution within China. However, domestically
produced sound recordings appear not to be subject to this requirement, but can
instead be digitally distributed immediately. It thus appears that sound recordings
imported into China in physical form are treated less favourably than sound
recordings produced in China in physical form."
7.65 The Panel notes that the 2001 Audiovisual Products Regulation provides, generally, for the
regulation of audiovisual products including the publishing and reproduction of audiovisual products.
The narrative description of the US claim specifica lly identifies the content review by the Chinese
Government as applied to imports prior to digital distribution
107 as the measure it is challenging. In
this respect, Chapter IV of the Regulation is entitle d "Import" and within it, Article 28 provides for
content review of imports.108 Specifically, Article 28 states:
"Audiovisual products imported for publica tion and finished audiovisual products
imported for wholesale, retail or rental shall be submitted to the cultural
administration under the State Council for review of their contents. The cultural
administration under the State Council sha ll, within 30 days of receiving the
application for review of the contents of audiovisual products, reach a decision as to
whether to approve it or not and notify the applicant accordingly. Upon approval,
approval documents shall be issued. Upon rejection, reasons shall be given.
An entity which imports audiovisual produc ts for publishing and a business entity
which imports finished audiovisual produc ts shall bring approval documents issued
by the cultural administration under the State Council to process import procedures at
Customs."
109
7.66 All imported sound recordings are required to u ndergo the content review procedures in the
2001 Audiovisual Products Regulation , prior to any kind of distribution in China. We note that this
regulation does not contain specific details about the content review procedures required by
Article 28, and that pursuant to the legal hierarchy in China it is the Audiovisual Products Importation
Rule, which is based on the authority in the 2001 Audiovisual Products Regulation110, which interprets
and implements the 2001 Audiovisual Products Regulation.111

107 We note that in its panel request the United States refers to "digital" distribution and in its
subsequent submissions before the Panel to "electronic" distribution. It is our understanding that the United
States uses these terms interchangeably.
108 We note that in its first written submission, this is the provision of the 2001 Audiovisual Products
Regulation that the United States identifies as that which give s rise to the violation of Article III:4 of the GATT
1994 (see United States' first written submission, para. 372).
109 2001 Audiovisual Products Regulation , (Exhibit US-16). We note that China's translation of the
measure states that importation entity shall "go through the importation formalities." (Exhibit CN-2).
110 Audiovisual Products Importation Rule, Article 1 (Exhibit US-17).
111 See Article 72 of the Legislation Law (Exhibit US-72) which states that "[m]atters governed by the
rules of departments shall be those for the enforcement of the laws or administrative regulations, decisions and
orders of the State Council."; see also Article 1 of the Audiovisual Products Importation Rule which states that
the rules therein are "based" on the 2001 Audiovisual Products Regulation and "are drawn up in order to
strengthen management over the import of audiovisual products, promote international cultural exchange, and
enrich the cultural life of the people.

7.67 The Audiovisual Products Importation Rule explains that the procedures therein apply to "all
finished audiovisual products imported from abro ad and imported audiovisual products used in
publishing, information network transmission, and other purposes."
112
7.68 The Audiovisual Products Importation Rule requires audiovisual product importing units to
submit imported products to the Ministry of Cultu re ("MOC") for content review. Article 14 sets
forth the content review application procedures for audiovisual products imported for publication. 113
These procedures consist of an application form, th e copyright agreement and other copyright related
documentation, samples of the program, and other n ecessary documents. Article 16 clarifies that the
procedures in Article 14 are also applicable for audiovisual products imported for use in network
information transmission. 114 The Rule also states that on ce approval documentation has been
received it may only be used once with Customs and is not for accumulated use.
7.69 Additionally, Article 19 explicitly states that "No unit or individual may publish, reproduce,
wholesale, retail, rent out, show for business pur poses or use the information network to transmit
audiovisual products which have not been approved for import by the Ministry of Culture."
7.70 Reading the provisions of the Audiovisual Products Importation Rule as an interpretation and
implementation of Article 28 of the 2001 Audiovisual Products Regulation , we conclude that these
measures require that sound recordings imported into China in physical form but intended for digital
distribution must undergo content review by the Chinese Government prior to such distribution within
China. Our understanding is confirmed by China in its response to a question from the Panel when it
states "that the relevant Chinese measures require any audiovisual product used for information
network dissemination to go through content revi ew of the MOC before it may be imported." 115 As
content review occurs prior to importation and prod ucts may not be distributed within China before
they are imported into China, regulations that a pply at the time or point of importation necessarily
apply prior to distribution within China.
7.71 China however argues that the measures govern only the import of sound recordings in
physical form and not their distribution. China maintains that because these measures apply at the
importation stage they cannot by any means be cons idered as affecting the distribution of products
that have already been imported. In China's vi ews these measures have to be considered as "border
measures" at the importation stage and Article III: 4 of GATT governing the treatment of imported
goods cannot be interpreted as appl ying to the requirements in the 2001 Audiovisual Products
Regulation and the Audiovisual Products Importation Rule.

112 Audiovisual Products Importation Rule, Article 3 (Exhibit US-17).
113 Ibid., Article 14 (Exhibit US-17).
114 The parties have used a variety of terms to describe the distribution of sound recordings over the
Internet. The United States has referred to digital distribution as well as electronic distribution interchangeably
in the panel request and in its written submissions. The United States defines "electronic distribution" as "the
distribution of sound recordings using any electromagnetic means, ( i.e., not physical copies), including
distribution to other distributors or to end users over, e.g., the Internet or mobile telecommunications networks."
The United States contends that China's restric tions on electronic dist ribution are maintained inter alia through
the Internet Culture Rule and the Network Music Opinions. China has referred to this type of distribution in its
submissions as "network music services". China has defined "network music services" as "the dissemination of
music in digital format through the Internet to users." China refers the Panel to Article 3 of the Internet Culture
Rule for its understanding of "network music services." Article 3 refers to "[p]utting cultural products online on
the Internet, or sending cultural products through the In ternet to end user's computers." Additionally, the
Network Music Opinions , which implement and are based upon the Internet Culture Rule refer to the
"digitization and network transmission of outstanding music products." We therefore conclude that references
to "network transmission" or transmission over the network in China's measures refer to what the United States
has described as "electronic distribution of sound recordings.
115 China's response to question No. 133.

7.72 The United States , however, argues that the Ad Note to Article III provides that simply
because a measure is enforced at the time or point of importation does not mean that it is outside the
disciplines of Article III of the GATT 1994.
7.73 We recall the reasoning of the panel in India – Autos that "the fact that a requirement is
imposed as a condition on importation is not necessar ily in itself an obstacle to its falling within the
scope of Article III:4."116 Given the Ad Note and the prior interpretation thereof, without making any
substantive determination on whether the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule are subject to Article III, we believe that the fact that the US claim was
made under Article III:4 would not, in and of itself, indicate to China that the 2001 Audiovisual
Products Regulation and the Audiovisual Products Importation Rule were not specific measures at
issue.
7.74 The narrative description provided in Part IV of the US panel request refers to government
content review requirements which apply to the im ported hard-copy sound recording which must be
complied with prior to digital distribution. As the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule , when read together, contain just such rules, we conclude that
they fit within the broad narrative description in Part IV of the Pane l. However, this does not mean
that the 2001 Audiovisual Products Regulation and the Audiovisual Products Importation Rule are
adequately identified in the panel request as specific measures at issue in this dispute as required by
Article 6.2 of the DSU.
7.75 We must also determine whether taking the pa nel request as a whole and in light of the
attendant circumstances, the narrative description in Part IV of the panel request means that China
could reasonably conclude, that the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule are specific measures at issue with respect to the United States' complaint
regarding China's obligations under Article III:4 of the GATT 1994.
(ii) Adequate notice
7.76 We recall that one of the essential purposes of the requirements in Article 6.2 of the DSU is to
"give the parties and third parties sufficient informat ion concerning the claims at issue in the dispute
to allow them an opportunity to r espond to the complainant's case." 117 This information includes the
measures which are being challenged. Additionally, due process is "fundamental to ensuring a fair
and orderly conduct of dispute settlement proceedings". 118 Due process requires that a panel ensure
that "one party is not unfairly disadvantaged with respect to other parties in a dispute"119 or risk acting
inconsistently with its own obligations as set forth in Article 11 of the DSU. 120
7.77 We also recall that in determining the consis tency with Article 6.2 of a particular panel
request we must consider it as a whole, and in the light of attendant circumstances. 121 We must also
not read parts of the request in isolation, but rath er consider the request as a whole, and the different
claims in the request for establishment must be read in their context.122
7.78 Given the importance of due process in the WTO dispute settlement system as a whole and in
particular when evaluating a panel request for consis tency with Article 6.2, one particular aspect of
the panel request gives rise to concerns as to whet her China received adequate notice that the United

116 Panel Report on India – Autos, para. 7.306 (original footnotes omitted).
117 Appellate Body Report on Brazil – Desiccated Coconut, p. 22, DSR 1997:I, 167 at 186.
118 Appellate Body Report on Thailand – H-Beams, para. 88.
119 Appellate Body Report on US – Continued Suspension, para. 433.
120 The Appellate Body Report, on US – Gambling, para. 273.
121 Appellate Body Report on US – Carbon Steel, para. 127
122 Panel Report on Mexico – Anti-dumping Measures on Rice, para. 7.31 (original footnote omitted).

States was challenging the 2001 Audiovisual Products Regulation and the Audiovisual Products
Importation Rule as being inconsistent with China's obligations under Article III:4 of the GATT 1994,
regardless of the description of the specific measures at issue in the narrative portion of Part IV of the
panel request or even if the measure could fall wi thin the scope of the US reference to "related"
measures in its panel request. Specifically, we note that the United States listed the relevant measures
by name in Part I of the panel request which relat es to the US claims regarding China's trading rights
obligation in the Protocol of Accession and in Part II of the panel request which relates to the US
claims under Article XVII of the GATS.
7.79 The inclusion of the measure in Parts I and II of the panel request is an indication both to us
and to China and the third parties that the United States was aware of and capable of identifying the
2001 Audiovisual Products Regulation and the Audiovisual Products Importation Rule through their
formal names.
123 We specifically asked the United States to explain why it included the measures by
name in Parts I and II of the panel request and not in Part IV. The United States did not provide such
an explanation. The United States responded that it believed that the 2001 Audiovisual Products
Regulation and the Audiovisual Products Importation Rule fall within the scope of the measure
described by the narrative found in the second paragraph of section IV of the US panel request and are
"related measures" that are encompassed by the phrase "any amendments, related measures, or
implementing measures. The United States also argued, relying on the panel's reasoning in Japan –
Film, that these measures were included in the US claim under Article III:4 of the GATT 1994
because these measures are "closely related to" meas ures specifically identified in the United States'
panel request.
7.80 In addition to examining the panel request as a whole and the various claims in context, we
must also look to the attendant ci rcumstances. To that end, we no te that the United States and China
consulted on both the 2001 Audiovisual Products Regulation and the Audiovisual Products
Importation Rule.
7.81 Based on the panel request and the attendant circumstances, China knew that the United
States was aware of the measures and their conten ts. China also saw that the United States had
explicitly included a challenge to those very measur es in both Parts I and II of its panel request.
China, based on the panel request as a whole and in light of the attendant circumstances, could
reasonably infer from the decision of the United States to exclude the 2001 Audiovisual Products
Regulation and the Audiovisual Products Importation Rule from Part IV of the panel request that the
United States was not challenging the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule under this claim.
124 China therefore, desp ite the description in the
narrative or the reference to "amendments, related measures, or implementing measures" 125, did not

123 We note that the panel in India – Additional Duties, noted that the United States argued that the use
of phrases such as "any amendments, related measures or implementing measures" were meant to refer to any
measures of which the complaining party was not aware at the time of the panel request. (Panel Report, India –
Additional Duties, para. 7.50.)
124 Panel Report on US – Upland Cotton , paras. 7.151 -7-152 (finding that after consultations on
cottonseed payments for the y ears 1999 and 2000 the lack of a referenc e to the appropriating law for the 1999
payments in Brazil's panel request indicated that it was not challenging those payments and they were therefore,
outside the panel's terms of reference). We note, once again, that this reading of the meaning of the inclusion of
measures in one part of the panel request and their exclusion from another is consistent with the canon of
expressio unius est exclusio alterius.
125 We are cognizant that the United St ates put forward two reasons why the 2001 Audiovisual
Products Regulation and the Audiovisual Products Importation Rule were identified as a specific measure at
issue in its panel request. B ecause we determined that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule fit within the narrative description in the panel request we did not
examine whether they were also fit within the US reference to "any amendments, related measures, or
implementing measures." We note however, that even if the 2001 Audiovisual Products Regulation and the

receive adequate notice of the scope of the US clai m with respect to its obligations under Article III:4
of the GATT 1994.
7.82 As the United States did not satisfy the requireme nts of Article 6.2 of the DSU by identifying
the specific measures at issue such that China was adequately notified of the case that it had to defend,
we find that the 2001 Audiovisual Products Regulation and the Audiovisual Products Importation
Rule are not within our terms of reference with resp ect to the US claim regarding the consistency of
China's measures regarding sound recordings intende d for electronic distribution with Article III:4 of
the GATT 1994.
3. Certain requirements China alleges are outside the Panel's terms of reference
7.83 China argues that certain aspects of measures that were identified in the panel request are
also outside the terms of reference because these asp ects of the measures were not identified in the
narrative portion of the US panel request. Specifica lly, China argues that, in its panel request, the
United States did not challenge the so-called "pre -establishment legal compliance" requirement; the
approval process to engage in distribution of r eading materials and audiovisual products; or the
"decision making criteria" that the GAPP woul d apply in approving foreign entities for the
distribution of reading materials and that the MO C would apply in the approval of Chinese-foreign
contractual joint ventures for the distribution of audiovisual products.
7.84 China relies on the panel report in Japan – Film for the premise that a reference to a general
regulation in relation to specific issues covered by th is regulation could not be considered as covering
other distinct issues not mentioned in the panel re quest. China argues that in its panel request, the
United States made just such a general reference. China contends that the United States first referred
to regulations dealing with a broad range of issues in relation with the activity of distribution of
reading materials and audiovisual products, and then made specific and limited claims with regard to
certain requirements. China maintains that the refe rence to the regulations governing publications and
audiovisual products cannot be sufficient for c onsidering that the measures concerning the " pre-
establishment legal compliance ", approval process requirements and " decision-making criteria" have
been adequately identified within the meaning of Article 6.2 of the DSU.
7.85 Additionally, China cites the Appellate Body report in US – Carbon Steel , to argue that a
reference to "certain aspects" of a general regula tion is not sufficient to identify a specific issue
covered by this regulation. Therefore, according to China, even if the refe rence to the regulations
was considered not to be limited to the claims concerning capital requireme nts, operating terms and
limitations based on the nature, content and origin of publications, such a broad and unspecified
reference to measures covering a br oad range of issues could not be read as referring specifically to
the issues of " pre-establishment legal compliance ", "approval process requirements " and " decision-
making criteria".
7.86 The United States maintains that it complied with the obligation in Article 6.2 to identify the
specific measures at issue. Specifically, the Un ited States argues that consistent with this
requirement, Part II of the US panel request identif ied all of the measures that provide for these three
problematic requirements – i.e., the Publications (Sub-)Distribution Rule , the Sub-Distribution
Procedure, the Audiovisual (Sub-)Distribution Rule , and the Several Opinions . The United States
argues that it also identified the WTO obligation that these measures breached. According to the
United States, it has satisfied Article 6.2 of the DS U by identifying each of the measures relevant to

Audiovisual Products Importation Rule could fit within the category of amendments, related measures, or
implementing measures of the Internet Culture Rule and/or the Network Music Opinions , we would still have
had to conduct the same analysis with respect to whether China had received adequate notice and would have
reached the same conclusion with respect to that element of the case.

its claim. The United States maintains that cont rary to China's contentions, Article 6.2 does not
require the party requesting a panel to identify each individual provision of the relevant measures that
may be inconsistent with the other party's obligations.
7.87 The United States contends that China's reliance on Japan – Film and US – Carbon Steel is
inapposite. According to the United States, in both of those disputes, the complaining party sought to
incorporate measures not identified in the pa nel request into the terms of reference.
126 This situation
is not an issue in this dispute, since the US pane l request identified each of the measures relevant to
the three discriminatory requirements at issue here. This, together with identification of the relevant
WTO obligation being breached, provided China with sufficient notice regarding the measures and
claims at issue.
7.88 China maintains that the United States' argument that entirely different "discriminatory
requirements" which were not mentioned at all in its panel request, are properly raised simply by
virtue of the fact that they are complaints made in relation to measures mentioned in the panel request
is not supported by the wording of Article 6.2 or by past WTO practice.
7.89 China argues that the mere reference by the Unite d States to regulations in a list appearing at
the beginning of their claims, and which could rela te to any one of a number of issues, cannot be
considered to satisfy the "requirement of precision" of a panel request and to respect "the letter and
the spirit of Article 6.2 of the DSU".
7.90 China contends that, contrary to the assertions of the United States it is not arguing that a
complaining party should "identify each individual provision of the relevant measures that may be
inconsistent with the other party's obligations", but rather that Article 6.2 of the DSU requires the
party requesting a Panel to identify the basis of its complaint by identifying the issues that arise in
relation to particular regulations, by at least mentioning them.
7.91 China maintains that if a complaining party can fulfil the requirements of Article 6.2 merely
by naming a measure in its panel request, and wher e the measure that is named covers a range of
issues, the other parties would be unable to unde rstand clearly from the panel request the case being
made, this would be contrary to the letter and spirit of Article 6.2 of the DSU. To China, the United
States is attempting to extend the scope of the dis pute in a manner inconsistent with the due process
objective of notifying the parties and third parties of the nature of a complainant's case pursued by
Article 6.2 of the DSU.
7.92 The United States responds that its panel request e xplicitly refers to "discriminatory
requirements" and "discriminatory limitation" in th e context of the US claims regarding reading
materials and "requirements" and "discriminatory limitation" in the context of the US claims
regarding AVHE products. The United States maintain s that its panel request describes in detail the
discriminatory requirements and the less favourable treatment they accord, and includes illustrative
lists of those requirements for greater precision. The United States argues that, contrary to China's
contention, Article 6.2 does not require panel requ ests to identify each individual provision of each
challenged measure.
7.93 The Panel recalls, as noted in paragraphs 7.14-7.16 above, that Article 6.2 requires that the
complaining part identify the specific measures at issue and provide a brief summary of the legal basis
of the complaint sufficient to present the problem clearl y. We also recall that when a panel looks to a
panel request to determine its c onsistency with Article 6.2 of the DSU it must look to the panel
request as a whole and the attendant circumstances.

126 Panel Report on Japan – Film, paras. 10.7-10.20; and Appellate Body Report on US – Carbon Steel,
para. 171.

7.94 The United States argues that the ordinary meaning of the requirement in Article 6.2 of the
DSU for a panel request to "identify the specific me asures at issue" does not require the identification
of the "specific aspects" of those "specific measures".127
7.95 However, China is not arguing that all specific aspects of specific measures must be listed,
but that by listing certain aspects the United States indicated that these were the only ones that were
the subject of its claim and thus are the only ones within the panel's terms of reference.
7.96 We find the circumstances of, and the pane l and Appellate Body's findings in, the US –
Carbon Steel case to be helpful in our own analysis. In US – Carbon Steel , the European
Communities challenged a particular sunset revi ew of a US countervailing duty order as well as
"certain aspects" of the regulations governing sunset reviews that led to the decision not to revoke the
countervailing duty order. The European Communities correctly referred to the relevant section of the
US Code of Federal Regulations which contained a provision governing the conduct of sunset
reviews. During the panel proceeding, the Europe an Communities attempted to include in its claim
an aspect of the regulation dealing with the submis sion of evidence during sunset reviews. The panel
read the European Communities' panel request in its entirety and found that the European
Communities could only have been referring to tho se aspects of the regulation which were actually
applied in the sunset review of carbon steel pr oducts and therefore other aspects of the same
regulation, including those relating to the submi ssion of evidence, which were not applied were
outside the panel's terms of reference. In affirm ing the panel, the Appellate Body agreed that no
explicit reference to opportunity to present evidence during a sunset review was contained in the panel
request. The Appellate Body reasoned that:
"[T]he references in the panel request to 'certain aspects of the sunset review
procedure', to the United States statutory provisions governing sunset reviews, to
related regulatory provisions, and to the Sun set Policy Bulletin, can be read to refer,
generally, to United States law regarding th e determination to be made in a sunset
review. However, we do not believe they can be read to refer to distinct measures,
consisting of United States law, as such, and as applied, relating to the submission of
evidence. Accordingly, we agree with th e Panel that the matters relating to the
submission of evidence in a sunset review were not within its terms of reference
because the specific measures at issue were not adequately identified in the request
for the establishment of the panel, as required by Article 6.2 of the DSU."
128
7.97 The United States attempts to distinguish that case from the situation presented here by saying
the panel in US – Carbon Steel was looking at whether particular "measures" were within its terms of
reference. We do not find this argument convincing. That case specifically dealt with the question of
whether two different sub-parts of the same regul ation were included within that panel's terms of
reference because of the European Communities' ge neral reference to that regulation in its panel
request. We find this directly relevant to the s ituation here, where the United States has specifically
cited certain requirements of particular governme nt measures in its panel request and China is
disputing whether certain other requirements in the same measures were also included in our terms of
reference by virtue of that reference.

127 Panel Report on EC – Trademarks and Geographical Indications (Australia), para. 7.2; Panel
Report on US – Upland Cotton , para. 7.127 (finding that the explicit lis ting of various pieces of legislation by
name along with a reference to the "subsidies" granted thereunder was sufficient to identify specific types of
payments granted under the laws).
128 Appellate Body Report on US – Carbon Steel, para. 171 (original footnotes omitted).

7.98 Following the logic of the panel and Appellate Body in US – Carbon Steel , we examine the
narratives in the US panel request to see whether th ey indicate that the United States challenge is not
limited to the certain named discriminatory requirements.
(a) Distribution services for reading materials
7.99 In Part II of its panel request, the United States listed 14 measures and then at the end of the
list provided a narrative setting out the nature of its claim. Section A of Part II deals with the US
claim regarding China's treatment of the supplie rs of distribution services for reading materials.
129 It
reads in relevant part:
"Furthermore, to the extent that some fore ign service suppliers are allowed to engage
in some aspects of the distribution of pub lications, there appear to be discriminatory
requirements concerning such suppliers' registered capital and such suppliers'
operating term, as well as discriminator y limitations (e.g., limitations by type,
content, or origin of publication) on the publications that such suppliers may
distribute."
7.100 The US panel request does not merely identify "discriminatory requirements" in the broad
sense, but discriminatory requirements concerning re gistered capital and operating terms. This
reference does not seem to us to be inclusive of the pre-establishment legal compliance, the process
for becoming approved as a distributor, or the decision-making criteria applied by the approving
agency. Indeed, there is no indi cation that the enumeration of alleged discriminatory requirements
was not intended to be exhaustive. The narrative does not say, for instance, that there "appear to be
discriminatory requirements, e.g., concerning …". This view is reinforced by the fact that the above-
quoted narrative provides another enumeration whic h is indicated to be illustrative only. The
narrative refers to "discriminatory limitations (e .g., limitations by type, content, or origin of
publication)".
7.101 The use of the parenthetical (e.g., limitations by type, content, or origin of publication) serves
to explain what types of "discriminatory limitations" are subject to the US complaint. The limitations
referenced in the US panel request relate to the publications being distributed once a service supplier
has obtained permission to distribute reading material, not to any requirements with respect to
obtaining that permission, such as the pre-establishment legal compliance, approval process
requirements, or decision-making criteria applied by the approving agency.
(b) Distribution services for AVHE products
7.102 Part II.B deals with the US claim regarding China's measures which govern the distribution of
AVHE products. It reads in relevant part:
"The measures at issue, however, appear to prohibit foreign service suppliers
(including wholly or partially foreign-ow ned or foreign-invested enterprises) from
engaging in a type of distribution described in these measures as the 'master
distribution' or 'master wholesaling' of audiovisual home entertainment products. In
addition, to the extent that foreign servi ces suppliers are permitted to engage in any
distribution of those products, the measur es at issue appear to impose requirements
that the service be supplied through a form of entity that Chinese persons control, or
in which Chinese persons have a dominant pos ition, or for which there are limitations

129 We note that in its panel request the United States referred to "publications" while in its submissions
before the Panel it referred to "reading materials". For consistency, unless we are directly quoting the United
States, we will refer to the products as "reading materials".

concerning the participation of foreign capital. The measures at issue also appear to
impose discriminatory limitations on fore ign service suppliers' operating term in
China; such limitations do not appear to be applied to Chinese suppliers of
distribution services for audiovisual home entertainment products."
7.103 The US panel request refers to requirements on the control of the entity that supplies the
distribution services and the participation of foreig n capital in such entities. Additionally, the United
States refers, in its panel request, to discriminat ory limitations on the operating term in China of
foreign service suppliers. None of these requirements or limitations identified as the specific
measures at issue are related to the pre-establis hment legal compliance, the process for becoming
approved as a distributor, or the decision-making criteria applied by government agencies for
approving a request for permission to provide dist ribution services for AVHE products within China.
In addition, we note that the narrative does not c ontain qualifying language that would indicate that
the listing of requirements and limitations was illu strative, merely a listing of examples, or non-
exhaustive.
(c) Conclusion
7.104 Reading the panel request as a whole, we do not find that the mere reference to the legislative
instruments in which the disputed requirements we re contained identified the pre-establishment legal
compliance, the process for becoming approved as a distributor, or the decision making criteria
applied by the approving agency as specific meas ures at issue such that China could reasonably
conclude that they were included within the US claims. The United States did not inform China that it
was challenging every possible discriminatory require ment in its measures, but rather the specific
ones described in the narratives. Ju st as the European Communities did in US – Carbon Steel , the
United States has, through its description of its clai m in the panel request, only notified China that its
claim concerned the specific requirements set forth in the panel request. Therefore, we find that these
additional requirements (pre-establishment legal compliance, approval process requirements, and
decision-making criteria) are outside our terms of reference.
4. The US claim with respect to reading materials under Article III:4 of the GATT 1994
7.105 China makes several objections with respect to the US claim that its measures dealing with
reading materials are inconsistent with its oblig ations under Article III:4 of the GATT 1994. First,
China argues that the entire claim is outside the Pa nel's terms of reference because the parties did not
consult on it. Second, China argues that in the event the claim is within the Panel's terms of reference,
that the United States did not properly identify that it was concerned with the treatment of electronic
publications and that the treatment of these products is outside the Panel's terms of reference. Finally,
China also argues that the US panel request di d not identify the subscription requirements for
imported newspapers and periodicals as well as books in the limited category as being the subject of
its claim and that these requirements are, likewise, outside the Panel's terms of reference.
7.106 The United States maintains that its claim that Ch ina's measures dealing with reading
materials are inconsistent with its obligations under Article III:4 of the GATT 1994 is within the
Panel's terms of reference, including its concer ns with regard to the treatment of electronic
publications and the subscription requirements for imported newspape rs and periodicals as well as
books in the limited category.
(a) The lack of consultations
7.107 China argues that because the United States' claim under Article III:4 GATT with regard to
different distribution opportunities for imported reading materials was not addressed during
consultations it is not within the Panel's terms of reference.

7.108 The United States argues that China's objection is without merit, as the legal bases contained
in a party's consultation request and panel request ne ed not be identical. The United States goes on to
explain that the United States and China consulted extensively on the Chinese distribution regime for
reading materials. As a result of those consultati ons the United States argues that it became clear to it
that China's regime raised additional concerns with respect to the discriminatory distribution
restrictions placed on imported reading materials. The United States contends that its actions are
consistent with the Appellate Body 's recognition that an important ra tionale of consultations is to
afford the parties the opportunity to engage in an "exchange of information necessary to refine the
contours of the dispute, which are subsequently set out in a panel request".
130 The United States,
therefore, maintains that its claim under Article III: 4 regarding different dist ribution opportunities for
imported reading materials is therefore included in the Panel's terms of reference.
7.109 The Panel notes that neither party disputes that a claim under Article III:4 of the GATT 1994
with respect to reading materials was not included in either the first or the supplemental request for
consultations.131
7.110 We note that "pursuant to Article 7 of the DS U, a panel's terms of reference are governed by
the request for establishment of a panel" not the request for consultations. 132 However, the Appellate
Body has explained that "as a general matter, cons ultations are a prerequisite to panel proceedings"133
and has underscored the importance and benefits of consultations:
"We agree ... on the importance of consu ltations. Through cons ultations, parties
exchange information, assess the strengths and weaknesses of their respective cases,
narrow the scope of the differences betw een them and, in many cases, reach a
mutually agreed solution in accordance with the explic it preference expressed in
Article 3.7 of the DSU. Moreover, even where no such agreed solution is reached,
consultations provide the parties an opportuni ty to define and delimit the scope of the
dispute between them. Clearly, consultations afford many benefits to complaining
and responding parties, as well as to third par ties and to the dispute settlement system
as a whole."134
7.111 The requirements that apply to a request for c onsultations are set out in Article 4.4 of the
DSU, which provides, in relevant part that any re quest for consultations shall be submitted in writing
and shall give the reasons for the request, including identification of the measures at issue and an
indication of the legal basis for the complaint.
7.112 The Appellate Body observed in Brazil – Aircraft, that "Articles 4 and 6 of the DSU ... set
forth a process by which a complaining party must request consultations, and consultations must be
held, before a matter may be referred to the DSB for the establishment of a panel".
135

130 Appellate Body Report on Mexico – Anti-dumping Measures on Rice, para. 138.
131 United States' request for consultations, WT/DS363/1 and Supplemental request for consultations,

132 Appellate Body Report on US – Carbon Steel, para. 124.
133 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US), para. 58.
134 Ibid., para. 54.
135 Appellate Body Report on Brazil – Aircraft, para. 131. We note that in certain instances panels and
the Appellate Body have recognized that a responding party may be considered to have waived its objection to a
lack of consultations if it does not object in a timely manner. Appellate Body Report on Mexico – Corn Syrup,
para. 63; Appellate Body Report on US – FSC, paras. 165-166. However, the United States did not allege that
China's objection was untimely. Therefore, we do not consider "waiver" as a possible basis for why the United
States' claim under Article III:4 of the GATT 1994 with respect to reading materials might be included in our
terms of reference despite the admitted absence of the claim from the consultations requests.

7.113 However, the Appellate Body has recognized that, Articles 4 and 6 of the DSU do not require
a precise and exact identity between the request for consultations and the panel request
"As long as the complaining party does not expand the scope of the dispute, we
hesitate to impose too rigid a standa rd for the "precise and exact identity" 136 between
the scope of consultations and the request for the establishment of a panel, as this
would substitute the request for consultations for the panel request."137
7.114 The Appellate Body expanded on this reasoning, in Mexico – Anti-Dumping Measures on
Rice, when it explained that:
"A complaining party may learn of additi onal information during consultations—for
example, a better understanding of the operation of a challenged measure —that
could warrant revising the list of treaty pr ovisions with which the measure is alleged
to be inconsistent. Such a revision may lead to a narrowing of the complaint, or to a
reformulation of the complaint that takes into account new information such that
additional provisions of the covered agreements become relevant . The claims set out
in a panel request may thus be expected to be shaped by, and thereby constitute a
natural evolution of, the cons ultation process. Reading the DSU, as Mexico does, to
limit the legal basis set out in the panel requ est to what was indicated in the request
for consultations, would ignore an important rationale behind the requirement to hold
consultations—namely, the exchange of in formation necessary to refine the contours
of the dispute, which are subsequently set out in the panel request. In this light, we
consider that it is not necessary that the provisions referred to in the request for
consultations be identical to those set out in the panel request, provided that the 'legal
basis' in the panel request may reasonably be said to ha ve evolved from the 'legal
basis' that formed the subject of consultations . In other words, the addition of
provisions must not have the effect of changing the essence of the complaint ."
138
(emphasis added).
7.115 It seems to us that the above statement by the Appellate Body indicates that in some
circumstances, a claim based upon a WTO provision of a covered agreement which was not contained
in the request for consultations, can nevertheless be considered to be within a panel's terms of
reference. If through consultations the compla ining party obtains a better understanding of the
operation of a challenged measure such that additi onal provisions of the covered agreements become
relevant it may reformulate its complaint to include these other provisions so long as the legal basis in
the panel request may reasonably be said to have e volved from the legal basis that formed the subject
of consultations. This means that the addition of pr ovisions must not have the effect of changing the
essence of the complaint.
7.116 The United States , for its part, argues that its cl aim under Article III:4 of the GATT 1994
regarding "different distribution opportunities" for imported reading materials resulted precisely from
the sort of exchange of information identified by the Appellate Body in Mexico – Anti-Dumping
Measures on Rice as well as in Mexico – HFCS (Article 21.5) and India – Patent Protection . The
United States contends that it revised the list of WTO provisions with which the challenged measures
are inconsistent to include Article III:4, so as to incorporate information obtained during consultations
regarding China's discriminatory treatment of imported reading materials.

136 (footnote original) Appellate Body Report on Brazil – Aircraft, para. 132. (emphasis omitted)
137 Appellate Body Report on US – Upland Cotton, para. 293.
138 Appellate Body Report on Mexico – Anti-Dumping Measures on Rice, para. 138.

7.117 The United States argues that its Article III:4 claim regarding imported reading materials
evolved directly out of its claims regarding the discriminatory treatment of distributors of reading
materials. These two closely related claims involve the same measures, the same products, the same
distributors and the same distribution channels. Ther efore, the addition of this claim left the essence
of the US complaint undisturbed – i.e., that China's reading material distribution regime disadvantages
other WTO Members, both in terms of their readin g material distributors and the reading materials
themselves.
7.118 China, argues that in the case of reading materials, there cannot have been any evolution in
the legal basis between the cons ultations and the panel request, as the United States had failed to
present a claim based on Article III:4 of the GATT 1994 with respect to reading materials in its
request for consultations. Moreover, the United States' claim under Article III:4 of the GATT 1994 in
its panel request could in no way be "reasonably" understood as having evolved from the claim it
made, in its request for consultations, concerning distribution services for reading materials under the
GATS. Indeed, China submits that the standard of "reasonable evolution" flowing from the Appellate
Body's statement in Mexico – Rice could not lead the Panel to consider that a claim under Article III:4
of the GATT 1994 could be said to have evolved fr om a claim under the GATS, a different agreement
dealing with totally distinct aspects, i.e. which concerns services and services suppliers.
139
7.119 China further argues that while consultations may allow a "clearer understanding derived
from the exchange of information", this very aspect should not lead to a situation where the defending
party "discovers" claims on a new legal basis at the stage of the panel request, arguing that this would
be inconsistent with the "reasonable evolutio n" standard set by the Appellate Body in Mexico – Anti-
Dumping Measures on Rice.140
7.120 To the United States , however, detailed discussions with China in the consultation phase
allowed it to develop a "bette r understanding of the operation of the challenged measures during
consultation".141 As a result of the discussion the United States "revised the list of provisions with
which the challenged measures are inconsistent to include Article III:4 ... while leaving the essence of
the US complaint the same".142
7.121 The Panel does not agree with China's reading of th e Appellate Body's jurisprudence. The
Appellate Body did not limit its reasoning to differe nt provisions within the same covered agreement,
although that may have been the factual situation before it in the Mexico – Anti-Dumping Measures
on Rice dispute. Indeed the Appellate Body referred to "provisions of the covered agreements" in the
plural. The relationship between the obligations in the provision contained in the consultations
request and that ultimately cited in the panel requ est is certainly relevant to a determination of
whether the legal basis in the panel request may reasonably be said to have evolved from the legal
basis that formed the subject of consultations. However, we can envision a variety of examples where
two covered agreements may contain provisions suffici ently related to each other that the fact that
they are contained in different agreements is not a bar to concluding that consultations on the
provision of one agreement might lead to a reform ulation of a complaint to include a provision of
another. For example, consultations regarding a measure under Article III:4 of the GATT 1994 could
evolve into a complaint with respect to obligations in the TRIMS Agreement if the measure being
consulted upon was an investment measure. Likewise, consultations regarding a TBT measure related
to marking or labelling under the TBT Agreement might evolve into a complaint with respect to
obligations under Article IX of the GATT 1994.

139 China's response to question No. 148.
140 China's comments on the United States' response to question No. 146(a).
141 United States' response to question No. 146(b).
142 United States' response to question No. 120.

7.122 We believe that the legal basis that formed the subject of consultations under one provision of
a covered agreement can evolve into the legal b asis for a claim under another provision, whether of
the same or another agreement, without changing the "essence" of a complaint. While we agree with
the United States that the products and activiti es governed by the challenged measures under both
claims is relevant to a determination of whether one has evolved from the other, these are not the only
considerations: a panel must also examine the typ es of products, measures, th e obligations cited, and
the relationship between those obligations referred to in the consultations request and those referred to
in the panel request.
7.123 Part II of the US consultations request identif ies China's commitments on services as set forth
in its GATS Schedule and states that despite tho se commitments, various measures taken by China
impose market access restrictions or discriminatory limitations on foreign service providers seeking to
engage in the distribution of publications and certain audiovisual home entertainment products.143
7.124 With respect to "publications" the United States maintains that:
"The measures at issue appear to prohibit foreign service suppliers (including wholly
or partially foreign-owned or foreign-invested enterprises) from engaging at least in a
type of distribution described in these measures as the 'master distribution' of
publications. The measures at issue also appear to prohibit foreign service suppliers
(including wholly or partially foreign-ow ned or foreign-invested enterprises) from
engaging at least in the wholesaling of 'electronic publications' (a term that refers to a
subset of publications). Moreover, the me asures at issue may extend this prohibition
more broadly to all distribution of all publications (whether at the 'master distribution'
level or otherwise). Furthermore, to the extent that some foreign service suppliers are
allowed to engage in some aspects of the di stribution of publications, there appear to
be discriminatory requirements concerning su ch suppliers' registered capital, such
suppliers' operating term, and the particular publications that such suppliers may
distribute."
144
7.125 The United States then identifies Articles XVI and XVII of the GATS as provisions of the
covered agreements that China's measures are incons istent with. Article XVI of the GATS relates to
market access commitments, while Article XVII of the GATS provides for "national treatment" to
services and service suppliers in the sectors inscribed in a Member's Schedule.
7.126 The US panel request repeats the GATS claim cont ained in the consultations request and then
contends that the measures are also inconsistent with the national treatment obligations with respect to
like products contained in Article III:4 of the GATT 1994. Specifically, the US panel request
identifies the restrictions on distribution opportunities for imported books, newspapers and periodicals
and also notes that "[c]ertain foreign service-suppliers that are allowed to distribute books,
newspapers and periodicals are not allowed to distribute imported books, newspapers and
periodicals."
7.127 Both the claim in the consultations request a nd the claim in the panel request relate to
limitations on the distribution of reading materials within China. We note additionally, that both
claims deal with the national treatment obligations contained in the GATS and the GATT 1994, which
prohibit discrimination that results in "less favourable treatment" of imports (either services, service
suppliers, or products) vis-à-vis their domestic count erparts. While the national treatment obligation
in the GATS is limited to services and service s uppliers in sectors inscribed in a Member's GATS
Schedule, the national treatment obligation in Ar ticle III:4 of the GATT 1994 is quite broad. It

143 United States' consultations request WT/DS363/1.
144 Ibid.

includes any laws, regulations, or requirements which affect the internal sale, offer for sale, purchase,
transportation, distribution or use. Although th ey appear in two different agreements, the two
obligations are not unrelated. The Appellate Body has recognized in the past that the scope of
application of the two agreements may overlap, depending on the nature of the measures at issue.
 145
7.128 Specifically, the Appellate Body report on EC – Bananas III, reasoned that:
"Certain measures could be found to fall ex clusively within the scope of the GATT
1994, when they affect trade in goods as goods. Certain measures could be found to
fall exclusively within the scope of the GATS, when they affect the supply of services
as services. There is yet a third category of measures that could be found to fall
within the scope of both the GATT 1994 and the GATS. These are measures that
involve a service relating to a particular good or a service supplied in conjunction
with a particular good. In all such cases in this third category, the measure in
question could be scrutinized under both the GATT 1994 and the GATS. However,
while the same measure could be scrutin ized under both agreements, the specific
aspects of that measure examined under each agreement could be different. Under
the GATT 1994, the focus is on how the measu re affects the goods involved. Under
the GATS, the focus is on how the measure affects the supply of the service or the
service suppliers involved. Whether a cer tain measure affecting the supply of a
service related to a particular good is scr utinized under the GATT 1994 or the GATS,
or both, is a matter that can only be determined on a case-by-case basis."
 146
7.129 In this case, both the GATS claim in the consultations request and the GATT 1994 claim in
the panel request challenge the same limitations on service suppliers with respect to the distribution of
imported reading materials as being inconsistent w ith China's national treatment obligations under the
WTO agreements. By virtue of the scope of app lication of the two agreements, the US claim under
the GATS from the Consultation Request relates to the national treatment of the service suppliers,
while the US claim under the GATT 1994 in the panel request relates to the national treatment of the
reading materials. However, the essence of both the GATS and GATT 1994 claims is the allegation
that China's internal measures restrict the distribution of imported reading materials in a way that fails
to provide national treatment either to the service s, service suppliers, or to the imported products
themselves.
7.130 We, therefore, believe that it can reasonably be said that the legal basis of the GATT 1994
claim in the panel request evolved from the legal b asis of the GATS claim in the consultations request
that alleged that China was failing to provide na tional treatment to foreign service suppliers by
denying them access to certain segments of the ma rket for distribution services for reading materials
and that the addition of the GATT 1994 provisions does not have the effect of changing the essence of
the complaint.
7.131 Because the US claim with respect to the consistency of China's measures with Article III:4 of
the GATT 1994 in its panel request can reasonably be said to have evolved from the US claim with
respect to the consistency of China's measures wi th Article XVII of the GATS in its consultations
request without changing its essence, we find that the US claim under Article III:4 of the GATT 1994
is within our terms of reference.
7.132 China argues that, if the Panel decides that the main claim under Article III:4 of the
GATT 1994 with respect to reading materials is incl uded within its terms of reference, there are
additional aspects of the US claim that would theref ore be outside the Panel's terms of reference.

145 Appellate Body Report on EC – Bananas III, para. 221.
146 Ibid.

First, China argues that the US claim with respec t to a subset of reading materials, electronic
publications, is outside the terms of reference because the US did not identify the specific product in
its panel request. Second, China argues that the US claim with respect to subscription requirements
are likewise not identified in the panel request and are not properly before the Panel.
7.133 As the Panel has decided that the US claim under Article III:4 of the GATT 1994 with
respect to reading materials is included in our te rms of reference we now address each of China's
alternative objections in turn.
(b) Electronic publications
7.134 China argues that the US panel request does not include a claim with respect to China's
treatment of electronic publications within its claim on the inconsistency of China's measures
governing "reading materials" with China's oblig ations under Article III:4 of the GATT 1994.
According to China, the US panel request only targets "different distribution opportunities for
imported and domestically produced books, newspapers and periodi cals". Electronic publications,
which are a different product, cannot be considered to be included in this limitative list. This is further
confirmed by the fact that the United States, in other parts of the panel request, expressly included
electronic publications in the list of reading materials.
147
7.135 China maintains that the genera l references to regulations applying to electronic publications
are not sufficient to consider that measures governing distribution opportunities for electronic
publications have been adequately identified within the meaning of Article 6.2 of the DSU.
7.136 China therefore requests the Panel to find that th is aspect of the US claim is outside of its
terms of reference and refrain from making a ruling or recommendation on this particular subgroup of
reading materials.
7.137 The United States , in its first oral statement, argues that its panel request specifically
identified the measures at issue, noting that the di scriminatory treatment of electronic publications is
provided for in the 1997 Electronic Publications Regulation and in the Publications Regulation .148
According to the United States, this means that China's argument that the measures governing
electronic publications should be considered outside the Panel's terms of reference for purposes of the
US claim under Article III:4 of the GATT 1994 should be dismissed.
7.138 The Panel, in question No. 120, asked the United Stat es to respond to China's contention that
the specific product group "electronic publications" within the claim on read ing materials is not
properly before the Panel. The United States responds:
"[A]s required by Article 6.2 of the DSU and as confirmed by the Appellate Body, 149
a panel request must 'identify the specific m easures at issue' in order for a measure to
be part of a panel's terms of reference. China, however, attempts to establish a new
requirement, whereby provisions of a specifi c measure, rather than the measure itself,
must be identified in a panel request. This interpretation of Article 6.2 is sustained
neither by the text of that Article nor by the Appellate Body reports that have opined

147 (footnote original) In its claim concerning trading rights fo r reading materials as well as in its claim
concerning distribution services for reading materials, the United States referred to " reading materials (e.g.,
books newspapers, periodicals, and electronic reading materials)" (Emphasis added).
148 We note that the US claim with respect to Article III:4 of the GATT 1994 is founded in the
Imported Publications Subscription Rule and the Publications (Sub-)Distribution Rule and not in the 1997
Electronic Publications Regulation or the Publications Regulation.
149 ( footnote original) See Korea – Dairy (AB) , para. 120; US – German Steel (AB) ; para. 125; and
Guatemala – Cement (AB), para. 69.

thereon. Rather, and consistent with Ar ticle 6.2, the discriminatory impediments
imposed on imported electronic publications ar e identified in the US panel request by
way of the measures incorporating them.
The US panel request explicitly identifies the Chinese measure that provides for the
discriminatory treatment of imported electronic publications – the Imported
Publications Subscription Rule. This measure limits imported electronic publications
in the limited distribution category to be distributed only through subscription
150 by a
select few GAPP-designated Chinese wholly state-owned enterprises.151"152
7.139 We note that China has not contended that th e measures which govern electronic publications
were not properly identified in the panel request . Instead, China has argued that by presenting a
limited list of the products the US claim was concerned with, the Un ited States has, by implication,
excluded electronic publications from that coverage.
7.140 Part II.A of the panel request is entitled "Publications (e.g ., books, newspapers, periodicals,
and electronic publications)". It then contains the four paragraphs dealing with the US claims under
the GATS,
"In Sectors 4A-4E of its Schedule, Chin a undertook market access and national
treatment commitments with respect to the supply through commercial presence in
China by service suppliers of other Members of, inter alia, distribution services for
publications.
The measures at issue, however, appear to prohibit foreign service suppliers
(including wholly or partially foreign-ow ned or foreign-invested enterprises) from
engaging at least in types of distribution described in these measures as the 'master
distribution' or 'master wholesaling' of publications. The measures at issue also
appear to prohibit foreign service suppliers (including wholly or partially foreign-
owned or foreign-invested enterprises) from engaging in the distribution of 'electronic
publications' (a term that refers to a sub set of publications) generally, whether at the
'master wholesale' level, the 'wholesale' level, or otherwise.
Furthermore, to the extent that some fore ign service suppliers are allowed to engage
in some aspects of the distribution of pub lications, there appear to be discriminatory
requirements concerning such suppliers' registered capital and such suppliers'
operating term, as well as discriminator y limitations (e.g., limitations by type,
content, or origin of publication) on the publications that such suppliers may
distribute.
The measures at issue therefore appear to accord to foreign suppliers of distribution
services for publications treatment less favourable than that accorded to Chinese
suppliers of distribution services for publications. Moreover, the measures at issue do
not appear to fall within the terms, limita tions, conditions, or qualifications on market
access or national treatment that China has specified in its Schedule for the
distribution of publications through commercial presence in China by service
suppliers of other Members. Accordingly, the measures at issue appear to be
inconsistent with China's obligations under Article XVII of the GATS."

150 (footnote original) Imported Publications Subscription Rule, Article 3 (Exhibit US-30).
151 (footnote original) Imported Publications Subscription Rule, Article 4 (Exhibit US-30).
152 United States' response to question No. 120.

7.141 The panel request then contains a final pa ragraph dealing with the US claim under the
GATT 1994:
"In addition, the measures at issue also appear to establish different distribution
opportunities for imported and domestically produced books, newspapers and
periodicals. Imported books, newspapers and periodicals are restricted in their
distribution opportunities. Certain forei gn service-suppliers that are allowed to
distribute books, newspapers and periodicals are not allowed to distribute imported
books, newspapers and periodicals. By contrast, domestically produced books,
newspapers and periodicals are not restricted in this way. Accordingly, the measures
at issue also appear to be inconsistent w ith China's obligations under Article III:4 of
the GATT 1994 and the provisions of para graph 5.1 of Part I of the Accession
Protocol as well as China's obligations under the provisions of paragraph 1.2 of Part I
of the Accession Protocol (to the extent that it incorporates commitments in
paragraph 22 of the Working Party Report)."
7.142 As noted in paragraph 7.140, in the title of Part II.A of the panel request the United States has
delineated which subgroups of products it is concerned with when it makes a reference to
"publications". In the second paragraph, the panel re quest itself refers to "electronic publications" as
"(a term that refers to a subset of publications)." In the rest of the discussion on the GATS claims the
United States refers to "publications" without referring to any specific subset. In the
paragraph describing its claim under the GATT 1994, however, the United States took a different
tack. Instead of referring to "publications" th e United States refers to "books, newspapers and
periodicals" and repeats this list five times.
7.143 The United States was quite specific in its panel request and China has argued that it
reasonably believed, therefore, that electronic publi cations were not of concern to the United States
with respect to its claims under Article III:4 of the GATT 1994.
7.144 Panels and the Appellate Body ha ve rejected arguments in the past that a reference to a broad
product groups or no specific product group was too va gue to give the responding party notice that a
particular subset of that group was included.
153 The panel in US – FSC , noted that even "in the
absence of any specification as to the products at issue" the United States was on notice that the
European Communities was asserting an inconsistenc y with the US measures with respect to all
agricultural products.154
7.145 In this case we are presented with the opposite situation where the complainant has specified
a particular list of products at issue in its pane l request and then in its written submissions included
additional products within the ambit of its claim. We are not being asked to determine whether a
broad term was too vague to put China on notice that the United States was concerned with its
treatment of a particular subset of products, but rather, whether the United States use of a limited list
of products, i.e. "books, newspape rs, and periodicals" was sufficien t to put China on notice that the
United States was making a claim with respect to China's treatment of electronic publications.
7.146 The United States used the term "publications", which it defined in the parenthetical in the
title to that part of the panel request as incl uding newspapers, periodical s, books and electronic
publications, in the paragraphs immediately precedi ng the portion of the narrative where it sets forth
its claim under Article III:4 of the GATT 1994. Howe ver, in the paragraph covering its Article III:4
claim, the United States did not refer to "publicati ons" but rather spelled out "books, newspapers, and

153 Appellate Body Report on EC – Computer Equipment, paras. 67-68 and 70; Panel Report on Korea
– Alcoholic Beverages, paras. 10.14-10.16; Panel Report on US – FSC, para. 7.29.
154 Panel Report on US – FSC, para. 7.29.

periodicals." Therefore reading the panel request as a whole and the claims in context, we attach
meaning to the fact that the United States, expressly limited the scope of its claim to "books,
newspapers, and periodicals" and did not refer to the broader category of "publications", which
includes electronic publications.
7.147 Thus, China could reasonably conclude, in good faith, that the United States was not
including the treatment of electronic publications in its claim under Article III:4 of the GATT 1994.
As such, to the extent that we make any findings with respect to the consistency of the challenged
measures with Article III:4 of the GATT 1994 those findings are limited to the application of the
measures to newspapers, periodicals, and books.
(c) Subscription requirements
7.148 China argues that in its panel request the Un ited States only challenged the fact that:
"Imported books, newspapers and periodicals are restricted in their distribution opportunities. Certain
foreign service suppliers that are allowed to di stribute books, newspapers and periodicals are not
allowed to distribute imported books, newspapers and periodicals".
155 According to China, such a
claim relates to the prohibition imposed on foreig n service suppliers to distribute imported reading
materials and its restrictive effect on the distri bution opportunities of these reading materials. The
subscription regime as such and conditions imposed on subscribers of imported reading materials are
clearly a distinct issue.
7.149 Moreover, the United States did not, in its pa nel request, refer to provisions that would
specifically deal with the channelling requirement and the conditions imposed on subscribers of
imported reading materials. It only made a general reference to the " Administrative measures on
Subscription of Imported Publications ". However, such a general reference is not sufficient to
consider that the measures concer ning the conditions imposed on subscribers have been adequately
identified within the meaning of Article 6.2 of the DSU.
7.150 The United States maintains that the US panel request specifically identifies the measures at
issue, and those measures in turn include provisions setting forth the discriminatory aspects raised in
China's objection – i.e., (i) China's discriminator y subscription regime is provided for in the Imported
Publications Subscription Rule; (ii) the conditions imposed on subscribers are also provided for in the
Imported Publications Subscription Rule . According to the United States, as it has explicitly
identified in its panel request the measures that set forth the restrictive subscription regime and the
onerous conditions on subscribers, these provisions are properly before the Panel and within its terms
of reference.
7.151 The Panel notes that once again, the issue rela tes to whether the narrative description
provided by the United States in its panel request limi ts its claim in a way that would exclude from it
the subscription requirements contained in the Imported Publications Subscription Rule . China's
objection is two-fold. It covers the "channelli ng requirements", i.e. the requirement that all
newspapers and periodicals and certain books can only be distributed through the "subscription"
channel, and the conditions imposed on subscribers.
7.152 In its panel request, the United States described its complaint with respect to whether China's
measures governing the distribution of reading materi als was in conformity with its obligations under
Article III:4 of the GATT 1994, by identifying several distinct situations.
7.153 First, the United States noted that the measu res at issue appeared to establish different
distribution opportunities for imported and domestic ally produced books, newspapers and periodicals.

155 (footnote original) See United States' panel request WT/DS363/5, p.5.

Secondly, the United States asserted that the products are restricted in their distribution opportunities.
Thirdly, the United States noted that certain fore ign service-suppliers are not allowed to distribute
imported books, newspapers and periodicals. Finally, the United States noted that domestically
produced books, newspapers and periodicals are not restricted in this way.
7.154 The United States identified the Imported Publications Subscription Rule in its panel request
as the act of the Chinese Government which contained th e restrictions that were the specific measures
at issue. Article 1 of the Imported Publications Subscription Rule states that the purpose of the rule is
to "satisfy the reading needs of domestic units and individuals, foreign organizations in China, foreign
nationals of enterprises with foreign investment, and personages from Hong Kong, Macao and Taiwan
for imported publications and reinforce the management of imported publications." Article 3 of that
measure states that:
"[T]he state manages the distribution of imported publications by categories. In
regard to imported newspa pers and periodicals, and imported books and electronic
publications in the limited distribution category, they shall be distributed under
subscription to subscribers, and supplied by categories."
156
7.155 Article 4 of that measure states that subscrip tions for imported newspapers and periodicals
and books and electronic publications in the limite d category shall be handled by publication import
business units designated by the General Administration on Press and Publications ("GAPP").
7.156 We believe that the references to "different distribution opportunities" and restriction on
distribution opportunities in the US panel request are broad enough to include the requirement that all
newspapers and periodicals and certain books be distributed through the subscription channel.
Therefore, and in view of the fact that the Imported Publications Subscription Rule , has been
specifically identified in the relevant part of the panel request, we find that this requirement, as it is
embodied in Articles 3 and 4 of the Imported Publications Subscription Rule is within our terms of
reference.
7.157 China has also objected to the inclusion in the US claim of the restrictions on subscribers
embodied in Articles 5-8 of the Imported Publications Subscription Rule , because they were not
identified in the US panel request.
7.158 The United States maintains that these provisions were identified in the narrative description
of its claim in the panel request.
7.159 The Panel notes that Article 5 requires those wishing to subscribe to publications in the non-
limited category to bring a subscription applica tion to the import business unit designated by the
GAPP. Article 6 states that the GAPP will decide which domestic unit subscribers may subscribe to
imported newspapers, periodicals, books , and electronic publications in the limited category, while
Article 7 describes the application process for that approval. Finally, Article 8 sets forth the
procedures for how foreign organizations in China can obtain subscriptions to imported newspapers
and periodicals.
7.160 Unlike the restrictions in Articles 3 and 4 of the Imported Publications Subscription Rule ,
Articles 5-8 do not relate to the manner in, or ch annel through, which imported newspapers and
periodicals as well as books in the limited category are distributed or who may distribute them, but
rather deal with the manner in which entities or individuals may purchase those products. We note
that, whereas the US panel request refers to the r estricted distribution opportunities for the products, it
does not refer in any way to requirements or limitations imposed on the purchasers of the products.

156 Imported Publications Subscription Rule, Article 3 (Exhibit US-30).

7.161 Therefore, we cannot read the narrative of the US panel request as being inclusive of
Articles 5-8 of the Imported Publications Subscription Rule . We thus consider that, because the
narrative of the US panel request does not identify the subscription procedures imposed on purchasers
of imported books, newspapers , and periodicals by their nature or substance, China did not receive
adequate notice, within the meaning of Article 6.2 of the DSU, of any US claim with respect to those
requirements. Therefore, those provisions of the Imported Publications Subscription Rule are outside
our terms of reference.
5. 'Measures' China argues the Panel should not examine
7.162 In the context of its claims, the United States has argued that certain provisions of the
Several Opinions and the Importation Procedure are inconsistent with China's trading rights
commitments under the Accession Protocol. Additi onally, the United States argues that certain
provisions of the Several Opinions and the Sub-Distribution Procedure are inconsistent with China's
obligations under Article XVII of the GATS.
7.163 China has asked the Panel not to examine the Several Opinions, the Importation Procedure,
and the Sub-Distribution Procedure because "the Several Opinions and the Importation Procedure are
not regulatory documents", with the Several Opinions merely constituting "internal guidance" and the
Importation Procedure and Sub-Distribution Procedure being summaries "of the procedures and
requirements contained in applicable regulations and aimed at facilitating the application process".
7.164 The United States argues that China "concedes" that these documents are "measures" and
that it does not contest that they were identified in the US panel request and included in the Panel's
terms of reference. The United States continues to seek findings on these measures particularly given,
in its opinion, the absence of any grounds for China's objections.
 157
7.165 Article 3.3 of the DSU states:
"The prompt settlement of situations in wh ich a Member considers that any benefits
accruing to it directly or indirectly under the covered agreements are being impaired
by measures taken by another Member is essential to the effective functioning of the
WTO and the maintenance of a proper balan ce between the rights and obligations of
Members." (emphasis added)
7.166 This means that only measures taken by anothe r Member are subject to review under the
DSU. The Appellate Body has explained that:
"[I]n principle, any act or omission attri butable to a WTO Member can be a measure
of that Member for purposes of dispute settlement proceedings. 158 The acts or
omissions that are so attributable are, in the usual case, the acts or omissions of the
organs of the state, including those of the executive branch.159"160

157 United States' second written submission, para. 220.
158 (footnote original) We need not consider, in this appeal, re lated issues such as the extent to which
the acts or omissions of regional or local governments, or even the actions of private entities, could be attributed
to a Member in particular circumstances.
159 ( footnote original ) Both specific determinations made by a Member's executive agencies and
regulations issued by its executive branch can constitute ac ts attributable to that Member. See, for example, the
Panel Report on US – DRAMS, where the measures referred to the pa nel included a USDOC determination in
an administrative review as well as a regulatory provision issued by USDOC.
160 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review, para. 81.

7.167 Although China has not explicitly asserted that the Several Opinions, Importation Procedure,
and Sub-Distribution Procedure are not measures taken by a Member as required by Article 3.3 of the
DSU, it has argued that they cannot "serve as the legal basis for any administrative acts." 161
7.168 The Panel, therefore, believes that this is the appr opriate standard against which we must
measure whether we can and should examine the Several Opinions, the Importation Procedure, and
the Sub-Distribution Procedure. We also note that China has not raised any other basis for excluding
the Several Opinions , the Importation Procedure , and the Sub-Distribution Procedure from review
(such as a lack of consultations, or non-compliance of the United States with Article 6.2 of the DSU),
therefore a finding that the Several Opinions , the Importation Procedure , and the Sub-Distribution
Procedure are not measures within the meaning of Ar ticle 3.3 of the DSU is the only basis upon
which the Panel would be able to accede to China's request. We note that a faculty of a panel is not
limited to the arguments of the parties when developing its own reasoni ng so long as a party has
raised a claim under that issue.162 China has raised the issue before us of whether these documents are
subject to panel review.
7.169 We note that the Appellate Body, in the context of a discussion of Articles 6.2 and 7.1 of the
DSU, has held that "panels cannot simply ignore issues which go to the root of their jurisdiction – that
is, to their authority to deal with and dispose of matters. Rather, panels must deal with such issues – if
necessary, on their own motion – in order to satisfy themselves that they have authority to proceed."163
7.170 Given that Article 3.3 of the DSU limits the scope of what may be brought before the DSB for
adjudication to "measures taken by another Member", we believe that whether a claim brought before
a panel relates to a "measure" within the meaning of Article 3.3 likewise goes to the root of our
jurisdiction and must be dealt with, even on our own motion, so that we may satisfy ourselves that we
have the authority to proceed.
7.171 Because China has raised the issue generally and because it is an issue that is a prerequisite
for lawful panel proceedings, we will examine th e three documents identified by China as those the
panel "should not examine" to determine whether they constitute measures within the meaning of
Article 3.3 of the DSU.
7.172 A determination of whether something is a "measure" "must be based on the content and
substance of the instrument, and not merely on its form or nomenclature." 164 Acts setting forth rules
or norms that are intended to ha ve general and prospective applic ation are measures subject to WTO
dispute settlement.165
7.173 For example, the panel and the Appellate Body in US – Oil Country Tubular Goods Sunset
Reviews, determined that a non-binding policy bulletin had normative value because it provided
administrative guidance and created expectations among the public and among private actors.166
7.174 This guidance from the Appellate Body deals with attempts to challenge "rules or norms" as
such. The United States is also challenging the Several Opinions, the Importation Procedure, and the

161 China's response to question No. 39.
162 Appellate Body Report on EC – Hormones , para. 156; Appellate Body Report on Korea – Dairy ,
para. 139; and Panel Report on Egypt – Steel Rebar, para. 7.58; Appellate Body Report on Chile – Price Bands,
paras. 166-168.
163 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US), paras. 36 and 53.
164Appellate Body Report on US – Corrosion Resistant Sunset Review, footnote 87.
165 Ibid., para. 82.
166 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews, para. 187.

Sub-Distribution Procedure "as such".
167 Therefore, the reasoning of the Appellate Body is apposite
to the present case.
7.175 Our task, then, is to determine whether the Several Opinions, the Importation Procedure, and
the Sub-Distribution Procedure are attributable to China and whether they set forth rules or norms
that are intended to have general and prospective application.
(a) The Several Opinions
7.176 The United States argues that the Several Opinions prohibits foreign-invested enterprises
from importing the products, from participating in the "m aster distribution" of reading materials, limit
the amount of equity foreign investors can hold in enterprises sub-distributing audiovisual products,
that they must satisfy pre-establishment legal compliance requirements
168, and prohibits foreign-
invested enterprises from electronically distributing sound recordings.
7.177 Specifically, the United States argues that Article 1 of the Several Opinions is inconsistent
with China's obligations under the GATS. Article 1 states in part that "[u]nder the condition where
the right of our country to examine the content of audiovisual products is not harmed, foreign
investors are permitted to set up enterprises for the sub-distribution of audiov isual products, with the
exception of motion pictures, in the form of Ch inese-foreign contractual joint ventures where the
Chinese partner holds a dominant position." The Un ited States also argues that Article 4 of the
Several Opinions is inconsistent with China' s GATS commitments as well as its trading rights
commitments in its Protocol of Accession. Article 4 provides that "foreign investors are prohibited
from setting up and operating ... businesses dealing with internet culture ..., motion picture import and
distribution companies.... Foreign investors are pr ohibited from engaging in the publication, master
distribution and import of books, ne wspapers and periodicals, and pu blishing, production, master
distribution, and import of audiovisual products and electronic publications."
7.178 The United States also argues that Articles 5 and 6 are inconsistent with China's obligations
under the GATS. Article 5 states that:
"Administrations of culture, press and publica tion, and radio, film and television are
responsible for doing a good job of guarding the door of entry into the relevant
industry, carry out pre-examination and approval of applications for setting up wholly
foreign owned enterprises and Chinese-foreign equity and contractual joint ventures
in accordance with the law, standardize the scope of utilization of foreign capital and
the ratio of shares."
7.179 Additionally, Article 6 directs agencies ex ecuting the administrative examination and
approval to "give priority to cultu ral enterprises outside China whose capability is strong ,
management is standardized , technology is advanced , and are friendly towards us in conducting
equity and contractual joint ventures, and ensure that the quality of the foreign investment introduced
is reliable."
7.180 The United States maintains that these provisions establish restrictions on who may import
and distribute the relevant products which are the subject of its claims.
7.181 China argues that the Several Opinions is merely an internal guideline for the formulation
and improvement of implementation procedures by the authorities competent in the cultural sectors

167 United States' first written submission, paras. 253, 257.
168 We note that we have found that this particular requirement is outside our terms of reference.

concerned and is consequently not relevant for th e purpose of addressing the consistency of China's
trading rights system with its commitments under its Accession Protocol.
7.182 In its response to questions from the Pane l, China maintains that pursuant to its Legislation
Law, the hierarchy of Chinese laws and regulations at central government level is composed of three
levels: (i) laws enacted by the National Peopl e's Congress or its Standing Committee; (ii)
administrative regulations enacted by the State Counc il; (iii) departmental rules enacted by ministries
or agencies under the State Council. 169 According to China, the Several Opinions does not fit into
any of the three categories of laws and regulations within China and as an internal guideline is not
applicable in the context of administrative acts.170
7.183 The United States disputes that the Several Opinions is merely internal guidance. The
United States relies on Exhibit US-62, which is an opinion from China's Supreme People's Court,
which it argues demonstrates that legal instruments such as the Several Opinions are legally binding
on their issuing agencies, guide the enforcemen t of law and implementation of administrative
measures and serve as a basis for particular administrative acts.171
7.184 Additionally, the United States argues that the Several Opinions was issued jointly by the five
national-level agencies responsible for the products at issue and were approved by the highest organ
of the executive branch: the State Council. Th erefore, according to the United States, the Several
Opinions is an "other regulatory document", which is a type of legal instrument that the Supreme
People's Court of China has confirmed is binding on the agencies that issue them.
7.185 The United States points to the No tice issued together with the Several Opinions which
requires these national-level agencies and their regional counterparts to "implement them earnestly" as
demonstration that the substance of the measur e imposes obligations and prohibitions on private
sector actors that must be adhered to under penalty of law.172
7.186 China, for its part, contends that the exhortation in the Notice issued together with the
Several Opinions to agencies to "please implement them earnestly" means that the requirements in the
Several Opinions must be implemented by the promulgation of specific departmental rules by various
agencies and its provisions are not directly applicable. 173
7.187 The Panel notes that the Several Opinions was issued by the MOC, the State Administration
of Radio, Film, and Television, the General Admi nistration of Press and Publication, the National
Development and Reform Commission, and the Ministry of Commerce with the "approval of the State
Council". It is directed to
"[A]ll people's governments of provinces, autonomous regions and municipalities
directly under the Central Government, all ministries and commissions under the
State Council and all agencies directly unde r the State Council, cultural departments
(bureaus), radio, film and television de partments (bureaus), press and publication
bureaus, commissions of development and reform, and administrative departments of
commerce of provinces, autonomous regions , and municipalities directly under the
Central Government."

169 China's response to question No. 37(a).
170 China's responses to question Nos. 37(a) and (b).
171 Exhibit US-62.
172 United States' response to question No. 142.
173 China's responses to question Nos. 37(a) and (b).

7.188 With respect to China's argument that the Several Opinions does not fall within any of the
three categories of laws or regulations within Ch ina, we recall that although an understanding of
China's administrative law system is useful, what is important for purposes of our analysis is not the
nomenclature used by the domestic legal system of the Member, but whether the act falls within the
meaning of the term "measure" as it is used in Article 3.3 of the DSU.
7.189 We note that the Several Opinions was issued jointly, with "the approval of the State
Council", by several executive agen cies of the Chinese Government. Therefore, it is an act taken by
the organs of the state. As such, regardless of wh ether it fits within one of the categories of Chinese
nomenclature for its laws and regulations, it is attributable to China.
7.190 As the Several Opinions is attributable to China the next question is whether it sets forth rules
or norms that are intended to have general and prospective application.
7.191 In response to a question from the Panel, China e xplains that the Notice issued together with
the Several Opinions addressed to a number of Central Government or State Council agencies (and
not just those identified in Article 13) is a no tification process that communicates the internal
guidelines to various government agencies and tells them to "[p]lease implement them earnestly."
China contends that the wording of "earnest implementation" does not mean that the various
government agencies to which the notice is addressed can implement the Several Opinions directly.
174
7.192 The Several Opinions includes a variety of provisions about the types of corporations and
investors that may invest in certain cultural sector s of the Chinese economy. Articles 1 to 9 contain
explanations of the various areas where foreign cap ital investment is restricted and the conditions
under which foreign investment will be permitted.
7.193 Articles 10 to 12 set forward various requirements for administering agencies. For example,
Article 10 states that "[d]epartments everywhere may not expand the scope of bringing in foreign
capital on their own; they may not overstep their authority in drawing up policies that open up regions
or industry, or examine and approve such programs." Article 11 discusses the strictness of the
licensing regime and the punishment for foreign-invest ed enterprises which have violated regulations.
Article 12 states:
"[C]ulture, radio, film and television, and press and publication administrations at
every level shall strengthen macro-contro l and daily supervision regarding the
introduction of foreign capital and seriously implement relevant regulations on the
management of bringing in foreign capital. The weak links shall be reinforced,
supervision methods improved, and follow-up supervision enhanced. Comprehensive
law enforcement shall be vigorously promot ed and the crack-down on violations of
the law and regulations strengthened."
7.194 Finally, Article 13 of the Several Opinions states that "the Ministry of Culture, the State
Administration of Radio, Film and Television, and the General Administration of Press and
Publication shall, based on these Opinions, draw up and improve concrete implementation measures
for their own departments."
7.195 In response to a question from the Panel, Chin a explained that "Article 13 requires MOC,
SARFT and GAPP to "formulate and improve" the relevant impl ementation procedures for their
respective sectors according to the Several Opinions . This requirement in Article 13 must be

174 China's response to question No. 37(a).

"implemented earnestly" by various government agencies through the promulgation of relevant
departmental rules."175
7.196 Even accepting China's arguments that the Several Opinions merely provides internal
guidance and is not directly applicable would not be enough to exclude it from review by this Panel.
It is already well established that internal government documents that provide administrative guidance
to agencies in how they carry out their duties can be "measures" with in the meaning of Article 3.3 of
the DSU. 176 Additionally, accepting that the restrictions described in the Several Opinions do not
have direct effect, but must be implemented by government agen cies promulgating regulations, does
not mean that they do not set forth rules or norms that are intended to have general and prospective
application.
7.197 We have examined the provisions of the Several Opinions which set forth various restrictions
on the participation of foreign capital in various cultural sectors, combined with the provisions
directed at government agencies. The provisions not only make pronouncements such as prohibiting
foreign investors from participating in certain bus inesses (see Article 4), but they also provide
guidance for administrative agencies about how they are to do their jobs (e.g, Article 6 which sets
forth the type of businesses that agencies examining a pplications for licences "shall give priority to").
Finally, Article 13 states that agencies "shall" draw up and improve c oncrete implementation
measures for their own departments based on the Several Opinions. We also take note of China's own
description of the Several Opinions as internal guidelines for the formulation and improvement of
implementation procedures by the authorities competent in the cultural sectors concerned.
7.198 China confirms that the Several Opinions serves as a guideline for the formulation of
implementation procedures by the competent authorities, that "guidance" includes proclamations
regarding which sectors will be permitted to ha ve foreign investment and which will not.
Additionally, the guidance in the Several Opinions relate to how government agencies will perform
their application approval functions. This guidance, which the Notice issued together with the Several
Opinions indicates should be implemented earnestly, creates the expectation that going forward the
government agencies addressed therein will conduct th emselves in their administration of foreign
investment in the cultural sectors in a manner cons istent with the provisions set forth in the Several
Opinions. Therefore, the Several Opinions sets forth rules or norms intended to have general and
prospective application and, as such, are a "measure" within the meaning of Article 3.3 of the DSU.
Accordingly, we will examine this measure, in par ticular Articles 4 and 6, in the course of this
proceeding.
(b) The Importation Procedure and the Sub-Distribution Procedure
7.199 China argues that the Importation Procedure and the Sub-Distribution Procedure only
summarize the legal requirements of other measures to provide guidance to applicants and the texts
are not binding.
7.200 The United States argues that the Importation Procedure and the Sub-Distribution Procedure
are measures within the meaning of Article 3.3 of the DSU. According to the United States, the two
procedures bind the General Administration of Pr ess and Publication (GAPP) and were issued
pursuant to its administrative law obligations u nder the Administrative Licensing Law. The United

175 China's response to question No. 37(a).
176 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews , para. 187; Appellate
Body Report on US – Corrosion-Resistant Steel Sunset Review, paras. 74 and 82; and Panel Report on Japan –
Film, paras. 10.43-10.44; and Panel Report on EC – Approval and Marketing of Biotech Products, paras. 7.438 -
7.456.

States maintains that these procedures implement the provisions of the Publications Regulation and
the Publications (Sub-)Distribution Rule, respectively.
177
7.201 The United States argues that under Chinese law these two documents are examples of
Chinese legal instruments called "other regulatory documents", which are widely used in routine
administration and are fully recognized in Chinese administrative law. The United States cites an
opinion of China's Supreme People's Court to support its contentions that "other regulatory
documents" are binding on the agencies that issu e them and often serve as the basis for the
administrative acts taken by these agencies. 178
7.202 According to the United States, the Supreme People's Court has found that other regulatory
documents bind the agencies that issue them, in that these instruments are used by their agencies to
enforce laws, to implement administrative measures and to serve as the basis for administrative acts.
The binding force of other regulatory documents, however, is limited and does not extend to the
courts. While a court may examine the underlying other regulatory documents in its review of an
agency's actions, those other regulatory document s remain binding on their issuing-agency unless the
court finds that those documents are not "legal, effective, reasonable or appropriate".
7.203 China, in response to a question from the Panel about the relevance of the decision of the
Supreme People's Court cited by the United States, reiterates that the Importation Procedure and the
Sub-Distribution Procedure are summaries of the procedures and requirements contained in
applicable regulations and aimed at facilitating the application process.179
7.204 The United States also cites to the Administrative Licensing Law of the People's Republic of
China ("Administrative Licensing Law") 180 which refers to four categories of legal instruments,
including other regulatory documents. Additionally, the United States argues that the Importation
Procedure and the Sub-Distribution Procedure were issued by GAPP pursuant to its administrative
law obligations under the Administrative Licensing Law. Specifically, Article 5 which requires that
administrative licensing requirements be announced to the public and Articles 30 and 33 of the Law
which further require government agencies to displa y in their offices, and announce on their websites,
all requirements related to the administrative licences for which the agency is responsible.181
7.205 According to the United States, the Importation Procedure and Sub-Distribution Procedure
therefore fulfil GAPP's administrative law obligatio ns pursuant to the Administrative Licensing Law
by implementing and elaborating upon China's lega l regime governing the ex amination and approval
of licencees engaged in the importation and sub-dist ribution of reading materials pursuant to the
Publications Regulation and the Publications (Sub-)Distribution Rule.
(i) Importation Procedure
7.206 China argues that the Importation Procedure is merely a webpage and that all the
requirements contained in this webpage are requ irements established by applicable published
regulations. According to China, this documen t is merely a summary of the procedures and
requirements contained in such regulations and aims at facilitating the application process. China
maintains that it cannot serve as the basis for admini strative acts and as such is not relevant for the

177 United States' response to question No. 142.
178 Exhibit US-62.
179 China's response to question No. 147.
180 Administrative Licensing Law of the People's Republic of China ("Administrative Licensing Law"),
adopted at the 4th Session of the 10 th National People's Congress on August 27, 2003; promulgated under Order
of the President of the People's Republic of China No. 7 on August 27, 2003; effective as of July 1, 2004;
Articles 14, 15 and 17 (Exhibit US-63).
181 United States' response to question No. 4.

purpose of addressing China's consistency with its trading rights commitments in the Accession
Protocol.
7.207 The United States , in its first written submission, argues that the Importation Procedure ,
issued by GAPP, implements Article 43 of the Publications Regulation . According to the United
States, it confirms, and to some extent elaborat es upon, the licensing requirements for the importation
of reading materials, AVHE products, and sound recordings into China.
7.208 Specifically, the United States contends that the Importation Procedure begins with the
heading "Licensing Requirements" which, just as in the Publications Regulation, sets as the second
condition for an enterprise to import these products that it is a wholly state-owned enterprise.
Additionally, the United States notes that there is a quantity restriction on licences based on the "state
plan regarding the total number, structure and de ployment of publication import business units".
Therefore, the United States argues that the Importation Procedure reconfirms the prohibition on any
foreign-invested enterprise or foreign individual, or any privately-owned Chinese enterprise, engaging
in the importation of reading materials, AVHE products, and sound recordings.
7.209 The Panel must determine whether the Importation Procedure is attributable to China and if
so, whether it sets forth rules or norms of genera l and prospective application such that it would
constitute a "measure" within the meaning of Article 3.3 of the DSU.
7.210 We note that the Importation Procedure is located on the GAPP website and that the text
indicates that its "stated basis" is the Publications Regulation (State Council Order No. 343)
Article 43. We also note that the last line of text of the Importation Procedure reads "Laws,
regulations, and standardization doc uments which form the legal basis of this administrative licence:
[Publications Regulation]." China also confirms that this doc ument was generated internally by the
GAPP to facilitate an application process that the GAPP administers. Therefore, we conclude that this
document was generated by an organ of the State, i. e., the executive branch, and is attributable to
China.
7.211 With respect to whether the Importation Procedure sets forth rules or norms of general and
prospective application, it seems to us that the references to the Publications Regulation as the "basis"
of the Importation Procedure support China's position that this document merely summarizes legal
requirements that actually derive their legal effect from the Publications Regulation . The Law on
Licensing, which the United States cites, further supports China's view. Articles 5, 30 and 33 thereof
require government agencies to announce existing rules to the public and display them in their offices.
Nothing in these provisions provides the authority to interpret regulations or provide for new
obligations. Accepting, as the United States itself claims, that the Importation Procedure was
promulgated to fulfil this requirement, then the docu ment is merely a publication of existing licensing
requirements and not the source of new requirements.
7.212 With respect, to the US reliance on a decision of the Supreme People's Court of China, to
support its position that these "ther regulatory document s" are part of the Chinese legal hierarchy, we
note that the Supreme People's Court of China stated that
"[I]n judicial practice, the hearings of ad ministrative cases often involve particular
interpretation of legal application issues by related departments, as well as other
regulatory documents issued by the latter, both for the purpose of guiding the
enforcement of law or implementing administrative measures."
182

182 Exhibit US-62.

7.213 Additionally, the Court went on to explain that "administrative organs often directly take
these particular interpretation and other regulator y documents as the basis for their particular
administrative acts."
183 However, the United States does not point to anything in the Importation
Procedure that would indicate that it serves to guide the enforcement of law, implement
administrative measures or serve as the basis of admi nistrative acts. Instead, as China indicates, the
Importation Procedure seems to simply advise the public of the existence of a variety of requirements
that originate and derive their legal force from the Publications Regulation.184
7.214 We therefore determine that the Importation Procedure does not itself establish rules or
norms that are intended to have ge neral and prospective application. We recall the reasoning of the
panel in US – Export Restraints, which was examining whether particular measures challenged in that
case could individually give rise to a violation of WTO obligations. That panel concluded that:
"[T]he central question that must be answ ered is whether each measure operates in
some concrete way in its own right. By this we mean that each measure would have
to constitute an instrument with a functional lif e of its own, i. e., that it would have to
do something concrete, independently of any ot her instruments, for it to be able to
give rise independently to a violation of WTO obligations."
185 (emphasis original)
We find this reasoning relevant to the situation he re, where we are trying to determine whether an
instrument by itself establishes rules or norms of ge neral and prospective application such that it can
constitute a "measure" subject to WTO dispute settlement adjudication.

7.215 As indicated, the Importation Procedure merely notifies the public of the existence of the
rules or norms which may have general and prospective application contained in the Publications
Regulations. The Importation Procedure does not have a functional life of its own and does not do
something concrete, independently of any ot her instruments. Therefore, although the Importation
Procedure does list various requirements, the rules a nd norms themselves and any expectations
formed as to the conduct of the Ch inese Government are based on the Publications Regulation which
give them their legal force, and not on the basis of the document summarizing them.
186 W e t h u s
conclude that the Importation Procedure does not constitute a "measure " of a Member within the
meaning of Article 3.3 of the DSU. As a result, we do not further examine the Importation
Procedure, nor do we rule on the US claims relating to the Importation Procedure.
(ii) Sub-Distribution Procedure
7.216 China, in its first written submission, contends that the United States bases its claim, inter
alia on a document (the Sub-Distribution Procedure) that is not relevant for the purpose of addressing
the consistency of China's trading rights system wi th its commitments under its Accession Protocol.
Particularly, China argues that, this text is in fact a webpage from the GAPP's website, which is
intended to provide guidance for applicants. As a c onsequence, China argues that this text, which is
not binding, should not be examined by the Panel.

183 Exhibit US-62.
184 Additionally, we note that the Supreme People's Court noted that "these particular interpretation and
other regulatory documents are not formal sources of law, and shall not bind upon the People's Courts in the
sense of legal norms." The Court went on to find that it would "recognize their legal force" in examining
particular administrative acts based on such documents if the Courts deemed them to be "legal, effective,
reasonable, and appropriate." (Exhibit US-62, p. 3)
185 Panel Report on US – Export Restraints, para. 8.85.
186 We note in this respect, that the United States has challenged the provisions in the Publications
Regulation that are summarized in the Importation Procedure. This challenge will be addressed further below.

7.217 The United States maintains that the Sub-Distribution Procedure sets out the requirements
and examination and approval procedures for foreig n-invested enterprises seeking to engage in the
sub-distribution of books, newspapers and periodicals published in China.
7.218 The United States submits that China is incorrect in its characterizations of this measure. The
United States argues that although the Sub-Distribution Procedure may also be found on GAPP's
website, so are many of the other challenged measure s. The United States contends that, as with the
Importation Procedure, this measure is more than mere "gui dance for applicants;" it fulfils GAPP's
administrative law obligations by implementing a nd elaborating upon China's legal regime governing
the importation and sub-distribution of reading materials.
7.219 The United States argues that, the Sub-Distribution Procedure implements State Council
Order No. 412 (State Council Decision on Setting Up Administrative Licensing for Administratively
Examined and Approved Projects That Truly Need to be Preserved), which is the same decision of the
State Council which is the basis for the Network Music Opinions . The United States maintains that
China's assertion that only one of two measures implementing the identical State Council decision is a
legal instrument further undermin es China's supposition that the Sub-Distribution Procedure is
merely internal guidance.
7.220 China argues that the United States' argument is based on an erroneous assumption that since
the Sub-Distribution Procedure and the Network Music Opinions share the same State Council
decision as their legal basis, the Sub-Distribution Procedure must share the same legal effect as the
Network Music Opinions .187 According to China, the Sub-Distribution Procedure summarizes the
procedures and requirements for the approval of foreign-invested enterprises engaged in the
distribution of reading materials. This approval can find its legal authorization from that State
Council's decision. The summary itself is not a legal instrument based on the State Council's decision.
7.221 The Panel examines the Sub-Distribution Procedure, just as with the Importation Procedure,
to determine whether it is attributable to China an d whether it sets forth rules and norms that are
intended to have general and prospective application.
7.222 We note that the Sub-Distribution Procedure is located on the GAPP website and that the text
indicates that its "source" is the "Policies, Laws and Regulations Division, General Administration of
Press and Publication." Additionally, the text of the procedure lists a State Council decision, several
laws, regulations and rules as the "basis" for the document ( see paragraph 7.223 below). China also
confirms that this document was ge nerated internally by government agencies to serve as internal
guidance. Therefore, we conclude that this documen t was generated by an organ of the State, i.e., the
executive branch, and is attributable to China.
7.223 Next, we must determine whether the Sub-Distribution Procedure establishes rules and norms
that are intended to have general and prospective application. The Sub-Distribution Procedure does
set out various licensing requirements and pro cedures relating to the distribution of books,
newspapers and periodicals. However, at the en d of the document it is stated that the "laws,
regulations and standardized documents which serve as the legal basi s for this administrative licence"
are "the P.R.C. Chinese-Foreign Joint Venture Law, the P.R.C. Chinese-Foreign Contractual Venture
Law, the P.R.C. Foreign-Capital Enterprise Law, th e Regulations on the Management of Publications,
Rules for the Management of Foreign-Invested Enterprises Sub-Distributing Books, Newspapers and
Periodicals."
7.224 The source of the rules and norms described in the Sub-Distribution Procedure is therefore,
not the procedure itself, but rather the laws, regulat ions, and rules listed at th e end of the document.

187 United States' second written submission, para. 218.

The rules and norms that are described in the Sub-Distribution Procedure originate in and derive their
legal authority from other sources of law. The Sub-Distribution Procedure is merely a composite of
all the requirements and procedures that relate to the particular topic, i.e. licensing of sub-distributors
of books, newspapers and periodicals, set fo rth in other legal documents including the Publications
(Sub-)Distribution Rule.
7.225 As is the case with the Importation Procedure , the Sub-Distribution Procedure merely
notifies the public of the existen ce of the rules or norms which may have general and prospective
application contained in the Publications Regulations. The Sub-Distribution Procedure does not have
a functional life of its own and does not do some thing concrete, independently of any other
instruments. Therefore, although the Sub-Distribution Procedure does list various requirements, the
rules and norms themselves and any expectations formed as to the conduct of the Chinese
Government are based on other legal documents, including the Publications (Sub-)Distribution Rule ,
which give them their legal force, and not on the basis of the document summarizing them.
188 We
thus conclude that the Sub-Distribution Procedure does not constitute a "measure" of a Member
within the meaning of Article 3.3 of the DSU. As a result, we do not further examine the Sub-
Distribution Procedure, nor do we rule on the US claims relating to the Sub-Distribution Procedure.
6. Summary of conclusions
7.226 In sum, in response to China's various objecti ons to the inclusion of various measures and
claims of the United States within the Panel's terms of reference, we have concluded the following:
(a) The Film Distribution and Exhibition Rule is outside the Panel' s terms of reference
with respect to the US claim that it is inconsistent with China's trading rights
commitments in its Protocol of Accession because China did not receive adequate
notice that it was a specific measure at issue, with respect to this claim, as required by
Article 6.2 of the DSU.
(b) The 2001 Audiovisual Products Regulation and the Audiovisual Products Importation
Rule are outside the Panel's terms of reference with respect to the US claim that
China's measures are inconsistent with Article III:4 of the GATT 1994 because the
panel request did not adequately notify Ch ina that these were specific measures at
issue, with respect to this claim, as required by Article 6.2 of the DSU.
(c) The so-called "pre-establishment legal compliance" requirement, the approval process
to engage in distribution of reading ma terials and audiovisual products and the
"decision making criteria" that the MOC would apply in the approval of Chinese-
foreign contractual joint ventures for the distribution of reading materials and
audiovisual products are not within the Pane l's terms of reference. When read as a
whole, including the listing of the specific requirements that are the subject of its
complaint, the US panel request did not notify China that these requirements were
"specific measures at issue" within the meaning of Article 6.2 of the DSU.
(d) The United States' claims that China's measures on reading materials are inconsistent
with Article III:4 of the GATT 1994 is within the Panel's terms of reference, despite
the lack of consultations.

188 We note that the provisions of the Sub-Distribution Procedure with which the United States is
concerned are identical to those contained in the Publications (Sub-)Distribution Rule and/or the Several
Opinions (United States' first written submission, paras. 100- 102) which are still within the Panel's terms of
reference. These challenges will be addressed further below.

(i) The United States, through its description of its claim in the panel request,
excluded electronic publications from its claim under Article III:4 of the
GATT 1994. Therefore, the Panel's findings as to whether China's measures
are inconsistent with Article III:4 of the GATT 1994 will relate only to
whether books, newspapers, and peri odicals are treated no less favourably
than like domestic products.
(ii) The requirements, set forth in Articles 3 and 4 of the Imported Publications
Subscription Rule , that newspapers and periodicals, as well as books in the
limited category may only be sold through subscription, are within the Panel's
terms of reference as they are adequately identified in the US panel request.
(iii) The requirements on purchasers of imported newspapers and periodicals, as
well as books in the limited category, embodied in Articles 5 through 8 of the
Imported Publications Subscription Rule , are not within the Panel's terms of
reference as they were not adequately identified as specific measures at issue
within the meaning of Article 6.2 of the DSU.
(e) The Several Opinions is attributable to China and establishes rules or norms intended
to have general and prospectiv e application. It is therefore a "measure" within the
meaning of Article 3.3 of the DSU and is a proper subject of these dispute settlement
proceedings.
(f) The Importation Procedure and the Sub-Distribution Procedure are attributable to
China, but they do not establish rules or norms intended to have general and
prospective application. Therefore, they are not "measures" within the meaning of
Article 3.3 of the DSU. As such, they are not a proper subject of these dispute
settlement proceedings.
C. US
 CLAIMS REGARDING CHINA'S TRADING RIGHTS COMMITMENTS
7.227 The Panel now turns to assess the US claims of vi olation based on China's trading rights
commitments. The United States raises claims of violation under the provisions of China's Accession
Protocol.189 These claims are directed at a series of Chinese measures relating to reading materials,
audiovisual home entertainment products (hereafte r "AVHE products"), sound recordings and films
for theatrical release. China considers that none of the US claims has merit. China argues that some
of the measures challenged by the United States ar e not subject to the relevant provisions of the
Accession Protocol, and that those which are subject to these provisions are not inconsistent with the
Accession Protocol or in any event justified under the provisions of Article XX of the GATT 1994.
7.228 The Panel will first determine whether the Un ited States has established that any of the
specific measures at issue is inconsistent with the Accession Protocol. Thereafter, if one or more
measures are inconsistent with the Accession Prot ocol, the Panel will proceed to address China's
defence under Article XX of the GATT 1994, to the ex tent China has asserted an Article XX defence
in relation to the relevant measure(s).
1. US claims of violation of China's Accession Protocol
7.229 The Panel notes that the United States bases its claims of violation on three paragraphs of the
Accession Protocol: (i) paragraph 1.2, to the extent that it incorporates paragraphs 83(d) and 84(a) and

189 Protocol on the Accession of the People's Republic of China, WT/L/432 (Exhibit US-1).

(b) of the Report of the Working Party on th e Accession of China (hereafter the "Working party
Report"); (ii) paragraph 5.1; and (iii) paragraph 5.2.
(a) Paragraphs 1.2, 5.1 and 5.2 of the Accession Protocol
7.230 Paragraph 1.2 of the Accession Protocol provides:
"2. The WTO Agreement to which Chin a accedes shall be the WTO Agreement
as rectified, amended or otherwise modified by such legal instruments as may have
entered into force before the date of 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."
7.231 Paragraph 342 of the Working Party Report provides (underlining added):
"The Working Party took note of the e xplanations and statements of China
concerning its foreign trade regime, as reflected in this Report. TheWorking Party
took note of the commitments given by China in relation to certain specific matters
which are reproduced in paragraphs 18-19, 22-23, 35-36, 40, 42, 46-47, 49, 60, 62,
64, 68, 70, 73, 75, 78-79, 83-84
, 86, 91-93, 96, 100-103, 107, 111, 115-117, 119-120,
122-123, 126-132, 136, 138, 140, 143, 145, 146, 148, 152, 154, 157, 162, 165,
167-168, 170-174, 177-178, 180, 182, 184-185, 187, 190-197, 199-200, 203-207,
210, 212-213, 215, 217, 222-223, 225, 227-228, 231-235, 238, 240-242, 252, 256,
259, 263, 265, 270, 275, 284, 286, 288, 291, 292, 296, 299, 302, 304-305, 307-310,
312-318, 320, 322, 331-334, 336, 339 and 341 of this Report and noted that these
commitments are incorporated in paragraph 1.2 of the Draft Protocol."
7.232 Accordingly, the commitments set out in, inter alia, paragraphs 83(d) and 84(a) and (b) of the
Working Party Report are commitments that are inco rporated into paragraph 1.2 of the Accession
Protocol.
7.233 Paragraph 83(d) of the Working Party Report provides:
"The representative of China confirmed that during the three years of transition,
China would progressively liberalize the scope and availability of trading rights.

(d) The representative of China also conf irmed that within three years after
accession, all enterprises in China would be granted the right to trade. Foreign-
invested enterprises would not be required to establish in a particular form or as a
separate entity to engage in importing and exporting nor would new business licence
encompassing distribution be required to engage in importing and exporting."
The Working Party took note of these commitments.

7.234 Paragraphs 84(a) and (b) of the Working Party Report provide:
"(a) The representative of China reconfirmed that China would eliminate its
system of examination and approval of trading rights within three years after
accession. At that time, China would permit all enterprises in China and foreign
enterprises and individuals, including sole proprietorships of other WTO Members, to

export and import all goods (except for the sh are of products liste d in Annex 2A to
the Draft Protocol reserved for importation and exportation by state trading
enterprises) throughout the customs territory of China. Such right, however, did not
permit importers to distribute goods within China. Providing distribution services
would be done in accordance with China' s Schedule of Specific Commitments under
the GATS.
(b) With respect to the grant of tr ading rights to foreign enterprises and
individuals, including sole proprietorships of other WTO members, the representative
of China confirmed that such rights woul d be granted in a non-discriminatory and
non-discretionary way. He further confirmed that any requirements for obtaining
trading rights would be for customs and fiscal purposes only and would not constitute
a barrier to trade. The representative of China emphasized that foreign enterprises
and individuals with trading rights ha d to comply with all WTO-consistent
requirements related to importing and e xporting, such as those concerning import
licensing, TBT and SPS, but confirmed that requirements relating to minimum capital
and prior experience would not apply."
The Working Party took note of these commitments.
7.235 Furthermore, paragraphs 5.1 and 5.2 of the Accession Protocol provide:
"1. Without prejudice to China's right to regulate trade in a manner consistent
with the WTO Agreement, China shall pr ogressively liberalize the availability and
scope of the right to trade, so that, within three years after accession, all enterprises in
China shall have the right to trade in all goods throughout the customs territory of
China, except for those goods listed in Anne x 2A which continue to be subject to
state trading in accordance with this Protocol. Such right to trade shall be the right to
import and export goods. All such goods sh all be accorded national treatment under
Article III of the GATT 1994, especially para graph 4 thereof, in respect of their
internal sale, offering for sale, purchase, tran sportation, distribution or use, including
their direct access to end-users. For t hose goods listed in Annex 2B, China shall
phase out limitation on the grant of trading rights pursuant to the schedule in that
Annex. China shall complete all necessary legislative procedures to implement these
provisions during the transition period.
2. Except as otherwise provided for in this Protocol, all foreign individuals and
enterprises, including those not invested or registered in China, shall be accorded
treatment no less favourable than that accorded to enterprises in China with respect to
the right to trade."
7.236 Before addressing any of the US claims under the above provisions, it is useful to deal with a
number of interpretative issues. We will first examine paragraphs 5.1 and 5.2 of the Accession
Protocol. Thereafter, we will examine paragr aphs 83(d), 84(a) and 84(b), all of which are
incorporated into the Accession Protocol through paragraph 1.2 thereof.
(i) Paragraph 5.1 of the Accession Protocol
7.237 Regarding paragraph 5.1 of the Accession Protocol, the United States is of the view that
pursuant to this paragraph every enterprise throughou t the entire customs territory of China, without
exception, must have the right to trade. The Unite d States argues that as long as an enterprise is in
China, the obligation in paragraph 5.1 contains no additional conditions or restrictions on which
enterprises shall have the right to trade. Ther efore, the United States maintains, China may not

reserve the right to trade to a s ubset of enterprises in China that are wholly state-owned or wholly
Chinese-owned. The United States further submits that, likewise, any limitations on who may
exercise the right to trade, based on criteria such as sources of investment, would be inconsistent with
paragraph 5.1.
7.238 As the United States further points out, the righ t to trade applies to "all goods" except those
listed in Annexes 2A and 2B. The United States s ubmits that Annex 2B is not relevant to these
proceedings because none of the relevant products is covered by Annex 2B, and because this
limitation is no longer applicable to China's trading rights commitments, since it expired in December
2004. As regards Annex 2A, the Un ited States notes that since the US claims concern the right to
import, only Annex 2A1 – entitled "P roducts Subject to State Trading (Import)" – is relevant. The
United States notes that Annex 2A1 contains a list of eight product headings excepted from China's
obligations – grain, vegetable oil, sugar, tobacco , crude oil, processed oil, chemical fertilizer, and
cotton – that are divided into 84 products identified by the eight-digit Harmonized System (HS)
product classification code and by the state trading enterprises that import these products.
190 Since
none of the relevant products is covered by Annex 2A1, the United States considers that limiting the
right to import any of the relevant products woul d be inconsistent with China's trading rights
commitments.
7.239 China points out that paragraph 5.1 expressly st ates that China's commitment to liberalize
trading rights is without prejudice to China's right to regulate trade in a manner consistent with the
WTO Agreement. China therefore does not agree with the United States that the only exception to
China's commitment to liberalize th e right to trade is Annex 2A. According to China, the United
States intentionally ignores the unambiguous first part of paragraph 5.1 that provides for China's right
to regulate trade, which constitutes a second exception to China's commitment to liberalize the right to
trade. China therefore considers that it is committed to grant the right to import and export goods to
all companies and for all goods except those listed in Annex 2A and that this commitment is without
prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement.
7.240 China submits that, literally, the "right to regulat e trade" means the right to take measures for
the purpose of regulating trade. China considers that "trade" covers the "right to trade" itself, which is
by definition one of its elements. China maintains that the right to regulate trade is the expression of a
general exception to Members' ob ligations, which leaves room for the implementation of public
policies and is crucial for the preservation of China's sovereignty.
7.241 China notes that pursuant to paragraph 5.1 the ri ght to regulate trade must be exercised in a
manner consistent with the WTO Agreement, and that the term "WTO Agreement" includes the WTO
Agreement and all its Annexes. China argues th at since China's commitment in paragraph 5.1
concerns the right to import and export goods, China's right to regulate trade must be interpreted in
conjunction with WTO agreements applicab le to trade in goods, including the GATT 1994.
191 China
considers, therefore, that it has the right to take measures pursuing policy objectives in a manner
consistent with Article XX of the GATT 1994. More specifically, China considers that it has the right
under paragraph 5.1 to impose restrictions and cond itions on the grant of trading rights, such as a
limitation of the right to import to a number of selected entities, provided that these measures are
consistent with Article XX of the GATT 1994.
7.242 The United States responds that China's reading of its "ri ght to regulate trade" is inconsistent
with the structure and operation of paragraph 5.1, read as a whole. In the United States' view,
paragraph 5.1 provides a specific mechanism for excluding products from China's trading rights

190 The United States refers to the Accession Protocol, WT/L/432, Annex 2A1, p. 20 (Exhibit US-1).
191 China notes that Annex 1A on "Multilateral Agreements on Trade in Goods" of the WTO
Agreement includes the GATT 1994.

commitments – i.e., Annexes 2A and 2B of the Accession Protocol. The United States argues that
China's interpretation of the right to regulate trad e would make the specific mechanisms in Annexes
2A and 2B superfluous. In particul ar, the United States considers that the "right to regulate trade"
does not permit China to reserve certain products per se to state trading. In the United States' view,
doing so would amount to eliminating China's tradi ng rights commitments altogether, not simply to
regulating trade. The United States submits that to give effect to the entire first sentence of
paragraph 5.1, the scope of China's right to re gulate trade cannot extend to the domain covered by
these Annexes. According to the United States, th e language and structure of paragraph 5.1 make
clear the intent of WTO Members to agree on a sel f-contained, complete, and agreed set of excepted
products – to be found in Annexes 2A and 2B. 192 The United States maintains that if China wished to
deny trading rights for the products at issue, it s hould have availed itself of the mechanism provided
by Annexes 2A and 2B at the time of its accession, which it did not do. The United States considers,
therefore, that China is trying to construct a "secr et entrance" into the Annexes of paragraph 5.1,
contrary to the agreement negotiated by WTO Members.
7.243 The United States further argues that the right to regulate trade in a manner consistent with
the WTO Agreement applies to measures addressing the goods being traded rather than the traders of
those goods. The United States considers that und er the first clause of paragraph 5.1 China may
require that goods being imported into China sa tisfy other requirements allowed under the WTO
Agreement, such as import licensing, TBT and SPS requirements. 193 The United States notes that
China could, e.g., prevent imports of wholly proh ibited goods by all importe rs, or apply tariffs and
health and safety requirements to imported goods without infringing its trading rights commitments.
In the United States' view, the first clause of paragraph 5.1 thus does not detract from China's
commitments to allow the three enumerated categories of importers – i.e ., all foreign enterprises, all
foreign individuals and all enterprises in China – to trade in the goods being regulated.
7.244 China responds that its right to regulate trade is distinct from the derogations negotiated and
agreed upon with respect to state trading, and that the Panel should dismiss the United States' attempt
to blur the distinction. China argues in this r espect that Annexes 2A and 2B reflect the negotiated
right of China to preserve state trading for a certa in number of products and sectors. China submits
that these products are outside the scope of China's trading rights commitments and can (or could, in
the case of Annex 2B), therefore, be regulated and ma de subject to restrictions by China without any
further justification than their inclusion in these Annexes. China argues that the right to regulate
trade, on the other hand, does not create a right to exclude products from the scope of China's trading
rights commitments, but rather to adopt or mainta in measures that are consistent with the WTO
Agreement. In China's view, the right to regulat e trade is the expression of a general right of WTO
Members to maintain certain measures and to pursue legitimate policy objectives. In particular, China
argues, the "without prejudice" clause affirms Chin a's right to adopt or maintain measures with the
potential consequence of imposing certain limitations on the right to trade, e.g., on the type of
enterprise that may trade in goods. China submits that to interpret the "without prejudice" clause
differently would fail to give meaning to all words in paragraph 5.1.
7.245 Thus, China is of the view that the situation pertaining to the "without prejudice" clause is
very different from that pertaining to the products listed in Annexes 2A and 2B. According to China,
while the products listed in Annexes 2A and 2B can (or could) be made subject to state trading and
other restrictions on the right to trade without any justification other than their presence in these
Annexes, other restrictions implemented under the "without prejudice" clause may only result from
measures which are justified by another provision of the WTO Agreement and fully consistent with

192 The United States notes that according to paragr aphs 80 and 84(a) of the Working Party Report
China's trading rights commitments are to give "all enterprises ... the right to import and export all goods (except
for the share of products listed in Annex 2A ...)".
193 The United States refers to paragraph 84(b) of the Working Party Report.

such provision. China submits that the "without prej udice" clause thus aims at providing the basis for
a coherent reading of China's commitments, on the one hand, and China's right to implement certain
policy objectives through the adoption of WTO-consiste nt measures, on the other hand. In China's
view, the "without prejudice" clause is the recognition on the part of WTO Members of the need to
maintain a balance between China's right to regul ate trade on the basis of other provisions of the
WTO Agreement and China's commitments with regard to the granting of the right to trade.
7.246 The Panel notes that paragraph 5.1, first sentence, imposes on China the obligation to ensure
that, within three years after accession, "all enterprises in China … ha ve the right to trade in all goods
throughout the customs territory of China", except for those goods listed in Annex 2A to the
Accession Protocol.
194 Paragraph 5.1, second sentence, defines the "right to trade" as including the
"right to import … goods". Paragraph 5.1, fourth sentence, further stipulates that for those goods
listed in Annex 2B, any limitations on the grant of trading rights were to be phased out pursuant to the
schedule in that Annex. Annex 2B indicates that for all goods listed therein, liberalization was,
likewise, to be completed "within 3 years after accession".
7.247 China acceded to the WTO on 11 December 2001. 195 As a result, the three-year transition
period referred to in paragraph 5. 1 expired on 11 December 2004, whic h is well before the date of
establishment of this Panel.
7.248 Regarding whether the products at issue are s ubject to the obligation in question, as noted
above, the United States raises claims in respect of the following products: 196 reading materials (e.g.,
books, newspapers, periodicals and electronic publi cations), finished physical AVHE products
(including video cassettes, VCDs and DVDs) and ph ysical AVHE products in tended for publication
(e.g., master copies), finished physical sound r ecordings (including tapes, records and CDs) and
physical sound recordings intended for publication (e .g., master recording discs), and physical films
for theatrical release.197 None of these products is part of the eight categories of goods listed in Annex
2A1198 or the six categories of goods listed in Annex 2B. It is not in dispute, and we agree, that the
relevant reading materials, finished AVHE products and finished sound recordings are "goods" within
the meaning of paragraph 5.1. 199 However, China appears to disp ute the United States' view that

194 To recall, paragraph 5.1 reads:
"Without prejudice to China's right to regulate trade in a manner consistent with the WTO
Agreement, China shall progressively liberalize 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 lis ted in Annex 2B, China shall
phase out limitation on the grant of trading rights pursuant to the schedule in that Annex.
China shall complete all necessary legislative procedures to implement these provisions
during the transition period."
195 WT/INF/43/Rev.8 (Exhibit US-41).
196 In response to a question from the Panel, the United States stated that "all of the products at issue in
the US trading rights claims are physical goods" (United States' response to question No. 22).
197 By AVHE products and sound recordings intended for publication – the United States refers to
unfinished AVHE products and sound recordings – the United States means master copies to be used to publish
and manufacture copies for sale in China (United States' response to question No. 18).
198 Annex 2A2 is not relevant to this dispute, in that it relates to goods to be exported.
199 The United States has stated that sound recordings include songs, ringtones and ringback tones. We
understand the United States to mean that the recorded audio content can be a song, a ringtone or a ringback
tone. We recall in this respect that the United States has made clear that all of the pr oducts at issue in the US
trading rights claims consist of a carrier medium carrying content (United States' response to question No. 22).

physical AVHE products and physical sound record ings intended for publication as well as films for
theatrical release are, likewise, "goods". For reasons we explain below when addressing the
consistency of the relevant measures with the Ac cession Protocol, we consider that the products
which are the subject of US claims under the Accession Protocol are all goods.200
7.249 Paragraph 5.1 provides that "all enterprises in China" must have the right to trade in all goods.
In view of the absence of further textual qualificati on, we consider that the phrase "all enterprises in
China" encompasses both Chinese enterprises registered in China and foreign enterprises invested and
registered in China.201 In other words, we think that paragraph 5.1 requires China to grant the right to
trade even to enterprises that are wholly Chinese-invested. 202 The absence of further textual
qualification also suggests to us that the phrase "a ll enterprises in China" encompasses both state-
owned and privately owned enterprises in China.
7.250 Regarding the category of foreign enterprises invested and registered in China, we find
support for our view in paragraph 83(d) of the Wo rking Party Report, which sets out a commitment
incorporated into the Accession Protocol through para graph 1.2 of the Accession Protocol. Paragraph
1.2 is part of the context of paragraph 5.1. Like paragraph 5.1, the first sentence of paragraph 83(d)
commits China to grant the right to trade to "all enterprises in China". The second sentence then goes
on to state that "[f]oreign-invested enterprises" would not be required, e.g., to establish in a particular
form or as a separate entity to engage in importing and exporting. It is clear that the second sentence
is about foreign-invested enterprises wishing to engage in importing into China or exporting from
China, i.e., about foreign-invested enterprises in Chin a. In the light of this, and since paragraph 83(d)
only has two sentences, it is also clear that th e second sentence of paragraph 83(d) explains and
clarifies, with specific reference to foreign-invested enterprises in China, the commitment given in the
first sentence. In other words, we consider that the second sentence of paragraph 83(d) indicates that
the phrase "all enterprises in China" in the first sentence is meant to include foreign-invested
enterprises in China.
7.251 In view of the parallelism between the first sentence of paragraph 83(d) and paragraph 5.1, we
think the phrase "all enterprises in Ch ina" in paragraph 5.1 should, likew ise, be interpreted to include
foreign-invested enterprises in China.203 We note in this respect that both parties agree that the phrase
"all enterprises in China" in paragraph 5.1 includes foreign-invested enterprises registered in China.204
It is useful to note, as well, that according to Ch ina there are only three types of "foreign-invested
enterprises" in China: wholly foreign-owned ente rprises, Chinese-foreign equity joint ventures and
Chinese-foreign contractual joint ventures. 205 With specific regard to Chinese-foreign equity or
contractual joint ventures, in view of the absence of indications to the contrary in paragraph 5.1 of the
Accession Protocol or paragraphs 83-84 of the Wo rking Party Report, we consider that such

200 See infra, paras. 7.526 and 7.642.
201 Both parties appear to agree that the phrase in question covers enterprises which are registered in
China, and that it does not include foreign enterprises which are not registered in China (parties' responses to
question No. 50(c)(i) and (ii)). China has indicated th at "registration" includes, but is not limited to, the
incorporation of an enterprise (China's response to question No. 23(a)).
202 This would appear to be confirmed by paragraph 83(b) of the Working Party Report, which sets out
a commitment incorporated into the Accession Protocol through paragraph 1.2 of the Accession Protocol.
Paragraph 83(b) commits China to eliminate, in respect of "wholly Chinese-invested enterprises", its
examination and approval system at the end of the phase-in period for trading rights.
203 Since paragraph 83(d) indicates th at China is to grant trading rights also to foreign-invested
enterprises in China, it is unnecessary to examine, in th e context of an analysis of paragraph 5.1, whether there
exists a plausible rationale for other WTO Members to seek trading rights for such enterprises, or for China to
grant trading rights to such enterprises.
204 Parties' responses to question No. 50(c).
205 China's response to question No. 50(c)(iii).

enterprises would qualify as "foreign-invested enterp rises" regardless of whether they are owned or
controlled by foreign investors or by Chinese investors.
7.252 It follows from the above that as of the date of establishment of this Panel, China was under
an obligation to ensure that "all enterprises in China", including foreign-invested enterprises
registered in China (wholly foreign-owned ente rprises, Chinese-foreign equity joint ventures and
Chinese-foreign contractual joint ventures), have the right to import all goods into China.
206
7.253 We now turn to examine the introductory clause of paragraph 5.1, that is to say, the phrase
"[w]ithout prejudice to China's right to regulate trade in a manner consistent with the WTO
Agreement". That phrase (hereafter the "'without prejudice' clause") makes clear that China's
obligation to ensure that all enterprises in Chin a have the right to trade in all goods is "without
prejudice to" China's right to regulate trade in a manner consistent with the WTO Agreement. The
phrase "without prejudice to" is defined in dictionaries as meaning "without detriment to any existing
claim or right; spec. in law, without damage to one's own rights or claims"
207, or "[w]ithout loss of
any rights; in a way that does not harm or cancel the legal rights or privileges of a party"208.
7.254 In the light of this, we consider that the phr ase "without prejudice to" is intended to indicate
that China's obligation to ensure that all enterprises in China have the right to trade must not, and does
not, detrimentally affect China's right to regulate trade in a WTO-consistent manner. In our view, this
implies that if China regulates trade in a WTO-cons istent manner, and this results, contrary to the
obligation set forth in paragraph 5.1, in "enterprises in China" not "h av[ing] the right to trade in all
goods", China's right to regulate trade in a WTO- consistent manner takes precedence over China's
obligation to ensure that all ente rprises in China have the right to trade. Consequently, in the
aforementioned hypothetical situation, the end re sult would be that China could introduce, or
maintain, the relevant measure even though it is in breach of paragraph 5.1.
7.255 China appears to argue, however, that when a measure regulates trade in a WTO-consistent
manner, China would not actually breach its obligation under paragraph 5.1, even if as a result of this
measure not all enterprises in Ch ina have the right to trade. 209 We do not agree. Nothing in
paragraph 5.1 suggests that the obligation to grant tr ading rights would not arise, or would cease to be
applicable, in situations where China has regulat ed trade in a WTO-consistent manner. To the
contrary, we think that the phrase "without prejudice to " supports the view that China is subject to the
obligation to grant trading rights irrespective of whether China has regulated trade in a WTO-
consistent manner.210 Accordingly, we consider that by failing to comply with its obligation to ensure
that all enterprises in China have the right to tr ade, China would be acting inconsistently with
paragraph 5.1, first sentence. Hence, to establish an inconsistency with paragr aph 5.1, first sentence,
a complaining party in our view need only establis h that China has acted in consistently with the

206 We note that paragraph 5.1 states that "all enterprises in China" must "have" the right to trade within
three years after China's accession to the WTO. It does not state that all en terprises meeting certain
qualifications must have the right to trade within three year s. Nonetheless, as we explain below, at para. 7.408,
it appears that the right to trade may be made subject to compliance with customs and fiscal requirements that
do not constitute a barrier to trade.
207 Shorter Oxford English Dictionary, 5th ed. (Clarendon Press 2002), Vol II, p. 2324.
208 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group 1999), p. 1596.
209 China's first written submission, para. 234.
210 Indeed, the view that the obligation in question is applicable also in situations where China has
regulated trade in a WTO-consistent manner helps explain the existence of the "without prejudice" clause.
Absent such a clause, the obligation in question could po tentially prejudice China's right to regulate trade in a
WTO-consistent manner. The "without prejudice" clause clarifies that no such effect is intended.

aforementioned obligation. 211 As we have indicated in the preceding paragraph, however, if a
measure which does not ensure that all enterprises in China have the right to trade, and which is
therefore inconsistent with paragraph 5.1, at th e same time regulates trade in a WTO-consistent
manner, the end result would be that China could neve rtheless maintain that measure because in such
cases China's right to regulate trade takes preced ence over China's obligation to ensure that all
enterprises in China have the right to trade.
7.256 The next issue for us to consider is the meaning of the phrase "China's right to regulate trade".
The verb "regulate" is defined in relevant part as "[ c]ontrol, govern, or direct by rule or regulations;
subject to guidance or restrictions …". 212 In the context of paragraph 5.1, the regulator is China, i.e., a
government. Thus, China's right to "regulate" trade can be understood as meaning China's right to
subject trade to governmental control, guidance, direction or restrictions, by rule or regulations.
7.257 The noun "trade" is defined in relevant pa rt as "[b]uying and selling or exchange of
commodities for profit, spec. between nations …". 213 It is clear to us that in the specific context of
paragraph 5.1, the concept of "trade " is intended to refer to interna tional, or cross-border, trade in
goods.214 Accordingly, the phrase "right to regulate tr ade" in paragraph 5.1 could be understood as
meaning the right to regulate the exchange of goods across international borders. We find significant,
however, the fact that the second sentence of paragraph 5.1 defines the "right to trade" as the "right to
import and export goods". Given this, we consider it appropriate , in the specific context of
paragraph 5.1, to interpret the phrase "right to regulate trade" in the light of, and consistently with, the
language used in the second sentence. This leads us to the view that the "right to regulate trade" can
be understood as the "right to regulate imports and exports". Needless to say, in the context of
paragraph 5.1, we use the terms "imports" a nd "exports" to mean goods that are imported and
exported, respectively.215
7.258 Our analysis thus far suggests that China's "right to regulate trade" is China's right to subject
imports or exports – i.e., the goods that are imported into China or exported from China – to
governmental control, guidance, direction or rest rictions, by promulgating appropriate rules or
regulations.
7.259 We next look to the wider context of paragr aph 5.1, which includes paragraph 1.2 of the
Accession Protocol. Paragraph 1.2 incorporates, inter alia, paragraphs 86 and 84(b) of the Working
Party Report. We consider that our interpretation of the phrase "right to regulate trade" fits with the
text of paragraphs 86 and 84(b). Paragraph 86, which concerns the grant of trading rights for goods
specified in Annex 2B, actually uses the terms "imports" and "exports".
216 Specifically, it sets out a

211 It is important to recall in this connection that, as explained previously, a finding of inconsistency
with paragraph 5.1, first sentence, would not necessarily mean that the measure at issue cannot be introduced or
maintained.
212 Shorter Oxford English Dictionary, 5th ed. (Clarendon Press 2002), Vol II, p. 2516.
213 Ibid., p. 3316.
214 Paragraph 5.1 defines the right to trade as the right to import or export goods.
215 The term "import" is defined as "something imported or brought in ..." ( Shorter Oxford English
Dictionary, 5th ed. (Clarendon Press 2002), Vol I, p. 1331). In the context of paragraph 5.1, it is goods that are
imported or exported.
216 Paragraph 86 reads in relevant part:
"Members of the Working Party noted China's commitment that it would phase out the
limitation on the grant of trading rights for goods specified in Annex 2B of its Draft Protocol
within three years after accession. … The repr esentative of China added that China would
eliminate import and export volume as a criterion for obtaining the right to trade these
products, reduce minimum captalization requirements and extend the right to register as
designated importing and exporting enterprises to enterprises that used such goods in the
production of finished goods and enterprises that distributed such goods in China. At the end

commitment by China that "none of the criteria [for obtaining the right to trade] applicable under the
designated trading regime would constitute a quantitative restriction on imports or exports".
7.260 Paragraph 84(b), which the United States is invoking in this dispute, is not about the grant of
trading rights to "enterprises in China", but about the grant of trading rights to "foreign enterprises and
individuals". Nonetheless, we find the pr ovisions of paragraph 84(b) instructive.
217 The second
sentence of paragraph 84(b) confirms that "any requirements for obtaining trading rights … would not
constitute a barrier to trade". We think that the second sentence of para graph 5.1 and the afore-
mentioned commitment set out in paragraph 86 suppor t understanding the term "barrier to trade" as
meaning "barrier to imports or exports".
7.261 In addition, we also find relevant to the inte rpretation of paragraph 5. 1 the final sentence of
paragraph 84(b), according to wh ich "[t]he representative of Ch ina emphasized that foreign
enterprises and individuals with trad ing rights had to comply with all WTO-consistent requirements
related to importing and exporting, such as tho se concerning import licensing, TBT and SPS, but
confirmed that requirements relating to minimum capital and prior experience would not apply".
7.262 In analysing the final sentence, we note, fi rst of all, the phrase "foreign enterprises and
individuals with trading rights". We consider th at this phrase refers to foreign enterprises and
individuals who have trading rights in accordance w ith the Accession Protocol. Or to put it more
clearly, we consider that it refers to foreign ente rprises and individuals in respect of whom China has
an obligation, under the Accession Prot ocol, to grant the right to trade. 218 In our view, the final
sentence makes clear that even though they are foreign enterprises and individuals "with trading
rights" (in that the Accession Protocol prescribes th at they must be granted such rights), such
enterprises and individuals must still comply w ith "all WTO-consistent requirements related to
importing and exporting, such as those concerning import licensing, TBT and SPS". Thus interpreted,
the final sentence is plainly very similar in function to the "without prejudice" clause of paragraph 5.1.
7.263 China suggests that "foreign enterprises and indi viduals with trading rights" are enterprises
and individuals who actually enjoy trading rights, that is to say, who have actually been granted
trading rights without restriction. 219 China appears to infer from this argument that the final sentence

of three years, all enterprises in China and all foreign enterprises and individuals would be
permitted to import and export such goods throughout the customs territory of China. During
the transition period , none of the criteria app licable under the designated trading regime
would constitute a quantitative restriction on imports or exports. The Working Party took note
of these commitments."
217 We recall that paragraph 84(b) reads:
"With respect to the grant of trading rights to foreign enterprises and individuals, including
sole proprietorships of other WTO members, th e representative of Chin a confirmed that such
rights would be granted in a non-discriminatory and non-discretionary way. He further
confirmed that any requirements for obtaining trading rights would be for customs and fiscal
purposes only and would not constitute a barrier to trade. The representative of China
emphasized that foreign enterprises and individuals with trading rights had to comply with all
WTO-consistent requirements related to importing and exporting, such as those concerning
import licensing, TBT and SPS, but confirmed that requirements relating to minimum capital
and prior experience would not apply."
218 The phrase "with trading rights" may have been adde d to reflect the fact that there was a three-year
transition period during which the availability and scope of the right to trade was progressively liberalized, and
that foreign enterprises and individuals wishing to import or export goods listed in Annex 2A would not have
the right to trade.
219 China's response to question No. 169; China's comments on the United States' response to question
No. 159.

of paragraph 84(b) only addresses situations where tr ading rights have actually been granted and says
nothing about situations where trading rights are being restricted.220
7.264 The United States, in response to a question from the Panel, suggests that the phrase "with
trading rights" is intended to recognize the fact th at in those cases where Ch ina has imposed fiscal or
customs requirements for obtaining trading rights, as contemplated in the second sentence of
paragraph 84(b), some foreign enterprises or individuals may not yet have trading rights.221
7.265 We are not persuaded by the parties' interpre tations of the phrase "with trading rights". We
first note the last part of the sentence in questi on, which confirms that "requirements relating to
minimum capital and prior experience would not apply". In our view, certainly a requirement relating
to prior experience in importing and exporting is a requirement which would be imposed as a
condition for obtaining the right to trade, not for maintaining it. 222 Furthermore, there is no indication
in the final sentence of paragraph 84(b) that, unlike the first part of that sentence, the last part is not
about foreign enterprises and individuals "with tradin g rights". To the contrary, the conjunction "but"
indicates that a contrast is being drawn between requirements with which foreign enterprises and
individuals "with trading rights" must comply and requirements with which they can expect not to
have to comply.223
7.266 If, then, the last part of the sentence in question also concerns foreign enterprises and
individuals "with trading rights", under China's suggested interpre tation of the phrase "with trading
rights" the last part would "confirm" that enterpri ses and individuals who have already been granted
trading rights will not need to comply with, inter alia , a requirement relating to prior experience.
Such an interpretation does not seem appropriate, in that a prior experience requirement could not
logically be imposed on enterprises or individuals w ho have already been granted trading rights. We
think the interpretation suggested by the United States is, likewise, difficult to reconcile with the last
part of the second sentence of paragraph 84(b). In contrast, our interpretation comports well with the
last part of the sentence in question. Under our inte rpretation, the last part "confirms" that China will
not apply "requirements relating to minimum capital and prior experience" to foreign enterprises and
individuals in respect of whom China has an obligation, under the Accession Protocol, to grant the
right to trade.224
7.267 Another element of the final sentence is the phrase "all WTO-consistent requirements related
to importing and exporting, such as those concer ning import licensing, TBT and SPS". We find it
relevant because it is substantively similar to th e reference in pa ragraph 5.1 to WTO-consistent
regulation of trade. In our view, the phrase "requi rements related to importi ng and exporting" covers

220 China's comments on the United States' response to question No. 159. At the same time, China
maintains that the phrase "with trading rights" does no t mean that WTO-consistent requirements related to
importing and exporting may not restrict trading rights (China's response to Panel question No. 197(d).
221 United States' response to question No. 197(d).
222 It is relevant to note in this context that paragraph 83(a) of the Working Party Report commits China
to eliminate, for Chinese and foreign- invested enterprises, "any export performance, trade balancing, foreign
exchange balancing and prior experience requirements, such as in importing and exporting , as criteria for
obtaining or maintaining the right to import or export" (emphasis added). We also note that paragraph 83(b)
indicates that China in the past applied minimum capital requirements to wholly Chinese-invested enterprises as
a condition for obtaining trading rights.
223 If no connection was intended between the first part and the last part of the final sentence, it would
have been more natural for the last part to be a new sentence beginning, like the second sentence of
paragraph 84(b), with the words "He further confirmed that…".
224 Understanding the last part in this way is also consistent with the second sentence of
paragraph 84(b) which makes clear that China may apply customs or fiscal requirements to foreign enterprises
and individuals in respect of whom it has an obligation to grant the right to trade, provided they do not constitute
barriers to trade.

requirements concerning whether particular goods may be imported or expor ted. This view draws
support from the three examples that are provided. All of them can be inte rpreted as examples of
requirements relating to goods that are imported or exported.
225 Thus, for certain goods, it may be
necessary to obtain an import or export licence. For other goods, there may be TBT- or SPS-type
requirements governing their importation. For inst ance, China might have a requirement that only
cars meeting certain technical safety standards may be imported, or that certain agricultural products
may not be imported because they present risks to human, animal or plant health.
226
7.268 We find further confirmation for our view in the text of the phrase "requirements related to
importing and exporting". The phrase uses the terms "importing" and "exporting", which indicate that
it is about requirements related to the activ ity, or process, of importing and exporting. 227 Also, the
phrase uses the term "related to", which means "[h]aving relation; having mutual relation;
connected".228 In contrast, the last part of the same final sentence of paragraph 84(b) refers to
requirements "relating to" minimum capital and prior experience, i.e., requirements that concern the
activity of importing or exporting. Thus, "requi rements related to importing and exporting" are
requirements that have a connection to the activ ity of importing and exporting, not requirements
"relating to", or concerning, the activity of importing or exporting. 229 The above-noted hypothetical
requirement that only cars meeting certain technical safety standards may be imported would seem to
be a requirement that has a connection to the activ ity of importing, via the good it regulates. It does
not appear to be a requirement that concerns th e activity of importing, as it does not determine who
may engage in the activity, etc.
7.269 We think that in view of its functional and s ubstantive similarity to the "without prejudice"
clause of paragraph 5.1, the final sentence of paragr aph 84(b) is relevant to the interpretation of the
phrase "right to regulate trade" in paragraph 5.1. More specifically, we think the final sentence of
paragraph 84(b) is consiste nt with our view that the phrase "right to regulate trade" in paragraph 5.1
should be understood as meaning the right to regulate im ports and exports. It is clear to us that the
phrase "requirements related to importing and exporti ng" covers requirements regulating imports and
exports. We also consider that the examples provided in the final sentence can be viewed as
requirements regulating imports and exports. We obser ve in this respect that, in our view, regulation
of imports and exports comprises both regulation dir ected explicitly at imports or exports (such as
"requirements concerning import licensing") and regula tion which is directed at particular goods but
affects also imports or exports of such goods (such as "requirements concerning TBT").
7.270 While the final sentence of paragraph 84(b) in our view supports our understanding of the
phrase "right to regulate trade", the reference in that sentence to "import licensing" also indicates that
we need to undertake further analysis of what is incl uded in the "right to regulate trade". The explicit
reference to "import licensing" in the final sentenc e of paragraph 84(b) makes clear that China could
impose a WTO-consistent requirement under which a li cence is needed to import a particular good.
This leads logically to the further and separate qu estion of whether China could impose, in addition, a

225 We understand both parties to agree (China's response to question No. 169; US comments on
China's response to question No. 169).
226 We take no position on whether such requirements would be WTO-consistent, which is a separate
issue.
227 We note that paragraph 83(d) of the Working Party Report uses the phrase "to engage in importing
and exporting". We think that the final sentence of paragraph 84(b) refers to requirements related to
"importing" and "exporting" because the final sentence is about foreign enterprises and individuals "with trading
rights", i.e., about enterprises and individuals in respect of whom China must grant the right to engage in
importing or exporting.
228 Shorter Oxford English Dictionary, 5th ed. (Clarendon Press 2002), Vol II, p. 2520.
229 The fact that the final sentence is about foreign en terprises and individuals "with trading rights" is a
further indicator that the requirements in question are those that have a connection to importing and exporting as
opposed to those that are about importing and exporting.

WTO-consistent requirement under which only impo rters meeting specified criteria could obtain a
licence to import the good at issue. Neither para graph 84(b) nor paragraphs 5.1 or 5.2 explicitly
answer that question. Since we are concerned in this case with measures that are alleged to restrict the
right to trade, we will attempt to answer this questi on. We do not mean to suggest that different types
of additional requirements could not give rise to si milar questions. For instance, the question could
arise in respect of additional requirements concerning the process of importation stricto sensu, such as
requirements relating to the operating practices to be followed by importers.
7.271 Having regard to the question we are concer ned with – whether China could impose an
additional, WTO-consistent require ment under which only importers m eeting specified criteria could
obtain a licence – it would, in our view, be problematic to argue, based on paragraph 84(b), that all
foreign enterprises and individuals in respect of wh om China has an obligation to grant the right to
trade would have to be given an import licence if they wish to import the good in question. Indeed,
we would be concerned about such an interpretation of the aforementioned provisions, as it could lead
to unreasonable results. A hypothetical example serves to illustrate this point.
7.272 Suppose that China maintained a general prohib ition on the importation of narcotic drugs, but
that it had the authority under its laws exceptiona lly to grant licences for the import of such drugs,
e.g., for purposes of pharmaceutical research (e.g., on a possible cure for drug addiction) or for
medico-therapeutic purposes (e.g., to provide palliative care to certain cancer patients). Considering
the well-known societal problems associated with ille gal trade in, and consumption of, narcotic drugs,
China might conceivably see fit to stipulate that import licences could be granted only to entities
authorized to use narcotic drugs (e.g., appropriate research institutes or hospitals). If, however, China
were required to allow foreign enterprises not regist ered in China, and foreign individuals not in
China, to import into China narcotic drugs which they are not authorized to use, China might be
significantly impaired in its ability, or unable, to en sure that the narcotic drugs imported into China
are in fact used exclusively for the purpose for which their importation has been authorized.
7.273 We are not suggesting that limiting imports of narcotic drugs to authorized users thereof
would always and necessarily be WTO-consiste nt. However, we think the above example
demonstrates that if China imposes a WTO-consistent requirement under which a licence is needed to
import a particular good, it may in certain cases be appropriate for China to impose, in addition, a
WTO-consistent requirement under which only impo rters meeting specified criteria could obtain a
licence to import the good in question.
7.274 Arguably, import or export licensing requirements are the most obvious cases in which it
could be appropriate to impose additional require ments to prescribe who may import or export the
relevant good(s). We see no reason to assume, how ever, that they would necessarily be the only
requirements concerning goods which it would be appropriate to complement by requirements
regulating who may import or export such goods. Having said this, it is clear that not every WTO-
consistent requirement concerning a good that is imported or exported entails a need for an additional
requirement concerning who may import or export that good.
7.275 In the light of the foregoing, we consider that China's "right to regulate trade" in a WTO-
consistent manner includes, by implication, a conseq uent right to regulate importers or exporters of
the relevant good(s) in a WTO-consistent manner.
230 To interpret the phrase "right to regulate trade"
as not including a consequent right to regulate importe rs or exporters of regulated goods could either

230 An example of such incidental regulation of importers would be the above-mentioned hypothetical
requirement that only entities authorized to use narcotic drugs, such as research institutes or hospitals, may be
granted licences for the import of narcotic drugs.

render illusory China's "right to regulate tr ade" or significantly undermine that right.
231 We do no t
mean to suggest that the "right to regulate trade" could not include, by implication, the right to impose
other types of related requirements, e.g., concerni ng operating practices to be followed by importers.
Since the issue is not presented in this case, we take no position in this respect.
7.276 With regard to regulation of who may import or export a regulated good, consistent with the
foregoing considerations it would, in our view, depend notably on two elements whether China's
"right to regulate trade" would in a particular case permit China to regulate not only the goods that are
imported or exported, but also who can be importe rs or exporters of these goods: (i) whether the
regulation of importers or exporters of these goods has a reasonable link to the regulation of the goods
at issue (notably to the rationale underpinning the regulation of the goods), i.e., whether it is
incidental (or necessary) to the regulation of the relevant goods, and (ii) whether the regulation of
importers or exporters is WTO-consistent.
7.277 We should recall at this point that "regulation" may mean restriction.232 Therefore, in keeping
with our view that the "right to regulate trade" implies a consequent right to regulate, in a WTO-
consistent manner, importers or e xporters of a regulated good, we consider that the "right to regulate
trade" would, in appropriate cases, permit China to restrict or limit, in a WTO-consistent manner, the
class of entities or individuals who may engage in importing or exporting the good in question.
7.278 It is worth noting in this regard that at a late stage in the proceedings even the United States
appeared to accept that China could permissibly introduce or maintain certain WTO-consistent
limitations on the right to trade that are the con sequence of regulating the goods being traded. In
response to a question from the Panel the United States stated that it did not argue that paragraphs 5.1
and 5.2 of the Accession Protocol or paragraph 84(b) of the Working Party Report would prevent
China from ever restricting the right to trade. 233 The United States notably stated that it recognizes
that "the regulation of traded goods may have in cidental effects on individual traders' trading
rights".234 The United States appears to accept, for in stance, that China could impose restrictions on
individual importers based on their capability to import or export particular goods that entail risks
inherent to the importation process.235
7.279 The United States argues, correctly, that interpre tation of the phrase "right to regulate trade"
in paragraph 5.1 must not render superfluous th e mechanisms in Annex 2A and Annex 2B for
excluding certain goods from disciplines which would otherwise be applicable. We do not consider
that the references in paragraph 5.1 to Annex 2A and Annex 2B cast doubt on our interpretation of the
phrase "right to regulate trade". In particular, we do not think our interpretation makes those Annexes
redundant. The goods listed in Annex 2A are goods in r espect of which China is not required to fulfil
its obligation to ensure that all enterprises in China have the right to trade in all goods. For these
goods, China may limit the right to trade to state-trading enterprises. 236 The only applicable condition

231 As regards the final sentence of paragraph 84(b), we similarly consider that China's right to impose
"WTO-consistent requirements related to importing and exporting, such as those concerning import licensing,
TBT and SPS" implies a right to impose incidental WTO-consistent requirements relating to importing and
exporting.
232 As noted above, the dictionary meaning of the ve rb "regulate" includes "subject to guidance or
restrictions".
233 United States' response to question No. 160(a).
234 Ibid. (stating also that "[i]mporters must comply with … WTO-consistent requirements on goods,
including incidental requirements regarding the good being imported") and United States' response to question
No. 160(b) (referring to "incidental effects of the legitimate regulation of trade").
235 United States' response to question No. 160(b).
236 We note, however, the provisions of paragraph 213 of the Working Party Report, which have been
incorporated into the Accession Protocol. In paragraph 213, China confirmed that notwithstanding

is that the good be included in the list. In contrast, under our interpretation of the "right to regulate
trade", for goods not included in the Annex 2A list, any incidental restriction of the right to trade
would only be permissible if it is WTO-consistent. Therefore, if as a consequence of regulating a
particular good not included in Annex 2A, China want ed to limit the right to trade in that good to
state-owned enterprises, it could only do so if denyi ng other enterprises in China the right to trade
would not breach any of China's obligations under the WTO Agreement. Given this restrictive
condition, we see no basis for an argument that such an interpretation of the "r ight to regulate trade"
would, in effect, permit China to add new goods to the Annex 2A list.
7.280 Essentially the same considerations apply rega rding Annex 2B. Under Annex 2B, limitations
on the grant of the right to trade in listed goods needed to be phased out in accordance with the
schedule in Annex 2B. Subject to that condition bei ng met, the limitations could be maintained. As
indicated, under our interpretation of the "right to regulate trade", any incidental limitations would
need to be WTO-consistent. Therefore, even if after the phase-out period China were to introduce an
incidental WTO-consistent restriction of the right to trade in a good listed in Annex B, we think this
could not reasonably be considered to amount to an effective extension of the phase-out period.
Rather, it would be a legitimate exercise of China's "right to regulate trade" in a WTO-consistent
manner.
7.281 Having considered the text of the phrase "right to regulate trade" in its context, we turn,
finally, to consider that phrase in light of the object and purpose of the Accession Protocol. We
discern no inconsistency between our interpretation of the phrase "right to regulate trade" and the
object and purpose of the Accession Protocol. We observe that the Accession Protocol sets forth the
terms of China's accession to the WTO. The preamble to the Accession Protocol refers to the fact that
these terms are the result of negotiations between th e WTO and China. This being so, we must be
mindful of the possibility that the Accession Protoc ol may impose obligations on China that are not
imposed on other Members under the WTO Agreement, or are stricter than those that are applicable to
other Members. However, this element does not logica lly lead to the conclusion that the obligation to
grant trading rights stipulated in paragraph 5.1 was intended to prejudice China's ability to regulate
imports and exports and, incidentally, importers or exporters of the regulated goods. As explained
above, other elements and consider ations lead us to a different conclusion. We therefore do not
consider that our interpretation of the phrase "right to regulate trade" is in any way at variance with
the object and purpose of allowing the WTO and China to establish, by mutual agreement, the terms
under which China could accede to the WTO.
(ii) Paragraph 5.2 of the Accession Protocol
7.282 Regarding paragraph 5.2 of the Accession Protocol
237, the United States considers that it
commits China to extend to all foreign enterprises and all forei gn individuals, including sole
proprietorships of other WTO Members, the same ri ght to import all goods into China as is accorded
to all enterprises in China. Thus, the United St ates submits, any measure that disadvantages foreign
enterprises and foreign individuals relative to enterp rises in China with respec t to the right to import
the relevant products is inconsistent with paragraph 5.2.
7.283 China submits that paragraph 5.2 is directly rela ted to paragraph 5.1 and is a complement to
China's main commitment to liberalize the right to trade. China therefore argues that paragraph 5.2

paragraph 5.1, non-state-trading enterprises would s till be permitted to import goods listed in Annex 2A for
production purposes. We note that neither party has referred to paragraph 213.
237 To recall, paragraph 5.2 reads:
"Except as otherwise provided for in this Protocol, all foreign individuals and enterprises,
including those not invested or registered in China, shall be accorded treatment no less
favourable than that accorded to enterprises in China with respect to the right to trade."

also applies "without prejudice" to China's right to regulate trade in a manner consistent with the
WTO Agreement. China notes that in paragraph 5. 2, China agreed to accord treatment no less
favourable to foreign individuals a nd enterprises, "except as otherwise provided for in this Protocol".
In China's view, this exception includes China's right to regulate trade in a manner consistent with the
WTO Agreement.
7.284 The Panel notes that pursuant to paragraph 5.2 "all foreign individuals and enterprises,
including those not invested or registered in Ch ina" must be accorded treatment no less favourable
than that accorded to enterprises in China with respect to the right to trade, which, as paragraph 5.1
confirms, includes the right to import.
7.285 We begin our analysis with the phrase "all fore ign individuals". In response to the Panel's
question whether the phrase "all foreign individuals" in paragraph 5.2 covers non-Chinese individuals
in China, non-Chinese individuals outside China, or both, the United States replied that the phrase
includes both. China replied that the phrase refers to individuals whose na tionality is not Chinese.
238
The parties also indicated their view that the phrase would cover both individuals who are commercial
traders and individuals importing goods for their own use. 239 Thus, both parties consider that the
phrase "all foreign individuals" covers all individuals whose nationality is not Chinese. We certainly
agree that the phrase covers non-Chinese individuals in China, notably individuals living or residing
in China. Regarding non-Chinese individuals outside China, we note that the phrase in question does
not specify any limitations in this regard. Notabl y, it does not qualify the phrase with the words "in
China". Furthermore, paragraph 84(b) of the Worki ng Party Report, which is part of the context of
paragraph 5.2240, confirms that the term "foreign individua ls" includes sole proprietorships "of other
WTO members". We therefore agree that the phrase "all foreign individuals" can also cover non-
Chinese individuals outside China.
7.286 The next element we need to address is the phrase "all foreign … enterprises, including those
not invested or registered in China". It is clear to us from the phrase "including those not invested or
registered in China" that paragraph 5.2 applies to enterprises registered in a country other than
China.241 It is less clear whether the term "foreign enterprise" as it appears in paragraph 5.2 applies
to: (i) foreign-registered enterprises which wish to engage in importing into China or exporting from
China, but have no commercial presence in China; (ii) foreign-registered enterprises which maintain
a commercial presence in China (other than in the form of an enterpri se registered in China, e.g., a
Chinese branch) and which wish to engage in im porting or exporting thr ough the entity present in
China; or (iii) both. The parties in their submissions to the Panel have not addressed this issue. Since
the United States' claims concern, inter alia , "foreign enterprises" 242, it is appropriate, however, to
examine the issue.
7.287 We begin this task by considering the first interpretative issue, that is, whether foreign-
registered enterprises without a commercial pres ence in China are "foreign enterprises" for the
purposes of paragraph 5.2. The first point to be made is that the phrase "all foreign enterprises" is not
qualified with the words "in China". Thus, the text of paragraph 5.2 does not suggest that the phrase
"all foreign enterprises" is intended to exclude foreign enterprises which do not maintain a
commercial presence in China. Although it is likely that, typically, goods would be imported into
China, or exported from China, by entities establis hed in China, we perceive no basis for assuming

238 Parties' responses to question No. 50(e)(i).
239 Parties' responses to question No. 50(e)(ii).
240 Paragraph 84(b) sets out co mmitments incorporat ed into the Accession Protocol through
paragraph 1.2 of the Accession Protocol.
241 China refers to enterprises in corporated outsid e the Chinese territory in accordance with foreign
laws (China's responses to question Nos. 50(d) and 23(b)).
242 United States' response to question No. 151.

that there would be, or could be, no foreign-regist ered enterprises without a commercial presence in
China that would wish to engage in importing an d exporting. While it may be necessary to satisfy
certain customs- or fiscal-related requirements to engage in importing and ex porting, this would not
be the same as establishing an enterprise in China. We also have not been made aware of any legal or
technical reasons that would suggest that only en terprises registered in China could reasonably be
permitted to import or export goods. 243 Based on these considerations and the information on the
record, we are of the view that the term "for eign enterprises" in paragr aph 5.2 covers foreign-
registered enterprises without a commercial presence in China.
7.288 The other interpretative issue is whether the phrase "all foreign enterprises" covers foreign-
registered enterprises with a commercial presence in Ch ina (other than in the form of an enterprise
registered in China) and engaging in importing or exporting through the entity present in China. We
have asked the parties whether the phrase "all forei gn enterprises" in paragra ph 5.2 covers "foreign
incorporated enterprises operating in China". The United States gave no direct reply. It merely stated
that the meaning of "operating" in the Pa nel's question was not entirely clear to it. 244 China likewise
did not give a specific reply, saying that the phrase "all foreign enterprises" covers enterprises
incorporated outside the Chinese territo ry in accordance with foreign laws. 245 It appears to us that, in
principle, foreign incorporated enterprises could ope rate in China by setting up one or more Chinese
branches. In other words, we think that a branch in China could be the type of entity present in China
through which a foreign-registered enterprise could engage in importing or exporting.
7.289 It appears that, generally speaking, foreign -registered enterprises can set up branches in
China. China's Schedule of GATS Commitments st ipulates in the "horizontal commitments" section
that "[t]he establishment of branches by foreign enterprises is unbound, unless otherwise indicated in
specific sub-sectors, as the laws and regulations on branches of foreign enterprises are under
formulation".
246 Article 196 of China's 2005 Company Law provides that "[t]he branch of a foreign
company established within the territory of China does not have the status of a juridical person"247 and
that "[t]he foreign company shall bear civil lia bilities for the business operation of its branches
undertaken within the territory of China". In addition, Article 193 of the 2005 Company Law
provides that foreign enterprises wishing to establis h a branch in China need to apply with the
competent Chinese authority for approval. It also ap pears that Chinese branches of foreign-registered
enterprises would need to be registered as such in the same way as branches of Chinese enterprises.248
7.290 As we see it, if a Chinese branch of a forei gn-registered enterprise were to engage in
importing or exporting, its imports or exports wo uld be attributable, for the purposes of China's
trading rights commitments, to the foreign parent, that is to say, to the relevant foreign enterprise not
registered in China, and not an "e nterprise in China". Or to put it another way, we consider that if
China were to restrict the right of a Chinese branch of a foreign-registered enterprise to import or
export goods from within China, it would, in terms of the provisions of paragraph 5.2, restrict the
right to trade of a "foreign enterprise", specifically one that is "not invested or registered in China".
We recall in this respect that in accordance with Article 14 of the 2005 Company Law branches in
China do not have the status of "enterprise legal persons" and that it appears that branches must be
registered as branches, not as enterprises.

243 We note in this connection that the evidence on the record does not in clude China's laws and
regulations on foreign trade.
244 United States' response to question No. 50(d).
245 China's response to question No. 50(d).
246 For the relevant horizontal commitments, see infra, para. 7.952.
247 The 1993 Company Law, which was provided by China, referred to the status of "enterprise legal
persons".
248 Article 193 of the 2005 Comp any Law appears to indicate that Chinese branches of foreign
companies must be registered as such in China. Article 48 of the Company Registration Regulation provides
that Chinese companies wishing to establish branches in China must apply for registration of the latter.

7.291 In light of the foregoing, we are of the vi ew that the term "foreign enterprises" in
paragraph 5.2 covers foreign-registered enterprises with a commercial presence in China (other than
in the form of an enterprise registered in Chin a) and wishing to engage in importing or exporting
through the entity (e.g., a branch) present in China.
7.292 In sum, we consider that the phrase "all forei gn …enterprises, including those not invested or
registered in China" applies both to foreign-regist ered enterprises which wish to engage in importing
or exporting, but have no commercial presence in China, and foreign-registered enterprises
maintaining a commercial presence in China and wishing to engage in importing or exporting through
the entity present in China.
7.293 There is a further interpretative issue aris ing from the phrase "all foreign …enterprises,
including those not invested or registered in China" which we need to resolve. The issue is whether
that phrase covers only foreign enterprises not register ed in China. In response to a question from the
Panel, China argues that this is the case. In othe r words, China contends that the phrase in question
does not cover foreign-invested enterprises registered in China.
249 The United States, in contrast,
argues that foreign-invested enterpri ses registered in China are covered. 250 Neither party has offered
specific reasons in support of its contention.
7.294 The phrase in question refers to "all" foreign enterprises, which would appear to include
foreign-invested enterprises in China. Also, fore ign-invested enterprises in China might conceivably
be treated less favourably than "enterprises in Ch ina", such as wholly Chin ese-invested enterprises or
Chinese wholly state-owned enterprises. We furt her note that the phrase in question uses the term
"including", and not terms like "comprising" or "c onsisting of". Unlike the latter terms, the term
"including" in ordinary usage indicates that what follo ws is not an exhaustive, but a partial, list of all
covered items. 251 Thus construed, the phrase in question would indicate that the relevant foreign
enterprises "include", but are not limited to, enterp rises not invested or registered in China. We
recognize that the verb "include" could in certa in exceptional cases be intended to provide an
exhaustive listing of relevant items. 252 In the particular case of paragraph 5.2, however, such an
interpretation seems implausible, in that the phrase in question lists only a single item. Indeed, if a
limitation to foreign enterprises not in China had been intended, it would have been more natural for
the drafters to express such an intention by referring directly to "all foreign … enterprises not invested
or registered in China".
7.295 The interpretation suggested by China woul d be problematic for another reason. If
paragraph 5.2 did not apply to fo reign-invested enterprises in Chin a, it would seem logical to infer
that it would not apply to foreign individuals in China either. If it is assumed for the sake of argument
that foreign individuals in China are not covered by paragraph 5.2, this would have as a consequence
that they would not have the right to trade under paragraph 5, since paragraph 5.1 only applies to
enterprises in China. It seems to us to be incongr uous, however, to assume that foreign individuals in
China were not intended to have the right to trade when foreign individuals outside China would have
that right in accordance with paragraph 5.2. We also recall our view that the phrase "all foreign
individuals" in paragraph 5.2 covers foreign individuals in China.

249 China's response to question No. 50(d).
250 United States' response to question No. 50(d).
251 American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000), available at
http://www.bartleby.com/61/.
252 For instance, if one says that the price to be pa id should "include" applicable taxes, this would
ordinarily be understood to mean that all, and not just some, of the applicable taxes should be added to the
seller's pre-tax price. See also American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000), available at
http://www.bartleby.com/61/

7.296 We also find relevant paragraph 84(b) of the Working Party Report. As previously noted,
paragraph 84(b) is part of the cont ext of paragraph 5.2. Similarly to paragraph 5.2, the first sentence
of paragraph 84(b) commits China to grant the right to trade to "foreign enterprises and individuals,
including sole proprietorships of other WTO memb ers" in a non-discriminatory and non-discretionary
way. The final sentence of paragraph 84(b) comm its China not to apply "requirements relating to
minimum capital and prior experience". In our view, if the references in paragraph 84(b) to "foreign
enterprises" are interpreted as including foreign-invest ed enterprises in China, it makes sense that the
final sentence would commit China not to apply "requirements relating to minimum capital".
Conversely, if the references in question were inte rpreted as covering only foreign enterprises not in
China, it is not apparent to us why the final sente nce commits China not to apply such requirements.
Minimum capital requirements would be imposed by Ch ina on enterprises registered in China, not on
enterprises which are not registered in China.
253
7.297 To recall, according to China, the references in paragraph 84(b) to "foreign enterprises"
should be interpreted as covering only foreign enterp rises not registered in China. China considers
that, for the purposes of its trading rights commitmen ts, foreign-invested enterprises are "enterprises
in China", and not "foreign enterprises". 254 We accept that under our interpretation, paragraph 84(a),
which sets out a commitment applicable to "all enterprises in China and foreign enterprises and
individuals", could cover foreign-invested enterprises either as "enterprises in China" or as "foreign
enterprises".255 In our view, this does not adversely affect the rights of either China or other
Members.256 Besides, both terms – "enterprises in China" and "foreign enterprises" – cover also
enterprises other than foreign-inv ested enterprises. In other words, under our interpretation, both
terms still have independent meani ng. Moreover, as we have expl ained in the preceding paragraph,
we think that such an interpretation is more easily reconcilable with the text of the final sentence of
paragraph 84(b).
7.298 We consider that paragraph 84(b) is relevant to the interpreta tion of paragraph 5.2 because of
its close substantive similarity to paragraph 5.2: the former provides that foreign enterprises are to be
granted trading rights in a non-discriminatory way, the latter that foreign enterprises are to be
accorded treatment no less favourable than that accorded to enterpri ses in China with respect to the
right to trade. In this regard, we see no reason to disagree with the statement by the United States that
paragraph 5.2 is intended "to address aspects of China's trading rights regime that discriminated
against foreign-invested enterprises (as well as foreign individuals)".257
7.299 Accordingly, the text of paragraph 5.2, consid ered together with paragraph 84(b), which is
part of its context, leads us to the view that foreign-invested enterprises in China qualify as "foreign
enterprises" within the meaning of paragraph 5.2.258

253 This would appear to be confirmed, e.g., by paragraph 83(b) of the Working Party Report, which
refers to minimum capital requirements for wholly Chinese-invested enterprises.
254 China's response to question No. 197(a).
255 We recall that paragraph 84(a) provides in relevant part:
"The representative of China reconfirmed that China would eliminate its system of
examination and approval of trading rights with in three years after acce ssion. At that time,
China would permit all enterprises in China and foreign enterprises and individuals, including
sole proprietorships of other WTO Members, to export and import all goods (except for the
share of products listed in Annex 2A to the Draft Protocol reserved for importation and
exportation by state trading enterprises) throughout the customs territory of China."
256 The United States in response to question No. 197(a) appears to express the same view.
257 United States' response to question No. 50(d) (emphasis added). As discussed above, paragraph 5.2
is also intended to address discrimination against foreign enterprises not registered in China.
258 Consistent with what we have said about paragraphs 84(b) and (a), we see no contradiction between
our view that foreign-invested enterprises in Chin a are "foreign enterprises" within the meaning of

7.300 Finally, we need to address whether the obliga tion set out in paragra ph 5.2 would prejudice
China's ability to regulate trade in a WTO-consistent manner. The first point to be made in this
respect is that China's obligation to provide no less favourable treatment to foreign enterprises and
individuals applies "[e]xcept as otherwise provided for" in the Accession Protocol. We agree with the
United States that the Accession Protocol could be cons idered to contain a relevant provision in the
first sentence of paragraph 5.1, where an excep tion is set out for goods listed in Annex 2A.
259 We
consider that it can be inferred from the existence of this provision that, with respect to goods listed in
Annex 2A, China has no obligation to treat foreign enterprises and individuals no less favourably than
Chinese state-trading enterprises which have the righ t to import or export th e goods listed in Annex
2A.
7.301 In contrast, we think the "without prejudice" cl ause of paragraph 5.1, which refers to China's
"right to regulate trade" in a WTO-consistent manne r, is not a clause that "provides otherwise" within
the meaning of paragraph 5.2. As we have e xplained earlier, the "without prejudice" clause in
paragraph 5.1 does not provide for an exception in the same way as Annex 2A. The obligation
contained in paragraph 5.1, first sentence, conti nues to apply even in cas es where China regulates
trade in a WTO-consistent manner. 260 Thus, the "without prejudice" clause does not, in our view,
constitute a provision from which it can be inferred that the obligation set out in paragraph 5.2 is not
applicable in cases where China regulates trade in a WTO-consistent manner.
7.302 Nevertheless, and notwithstanding the fact th at paragraph 5.2 does not itself contain a
"without prejudice" clause, the "without prejudice" clau se of paragraph 5.1 is still relevant context for
the interpretation of paragraph 5.2. Paragraph 5.1 refers to "China's right to regulate trade in a manner
consistent with the WTO Agreement". We note that this "right" is not qualified with respect to its
applicability. In other words, there is no indication in paragraph 5.1 that the "right to regulate trade"
is meant to exist in relation to ente rprises in China that wish to import or export, but not in relation to
foreign enterprises or individuals that wish to import or export.
7.303 We also recall our view that the "right to regulate trade" implies a consequent right to regulate
importers or exporters of the rele vant good(s) in a WTO-consistent manner. As we see it, just like
there could be legitimate reasons to impose incide ntal limitations on the trading rights solely of
enterprises in China, so also there could be leg itimate reasons to impose such limitations only in
respect of foreign enterprises not registered in China and/or foreign individuals.
7.304 We further recall the final sentence of paragra ph 84(b), which states in relevant part that
foreign enterprises and individuals with trading rights must comply with all WTO-consistent
requirements related to importing and exporting. As previously explained, we interpret this part of the
final sentence to imply that China could impose inci dental limitations on the trading rights of foreign
enterprises and individuals. Considering the close s ubstantive similarity between the first sentence of
paragraph 84(b) and para graph 5.2, it would seem incongruous if China could not likewise impose
such limitations on the trading rights of fore ign enterprises and individuals in cases where an
inconsistency is claimed with paragraph 5.2.

paragraph 5.2 and also "enterprises in China" for the purposes of paragraph 5.1. In fact, we consider that even
for the purposes of paragraph 5.2, foreign-invested enterprises in China would, in principle, qualify as
"enterprises in China". In our view, it is not unreason able to interpret paragraph 5.2 as requiring that China
accord, e.g., to foreign individuals, or foreign enterpri ses not invested or registered in China, treatment no less
favourable with respect to the right to trade than th e treatment accorded to foreign-invested enterprises
registered in China, which are "enterprises in China".
259 United States' responses to question Nos. 50(f) and 161.
260 As also explained earlier, the right to regulat e trade would, however, ta ke precedence over the
obligation.

7.305 For all these reasons, we consider that the provisions of paragra ph 5.2 should be read
harmoniously with those of paragr aph 5.1 and paragraph 84(b), and we therefore conclude that the
obligation stipulated in paragraph 5.2 should be understood as being without prejudice to China's right
to regulate trade in a WTO-consistent manner. Thus, although the obligation in paragraph 5.2 would
be applicable in cases where China regulates trade, Ch ina's right to regulate trade, if exercised in a
WTO-consistent manner, would take precedence over the obligation in paragraph 5.2.
7.306 We have addressed the object and purpose of the Accession Protocol in the context of our
analysis of the "without prejudice" clause of paragraph 5.1. Mutatis mutandis, the observations we
have offered in that context also lead us to cons ider that our understanding of paragraph 5.2 is not at
odds with the object and purpose of the Accession Protocol.
(iii) Paragraph 83(d) of the Working Party Report
7.307 Regarding paragraph 83(d) 261, the United States considers that it confirms the obligation
contained in paragraph 5.1 of the Accession Protocol – i.e., that Ch ina committed to provide trading
rights to all enterprises in China by 11 December 2004. The United States notes, in addition, that
China also specifically committed in paragraph 83(d) not to impose requirements with respect to the
form and scope of operation of foreign-invested enterprises engaging in importation and exportation
in China.
7.308 China considers that paragraph 83 of the Wo rking Party Report also applies "without
prejudice" to China's right to regulate trade. According to China, paragraph 83 – which is
incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a
repetition of, China's main commitment to libera lize the right to trade. China argues that
paragraph 83 should be read in conj unction with paragraph 5.1. China submits that this leads to the
view that paragraph 83 is subject to the reserva tion expressed in the "without prejudice" clause. In
China's view, any other reading would deprive the "without prejudice" clause of useful effect.
7.309 The Panel has already addressed certain aspects of this paragraph in the context of its analysis
of paragraph 5.1.
7.310 Additionally, we note that, unlike paragraph 5.1, paragraph 83(d) does not explicitly state that
the obligation to grant the right to trade to all ente rprises in China is without prejudice to China's right
to regulate trade in a WTO-consistent manner. We do not consider that one can logically infer from
this that the commitment set out in paragraph 83( d) is intended to deprive China of the right to
regulate trade. We think the purpose of paragraph 83(d) is to "confirm" the obligation to grant the
right to trade to enterprises in China. If that is the case, it was not essential to provide specific
clarification whether this obligation detrimentally affects China's right to regulate trade. Furthermore,
we recall that paragraph 5.1 is part of the context of paragraph 83(d). In view of the close substantive
similarity between the first sentence of paragraph 5.1 and paragraph 83(d), we believe the provisions
of paragraph 83(d) should be interpre ted so as to be consistent with those of paragraph 5.1. For these
reasons, we conclude that the obligation stipulated in paragraph 83(d) shoul d be understood as being
without prejudice to China's right to regulate trade in a WTO-consistent manner. We do not think that

261 To recall, paragraph 83(d) provides:
"The representative of China also confirmed that within three years after accession, all
enterprises in China would be granted the right to trade. Foreign-invested enterprises would
not be required to establish in a particular form or as a separate entity to engage in importing
and exporting nor would new business licence encompassing distribution be required to
engage in importing and exporting."

understanding paragraph 83(d) in th is way is at odds with the object and purpose of the Accession
Protocol.
262
(iv) Paragraph 84(a) of the Working Party Report
7.311 Regarding paragraph 84(a) of the Working Party Report263, the United States considers that it
confirms China's obligations set forth in paragra ph 5.1 of the Accession Protocol, in that it provides
that China's trading rights obligations apply to a ll enterprises in China, as of 11 December 2004, with
regard to all products not lis ted in Annex 2A. The United States further considers that
paragraph 84(a) confirms and ela borates on paragraph 5.2 of the Accession Protocol, inasmuch as it
provides that China must permit all foreign enterp rises and all foreign individuals, including sole
proprietorships, to import goods, including the rele vant products, into China. The United States
argues that, as a result, measures that only perm it selected Chinese entities to engage in the
importation of the relevant products, thereby depriving foreign enterprises and individuals of the right
to import the relevant products, are inconsistent with paragraph 84(a). In the United States' view, this
inconsistency arises whether or not the foreign enterp rises or foreign individuals are inside or outside
of China.
7.312 China considers that paragraph 84 of the Wo rking Party Report also applies "without
prejudice" to China's right to regulate trade. According to China, paragraph 84 – which is
incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a
repetition of, China's main commitment to libera lize the right to trade. China argues that
paragraph 84 should be read in conj unction with paragraph 5.1. China submits that this leads to the
view that paragraph 84 is subject to the reserva tion expressed in the "without prejudice" clause. In
China's view, any other reading would deprive the "without prejudice" clause of useful effect.
7.313 The Panel considers that paragraph 84(a) commits China, on expiry of the three-year
transition period: (i) to permit all enterprises in China to export and import all goods and (ii) to
permit all foreign enterprises and individuals to do th e same. We note that under this interpretation,
paragraph 84(a) in one respect would differ from paragraph 5.2, in that it would establish an
obligation to permit, as from the end of the transiti on period, all foreign enterprises and individuals to
import and export all goods, regardless of whet her enterprises in China may import and export all
goods. In contrast, under paragraph 5.2 the treatme nt to be accorded to foreign individuals and
enterprises depends on the treatment accorded to enterprises in China with respect to the right to trade.
As the text of paragraph 84(a) is unqualified, however, we see no reas on to interpret paragraph 84(a)
differently.
264

262 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 83(d) into the
Accession Protocol. We also recall th at in the context of our analysis of the "without prejudice" clause of
paragraph 5.1 we have considered the issue of the consistency of our understanding of that clause with the
object and purpose of the Accession Prot ocol. The same considerations apply, mutatis mutandis , to our
understanding of paragraph 83(d).
263 It is useful to recall once more that paragraph 84(a) provides in relevant part:
"The representative of China reconfirmed that China would eliminate its system of
examination and approval of trading rights with in three years after acce ssion. At that time,
China would permit all enterprises in China and foreign enterprises and individuals, including
sole proprietorships of other WTO Members, to export and import all goods (except for the
share of products listed in Annex 2A to the Draft Protocol reserved for importation and
exportation by state trading enterprises) throughout the customs territory of China."
264 We note that paragraph 84(a) does not say, e.g., "all enterprises in China and, consequently, all
foreign enterprises and individuals". We also observe that neither party appears to argue for a different
interpretation (parties' responses to question No. 198(a)).

7.314 Furthermore, with regard to the reference in paragraph 84(a) to "foreign enterprises", we
consider that like the same term in paragraph 5.2, it covers foreign enterprises not registered in China.
As we have explained above in our analysis of paragraph 5.2, we consider that this category of
enterprises includes both foreign-registered enterp rises without a commercial presence in China and
foreign-registered enterprises with a commercial presence and wishing to engage in importing or
exporting through the entity present in China.
7.315 Additionally, we note that, unlike paragraph 5.1, paragraph 84(a) does not explicitly state that
the obligation to grant the right to trade to all enterprises in China, and all foreign enterprises and
individuals, is without prejudice to China's right to regulate trade in a WTO-consistent manner. We
do not consider that it can be logically inferred from this that the commitment set out in
paragraph 84(a) is intended to deprive China of the right to regulate trade. In our view, the purpose of
paragraph 84(a) is to "reconfirm" the obligation to gr ant the right to trade, and so we think it is not
altogether surprising that no clarification is provi ded whether this obligation detrimentally affects
China's right to regulate trade. Furthermore, we re call that paragraph 5.1 and paragraph 84(b) are part
of the context of paragraph 84(a). In view of the close substantive similarity between the first
sentence of paragraph 5.1 and the first sentence of paragraph 84(a), and in vi ew of the final sentence
of paragraph 84(b), which we have analysed above , we believe the provisions of paragraph 84(a)
should be read harmoniously with those of paragr aph 5.1 and paragraph 84(b). For these reasons, we
conclude that the obligation stipulated in paragr aph 84(a), first sentence, should be understood as
being without prejudice to China's right to regulate trade in a WTO-consistent manner. We do not
think that this understanding of paragraph 84(a) is inconsistent with the object and purpose of the
Accession Protocol.
265
(v) Paragraph 84(b) of the Working Party Report
7.316 Regarding paragraph 84(b) of the Working Party Report 266, the United States submits that it
confirms and elaborates on paragraph 5.2 of the A ccession Protocol. According to the United States,
paragraph 84(b) explains that not only are trading rights to be granted to foreign individuals and
enterprises, but that these rights shall be granted in a "non-discriminatory and non-discretionary" way.
The United States contends that, as a result, measures that make the right to import the relevant
products available only to selected Chinese enterprises, or that subject the availability of the right to
import the relevant products to the Chinese Gove rnment's discretion, are inconsistent with
paragraph 84(b).
7.317 China considers that paragraph 84 of the Wo rking Party Report also applies "without
prejudice" to China's right to regulate trade. According to China, paragraph 84 – which is
incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a
repetition of, China's main commitment to libera lize the right to trade. China argues that

265 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 84(a) into the
Accession Protocol. We also recall that we have prev iously considered the issue of the consistency of our
understanding of the "without prejudi ce" clause of paragraph 5.1 with th e object and purpose of the Accession
Protocol. The same considerations apply, mutatis mutandis, to our understanding of paragraph 84(a).
266 It is well to recall once again that paragraph 84(b) provides:
"With respect to the grant of trading rights to foreign enterprises and individuals, including
sole proprietorships of other WTO members, th e representative of Chin a confirmed that such
rights would be granted in a non-discriminatory and non-discretionary way. He further
confirmed that any requirements for obtaining trading rights would be for customs and fiscal
purposes only and would not constitute a barrier to trade. The representative of China
emphasized that foreign enterprises and individuals with trading rights had to comply with all
WTO-consistent requirements related to importing and exporting, such as those concerning
import licensing, TBT and SPS, but confirmed that requirements relating to minimum capital
and prior experience would not apply."

paragraph 84 should be read in conj unction with paragraph 5.1. China submits that this leads to the
view that paragraph 84 is subject to the reserva tion expressed in the "without prejudice" clause. In
China's view, any other reading would deprive the "without prejudice" clause of useful effect.
7.318 The Panel has already indicated, in the context of its analysis of paragraph 5.2, its view that
the phrase "foreign enterprises" as used in paragraph 84(b) covers also foreign-invested enterprises in
China. The Panel also recalls in this connection its view that the phrase "foreign enterprises" as used
in paragraph 84(a) covers foreign enterprises not regi stered in China, and that this includes foreign-
registered enterprises without a commercial presence in China and foreign-registered enterprises with
a commercial presence and wishing to engage in im porting or exporting through the entity present in
China. We consider that the phrase "foreign ente rprises" in paragraph 84(b) has the same meaning
and scope as in paragraph 84(a).
7.319 Moreover, we have addressed the final sentence of paragraph 84(b) in the context of our
analysis of paragraph 5.1. To recall, the fina l sentence refers to "WTO -consistent requirements
related to importing and exporting, such as those co ncerning import licensing, TBT and SPS". As we
have indicated in that context, we consider that China's right to impose "WTO-consistent
requirements related to importing and exporting, su ch as those concerning import licensing, TBT and
SPS" contains, by implication, a right to impose in cidental WTO-consistent requirements relating to
importing and exporting. We see no reason to think that this interpretation of paragraph 84(b) is at
variance with the object and purpose of the Accession Protocol.
267
7.320 Regarding the commitment undertaken in paragr aph 84(b) to grant trading rights to foreign
enterprises and individuals in a "non-discriminatory" way, we agree with the United States that this
commitment would be breached, for example, in th e event of relevant discrimination between foreign
enterprises and individuals, on the one hand, and Chinese-owned enterprises in China, on the other
hand. This view is consistent w ith paragraph 5.2. It requires China to treat foreign individuals and
enterprises no less favourably with respect to the ri ght to trade than "enterprises in China", a phrase
which covers Chinese-owned enterprises. The fact th at paragraph 84(b) might then catch situations
that are also caught by paragraph 5.2 does not rule out our interpretation, as paragraph 83(d), for
instance, also catches situations that are caught by paragraph 5.1.
7.321 In response to a question from the Panel, China expressed the view that paragraph 84(b) does
not apply to cases involving discrimination between foreign enterprises and individuals, on the one
hand, and enterprises in China, on the other hand. Instead, China maintains, paragraph 84(b) only
covers discrimination between "different" foreign enterprises and individuals, i.e., between, say, US
enterprises and Australian enterprises. 268 China considers that its view is supported by the
introductory phrase of paragraph 84(b), i.e., the phrase "[w]ith respect to the grant of trading rights to
foreign enterprises and individuals".
7.322 As we see it, the phrase referred to by China serves to identify the class of importers in
respect of whom China undertook a commitment in paragraph 84(b).
269 Thus, we think that

267 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 84(b) into the
Accession Protocol. We also recall that we have prev iously considered the issue of the consistency of our
understanding of the "without prejudi ce" clause of paragraph 5.1 with th e object and purpose of the Accession
Protocol. The same considerations apply, mutatis mutandis, to our understanding of paragraph 84(b).
268 China's response to question No. 52(a).
269 Indeed, paragraph 84(b) states that "[w]ith respect to the grant of trading rights to foreign enterprises
and individuals … the representative of China confirmed that …". Thus, China's representative in
paragraph 84(b) provides a confirmation that concerns foreign enterprises and individuals. We also note that the
introductory phrase of paragraph 84(b) parallels the introductory phrase of paragraph 83(b), which provides that
"[w]ith respect to wholly Chinese-invested enterprise s, the representative of Ch ina stated that…". Thus,
paragraph 83(b) sets out a commitment that concerns wholly Chinese-invested enterprises.

paragraph 84(b) commits China to grant foreign en terprises and individuals trading rights in a non-
discriminatory way. We also note that, by its term s, the phrase in question does not refer to the grant
of trading rights to "different" foreign enterprises and individuals.
7.323 In our view, it can be inferred from paragraph 5.2 that one way in which China could grant
foreign enterprises and individuals trading rights in a discriminatory way is by treating them less
favourably than enterprises in China with respect to the right to trade. Therefore, we see no basis to
exclude from the scope of paragraph 84(b) discrimination between foreign enterprises and individuals,
on the one hand, and enterprises in China, on the othe r hand. We also observe that, for the purposes
of this dispute, it is not necessary to determine wh ether other situations of discrimination, such as
discrimination between foreign enterprises of diffe rent Members, would, likewise, be caught by
paragraph 84(b).
7.324 Regarding the commitment to grant trading rights to foreign enterprises and individuals in a
"non-discretionary" way, we note that the adjective "discretionary" is defined as "involving an
exercise of judgment and choice, not an implementation of a hard-and-fast rule".
270 Based on this
definition, we think this commitment means that any Chinese authority charge d with granting trading
rights cannot have the freedom to choose, based essentially on its own preference, whether or not such
rights are granted. 271 In this regard, we consider that im position of requirements, or conditions, for
obtaining trading rights would not necessarily cons titute a breach of this particular commitment.
Many requirements, or conditions, cannot be consid ered to confer, on the authority charged with
applying them, the freedom to choose, based on its own preference, whether or not the condition is
satisfied such that the right to trade can be granted. An example of this would be a requirement that
importers have a tax number in China. As we see it, this particular requirement would not leave it to
the pleasure of the competent authority to decide whether or not an entity is approved as an import
entity. Rather, the requirement involves implementa tion of a "hard-and-fast" rule: when the applicant
has a tax number, it must be granted the right to trade, whether or not it pleases the competent
authority.
(b) Consistency of the challenged Chinese measures wi th the cited paragraphs of the Accession
Protocol
7.325 The Panel now turns to assess the consistency of the challenged Chinese measures with
paragraphs 5.1 and 5.2 of the Accession Protocol and with paragraph 1.2 of the Accession Protocol, to
the extent that paragraph 1.2 incorporates paragrap hs 83(d) and 84(a) and (b) of the Working Party
Report.
7.326 The United States asserts that through a variety of m easures, China greatly constrains the
right to import into China reading materials (i .e., books, newspapers, periodicals and electronic
publications), AVHE products (e.g., videocassettes, VCDs and DVDs), sound recordings, and films
for theatrical release (hereafter the "relevant product s"). First, the United States contends that the
measures in question prohibit foreign-invested enterp rises in China, privately invested enterprises in
China, foreign enterprises and foreign individu als from engaging in the importation of reading
materials, AVHE products, sound recordings and films for theatrical release into China.
7.327 Secondly, the United States contends that with regard to reading materials, AVHE products
and sound recordings, the relevant measures provide that only Chinese wholly state-owned enterprises
can import those products. Thirdly, the United States contends that with regard to films for theatrical

270 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group 1999), p. 479.
271 We note that authorities must always exercise di scretion in accordance with the law. However, the
fact that they normally do not have completely unfette red freedom to choose between several courses of action
does not mean that they do not have discretion with respect to the substantive decision to be taken.

release, the relevant measures "designate" only a single Chinese wholly state-owned enterprise to
engage in their importation.
7.328 Based on these contentions, the United States cl aims that enterprises in China (other than
certain Chinese wholly state-owned enterprises), foreign enterprises and fo reign individuals are
denied the right to import reading materials, AVHE products, sound reco rdings and films for
theatrical release. The United States submits that th e relevant measures are, therefore, inconsistent
with China's obligations containe d in paragraphs 5.1 and 5.2 of the Accession Protocol as well as
paragraph 1.2 of the Accession Prot ocol, to the extent that paragra ph 1.2 incorporates paragraphs 83
and 84 of the Working Party Report.
7.329 The specific measures which the United States claims to be inconsistent with paragraphs 5.1,
5.2 and 1.2 of the Accession Protocol are the following: the Catalogue; the Foreign Investment
Regulation; the Several Opinions ; the Publications Regulation ; the Importation Procedure ; the
Electronic Publications Regulation ; the 2001 Audiovisual Products Regulation ; the Audiovisual
Products Importation Rule ; the Audiovisual (Sub-) Distribution Rule ; the Film Regulation; the Film
Enterprise Rule; and the Film Distribution and Exhibition Rule.
272
7.330 China argues that the measures regulating who may engage in the activity of importing
motion pictures for theatrical release 273 as well as audiovisual products used for publication 274 do not
fall under the rules applicable to trade in goods. China submits that the United States wrongly
assumes that motion pictures for theatrical release a nd audiovisual products u sed for publication are
goods and that paragraphs 5.1, 5.2 and 1.2 of th e Accession Protocol are applicable to Chinese
measures governing the importation of such products. China considers that the relevant measures fall
exclusively under the GATS. Consequently, in Chin a's view, the US claims concerning trading rights
for motion pictures for theatrical release as well as au diovisual products used for publication lack any
legal basis and should be rejected.
7.331 In respect of the other products at issue (i.e ., reading materials and finished audiovisual
products, including finished sound recordings), China submits that the United States is overlooking
the fact that China has a right to regulate trade wh ich limits, under certain circumstances, the right to
trade. China argues that what the United States is targeting is in f act the result of a selection process
which limits the number of importation entities, but which is justified in order to implement an
effective and efficient content review. According to China, its regime for the importation of cultural
goods is designed to guarantee an effective and effici ent application of the content review that China
has chosen to implement. China considers that its measures governing the importation of the other
products (reading materials and finished audiovisu al products, including finished sound recordings)
are justified under Article XX of the GATT 1994 and paragraph 5.1 of the Accession Protocol. China
therefore contends that the relevant measures ch allenged by the United States do not breach China's
obligations under paragraphs 5.1, 5.2 and 1.2 of the Accession Protocol.
7.332 The Panel notes that in response to a question from th e Panel, the United States indicated that
it is challenging the measures at issue both separately and together. 275 As a result, the Panel will
address the various measures challenged by the United States one by one. References below to

272 The full names of the relevant Chinese rules, procedures and regulations are summarized in the table
entitled "Short Title of Measures" and included at the beginning of this Report. Furthermore, the specific claims
put forward by the United States in respect of the challenged measures are identified and addressed below,
starting at para. 7.333.
273 China uses the phrase "motion pi ctures for theatrical release" in stead of the phrase "films for
theatrical release".
274 China uses the phrase "audiovisu al products used for publication" instead of the US phrase
"unfinished AVHE products". China considers the latter reference to be incorrect.
275 United States' response to question No. 1.

paragraphs 5.1 or 5.2 are to the corresponding para graphs of the Accession Protocol. References to
paragraphs 83(d), 84(a) or 84(b) are to the corres ponding paragraphs of the Working Party Report.
For the sake of brevity, in the Panel's analyses belo w, we omit separate references to paragraph 1.2 of
the Accession Protocol. As explained above, any in consistency with paragraphs 83(d), 84(a) or 84(b)
leads to a consequential inconsistency with pa ragraph 1.2. A summary of the Panel's main
conclusions is provided at the end of this subsection. The summary makes reference to paragraph 1.2,
as appropriate.276
(i) Catalogue
7.333 The United States alleges that the Catalogue forbids foreign-inv ested enterprises from
engaging in the importation of any of the relevant products into China. The United States notes that
under the heading " Catalogue of Prohibited Foreign Investment Industries", Article X.2 provides,
inter alia, that foreign investment is prohibited in the business of importing of books, newspapers and
periodicals into China. The United States notes that immediately thereafter, Article X.3 states that
foreign investment in the business of importing audi ovisual products and electronic publications is
likewise not allowed. The United States considers th at China's audiovisual regulatory regime covers
sound recordings. In the United States' view, the prohibition on foreign investment in the business of
importation of audiovisual products contained in this provision, therefore, extends to sound
recordings.
7.334 The United States points out that films for theatri cal release are not explicitly singled out as a
separate category. However, in the United Stat es' view, they are included within the term
"audiovisual products" as that term is used in the Catalogue. According to the United States, this
reading of the Catalogue finds support from a comparison of Article VI.3 under the heading
"Catalogue of Industries with Restricted Foreign I nvestment" with Article X.3 under the heading
"Catalogue of Prohibited Foreign Investment Industries" . The United States notes that Article VI.3
provides, in relevant part, that foreign investment is restricted in enterprises engaging in the "[s]ub-
distribution of audiovisual products (excluding moti on pictures)". In contrast, the United States
points out, Article X.3 provides that foreign investme nt is prohibited in enterprises engaging in the
importation of "audiovisual products", without any ex clusion for motion pictures. The United States
submits that the exclusion of motion pictures in Article VI.3, but not in Article X.3, indicates that the
term "audiovisual products" as used in the Catalogue includes motion pictures. Accordingly, the
United States maintains, unlike in Article VI.3 where motion pictures are explicitly excluded in the
distribution context, the Article X.3 prohibition on foreign investment in the importation of
audiovisual products includes motion pictures. In the United States' view, the Catalogue, therefore,
prohibits foreign investment in the importation of all of the relevant products.
277
7.335 The United States claims that the Catalogue is inconsistent with China's trading rights
commitments in two ways. First, the Catalogue deprives foreign-invested enterprises in China, as
well as foreign enterprises and individuals, of the right to import the relevant products and thereby
limits the trading rights of these entities, which China's trading rights commitments do not permit.

276 It should also be noted that the three-year transition period applicable to relevant provisions invoked
by the United States has ended, and so we make no further mention of the fact that certain obligations or
commitments were not fully applicable from the effective date of China's accession.
277 The United States references two additional provis ions in this connection: (i) Article 4 of the
Imported Cultural Products Rule (stating that "[t]he business of importing cultural products such as books,
newspapers, periodicals, electronic publications, audiovisual products, motion pictures, TV dramas, cartoons,
and radio/TV programs shall be carried out by state-owned cultural units designated or licensed by the Ministry
of Culture, SARFT, and the General Administration of Pr ess and Publication".) (emphasis added by the United
States) (Exhibit US-10); and (ii) Article 9 of the Decisions on Non-Public-Owned Capital (providing that "non-
public capital ... may not engage in the import business of cultural products such as books, newspapers,
periodicals, films, TV programs, and finished audiovisual products, etc.") (Exhibit US-11).

Secondly, the United States argues that the Catalogue also restricts trading rights in a discriminatory
manner, as it insulates certain wholly Chinese-ow ned enterprises from any competition from foreign
sources. The United States submits that this is likewise inconsistent with China's trading rights
commitments.
7.336 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of Articles X.2 and X.3 of the Catalogue of
Prohibited Foreign Investment Industries, and under paragraphs 5.1 and 5.2 of the Accession Protocol
and paragraphs 83(d) and 84(a)-(b) of the Working Party Report. The United States further indicated
that, in its view, the parties whose trading rights are being restricted under this measure are foreign
enterprises, including foreign-invested enterprises in China, and foreign individuals.
278
7.337 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.338 In relation to the Catalogue, China further contends that motion pictures for theatrical release
are excluded from the term "audiovisual products" in Article X.3. China notes in this respect that
according to Article 2 of the 2001 Audiovisual Products Regulation "audiovisual products include
recorded contents such as audi o tapes, video tapes, gramophone records, compact discs and laser
discs, etc.". In China's view, it is, therefore, obvious that China does not include motion pictures for
theatrical release in the audiovisual products category.
7.339 Regarding coverage of films for theatrical release, the United States reponds that Article 2 of
the 2001 Audiovisual Products Regulation does not attempt to provide an exhaustive list. The United
States notes in this regard that Article 2 uses th e term "etc.", denoting that it is only providing
illustrative examples.
7.340 The Panel first addresses the issue whether the reference in Article X.3 of the Catalogue of
Prohibited Foreign Investment Industries to "audi ovisual products" covers physical sound recordings
and films for theatrical release. 279 We note that, as a general matter, the term "audiovisual products"
can be understood to refer to products using s ound or sight, or both, to present information. 280
Therefore, we think that, in principle, both sou nd recordings and films for theatrical release could be
viewed as "audiovisual products". We understand that China does not dispute that physical sound
recordings are covered by Article X.3. In fact, China itself refers the Panel to Article 2 of the 2001
Audiovisual Products Regulation, which includes audio tapes, gramophone records and compact discs
among the products covered by the Regulation. Since we have no reason to disagree, we consider that
physical sound recordings are covered.
7.341 Regarding films for theatrical release consisting of a carrying medium carrying film content,
we note that according to Article X.6 of the Catalogue "[m]otion picture producing studios,
distribution companies, and theater chains" are also prohibited foreign investment industries. No
reference is made in Article X.6 to "motion picture import companies". We are not convinced that the
reference to "motion picture distribution companie s" covers import operatio ns as part of motion

278 United States' response to question No. 1.
279 We recall that we are concerned only with phy sical products, and so we do not address whether
Articles X.2 and X.3 of the Catalogue also covers non-physical products.
280 The term "audiovisual" is defined as "pertaining to both hearing and vision" ( Oxford English
Dictionary Online available at http://dictionary.oed.com/entrance.dtl).

picture distribution operations. China has confirmed that not all film distribution companies in China
are authorized to import films.281 Thus, the reference to "motion picture distribution companies" does
not necessarily imply motion picture import companies and has independent meaning. Furthermore,
we note that the Several Opinions in its Article 4 refers to "motion picture import and distribution
companies". It thus draws a distinction between importation and distribution. In contrast, as noted,
the Catalogue, which post-dates the Several Opinions 282, merely refers, in Article X.6, to "motion
picture distribution companies". This reference raises the question whethe r import operations were
deliberately excluded, or whether they were not in cluded in Article X.6 because they were already
included in Article X.3. Considering that it is uncontested that import operations involving video
tapes – i.e., films on tapes – are covered by Article X.3, and that Article 4 of the Several Opinions
prohibits foreign-invested "motion picture import … companies", it seems to us that the latter
hypothesis is more plausible. However, we do not fi nd Article X.6 to be conclusive, in the sense that
it neither confirms nor contradicts the view that films for theatrical release are "audiovisual products"
for the purposes of Article X.3.
7.342 A further contextual element we find relevant is Article VI.3 of the Catalogue of Industries
with Restricted Foreign Investment. As noted by the United States, Article VI.3 refers, in relevant
part, to "[s]ub-distribution of audiovi sual products (excluding motion pictures)". 283 The fact that it
was considered appropriate to clarify that the te rm "audiovisual products" in Article VI.3 should not
be understood to include motion pictures, when no such clarification was deemed appropriate in
Article X.3, where the exact same term appears, strongly suggests that the term "audiovisual
products" in the Catalogue can be properly understood as covering also motion pictures, which term
in our view can cover films for theatrical release. Considering that Article VI.3 is as much a part of
the Catalogue as Article X.3, we think that we are entitle d to assume that the omission in Article X.3
of the clarification "excluding motion pictures" was deliberate and has meaning.
7.343 China argues that no such inference may be dr awn in view of the above-mentioned Article 2
of the 2001 Audiovisual Products Regulation , which includes no reference to films for theatrical
release. It seems to us that, absent indications to the contrary, it can be reasonably assumed that the
Catalogue uses a term like "audiovisual products" to have the same meaning throughout. In contrast,
we do not think that the same is necessarily true for identical terms appearing in separate legal
instruments. China has not argued, for example, that the Catalogue implements the 2001 Audiovisual
Products Regulation , or that it would not be legally possible for the Catalogue to reflect a broader
concept of "audiovisual products" than the 2001 Audiovisual Products Regulation. Therefore, we see
no reason to exclude the possibility that the 2001 Audiovisual Products Regulation is intended to
regulate only a subset of all audiovisual products, and that this subset does not include films for
theatrical release. It is pertinent to note in this r espect that there are several specific legal instruments
governing films for theatrical release, such as the Film Regulation , the Film Distribution and
Exhibition Rule and the Film Enterprise Rule . In the light of these elements, we are not persuaded
that it would be appropriate to infer from Article 2 of the 2001 Audiovisual Products Regulation that
the term "audiovisual products" in Article X.3 of the Catalogue does not include films for theatrical
release.
7.344 Finally, we note that it is undisputed that there currently is only one entity importing films for
theatrical release into China, the China Film Import and Export Corporation. It is likewise
uncontested that this corporation is not foreign-invest ed, but wholly state-owned. This is consistent
with the United States' view that "audiovisual produ cts" in Article X.3, which is about prohibited
foreign investment industries, includes films for theatrical release into China.

281 China's response to question No. 190.
282 The Catalogue is from 2007, the Several Opinions is from 2005.
283 United States' response to question No. 17. We also note that Article 1 of the Several Opinions
similarly refers to "sub-distribution of audiovisual products, with the exception of motion pictures".

7.345 Considering the above elements together – i.e., the ordinary meaning of the term "audiovisual
products", Articles VI.3 and X.6 of the Catalogue, Article 4 of the Several Opinions, Article 2 of the
2001 Audiovisual Products Regulation and the existence of a single state-owned importer of films for
theatrical release – we are not conv inced by China's argument that th e term "audiovisual products" in
Article X.3 of the Catalogue does not cover films for theatrical release.
7.346 We next turn to consider the United States ' assertion that Articles X.2 and X.3 of the
Catalogue forbid, or ban, foreign-invested enterprises from engaging in the importation of the
relevant products into China.
284 The United States has provided no specific analysis in support of this
assertion.. We note that Articles X.2 and X.3 are part of a "Catalogue of Prohibited Foreign
Investment Industries". Article X.2 read s: "Publication, master distribution [ Zong Fa Xing ], and
import operations of books, newspapers and periodicals". Article X.3 reads: "Publication, production,
import operations of audiovisual products and electronic publications". Thus, Articles X.2 and X.3
are items in a catalogue, i.e., in a list. As such, they are unlike the other provisions which we are
called on to analyse in this case.
285
7.347 It appears to us that the legal significance of the items listed in the Catalogue is established by
a separate legal instrument, the Foreign Investment Regulation . Article 2 of the Foreign Investment
Regulation makes clear that the Regulation applies to investment projects in China which establish
foreign-invested enterprises and other forms of foreign-invested projects. Article 3 of the Foreign
Investment Regulation provides that the Catalogue is one "basis for the examination and approval of
foreign-invested projects and FIE [foreign-invested en terprise] applicable policies". Article 4 of the
Foreign Investment Regulation indicates that the Catalogue lists "encouraged, restricted and
prohibited categories of foreign-invested projects" and that projects not included in any of those
categories fall into the permitted category of foreign- invested projects. Read together, Articles 3 and
4 thus appear to imply that foreign-invested pr ojects need to be examin ed on the basis of the
Catalogue, and that if a foreign-invested project falls within the prohibited category, it may not be
approved. A project concerning import operations of books, newspapers, periodicals, audiovisual
products or electronic publications (Articles X.2 and X.3) would fall within the prohibited category.
7.348 Thus, one practical legal effect of Articles Articles X.2 and X,3, read together with Articles 3
and 4 of the Foreign Investment Regulation , is that no foreign-invested enterprise in China could
lawfully import books, newspapers, periodicals, audiovisual products (including sound recordings and
films for theatrical release) or electronic publications.
7.349 Consistent with the foregoing c onsiderations, we are not pers uaded, however, by the United
States' assertion that Articles X.2 and X.3 produce, by themselves, the legal effect of forbidding, or
banning, foreign-invested enterprises from engaging in the importation of the relevant products into
China. Equally, it is clear that Articles 3 and 4 of the Foreign Investment Regulation do not, by
themselves, have that effect. As a result, we will examine below whether (i) Article X.2, in
conjunction with Articles 3 and 4, and/or (ii) Article X.3, in conjunction with Articles 3 and 4, cause
one or more of the inconsistencies alleged by the United States.
Paragraphs 5.1, 83(d) and 84(a)
7.350 We now turn to examine the US claims under pa ragraphs 5.1, 83(d) and 84(a). According to
the United States, the measures at issue deprive foreign-invested en terprises in China, as well as

284 United States' first written submission, paras. 25 and 253.
285 See, e.g., Article 21 of the Audiovisual (Sub-) Distribution Rule , which states that "[a] Chinese-
foreign contractual joint venture for sub-distribution of audiovisual products may not engage in the import of
audiovisual products". For the most part, the items listed in Article X of the Catalogue consist of nouns only
(e.g., Article X.1, which reads: "News agencies").

foreign enterprises and individuals, of the right to import the relevant products, contrary to the
aforementioned provisions.
7.351 We begin our examination with the claim in re spect of foreign-invested enterprises. We
recall our view that the phrase "all enterprises in Ch ina" in paragraph 5.1 of the Accession Protocol
includes foreign-invested enterprises in China. As explained above, we consider that the legal effect
of: (i) Article X.2, in conjunctio n with Articles 3 and 4, and (ii) Article X.3, in conjunction with
Articles 3 and 4, is to prevent foreign-invested enterprises in China from lawfully importing the
relevant products. As a result, foreign-invested enterprises in Chin a do not have the right to import
those products. This is contrary to paragraph 5.1, first sentence. 286 We thus conclude that
(i) Article X.2, in conjunction with Articles 3 and 4 (with respect to books, newspapers and
periodicals), and (ii) Article X.3, in conjunction with Articles 3 and 4 (with respect to physical
audiovisual products, sound recordings, electronic publications and films for theatrical release), are
inconsistent with paragraph 5.1.
7.352 Paragraph 83(d), first sentence, commits China to grant the right to trade to "all enterprises in
China". Similarly, paragraph 84(a), second senten ce, commits China to permit "all enterprises in
China" to import all goods. The phrases "all enterp rises in China" in paragraphs 83(d) and 84(a)
include foreign-invested enterprises in China. As a consequence, for the reasons mentioned in the
previous paragraph, we conclude that: (i) Article X.2, in conjunction with Articles 3 and 4, and (ii)
Article X.3, in conjunction with Articles 3 and 4, also give rise to a breach of paragraph 83(d), first
sentence, and paragraph 84(a), second sentence.
7.353 So far as concerns the US claims in respect of foreign individuals and foreign enterprises not
invested or registered in China, the United St ates has not adequately explained why and how the
measures could be said to affect such individua ls and enterprises and give rise to the alleged
inconsistencies.287 T h e Catalogue is entitled " Catalogue of Industries for Guiding Foreign
Investment", and Article X is part of a category entitled " Catalogue of Prohibited Foreign Investment
Industries". Indeed, Article X refers to agencies, comp anies, industries, stations and channels as
possible recipients of foreign investment, but not to individuals. Thus, we think that the Catalogue
concerns industries, not individuals, and that it concerns industries in China which receive foreign
investment, not industries abroad. To recall, Article 2 of the Foreign Investment Regulation provides
that the Regulation applies to "investment projects in Ch ina" which establish foreign-invested
enterprises, i.e., enterprises regist ered in China. This, too, indica tes that the projects at issue are
projects in China that China would be called on to approve, and that the enterprises to be established
are enterprises registered in China. There is no suggestion that individuals in China, or Chinese
branches of foreign enterprises not registered in Ch ina, are contemplated as possible recipients of
foreign investment.
7.354 In the light of this, we are not persuaded that: (i) Article X.2, in conjunction with Articles 3
and 4, or (ii) Article X.3, in conjunction with Arti cles 3 and 4, deprive foreign individuals or foreign
enterprises not invested or registered in China of the right to import the products concerned. We
therefore conclude that the United States has not es tablished its claims under paragraphs 5.1, 83(d)
and 84(a) in respect of these individuals and enterprises.

286 We recall that the United States challenges all of th e relevant products as goods, i.e., as tangible,
physical items (United States' response to question No. 22).
287 In response to question No. 6, the United States merely suggests that foreign enterprises and
individuals might be affected as investors in the listed industries, e.g., by translating relevant Chinese titles as
meaning " Catalogue of Industries for Guiding the Investment of Foreign Investors " and " Catalogue of the
Industries in which Investment of Foreign Investors is Prohibited".

Paragraphs 5.2 and 84(b)

7.355 The United States further claims that the Catalogue restricts trading rights in a discriminatory
manner, by "insulat[ing] certain wholly Chinese-owned enterprises from any competition from
foreign sources". We begin with the US claims in r espect of foreign-invested enterprises. It is useful
to recall in this regard our view that paragraphs 5.2 and 84(b) cover foreign-invested enterprises in
China as "foreign enterprises".
7.356 We note that the issue under paragraphs 5.2 a nd 84(b) is not whether the treatment accorded
to foreign-invested enterprises in China "ins ulates" wholly Chinese-owned enterprises (i.e.,
enterprises in China) from competition. The issue is whether foreign-invested enterprises in China are
treated less favourably than, or in a discriminatory way compared to, wholly Chinese-owned
enterprises with respect to the right to trade.
7.357 The US claim is based on the practical legal effect of the Foreign Investment Regulation and
the Catalogue, which is to prevent foreign-invested en terprises in China from lawfully importing the
relevant products. We have alr eady determined that as a consequen ce of this legal effect China has
acted inconsistently with its obligations under, inter alia, paragraph 5.1 in respect of foreign-invested
enterprises in China. As a consequence, we s ee no need to offer additional findings regarding
whether, as a result of the same legal effect, China has also acted inconsistently with its obligations
under paragraphs 5.2 and 84(b) in respect of the same enterprises. Accordingly, we exercise judicial
economy in relation to the US claim under paragraphs 5.2 and 84(b).
7.358 Turning now to the US claims in respect of foreign individuals and foreign enterprises not
invested or registered in China, these claims also appear to be based on the legal effect of the Foreign
Investment Regulation and the Catalogue. However, for reasons we ha ve explained above, we do not
agree with the United States that these measures depr ive foreign individuals or foreign enterprises not
invested or registered in China of the right to im port the products concerned. We therefore conclude
that the United States has not established its claims under paragraphs 5.2 and 84(b) in respect of
foreign enterprises and individuals.
(ii) Foreign Investment Regulation
7.359 The United States notes that Article 4 of the Foreign Investment Regulation requires
"encouraged, restricted and prohibited" fore ign-invested projects to be listed in the Catalogue. The
United States also notes that Article 3 of the Foreign Investment Regulation further defines the
function of the Catalogue, stating that it is "the basis for th e examination and approval of foreign-
invested projects and FIE [foreign-invested enterprise] applicable policies".
7.360 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measu re arise as a result of Articles 3 and 4 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, and foreign individuals.288
7.361 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the

288 United States' response to question No. 1.

importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.362 The Panel recalls its view that Articles 3 and 4 of the Foreign Investment Regulation do not,
by themselves, produce the legal effect of precl uding foreign-invested enterprise in China from
lawfully importing books, newspapers, periodicals, audiovisual products (including sound recordings
and films for theatrical release) or electronic publicati ons. The Panel has, therefore, examined, in the
previous subsection, whether the Catalogue considered in conjunction with the Foreign Investment
Regulation cause any of the alleged inconsistencies. The results of this examination are also set out
above. We therefore see no need for further analys is of the US claims under Articles 3 and 4 of the
Foreign Investment Regulation.
(iii) Several Opinions
7.363 The United States argues that the Several Opinions forbids foreign-invested enterprises,
whether or not they are in China, from engaging in the importation of any of the relevant products.
The United States notes in this respect that the first sentence of Article 4 of the Several Opinions
states in relevant part that "[f]oreign investor s are prohibited from setting up and operating ... motion
picture import ... companies". This provision, th e United States argues, covers imported films for
theatrical release. The United States further notes th at the second sentence of Article 4 provides, in
relevant part, that "[f]oreign investors are prohibited from engaging in the ... import of books,
newspapers and periodicals, and ... import of audiovisual products and electronic publications". In the
United States' view, this provision prohibits fo reign-invested enterprises from engaging in the
importation of reading materials, AVHE products, and sound recordings.
7.364 The United States claims that the Several Opinions is inconsistent with China's trading rights
commitments in two ways. First, in the United States' view, the Several Opinions deprives foreign-
invested enterprises in Ch ina, as well as foreign enterprises and individuals, of the right to import the
relevant products and thereby limits the trading ri ghts of these entities, which China's trading rights
commitments do not permit. Secondly , the United States argues that the Several Opinions also
restricts trading rights in a discriminatory manner, as they insulate certain wholly Chinese-owned
enterprises from any competition from foreign sour ces. The United States submits that this is
likewise inconsistent with China's trading rights commitments.
7.365 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of Article 4 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, and foreign individuals.289
7.366 As already noted in the discussion in Section VII.B.5(a) above, China argues that the Several
Opinions, including Article 4, should not be examined by the Panel because, in its view, it merely
provides internal guidance for the formulation and improvement of implementation procedures by the
authorities competent in the cultural sectors concerned, i.e., the MOC, the SARFT and the GAPP.
7.367 The Panel recalls, first of all, its decision at paragraph 7.198 above that, notwithstanding
China's arguments to the contrary, the Several Opinions is a "measure" within the meaning of
Article 3.3 of the DSU, and is properly before the Pa nel. Therefore, it needs to be examined by the
Panel for its consistency with China's trading rights commitments under the Accession Protocol.

289 United States' response to question No. 1.

Accordingly, we proceed to examine whethe r the provision at issue – Article 4 of the Several
Opinions – is inconsistent with the Accession Protocol, as alleged by the United States.
7.368 We note at the outset that in response to a question from the Panel, China indicated
disagreement with how the United States translated Article 4.
290 Specifically, China disagrees with
the US translation of the Chinese term " Wai Shang Tou Zi ". China submits that the term should be
translated as "foreign investment (or foreign-invested enterprises)", and not as "foreign investors", as
the United States suggests. The expert advice receiv ed by the Panel from its independent translator
indicates that, in the specific context of Article 4, the term "Wai Shang Tou Zi" should be translated as
"foreign investors", as suggested by the United States.
7.369 We note that the Panel's independent translator has indicated that the relevant Chinese term
on its own could in other contexts be translated as "foreign investment". However, in the specific
context of Article 4, a nd given the specific workings of Chinese grammar, the independent translator
does not consider "foreign investment" an appropr iate translation. China comments that account
should be taken of the context of the measure s, and in particular the fact that the Several Opinions
guides the investment by foreign investors into th e cultural sector. More specifically, China submits
that the Several Opinions regulates where foreign investors can or cannot invest their capital in the
cultural sector and does not cover the issue whether fo reign investors can directly engage in a cultural
business. We note, however, that the independent translator's suggested translation takes account of
the context within which the relevant Chinese term appears. Also, we do not see how the translation
suggested by China avoids the issue referred to by China. 291 The Panel will, therefore, follow the
advice of its independent translator and will proc eed on the basis that the correct translation is
"foreign investors" rather than "foreign investment".
7.370 Article 4, first sentence, provides in relevant part that foreign investors "are prohibited from
setting up and operating … motion picture import … companies". Article 4, second sentence,
provides in relevant part that foreign investors "are prohibited from engaging in the … import of
books, newspapers and periodical s … and import of audiovisual products and electronic
publications". We note that there is a slight difference in wording between the first and second
sentence. We consider, however, that the two sen tences should be read harmoniously. Thus, we do
not consider that the second sentence is intende d to address situations where foreign investors
themselves import the relevant products into China, i.e., where foreign investors act as importers. 292
Rather, we consider that the second sentence is inte nded to make clear that foreign investors may not
set up and operate foreign-invested enterprises in China that would import the relevant products. 293
The context of Article 4 lends support to our unde rstanding of the second sentence. The full title of
the Several Opinions is " Several Opinions on the Introduction of Foreign Capital into the Cultural
Sector". This suggests that the Several Opinions is concerned with foreign investors as providers of
foreign capital, not as importers of products. Furtherm ore, Article 5 refers to "entry into the relevant
industry" and "applications for setting up wholly foreign owned enterprises and Chinese-foreign
equity and contractual joint ventures". Finally, Artic le 6 refers to the "investing parties" who apply to
set up a foreign-invested enterprise in China.

290 China's response to question No. 176.
291 Specifically, it is not clear, under China's translation, how "foreign investment" could be said to "set
up and operate" motion picture import companies.
292 The United States notes that investors act through investment (United States' response to question
No. 5). Thus, it would appear that investors would be engaging in the import of relevant products through
investment.
293 China appears to confirm this understanding in its comments on the independent translator's
suggested translation of Article 4. Specifically, China states that in the Several Opinions, "it is foreign-invested
enterprises rather than foreign inve stors themselves that are prohibite d from operating in certain cultural
businesses in China".

7.371 We recall that the US claims are concerned only with physical products. We note in this
regard that Article 4, second sentence, refers to the import of books, newspapers, periodicals,
electronic publications and audiovisual products. It is clear to us from these references that they cover
physical products. In relation to the reference to "motion picture import companies" in the first
sentence of Article 4, it appears to us that the te rm can be understood to cover companies that would
import films for theatrical release consisting of a medium carrying film content. But even if it were
considered that the term is intended to refer only to companies importing film content, Article 4, first
sentence, would, in our view, still be subject to China's trading rights commitments. 294 While
Article 4, first sentence, would not, on this vi ew, directly regulate who may (or rather may not)
engage in the import of the relevant good (hard-c opy cinematographic film), it would nonetheless
necessarily affect the import of the relevant good if and when a foreign-invested company in China
would wish to engage in the business of importing film contents on physical carriers (cinematographic
film), which we understand remains a common commercial practice.295
7.372 In response to a question from the Panel, Chin a stated that Article 4 is not directly
applicable.296 China also stated that in accordance with Article 13 of the Several Opinions , the
requirements in the Several Opinions must be implemented by the government agencies to which they
are addressed through promulgation of specific departmental rules. 297 Thus, as we understand it,
Article 4 directs relevant agencies to ensure, th rough promulgation of appropriate rules, that no
foreign-invested enterprise in China can lawfu lly import books, newspapers , periodicals, films for
theatrical release, other audiovisual products (including sound recordings), or electronic publications.
Paragraphs 5.1, 83(d) and 84(a)
7.373 The United States claims that Article 4 deprives foreign-invested enterprises in China, as well
as foreign enterprises and individuals, of the right to import the relevant products and thereby limits
the trading rights of these entities, contrary to pa ragraphs 5.1, 83(d) and 84(a). We begin our
examination with the claims in respect of foreign-invested enterprises.
7.374 In relation to paragraph 5.1, we recall our view that the phrase "all enterprises in China"
includes foreign-invested enterprises in China. As explained above, Article 4 is addressed to Chinese
government agencies and directs them to prohib it foreign-invested enterprises in China from
importing the relevant products. As a result, by vi rtue of Article 4, foreign-invested enterprises in
China must not have the right to import those goods. This requirement is cont rary to paragraph 5.1,
first sentence. We thus conclude that Article 4 is inconsistent with paragr aph 5.1 insofar as it affects
foreign-invested enterprises. For the same reason, we conclude that Article 4 is inconsistent with
paragraph 83(d), first sentence, and paragraph 84(a), second sentence. Paragraphs 83(d) and 84(a)
also cover foreign-invested enterprises in China as "foreign enterprises".
7.375 So far as concerns the US claims in respect of foreign individuals and foreign enterprises not
invested or registered in China, the United States has not adequately explained why and how Article 4
could be said to affect such individuals a nd enterprises and to give rise to the alleged

294 We note that China has offered no substantive response to the US trading rights claims concerning
the Several Opinions. China has, however, made an argument based on a reference to "motion pictures" in the
context of, inter alia, the US trading rights claims concerning the Film Regulation.
295 We address the issue of the applicability of China's trading rights commitments to a measure
concerning "motion picture import" more fully below, as part of a discussion of a related argument which China
has advanced in connection with the US claims concerning the Film Regulation. See infra, paras. 7.528 et seq.
296 China's response to question No. 37(b).
297 China's response to question No. 37(a). Article 13 provides that the MOC, the SARFT and the
GAPP "shall, based upon these Opinions, draw up and improve concrete implementation measures for their own
departments".

inconsistencies.
298 As we have indicated, we do not consider that the second sentence of Article 4 is
about imports by foreign investors themselves. We have also noted that the Several Opinions is about
foreign investment in China. More specifically, it is about investment of foreign capital in wholly
foreign-owned enterprises, Chinese-foreign equity jo int ventures or Chinese-foreign contractual joint
ventures. There is no indication that individuals in China, or Chinese branches of foreign enterprises
not registered in China, are contemplated as possible recipients of foreign investment. In the light of
this, we are unable to accept that Article 4 depriv es foreign individuals or foreign enterprises not
invested or registered in China of the right to im port the relevant products. We therefore conclude
that the United States has not established its claims under paragraphs 5.1, 83(d) and 84(a) in respect of
such individuals and enterprises.
Paragraphs 5.2 and 84(b)
7.376 The United States also claims that Article 4 restricts trading rights in a discriminatory manner,
by insulating certain wholly Chinese-owned enterprises from any competition from foreign sources.
7.377 In examining this claim, we again begin with the US claim in respect of foreign-invested
enterprises. We recall that, in our view, paragraphs 5.2 and 84(b) cover foreign-invested enterprises
in China as "foreign enterprises". We further note th at the issue under paragraphs 5.2 and 84(b) is not
whether the treatment accorded to foreign-invested enterprises in China "insulates" wholly Chinese-
owned enterprises (i.e., enterprises in China) from comp etition. The issue is whether foreign-invested
enterprises in China are treated less favourably than, or in a discrim inatory way compared to, wholly
Chinese-owned enterprises with respect to the right to trade.
7.378 The US claim is based on the legal effect of Artic le 4, which is to direct government agencies
to prohibit foreign-invested ente rprises in China from importing th e relevant products. We have
already determined that as a resu lt of this China has acted inconsistently with its obligations under,
inter alia, paragraph 5.1 in respect of foreign-invested enterprises in China. As a consequence, we
see no need to offer additional findings regarding whet her, as a result of the same legal effect, China
has also acted inconsistently with its obligations under paragraphs 5.2 and 84(b) in respect of the same
enterprises. Accordingly, we exercise judicial ec onomy in relation to the claim under paragraphs 5.2
and 84(b).
7.379 Regarding the US claims in respect of foreign individuals and foreign enterprises not invested
or registered in China, we note that these US claims also appear to be based on the legal effect of
Article 4. However, for reasons we have expl ained above, we are unable to accept that Article 4
deprives foreign individuals or foreign enterprises not invested or registered in China of the right to
import the products concerned. We therefore conclude that the Un ited States has not established its
claims under paragraphs 5.2 and 84(b) in respect of foreign enterprises and foreign individuals.
(iv) Publications Regulation
7.380 The United States submits that the Publications Regulation covers all of the relevant
products except films for theatrical release and that it is the principal Chinese legal instrument
governing explicitly, inter alia , the importation of reading materials, AVHE products and sound
recordings in China. The United States points out in this respect that according to Article 2 this
measure applies to "publishing activities", which include the importation into China of "publications".
As the United States points out, Article 2 defines the term "[p]ublications" broadly to encompass
newspapers, periodicals, books, electronic publications, and AVHE products, and sound recordings.

298 In response to question Nos. 5 and 10, the United States merely explains the basis for its view that
"foreign investors" include foreign individuals and enterprises.

7.381 The United States further points out that according to Article 41 no individual or entity may
import any reading materials, AVHE products, or so und recordings without approval. Moreover, the
United States notes that Article 42 sets forth the requi red conditions that applicants must satisfy in
order to import reading materials, AVHE products, and sound recordings into China. The United
States points out that among the seven conditions e numerated, Article 42 mandates that applicants
seeking approval to import reading materials, AVH E products, and sound recordings "shall" be
wholly state-owned enterprises. Accordi ngly, the United States submits that the Publications
Regulation permits only wholly state-owned enterprises to be approved to import reading materials,
AVHE products, and sound recordings into China.
7.382 Furthermore, the United States indicates that Article 42 circumscribes which wholly state-
owned enterprises may import publications, providi ng that "[a]pproval to establish a publication
import entity shall not only be in compliance with the conditions listed in the preceding paragraphs,
but also conform to the State plan for the total number, structure, and distribution of publication
import entities".
7.383 In addition, the United States notes that Article 43 establishes application procedures for
Chinese wholly state-owned enterprises seeking to import reading materials, AVHE products, and
sound recordings into China. The United States poi nts out that applications for permits to import
these products are to be submitted to the GAPP for ex amination and approval. If the application is
approved and the permit granted, the Chinese whol ly state-owned enterprise must then secure a
business licence in order to engage in importing.
7.384 Separately, the United States points out that w ith regard to newspapers and periodicals,
Article 41 of the Publications Regulation creates special additional conditions. The United States
notes in this respect that only Chinese wholly st ate-owned enterprises "designated" by the GAPP may
import these products, and no entity or individual may import them without such a designation. Thus,
the United States maintains, pursuant to the authority granted by the Publications Regulation , the
GAPP selects, at its own discretion, the Chinese wholly state-owned enterprises that can engage in the
importation of newspapers and periodicals.
7.385 The United States claims that the Publications Regulation is inconsistent with China's trading
rights commitments in the following ways. First, the United States recalls that Article 42 of the
Publications Regulation mandates that only wholly state-owned enterprises satisfying specified
criteria, including the "State plan for the total number, structure, and distribution" of these enterprises,
may import reading materials, AVHE products, and s ound recordings into China. According to the
United States, this gives rise to three inconsistencie s with China's trading rights commitments: (i) by
depriving foreign-invested enterprises in China, as well as foreign enterprises and foreign individuals,
of the right to import reading materials, AVHE products and sound recordi ngs, Article 42 limits the
trading rights of these types of importers, which China's trading rights commitments do not permit;
(ii) Article 42 restricts trading rights in a discriminatory manner, as it insulates certain wholly
Chinese-owned enterprises from any competition from fo reign sources; and (iii) Article 42 is also
inconsistent with China's trading rights commi tments because it injects qualifying criteria and
government discretion into a process that China committed to be "non-discretionary".
7.386 Secondly, the United States argues that pursuan t to Article 41 the importation of certain
reading materials, i.e., newspapers and periodicals, is further restricted to wholly state-owned
enterprises specially designated by the Chinese Gove rnment. The United States submits that this
designation process injects further qualifying criteria and government discretion into a process that
China committed to be "non-discretionary" and is ther efore inconsistent with China's trading rights
commitments.

7.387 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of Articles 41-43 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
299
7.388 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.389 In relation to the Publications Regulation, China argues, in addition, that it does not apply to
the importation of audiovisual products, including s ound recordings. China notes that Article 67 of
the Publications Regulation provides that "[i]n the event that provisions on the publication,
reproduction, importation and Fa Xing of audiovisual products are otherwise specified in
administrative regulations, the provisions in such administrative regulations shall apply". China
contends that since the 2001 Audiovisual Products Regulation governs the mentioned activities with
regard to audiovisual products, the Publications Regulation does not apply to the importation of
audiovisual products.
7.390 The Panel first addresses whether the Publications Regulation applies to audiovisual
products, including sound recordings. Article 2 of the Publications Regulation indicates that
audiovisual products are among the "publications" which fall within the scope of the Regulation. 300
As pointed out by China, however, Article 67 st ipulates that where an administrative regulation
"specifies otherwise" in respect of the import of audiovisual products, the provisions of that regulation
are to be applied. It is clear to us from Article 2 that the Publications Regulation is applicable to the
import of audiovisual products. Indeed, the Publications Regulation regulates "publications"
generally. Article 67 in our view merely makes cl ear that it is nonetheless possible to maintain or
introduce special and different rules governing, inter alia , the import of audiovisual products.
Therefore, we do not agree that the Publications Regulation is not applicable to the import of
audiovisual products. We do agree, however, that the Publications Regulation may not set forth the
rule(s) that would ultimately be applied by China to the import of audiovisual products. China argues
in this respect that the 2001 Audiovisual Products Regulation contains relevant special rules.
Accordingly, for each of the provisions of the Publications Regulation which the United States is
challenging, we will consider whether the 2001 Audiovisual Products Regulation "specifies
otherwise" within the meaning of Article 67.
Article 43
7.391 Turning now to the specific claims by the Un ited States, we note that in response to a
question from the Panel, the United States ha s identified Articles 41, 42 and 43 of the Publications
Regulation as the provisions directly giving rise to an inconsistency with the Accession Protocol. 301
However, it is not clear to us that the United Stat es intended to put forward a claim in respect of
Article 43. Indeed, the US submissions to the Panel do not state any claim in respect of Article 43.
Even assuming that the United States intended to put forward a claim, the United States in any event

299 United States' response to question No. 1.
300 China confirmed that the term "audiovisual prod ucts" in Article 2 includes audiovisual proudcts
intended for publication (China's response to question No. 31(a)).
301 United States' response to question No. 1.

has not met its burden of establishing any inconsiste ncy with China's trading rights commitments in
respect of Article 43, as it has not provided an y explanation as to why and how Article 43 is
inconsistent with the trading rights commitments under China's Accession Protocol. We also note
that the United States has not explained how Article 43 could give rise to an inconsistency when
considered together with other challenged measures.
Article 42
7.392 We consider, next, the US claims in respect of Article 42. We begin this task by noting the
provisions of Article 41. Article 41 states that no "e ntity or individual" may engage in the business of
importing publications without approval. Article 41 also states, however, that the business of
importing publications must be operated by a pproved "publication import entities". The term
"publication import entities" suggests that entities, but not individuals, may be approved. Article 42
appears to support this understanding. It pr ovides that publication import entities may only be
approved if they satisfy the conditions listed in Ar ticle 42 and also conform to the State plan for the
total number, structure and distribution of publication import entities. Looking at the conditions
listed, we note that they refer to the need to be a "wholly state-owned enterprise" or to have a suitable
organization and specialized personnel. These elem ents do not appear to fit the situation of
individuals as opposed to entities. Thus, it is our understanding that only entities can be approved as
"publication import entities".
7.393 We further note that Articles 41 and 42 do not explicitly state whether "publication import
entities" need to be registered in China. We r ecognize that the term "publication import entity" is
unqualified. In our view, this does not necessarily mean, however, that the term could cover also
foreign enterprises not registered in China. In considering this issu e, we note at the outset that we
have not been given, or made aware of, any other trade-related Chinese laws or regulations that could
indicate whether an "import entity" needs to be registered in China.
302 We realize that Article 42
requires that only Chinese "wholly state-owned en terprises" may be approved as publication import
entities, and that such enterprises are registered in China. But this condition does not seem to be
inherent to the concept of "publication import entity ". Indeed, China could repeal this particular
condition and still use the concept of "publication impor t entity". On the other hand, Article 43 of the
Publications Regulation states that after obtaining a licence to import publications, an entity needs to
obtain, in addition, a business licence from China' s administrative department for industry and
commerce. It seems unlikely that entities not registered in China could obtain such a business licence.
In view of these elements, and the lack of US argum ents and evidence on this issue, we consider that
the United States has not demonstrated that the term "publication import entities" as it appears in
Articles 41 and 42 could cove r foreign enterprises not registered in China. We accept, however, that
this term could cover enterprises registered in China.
7.394 As to whether the term "publication import en tities" could cover Chinese branches of foreign-
registered enterprises303, it is sufficient to note that the United States has not asserted that Article 42,
or Article 41, affects such branches in China and th at this results in an inconsistency with China's
trading rights commitments. In fact, the United States has never even mentioned the possibility of
foreign-registered enterprises setting up Chinese branches. Accordingly, we do not examine this issue
further.304

302 The last paragraph of Article 43 of the Publications Regulation indicates that publication import
entities must also comply with China's "laws and administrative regulations on foreign trade".
303 We recall that China requires registration of branches.
304 Also, it is in any event not clear to us from the information on the record whether Chinese laws or
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in
the sector at issue.

7.395 In sum, we note that "entities" in China do no t automatically have the right to import the
relevant products. Instead, they must obtain that right, by applying for approval as a publication
import entity. Article 42 sets out the criteria for obtaining the right to import.
Paragraphs 5.1, 83(d) and 84(a)
7.396 We do not understand the United States to cha llenge the approval requirement as such.
Rather, the United States' claim is based on the eff ect of the approval criteria. Indeed, the United
States claims that the condition that publication import entities must be Chinese wholly state-owned
enterprises as well as the other applicable cond itions contained in Article 42 deprive "foreign
importers and privately-held enterprises in China" of the right to import the relevant products,
contrary to paragraphs 5.1, 83(d) and 84(a).
305 The other applicable conditions are that the applicant
must: (i) have a name and articles of association, ( ii) have a well-defined scope of business, (iii) have
adequate funding, (iv) have a fixed business site , (v) meet conditions set out in laws or other
regulations, and (vi) have a suitable organization a nd qualified personnel. In addition, approval may
only be granted in case of conformity with the State plan for the number, structure and distribution of
publication import entities. In response to a question from the Panel, China has stated that the State
plan concerns the number, geographical and produc t coverage of publication import entities. China
also pointed out that the State plan is not available in written form.306
7.397 We commence our analysis with the condition that a publication import entity must be a
wholly state-owned enterprise. Since only whol ly state-owned enterprises can be approved as
publication import entities, and since pursuant to Article 41 only approved p ublication import entities
can engage in the business of importing publications, "enterprises in China" other than wholly state-
owned enterprises (i.e., foreign-invested enterpri ses in China and privately owned enterprises in
China) cannot obtain the right to import the relevant products.
7.398 As "enterprises in China" other than wholly state-owned enterprises cannot obtain the right to
import the relevant products, it follows that there cannot be any such enterprises that have the right to
import these products. We consider, therefore, that Ch ina has failed to ensure that "all enterprises in
China" have the right to import the publications con cerned. This is contrary to China's obligations
under paragraphs 5.1, 83(d) and 84(a) (in respect of enterprises in China ot her than wholly state-
owned enterprises).
7.399 Regarding foreign enterprises not registered in China, we recall that the United States has not
established that the term "publication import entitie s" as it appears in Article 42 could cover entities
not registered in China. Therefore, it has not been demonstrated that it is because of the condition that
publication import entities must be wholly state-owned enterprises that foreign enterprises not
registered in China cannot obtain the right to im port the relevant products. As pointed out above,
even if the condition were repealed, foreign ente rprises not registered in China could still not be
approved if the term "publication import entities" does not cover such entities. We also recall that the
United States has not asserted that Article 42 a ffects Chinese branches of foreign enterprises not
registered in China.
7.400 Furthermore, regarding foreign individuals, the United States has not demonstrated that it is
because of the condition that publication import entiti es must be wholly state-owned enterprises that
foreign individuals cannot obtain the right to import the relevant products. We note that Article 42 is
about establishment of publication import "entities" . The fact that only wholly state-owned
enterprises can be approved as publication import "en tities" does not imply that foreign "individuals"

305 United States' response to question No. 152.
306 China's response to question No. 44. We note that China has not explained its reference to "product
coverage".

could not be approved to engage in the business of importing p ublications. Whether they may be
approved is in our view determined, not by Article 42, but by Article 41, which states, in effect, that
only publication import entities may be approved and that "no individual" may engage in the business
of importing publications without approval.307
7.401 Thus, on the basis of the foregoing considerati ons we conclude that Article 42, by imposing
the condition that publication import entities need to be wholly state-owned, results, in combination
with Article 41, in China acting inconsistently w ith its obligations under paragraphs 5.1, 83(d) and
84(a) in respect of enterprises in China other than wholly state-owned ones. The United States has
not established that the relevant condition in Ar ticle 42 results in an inconsistency with the
aforementioned paragraphs in respect of foreign enterprises not registered in China and foreign
individuals. Nor has the United States established th at the condition results in an inconsistency in
respect of such enterprises and individuals when considered together with other challenged measures.
7.402 Regarding whether our conclusion extends also to enterprises wishing to import audiovisual
products (which, to recall, include sound recordings ), we note that China has indicated that with
regard to importation entities for finished audiovisual products there is no approval process. China
points out that Article 27 of the 2001 Audiovisual Products Regulation provides for a designation
process for entities wishing to import such products. 308 China argues that Article 42 is, therefore, not
applied to these products. 309 We note that the United States has referred to the Imported Cultural
Products Rule and the Decisions on Non-Public-Owned Capital , both of which post-date the 2001
Audiovisual Products Regulation .310 The former provides, in Article 4, that the "business of
importing cultural products such as … audiovisual products … shall be carried out by state-owned
cultural units designated or licensed by the [MOC]". 311 The latter provides in relevant part that "non-
public capital … may not engage in the import bus iness of cultural products such as … finished
audiovisual products". 312 In fact, China itself stated that only wholly state-owned enterprises are
permitted to import audiovisual products.313
7.403 In our view, the two measures identified by the United States do not demonstrate that
Article 42 is applied to finished audiovisual produc ts. The state ownership requirement is contained
in those two measures, but those two measures do not depart from the designation requirement
established by Article 27. In other words, in tho se two measures state ownership is not a condition
applied as part of an approval process like the one established by Article 42 whereby applications may
be submitted. 314 Therefore, we consider that the prov isions on importing of finished audiovisual
products which China applies are contained, not in Article 42, but, by virtue of Article 67 of the
Publications Regulation, in Article 27 of the 2001 Audiovisual Products Regulation and the Imported
Cultural Products Rule and the Decisions on Non-Public-Owned Capital . The effect of these
provisions is that importers must be designated, a nd that only state-owned entities may be designated.
This is different, however, from Article 42 which says that only state-owned enterprises may be
approved.

307 As indicated, we do not think that Article 41 determines whether foreign individuals may import
publications for their personal consumption or use.
308 China's response to question No. 25(b). We disc uss Article 27 further below, in the Sub-section
dealing with the 2001 Audiovisual Products Regulation.
309 China's comments on the United States' response to question No. 157.
310 United States' responses to question Nos. 8 and 157.
311 Exhibit US-10.
312 Exhibit US-11.
313 China's response to question No. 46(a).
314 We recall that Article 4 of the Imported Cultural Products Rule refers to state-owned cultural units
"designated or licensed" by the MOC.

7.404 In the light of the foregoing, we conclude that the state ownership requirement in Article 42
does not result in China acting inconsistently with its obligations under paragraphs 5.1, 83(d) and
84(a) in respect of enterprises in China that wish to import finished audiovisual products.
7.405 For audiovisual products imported for publication , China likewise argues that the 2001
Audiovisual Products Regulation applies, not the Publications Regulation .
315 Article 5 of the 2001
Audiovisual Products Regulation provides for a licensing process for importation entities wishing to
import audiovisual products for publication. A permit is necessary to engage in importing. 316 There
does not appear to be any process for submitting app lications and obtaining a permit. Article 5 also
contains no criteria to be followed by the MOC in deciding whom to approve as an importer of
audiovisual products imported for publication. Indeed, the United States itself claims that the
approval requirement in Article 5 introduces discretion. 317 Also, Article 5 talks about the State
instituting a system of licensing; it does not indicate that existing approval processes, such as the one
provided for in Article 42, would apply. We therefor e consider that Article 5 specifies otherwise than
Article 42. The Imported Cultural Products Rule appears to apply also to audiovisual products
imported for publication. However, as we have e xplained above, we do not think this demonstrates
that Article 42 is applied to such products, particularly since the Imported Cultural Products Rule
does not depart from the licensing requirement established by Article 5.
7.406 Therefore, we consider that the provisions on the import of audiovisual products for
publication which China applies are contained, not in Article 42, but in Article 5 of the 2001
Audiovisual Products Regulation and the Imported Cultural Products Rule .318 In the light of this, we
conclude that the state ownership requirement in Article 42 does not result in China acting
inconsistently with its obligations under paragraphs 5.1, 83(d) and 84(a) in respect of enterprises in
China that wish to import audiovisual products for publication.
7.407 We now proceed to examine the next US claim in respect of Article 42. The United States
claims that the other conditions in Article 42 which must be satisfied in order to obtain approval as a
publication import entity – i.e., the conditions other than state ownership – also result in depriving
"foreign importers and privately-held enterprises in China" of the right to import the relevant
products. The United States argues that by impos ing these other conditions, Article 42 reserves the
right to import to a subset of wholly state-owned enterprises which satisfy these conditions.
7.408 We agree that the existence of the other conditions 319 implies that enterprises in China that do
not satisfy these conditions cannot be approved as publication import entities and, hence, cannot
obtain the right to import the relevant products. We recall in this respect that the second sentence of
paragraph 84(b) of the Working Party Report se ts forth a confirmation by China that "any
requirements for obtaining trading rights would be for customs and fiscal purposes only and would
not constitute a barrier to trade". We are mindful of the fact that the US claims are not based on
paragraph 84(b), but paragraphs 5.1, 83(d) and 84(a). However, we see no convincing reason to find
that China may impose requirements for obtaining tr ading rights of the described type on foreign
enterprises and foreign individuals (as confirmed by paragraph 84(b)), but not on enterprises in
China.
320 Accordingly, we consider that China ma y impose on enterprises in China, and on foreign
enterprises and foreign individuals, requirements fo r obtaining trading rights that serve customs and

315 China's response to question No. 31(c) and Ch ina's comments on the United States' response to
question No. 157.
316 We discuss Article 5 further below, in the Sub-Section dealing with the 2001 Audiovisual Products
Regulation.
317 United States' first written submission, para. 262.
318 The Decisions on Non-Public-Owned Capital refer only to finished audiovisual products.
319 For the other conditions, see supra, para. 7.396.
320 We recall our view that the term "foreign enterprises" in paragraph 84(b) includes foreign-invested
enterprises.

fiscal purposes, provided such requirements do not constitu te a barrier to trade. We also note in this
connection that the United States in response to a question from the Panel on paragraph 84(b) has
referred to what it terms "norma l background business regulation". 321 We observe in this respect that
in this case we have no need to take a position on whether, under the rubric of "normal business
regulation", China could impose, on enterprises in China, other requirements for obtaining trading
rights. As we indicate below, even if China could do so, we would not reach any different conclusion
in respect of the US claims at issue.
7.409 We note that the United States has not provid ed any elaboration as to why each of the
conditions at issue is impermissible. In relation to five of these conditions: (i) name and articles of
association, (ii) well-defined scope of business, (iii) adequate funding, (iv) fixed business site and (v)
conditions set out in laws or ot her regulations – the United States has not advanced arguments or
evidence sufficient to raise a presu mption that they are maintained for purposes other than fiscal or
customs purposes, or for purposes other than "norma l business regulation". We note that in response
to a question from the Panel, the United States h as merely suggested, without explanation, that
conditions like scope of business and bus iness site "seem difficult to justify". 322 In the light of this,
we conclude that the United States has not met its bu rden of establishing that, contrary to paragraphs
5.1, 83(d) or 84(a), these five conditions result in an impermissible denial of the right of enterprises in
China to import the relevant publications. Also, we note that the United States has not established
that the five conditions result in an inconsistenc y when considered together with other challenged
measures.
7.410 In relation to the remaining two approval cond itions – (i) suitable organization and qualified
personnel and (ii) conformity with the State plan for the number, structure and distribution of
publication import entities – we think it is readily appa rent that they are not maintained for fiscal or
customs purposes, or as "normal business regulation". We also note that this has been confirmed by
China. China stated that these conditions are im posed to ensure a proper selection of those entities
that participate in the review of the content of imported publications. China argues that an effective
and efficient content review makes it necessary to approve only entities that have an appropriate
organization, competent personnel and that en sure an appropriate geographical coverage.
323 C h i n a
further argues that for content review to be effi cient and smooth, it is necessary that only a limited
number of entities be approved.324
7.411 Accordingly, since enterprises in China (including enterprises other than state-owned ones
such as foreign-invested enterprises) that do not sa tisfy these two conditions cannot obtain the right to
import the relevant products, it follows that there cannot be any such enterprises that have the right to
import these products. We thus consider that by maintaining these conditions, China has failed to
ensure that "all enterprises in Ch ina" have the right to import the publications concerned. This is
contrary to China's obligations under paragraphs 5.1, 83(d) and 84(a) (in respect of enterprises in
China other than wholly state-owned enterprises). We therefore conclude that Article 42, by
imposing the conditions that publication import en tities need to have a suitable organization and
qualified personnel, and that approva l may only be granted subject to conformity with the State plan
for the number, structure and distribution of such en tities, results, in combination with Article 41, in
China acting inconsistently with its obligations under the aforemen tioned paragraphs in respect of
enterprises in China.
7.412 Regarding whether our conclusion with respect to enterprises in China extends also to such
enterprises wishing to import audiovisual products, we recall China's argument that in accordance

321 United States' response to question No. 198(b).
322 United States' response to question No. 52(b).
323 China's first written submission, para. 156.
324 Ibid., paras. 215-216.

with Article 67 of the Publications Regulation it would apply the 2001 Audiovisual Products
Regulation, not the Publications Regulation , to such enterprises.
325 The relevant provisions of the
2001 Audiovisual Products Regulation – Article 5 (licensing system) and Article 27 (designation
system) – do not indicate that interested enterpri ses could submit applica tions and obtain approval
under Article 42 subject to satisfaction of th e relevant conditions. Article 4 of the Imported Cultural
Products Rule refers to the State plan for the number, stru cture and distribution of import entities. In
our view, this does not demonstrate, however, that Article 42 is applied to audiovisual products, since
the Imported Cultural Products Rule does not depart from the licensing and designation systems
established by Articles 5 and 27.
7.413 Therefore, we consider that Articles 5 and 27 specify otherwise than Article 42 in respect of
who may engage in importing of a udiovisual products, and that, by vi rtue of Article 67, China would
therefore apply these provisions, not Article 42, to enterprises wishing to import audiovisual products.
In the light of this, we conclude that the relevant two conditions contained in Article 42 do not result
in China acting inconsistently with its obligations under paragraphs 5.1, 83(d) and 84(a) in respect of
enterprises in China wishing to import audiovisual products.
7.414 We note that the US claims with respect to the conditions other than state ownership also
concern foreign enterprises not registered in Chin a and foreign individuals. Regarding foreign
individuals, we note that the United States has not demonstrated that it is because of these conditions
set out in Article 42 that foreign individuals cannot obtain the right to import the relevant products.
We recall in this regard our cons iderations above concerning the state ownership condition where we
addressed the same issue.
326 We think they are relevant and applicable to the other conditions as well.
We therefore conclude that the United States has not established that the relevant conditions in
Article 42 result in an inconsiste ncy with paragraphs 5.1, 83(d) and 84(a) in respect of foreign
individuals. Also, we note that the United States ha s not established that the conditions result in an
inconsistency when considered together with other challenged measures.
7.415 Regarding foreign enterprises not registered in China, we recall that the United States has not
established that the term "publication import entitie s" as it appears in Article 42 could cover entities
not registered in China. Therefore, it has not been demonstrated that it is because of the conditions in
question that foreign enterprises not registered in China cannot obtain the right to import the relevant
products. Even if the conditions were repealed, fore ign enterprises not regist ered in China could still
not be approved if the term "publication import entities" does not cover such entities. We also recall
that the United States has not asserted that Article 42 affects Chinese branches of foreign enterprises
not registered in China. We therefore conclude that the United States has not established that the
relevant conditions in Article 42 result in an incons istency with paragraphs 5.1, 83(d) and 84(a) in
respect of foreign enterprises not registered in Chin a. Also, we note that the United States has not
established that the conditions result in an incons istency when considered together with other
challenged measures.
Paragraphs 5.2 and 84(b)
7.416 The United States makes further claims in respect of Article 42, based on paragraphs 5.2 and
84(b). According to the United States, Articl e 42 discriminates against foreign enterprises and
individuals by according them less favourable treatme nt relative to wholly state-owned enterprises
with regard to the right to import the relevant pub lications. The United States submits that foreign

325 China's response to question No. 31(c) and Ch ina's comments on the United States' response to
question No. 157.
326 See supra, para. 7.400.

enterprises and individuals are discriminated agai nst because they are not wholly state-owned
enterprises.327
7.417 We first recall our view that the phrase "forei gn enterprises" in paragraphs 5.2 and 84(b)
covers foreign enterprises not registered in China an d also foreign-invested en terprises in China. In
this regard, we refer to our earlier finding that Ar ticle 42, by imposing the condition that publication
import entities need to be wholly state-owned, results , in combination with Article 41, in China acting
inconsistently with its obligations under paragraphs 5.1, 83(d) and 84(a) in respect of enterprises in
China other than wholly state-owned ones, including foreign-invested enterprises. We therefore see
no need to offer additional findings regarding whethe r, as a result of Article 42, China has also acted
inconsistently with its obligations under paragraphs 5.2 and 84(b) in r espect of the same enterprises.
We thus exercise judicial economy.
7.418 So far as concerns foreign individuals, we reca ll that pursuant to Article 42 only wholly state-
owned enterprises can be approved as publication im port entities, and that pursuant to Article 41
approved publication import entities can engage in th e business of importing publications. Thus, we
agree that as a result of Article 42 wholly state-owned enterprises can obtain the right to import
publications. However, as previously pointed out, the United States in our view has not demonstrated
that it is because of the state ownership condition in Article 42 that foreign individuals cannot obtain
the right to import the relevant products. Whether they may be approved as importers is in our view
determined, not by Article 42, but by Article 41. Indeed, even if China were to repeal the state
ownership condition in Article 42, wholly state-owned enterprises could still obtain the right to import
publications while foreign individuals would still be unable to obtain that right. We therefore
conclude that the United States has not established that the state ownership condition in Article 42
results in China acting inconsistently with its oblig ations under paragraphs 5.2 and 84(b) in respect of
foreign individuals. Also, we note that the United States has not established that the condition results
in an inconsistency when considered together with other challenged measures.
7.419 Regarding foreign enterprises not registered in China, we recall our view that the United
States has not demonstrated that it is because of th e state ownership condition that foreign enterprises
not registered in China cannot obtain the right to im port the relevant products. As pointed out above,
even if the condition were repealed, foreign ente rprises not registered in China could still not be
approved if the term "publication import entities" does not cover such entities, while wholly state-
owned enterprises could continue to be approved. We also recall that the United States has not
asserted that Article 42 affects Chinese branches of fo reign enterprises not registered in China. We
therefore conclude that the United States has not established that the state ownership condition in
Article 42 results in China acting inconsistently with its obligations under paragraphs 5.2 and 84(b) in
respect of foreign enterprises not registered in Chin a. Also, we note that the United States has not
established that the condition results in an incons istency when considered together with other
challenged measures.
7.420 The United States claims, in addition, that foreign enterprises are subject to further
discrimination. In support of this claim, the Unite d States refers to a reply from China to a Panel
question. In that reply, China states, in part, that the "criteria [set out in Article 42] cannot be met by
enterprises other than wholly state-owned enterprises".
328 The United States infers from this that
China has made a "determination" that foreign en terprises can never fulfil the criteria contained in
Article 42.329 The United States considers this to be inconsistent with paragraphs 5.2 and 84(b).

327 United States' response to question No. 152.
328 China's response to question No. 46(b).
329 United States' response to question No. 152.

7.421 In view of China's reply, it appears to us that this claim of the United States concerns the
conditions set out in Article 42, other th an the condition concerning state ownership.
330 The United
States appears to assert that, unlike wholly state- owned enterprises, foreign enterprises could never
satisfy these conditions and that they therefore coul d not be approved as publication import entities.
As a consequence, unlike wholly state-owned enterprises, they could not obtain the right to import the
relevant products.
7.422 We recall at the outset that the measure at issue is the Publications Regulation , and
specifically Article 42 thereof, and not an alleged se parate "determination" by China. We see nothing
in the text or nature of the conditions at issue wh ich would indicate that foreign-invested enterprises
registered in China could never satisfy these conditions. 331 Moreover, regarding foreign enterprises
not registered in China, we note that it is not clear that China's reply was intended to address such
enterprises. The United States, for its part, has not offered any explanation as to why the relevant
conditions could not be satisfied by such enterprises. Finally, we recall that the United States has not
established that Article 42 contemplates foreign enterprises not registered in China as possible
"publication import entities". Thus, the United States has also not demonstrated that it is because
such enterprises are unable to satisfy the relevant conditions that they cannot obtain the right to import
the products in question. In addition, we recall th at the United States has not asserted that Article 42
affects Chinese branches of foreign enterprises not registered in China.
7.423 We further note that if China in its reply intended to assert that it would be costly for
enterprises other than wholly state-owned ones to m eet the conditions at issue, particularly the one
relating to the need for a suitable organization and competent personnel, and that this would dissuade
enterprises that are not wholly state-owned from seeking approval as publication import entities, we
note that China has provided no support for such an assertion. 332 In the absence of indications to the
contrary, we are not persuaded that the cost of meeting the relevant conditions would effectively
allow only wholly state-owned enterprises to meet these conditions.
7.424 In the light of the foregoing, we conclude that the United States has not established that the
relevant conditions contained in Artic le 42 "can never [be] fulfil[led]" by foreign enterprises and that
they, therefore, result in China discriminating agai nst foreign enterprises contrary to its obligations
under paragraphs 5.2 and 84(b). Moreover, we note that the United States has not established that an
inconsistency would arise if Article 42 is considered together with other challenged measures.
Paragraph 84(b)
7.425 There is one more US claim concerning Article 42 which we need to address. The United
States claims that Article 42 is inconsistent with paragraph 84(b) because it grants trading rights in a
discretionary way. The United States argues that app licants must satisfy the "State plan for the total
number, structure and distribution of publication import entities". According to the United States,
China has complete discretion in formulating this plan and in determining whether particular
applicants satisfy this plan.333 The United States submits that the discretionary nature of Article 42 is

330 We recall that we have at any rate already offered findings under paragraphs 5.1, 83(d) and 84(a) in
relation to the condition concerning state ownership.
331 China's response to question No. 46(b) in our view does not make a statement regarding how the
conditions are to be interpreted as a matter of Chinese law.
332 China's response to question No. 46(b) should be read together with its reply to question No. 46(a).
There, China states that the cost incurred by enterprises in the course of content review is substantial. In reply
to question No. 185, China has, however, provided no estimate of the cost involved, stating instead that the
relevant costs consist of human resource costs and the cost of equipment, facilities and premises used for
content review.
333 United States' response to question No. 152.

illustrated by China's statement, made in response to a question from the Panel, that State plans are
not available in written form.
7.426 We note at the outset China's reply to a questi on from the Panel to the effect that foreign
individuals and foreign enterprises are not subject to the State plan because publication import entities
must be wholly state-owned enterprises. 334 We are not convinced by this argument. The condition
that publication import entities be state-owned is a separate and independent condition, and there is no
apparent connection with the requirement that app lications must be in conformity with the State
plan.335 Accordingly, we must, and do, review the State plan requirement separately.
7.427 We also recall that Article 42 deals with the establishment of "publication import entities" and
that the State plan concerns the number, structure a nd distribution of such entities. As a result, we do
not see how the State plan requirement in Article 42 demonstrates that China does not grant foreign
"individuals" the right to import in a non-discretionary way. Regarding foreign enterprises, we recall
our view that the phrase "foreign enterprises" in paragraph 84(b) covers both foreign-invested
enterprises in China and foreign enterprises not register ed in China. We further recall our view that
the term "publication import entities" as it appear s in Article 42 can cover foreign-invested
enterprises, but that it has not been demonstrated that it can also cover foreign enterprises not
registered in China. Thus, even if as a result of the State plan requirement China enjoyed discretion in
the granting of trading rights to publication impor t entities, the United States has not established that
the publication import entities subject to the State pl an requirement could include foreign enterprises
not registered in China. We recall, finally, th at the United States has not asserted that Article 42
affects Chinese branches of foreig n enterprises not registered in China. On the other hand, with
regard to foreign-invested enterprises, we need to examine whether the State plan requirement means
that China does not grant such enterprises the right to import in a non-discretionary way.
7.428 In undertaking this task, we note that, pursuant to Article 42, applications for the
establishment of publication import entities may be approved only if they conform to the State plan
for the total number, structure and distribution of publication import entities. Thus, Article 42
specifies all additional criteria which are to be, and may be, taken into account. Under Article 42, the
GAPP
336 does not have the discretion to apply other criteria.
7.429 We agree that Article 42 allows China to elabor ate a plan for the total number, structure and
distribution of publication import entities. We ar e not persuaded, however, that the GAPP would
enjoy discretion in determining whether particular applicants satisfy that plan. 337 For instance, the
State plan might envisage that there should, in total, be no more than, say, 60 approved publication
import entities, and that each approved entity must be able to ensure coverage of a specified number
of customs areas.338 In our view, a determination of whether a particular application is consistent with
a State plan of the aforementioned kind would not require the exercise of discretion. In the absence of
evidence demonstrating otherwise, we see no basis for assuming that under the relevant State plan the
GAPP would have discretion in granting trading rights to foreign-invested enterprises in China.
7.430 China has told the Panel that the State plan is not available in written form. As we understand
it, however, if China wishes to apply criteria like the total number, structure and distribution of
publication import entities, it can only do so pursuant to a State plan. Moreover, the fact that the State

334 China's response to question No. 174.
335 See also Article 51 of the 1997 Electronic Publications Regulation.
336 Pursuant to Article 43, the GAPP is charged with examining and approving applications.
337 In reply to question No. 7, the United States asserts that the GAPP would have discretion in
applying the State plan. However, no evidence or argument is provided in support of this assertion.
338 China's first written submission, paras. 214-216.

plan may not need to be made available in written form does not demonstrate that none exists, or that
the plan changes with every application.
7.431 Based on the foregoing considerations, we are not convinced that, as a result of the
requirement in Article 42 concerning conformity with the State plan, China does not approve
applications in a non-discretionary way, and that it therefore does not grant foreign-invested
enterprises in China the right to import in a non-discretionary way.
339
7.432 In sum, in the light of the above, we conclude that the United States has not established that
Article 42 results in China acting inconsistently with its commitment in paragraph 84(b) to grant
foreign-invested enterprises in China, foreign en terprises and foreign individuals trading rights in a
non-discretionary way. We also note that the Un ited States has not established that the relevant
requirement in Article 42 results in an inconsistenc y when considered together with other challenged
measures.
Article 41
7.433 Having disposed of the US claims in respect of Article 42, we turn, finally, to address the US
claim in respect of Article 41. The United States argues that pursuant to Article 41 the importation of
newspapers and periodicals is further restricted to wholly state-owned enterprises specially
"designated" by the Chinese Government. The Unit ed States considers that this designation process
injects further qualifying criteria and government discretion into a process that China committed to be
"non-discretionary" and claims that it is theref ore inconsistent with China's trading rights
commitments. According to the United States, there are no independent criteria governing how the
GAPP designates importers of newspapers and pe riodicals, and so the GAPP is authorized to
designate based on its own discretion the entities of its own choosing. 340 The United States points out
that interested entities are not even afforded the opportunity to submit applications for approval.341
7.434 Article 41 provides in relevant part that "no en tity or individual shall engage in the business
of importing newspapers or periodicals without being designated". It also provides that the business
of importing publications is to be operated by publication import entiti es. Thus, it would appear that
China can designate only publication import entities. China has confirmed that the GAPP can only
designate as importers of newspapers or peri odicals, publication import entities that have been
approved by the GAPP under Article 42. 342 China has further confirmed that the GAPP designates
publication import entities at its own initiative and that there is no application process.343
7.435 We note that the United States does not explicitly identify the legal basis for its claim. The
United States has, however, referred to China' s commitment to grant trading rights in a "non-
discretionary" way. We therefore proceed on the assumption that the United States' claim is based
upon paragraph 84(b).
7.436 In examining this claim, we observe that designation under Article 41 is not automatic.
Rather, it is up to the GAPP to initiate the designa tion process. Moreover, pursuant to Article 41, the
GAPP may only designate as importers of newspape rs or periodicals publication import entities that
are GAPP-approved. Furthermore, in response to a question from the Panel, China has indicated that

339 We recall, though, that we have found earlier that the requirement gives rise to an inconsistency
with paragraphs paragraphs 5.1, 83(d) and 84(a).
340 United States' response to question No. 7.
341 United States' response to question No. 9.
342 China's responses to question Nos. 25(b) and 26.
343 China's response to question No. 25(a).

the designation requirement in Article 41 "resu lt[s] in [a] limited number of importers". 344 W h i l e
keeping the number of designated importers limited, the GAPP is free to decide whom it wishes to
designate from among the GAPP-approved publicati on import entities. Accordingly, under
Article 41, China needs to exercise discretion in order to grant the right to import newspapers or
periodicals. We therefore conclude that, as a result of Article 41, China in respect of newspapers or
periodicals does not grant trading rights to publication import entities in a non-discretionary way.
7.437 In view of the fact that the discretion relates to the designation of publication import entities,
we conclude that Article 41 does not result in an in consistency with paragraph 84(b) with respect to
the grant of trading rights to foreign individuals. Furthermore, we recall our view that the term
"publication import entities" as it appears in Article 41 can cover enterprises registered in China, but
that the United States has not established that it can also cover enterprises not registered in China. We
also recall that the United States has not asserted that Article 41 affects Chinese branches of foreign
enterprises not registered in China. We therefore conclude that, as a result of Article 41, China in
respect of newspapers and periodicals does not grant trading rights to foreign- invested enterprises in
China in a non-discretionary way an d that, for that reason, China is acting inconsistently with its
obligation under paragraph 84(b). We also find, however, that the United States has not established
that as a result of Article 41 China does not grant trading rights to foreign enterprises not registered in
China in a non-discretionary way. We thus conclude that the United States has not established an
inconsistency with paragraph 84(b) in respect of such enterprises.
7.438 Regarding the US argument that the designation requirement "injects qualifying criteria" into
the process of granting trading rights, we observe th at we do not see how it does. The United States
has itself stated in response to a question from th e Panel that the designation of import entities is
discretionary and that there are no independent criteria governing how the competent agency – the
GAPP in this case – designates importers.
345
(v) Importation Procedure
7.439 The United States contends that the Importation Procedure implements Article 43 of the
Publications Regulation .346 In the United States' view, it confirms, and to some extent elaborates
upon, the licensing requirements for the importation of reading materials, AVHE products, and sound
recordings into China. The United States notes in this regard that the Importation Procedure begins
with the heading "Licensing Requirements". Th e United States further notes that pursuant to
paragraph 2 under this heading of the Importation Procedure, as in the Publications Regulation, the
second condition for an enterprise to import these products is that it is a wholly state-owned
enterprise. Likewise, the United States points ou t, in accordance with paragraph 8 under the same
heading of the Importation Procedure licenses are limited based on the "State plan regarding the total
number, structure and deployment of publication import business units". 347 Accordingly, the United
States submits, the Importation Procedure reconfirms the prohibition on any foreign-invested

344 China's response to question No. 172. In its reply, China suggests that the purpose of its various
designation requirements is not to limit the number of importers, but to select entities allowed to import cultural
goods. At the same time, as indicat ed, China specifically noted that "the designation system would result in a
limited number of importers".
345 United States' response to question No. 9.
346 The United States submits that since the Importation Procedure was established pursuant to
Article 43 of the Publications Regulation, the full scope of the definition of "publication" – including reading
materials, AVHE products, and sound recordings – contained in the Publications Regulation is thereby
incorporated into the Importation Procedure.
347 According to the United States, the finite supply of licenses for the importation of reading materials,
AVHE products, and sound recordings, is underscored by the heading "Quantity Restrictions", which
immediately follows the "Licensing Requirements" heading in the Importation Procedure, and which contains
the entry – "Yes".

enterprise or foreign individual, or any priv ately-owned Chinese enterprise, engaging in the
importation of reading materials, AVHE products, and sound recordings.
7.440 The United States claims that since the Importation Procedure not only states that only
wholly state-owned enterprises are allowed to impor t reading materials, AVHE products, and sound
recordings into China, but also re inforces that such enterprises are s ubject to the same State "number,
structure and deployment" requirements set forth in Article 42 of the Publications Regulation , it
restricts trading rights and is, therefore, inconsistent with China's trading rights commitments.
7.441 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of paragraphs 2 and 8 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
348
7.442 China argues that the Panel should not examine the Importation Procedure , because the
document submitted by the United States is a webpage from the GAPP's website which is intended to
provide guidance for applicants. China is of the view that it would not be necessary for the Panel to
make a ruling on the Importation Procedure because it cannot serve as the legal basis for any
administrative acts.
7.443 The United States responds that the Importation Procedure is specifically identified in its
panel request and is therefore within the Panel's te rms of reference. Additionally, the United States
argues that the Importation Procedure is legally binding on the GAPP and sets out the requirements
and examination and approval procedures for appli cants seeking to import reading materials into
China.
7.444 The Panel recalls its decision at paragraph 7.215 above that, notwithstanding the United
States' arguments to the contrary, the Importation Procedure does not in and of itself set forth rules or
norms of general and prospective application and as such does not qualify as a "measure" within the
meaning of Article 3.3 of the DSU. Therefore, the Panel cannot, and does not, make a ruling on the
US claims in respect of the Importation Procedure.
(vi) 1997 Electronic Publications Regulation
7.445 The United States notes that Article 2 of the 1997 Electronic Publications Regulation defines
"electronic publications" as follows:
"Electronic publications as stated in these Regulations is a form of popular
propagation medium which refer to the savi ng of edited photo, text, audio and video
information in the form of digital codes on magnetic, optical and electronic media.
They can be accessed for reading and usage through computers or equipment with
similar functions so that they can express ideas, disseminate knowledge and
accumulate culture, and they can be repr oduced and distributed. The media forms
include soft floppy disk (FD), read-onl y CD (CD-ROM), interactive CD (CD-I),

348 United States' response to question No. 1.

photo-CD, DVD-ROM, IC cards and other forms as recognized by the General
Administration of Press and Publication."349
7.446 The United States further notes that Article 8 of the 1997 Electronic Publications Regulation
imposes a licensing system on the importation of electronic publications, providing that no entity or
individual may import electronic publications into China without a permit.
7.447 Furthermore, the United States notes that according to Article 50 the GAPP must consult with
the relevant authorities to determine the total nu mber, structure and deployment of enterprises
importing electronic publications. Article 51 further conditions approval to engage in the importation
of electronic publications on whether the applicant enterprise satisfies the government's plans for total
number, structure and deployment.
7.448 In the United States' view, the 1997 Electronic Publications Regulation thus implements the
restrictive approval and licensing requirements contained in the Publications Regulation and the
Importation Procedure. In so doing, the United States mainta ins, it reconfirms the prohibition on any
foreign-invested enterprise or foreign individual, or any privately owned Chinese enterprise, engaging
in the importation of electronic publications.
7.449 The United States claims that the 1997 Electronic Publications Regulation is inconsistent
with China's trading rights commitments by imposing limits on which enterprises may import
electronic publications into China. The United States recalls that Articles 50 and 51 limit which
enterprises may engage in the importation of electronic publications according to Chinese
Government plans for the "total number, structure a nd deployment" of such enterprises. In addition,
the United States submits that Articles 52-55 of the 1997 Electronic Publications Regulation further
require approval by multiple layers of Chinese Gove rnment decision-makers before an enterprise may
import electronic publications. The United States considers that by conditioning trading rights on
Chinese Government plans for structuring th ese activities and on successfully obtaining Chinese
Government approvals, the 1997 Electronic Publications Regulation is inconsistent with China's
trading rights commitments. According to the United States, it injects qualifying criteria and
government discretion into a process that China comm itted to be "non-discretionary". In response to
a question from the Panel, the United States further cl aimed that Article 8 is also inconsistent with
China's trading rights commitments, by not allo wing all enterprises in China and all foreign
enterprises and individuals to import electronic publi cations and by granting trading rights in a
discriminatory and discretionary way.
350
7.450 Also, in response to a question from the Pa nel, the United States indicated that the
inconsistencies claimed in relation to this measu re arise as a result of Articles 8 and 50-55 of the
measure, and under paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-
(b) of the Working Party Report. The United States further indicated that, in its view, the parties
whose trading rights are being restricted under this measure are foreign enterprises, including foreign-
invested enterprises in China, fo reign individuals and Chinese pr ivately invested enterprises in
China.351
7.451 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the

349 The United States adds that despite the broad scope of this definition, it understands that electronic
publications include only books, periodicals, newspape rs, and audio books saved as digital codes on the media
forms set out above, but do not include AVHE products and sound recordings.
350 United States' response to question No. 153.
351 United States' response to question No. 1.

WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.452 The Panel recalls that China responded to the Panel's questions with respect to the content of
the 1997 Electronic Publications Regulation by saying that it has been repealed and replaced by the
2008 Electronic Publications Regulation . China contends that the 1997 Electronic Publications
Regulation has ceased to have any legal effect.
352 According to China, the 1997 Electronic
Publications Regulation was replaced in April 2008, when the 2008 Electronic Publications
Regulation came into force. 353 This was well after 27 November 2007, the date of establishment of
the Panel. In this respect, th e Appellate Body explained, in EC – Bananas III ( Ecuador Second
Recourse to Article 21.5), that:
"[O]nce a panel has been established and th e terms of reference for the panel have
been set, the panel has the competence to ma ke findings with respect to the measures
covered by its terms of refere nce. We thus consider it to be within the discretion of
the panel to decide how it takes into account subsequent modifications or a repeal of
the measure at issue."354
7.453 We note that the United States has indicated that, notwithstanding China's contention that the
measure has been repealed, it requests a findi ng from the Panel on the consistency of the 1997
Electronic Publications Regulation with China's trading rights commitments under the Accession
Protocol.355 Moreover, China has never conceded that the 1997 Electronic Publications Regulation is
WTO-inconsistent. Being administrative regula tions promulgated by the GAPP, the relevant
provisions could also be easily re-imposed. In the light of these elements, we think that despite
China's position that the 1997 Electronic Publications Regulation no longer has legal effect, a ruling
by us on the US claims could assist in securing a positive solution to the dispute. 356 We thus find it
appropriate in this case to address the merits of the US claims that the 1997 Electronic Publications
Regulation is inconsistent with China's trading rights commitments under the Accession Protocol.357
7.454 Before examining the US claims, we note that the parties appear to agree that "electronic
publications" within the meaning of the 1997 Electronic Publications Regulation include books,
periodicals, newspapers and audio books saved as digital codes on the media forms set out in Article 2
of the Regulation, but do not include audiovisual products.358 We see no reason to disagree.
7.455 Turning to the specific claims by the United States, we recall that the United States has
identified Articles 8 and 50-55 of the 1997 Electronic Publications Regulation as the provisions
giving rise to an inconsistency with China's trading rights commitments. Before addressing the merits
of these claims, however, we note that in comments on a US reply to a question from the Panel, China
argues that the provisions identified by the Un ited States have been superseded by the Publications

352 China's response to question No. 24(a) and China's response to question No. 90 (with respect to the
applicability of the 1997 Electronic Publications Regulation in the context of the US claim under the GATS).
353 This is supported by Article 63 of the 2008 Electronic Publications Regulation which provides that
the 1997 Electronic Publications Regulation is to be repealed upon entry of the force of the former regulation.
354 Appellate Body Report on EC – Bananas III (Article 21.5 – Ecuador II), para. 270.
355 United States' first oral statement, paras. 44-46.
356 Article 3.7 of the DSU.
357 We note that while a panel may make findings with respect to a repealed measure, it would not be
appropriate to make recommendations pursuant to Article 19 of the DSU with respect to a WTO-inconsistent
repealed measure that has ceased to have legal effect. See Appellate Body Reports on US – Certain EC
Products, para. 81; US – Upland Cotton , para. 272; and EC – Bananas III (Ecuador Second Recourse to
Article 21.5), para. 271.
358 United States' first written submission, footnote 29; China's response to question No. 24(c).

Regulation.359 China notes that Article 2 of the Publications Regulation makes clear that that
Regulation covers also electronic publications.
7.456 We agree that the Publications Regulation covers electronic publications. But the mere fact
that the Publications Regulation covers electronic publications, and that the Publications Regulation
postdates the 1997 Electronic Publications Regulation , does not demonstrate that the relevant
provisions of the 1997 Electronic Publications Regulation were not applicable on the date of
establishment of the Panel, or would not have b een applied by China. For instance, it seems
reasonably possible that the Publications Regulation and the 1997 Electronic Publications Regulation
were concurrently applicable to electronic publi cations. In support of its contention that the
Publications Regulation superseded the 1997 Electronic Publications Regulation , China has offered
no analysis of the legal relationship between the tw o regulations at issue. Nor has it referred, for
instance, to any separate ru les or jurisprudence which would support its contention. 360 In these
circumstances, we are unable to accept China's asserti on that the provisions cited by the United States
had been superseded by the Publications Regulation.
Article 8
7.457 Article 8 provides that no entit y or individual may engage in business operations concerning
electronic publications without approval. Article 8 also stipulates that the import of electronic
publications is a business operation concerning electronic publications.
7.458 We note that the United States first identified Article 8 as a provision giving rise to an
inconsistency with China's trading rights commitme nts in response to a question which the Panel put
forward after the first substantive meeting with the parties. 361 In its response, the United States did
not, however, explain why and how Article 8 in its view gives rise to an inconsistency. After the
second substantive meeting with the parties, the Pa nel inquired about the US claim under Article 8 in
a further question to the United States. 362 The purpose of that question was to help the Panel
understand what the US claim concerning Article 8 was and to determine on that basis whether the
United States had made a prima facie case in its written submissions or oral statements.
7.459 In its response to the additional question from th e Panel, the United States explained that its
claims in respect of Article 8 are that China do es not allow all enterprises in China and all foreign
enterprises and individuals to import electronic publica tions and that China grants trading rights in a
discriminatory and discretionary way. 363 Thus, based on that second response, we understand the
United States to raise claims under paragraphs 5.1, 83(d) and 84(a) as well as under paragraphs 5.2
and 84(b).
7.460 In the relevant response, the United States refe rs back to its first written submission. As
noted, however, the United States' first written submission does not even specify Article 8 as a
provision that is being challenged. Since the United States has failed to identify any other references

359 China's comments on the United States' response to question No. 154.
360 We note that Article 1 of the 1997 Electronic Publications Regulation states that that Regulation
was formulated in accordance with the Publications Regulation in force at the time. Similarly, Article 1 of the
2008 Electronic Publications Regulation states that that Regulation was formulated in accordance with the
Publications Regulation in force. To us, this does not indicate that the Publications Regulation in force has
superseded the 1997 Electronic Publications Regulation.
361 United States' response to question No. 1. Article 8 is mentioned at para. 45 of the United States'
first written submission in a section entitled "Factual Backgrou nd". Article 8 is not mentioned, however, in the
section of the same written submission – Section IV – where the United States alleges that China's measures are
inconsistent with China's trading rights commitments.
362 United States' response to question No. 153.
363 Ibid.

to Article 8 in its second written submission or its or al statements, the US reply confirms that the
United States explained the nature and basis for th e claimed inconsistency of Article 8 for the first
time in response to the Panel question after the second meeting.
7.461 We recall that the United States as the compla ining party bears the burden and responsibility
of establishing a prima facie case of inconsistency.
364 From the foregoing it is clear that the United
States has not made a prima facie case in its written submissions or oral statements to the Panel. Also,
as the United States had several opportunities to establis h its claim, there was no need for the Panel to
afford the United States an additional opportunity to do so.
7.462 Panels are under a duty of impartiality towards th e parties. The Appellate Body report on
Japan – Agricultural Products II indicates in this respect that this duty implies, in part, that panels
must not help the complaining party by making a prima facie case for it. 365 Equally, it would be
improper, in our view, for a panel to help the co mplaining party meet its burden of establishing a
prima facie case. In the instant case, we consider that we would, in effect, be helping the United
States if we were to allow it to try to make a prim a facie case for the first time in response to a Panel
question put forward after the second meeting. Wh en the Panel put forward the relevant question
after the second meeting, the United States did not have any further opportunity to address the Panel
at its own initiative. In the light of this, and since the United States has not used the previous
opportunities given to it to try to make a prima faci e case, it would, in our view, be improper for the
Panel to give the United States such a further opportunity.
7.463 As a consequence, we rest our determination as to whether the United States has made a
prima facie case, not on the US reply to the Panel' s question, but on the US written submissions and
oral statements to the Panel. As indicated, howev er, the US reply serves to confirm that the United
States has explained the nature and basis of its clai ms concerning Article 8 only in its response to the
Panel's question, and that the United States has not met its burden of making a prima facie case in its
written submissions or oral statements. We th erefore conclude that the United States has not
established that Article 8 results in China acting inconsistently with paragraphs 5.1, 83(d) and 84(a) or
paragraphs 5.2 and 84(b). Also, we note that the United States has not established that Article 8
results in an inconsistency when considered together with other challenged measures.
Articles 50-51

7.464 We now turn to analyse the US claims in re lation to Articles 50 and 51. Article 50 provides
that the GAPP, together with other agencies, must draw up plans for the total number, structure and
deployment of electronic publication import entities. Article 51 stipulates that the GAPP must only
approve applications for the establishment of an el ectronic publication import entity if it fits in with
these plans.
7.465 According to the United States, Articles 50 and 51 are inconsistent with China's trading rights
commitments because they inject qualifying criteri a and government discretion into a process that
China committed to be "non-discretionary". Thus , we understand the United States to raise a claim
under paragraph 84(b), similar to the one it has raised in respect of a parallel provision in Article 42 of
the Publications Regulation.

364 See Appellate Body Report on Canada – Dairy (Article 21.5 – New Zealand and US II), para. 66.
365 See Appellate Body Report on Japan – Agricultural Products II, para. 129.

7.466 In response to a question from the Panel, the Unite d States identified a further claim, based, it
seems, on paragraphs 5.2 and 84(b), alleging "discrimination" against foreign importers and privately-
held importers in China.366
7.467 At paragraph 259 of its first written submission, the United States contends, as noted above,
that the 1997 Electronic Publications Regulation is inconsistent with China's trading rights
commitments by imposing limits on which electronic publication import entities may import
electronic publications into China. However, the same paragraph identifies only one commitment
with which China is alleged to be acting inc onsistently – the commitment concerning the "non-
discretionary" grant of trading rights. We ther efore do not consider that the United States at
paragraph 259 meant to put forward an additional claim.367
7.468 Finally, we note that in response to a questi on from the Panel, the United States has asserted
that the three criteria for which the GAPP is to elaborate plans are inconsistent with the second
sentence of paragraph 84(b), which makes clear th at any requirements for obtaining trading rights
must be for customs and fiscal purposes only and must not constitute a barrier to trade.368
7.469 Before examining these US claims, we note Chin a's argument that the plans for the total
number, structure and deployment of electronic publication import entities are not applicable to
foreign enterprises and individuals. 369 China's argument is based on the state ownership requirement
contained in Article 42 of the Publications Regulation.370 Neither Article 50 nor Article 51 sets out
such a requirement, however. As a result, we are unable to accept China's argument.
Paragraph 84(b)
7.470 We address first the claim concerning the comm itment to grant trading rights in a "non-
discretionary" way. We note that the plans refe rred to in Articles 50 and 51 exhaustively list the
criteria which are to be, and may be, taken into accoun t by the GAPP in addition to those specified in
Article 51. Thus, we do not think that the GAPP ha s discretion, under Article 51, to apply additional
criteria which would determine whether or not applications are approved.
7.471 In response to a question from the Panel, the United States contended that the plans for the
total number, structure and distribution of elect ronic publication import entities are discretionary
because they are formulated and applied according to the preferences of the GAPP. 371 It is correct
that Article 50 requires the GAPP to elaborate plans for the total number, structure and distribution of
electronic publication import entities. We are not persuaded, however, that the GAPP would enjoy
discretion in determining whether particular applican ts satisfy these plans. As we have explained at
paragraph 7.429 above when discussing the State plan referred to in Article 42 of the Publications
Regulation, in the absence of evidence to the contrary , we do not think we can simply assume that
under the relevant plans the GAPP would enjoy discre tion in granting trading rights. Regarding the
United States' assertion that the GAPP would have di scretion in applying the plans, we note that no
evidence or argument has been provided in support of this assertion.
7.472 We agree that the "total number, structure and deployment of electronic publication import
entities" can be viewed as three separate "qualifyi ng criteria". The United States has not convinced
us, however, that the mere existence of these criteria demonstrates that the GAPP has discretion

366 United States' response to question No. 154(b).
367 The United States' response to question No. 154(b) appears to confirm that the United States did not
mean to put forward an additional claim.
368 United States' response to question No. 162.
369 China's comments on the United States' response to question No. 154.
370 China's response to question No. 174.
371 United States' response to question No. 154(b).

whether or not to approve particular applications.
372 With regard to the fact that the GAPP's plans
appear not to be available in written form, we refer to our considerations at paragraph 7.430 above.
7.473 Moreover, we note that Articles 50 and 51 are concerned with "electronic publication import
entities". The term "electronic publication import en tities" indicates to us that these provisions do not
deal with foreign individuals. 373 We further observe that Articles 50 and 51 do not explicitly state
whether "electronic publication import entities" need to be registered in China. We recognize that the
term "electronic publication import entity" is unqualified. In ou r view, this does not necessarily
mean, however, that the term could cover also foreig n enterprises not registered in China. We note in
this respect that we have not been given any other trade-related Chinese laws or regulations that could
indicate whether an "import entity" needs to be registered in China. Also, Article 55 of the 1997
Electronic Publications Regulation states that after obtaining a licence to import electronic
publications, an entity needs to obtain, in add ition, a business licence from the local administrative
department for industry and commerce. It seems un likely that entities not registered in China could
obtain such a business licence. In view of these elem ents, and the lack of US arguments and evidence
on this issue, we consider that the United States has not demonstrated that the term "electronic
publication import entities" as it appears in Article s 50 and 51 could cover foreign enterprises not
registered in China. We accept, however, that th e term "electronic publication import entities" could
cover foreign-invested enterprises registered in China.
7.474 As to whether the term "electronic publication import entities" could cover Chinese branches
of foreign-registered enterprises, it is sufficient to note that the United States has not asserted that the
1997 Electronic Publications Regulation affects branches in China a nd that this results in an
inconsistency with China's trading rights commitmen ts. In fact, the United States has never even
mentioned the possibility of foreign-registered en terprises setting up Chinese branches. Accordingly,
we do not examine this issue further.374
7.475 It follows that even if as a result of the requirement in Articles 50 and 51 concerning
conformity with the plans China enjoyed discretion in the granting of trading rights to electronic
publication import entities, the United States has not established that the electronic publication import
entities subject to the requirement could include forei gn enterprises not registered in China. Also, as
indicated, the United States has not asserted that Articles 50 and 51 affect Chinese branches of foreign
enterprises not registered in China.
7.476 With regard to enterprises registered in Chin a, specifically foreign-invested enterprises, we
recall our view that the term "electronic publication import entities" could cover such enterprises. We
are, however, not convinced, based on the above consid erations, that, as a result of the requirement in
Articles 50 and 51 concerning conformity with the pl ans, China does not approv e applications for the
establishment of "electronic publication import entiti es" in a non-discretionary way, and that it
therefore does not grant such entities the right to import in a non-discretionary way.
7.477 Consequently, we conclude that the United St ates has not established that Articles 50 and 51
result in China acting inconsistently with its commitm ent in paragraph 84(b) to grant trading rights to
foreign enterprises and foreign individuals in a non-di scretionary way. Also, we note that the United

372 The fact that China must elaborate plans using these criteria, as noted by the United States in its
reply to question No. 162, in our view does not demonstrate that the GAPP has discretion whether or not to
approve particular applications based on the elaborated plans.
373 In contrast, Article 8 refers to individuals, stating that no entity or individual may, without a permit,
engage in electronic publication business operations such as the import of such publications.
374 Also, it is in any event not clear to us from the information on the record whether Chinese laws or
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in
the sector at issue.

States has not established that Articles 50 and 51 result in an inconsistency when considered together
with other challenged measures.
Paragraphs 5.2 and 84(b)
7.478 Regarding the second US claim in respect of Articles 50 and 51, the United States argues that
the plans for the total number, structure and depl oyment discriminate against foreign importers and
privately-held importers in China because, allege dly, these importers are "held by the GAPP to be
categorically incapable" of satisfying this plans. In support of this allegation, the United States refers
to a reply from China to a question from the Panel.375
7.479 We note that the United States first indicated that paragraphs 5.2 and 84(b) were a basis for its
claim in response to a Panel question put forward after the second meeting. For the same reasons as
those we have given above in relation to the US claims concerning Article 8, we rest our
determination as to whether the United States has made a prima facie case of inconsistency with
paragraphs 5.2 and 84(b), not on the US respons e to the Panel's question, but on the US written
submissions and oral statements to the Panel. Th e US response serves to confirm, however, that the
United States has not identified paragraphs 5.2 and 84(b) as the basis of its claim until its response to
the Panel's question, and that the United States ha s therefore not met its burden of making a prima
facie case in its written submissions or oral statemen ts. We therefore conclude that the United States
has not established that Articles 50 and 51 result in China acting inconsistently with paragraphs 5.2
and 84(b). Also, we note that the United States has not established that Articles 50 and 51 result in an
inconsistency when considered together with other challenged measures.
Paragraph 84(b), second sentence
7.480 Finally, we recall the US assertion that the thr ee criteria for which the GAPP is to elaborate
plans are inconsistent with the second sentence of paragraph 84(b).
7.481 We note that the United States first indicated that the second sentence of paragraph 84(b) was
a basis for its cl aim in response to a Panel question put fo rward after the second meeting. For the
same reasons as those we have give n above in relation to the US clai ms concerning Article 8, we rest
our determination as to whether the United States ha s made a prima facie case of inconsistency with
the second sentence of paragraph 84(b), not on the US response to the Panel's question, but on the US
written submissions and oral statements to the Pane l. The US response serves to confirm, however,
that the United States has not identified the second sentence of pa ragraph 84(b) as the basis of its
claim until its response to the Pane l's question, and that the United States has therefore not met its
burden of making a prima facie case in its written s ubmissions or oral statements. We therefore
conclude that the United States has not establishe d that Articles 50 and 51 result in China acting
inconsistently with the second sentence of paragra ph 84(b). Also, we note that the United States has
not established that Articles 50 and 51 result in an in consistency when considered together with other
challenged measures.
Articles 52-55

7.482 We next consider the US claims in respect of Articles 52-55. Article 52 provides that before
an application is submitted to the GAPP, it is to be submitted to the competent local press and
publication bureau. Article 53 deals with the documen ts and proofs to be provided in support of an
application. Article 54 provides a time-line fo r decisions by the GAPP and requires the GAPP to
provide reasons for any rejections. Finally, Artic le 55 stipulates that after the GAPP has given its
approval, the entity concerned needs to obtain an import-export permit from the foreign trade and

375 China's response to question No. 46(b).

economic cooperation administration in accordance with China's Foreign Trade Law and a business
licence from the local industrial and commercial administration according to law.
7.483 The United States argues that by conditioning trading rights on successfully obtaining
multiple Chinese Government approvals, Articles 52-55 are inconsistent with China's trading rights
commitments. According to the United States, this injects government discretion into a process that
China committed to be "non-discretionary". In response to a question from the Panel, the United
States further stated that multiple decision-makers determine whether to approve applications on the
basis of discretionary plans for the total number, structure and deployment of electronic publication
import entities. The United States considers that these multiple layers are opaque and facilitate
China's trading rights violation. The United States obser ves, however, that it is the arbitrary nature of
this regime that gives rise to the violation. Th e United States also submits that China subjects foreign
importers and privately held importers in China to a discriminatory and discretionary decision-making
system that is onerous as well as opaque and that results in the denial of their trading rights.
376
7.484 We note that the basis on which the United Stat es is challenging Articles 52-55 is less than
clear. We understand the United States to raise a claim concerning alleged discretion under
paragraph 84(b).377 Since the United States refers to a di scriminatory "decision-making system", it
appears that the United States also raises a claim concerning alleged discrimination under paragraphs
84(b) and 5.2.
Paragraphs 5.2 and 84(b)
7.485 Regarding, first, the claim concerning allege d discrimination against foreign importers and
privately held importers in China, we note that Articles 52-55 appear to apply to all applicants
wishing to establish an electronic publication import entity, including Chinese wholly state-owned
enterprises. Even assuming for the sake of argum ent that the decision-making process was onerous
and opaque, as the United States alleges, the United States has not established that this would be any
less true for wholly state-owned enterprises than for privately held enterprises in China. Furthermore,
regarding foreign enterprises not registered in Chin a, the United States has not established that such
enterprises are subject to the decision-making pro cess which it says is onerous and opaque. In this
regard, we recall that Articles 52-55 apply to "el ectronic publication entities", and that the United
States has not demonstrated that this term could cover foreign enterprises not registered in China. We
also recall that the United States has not asserted that Articles 52-55 affect Chinese branches of
foreign enterprises not registered in China. Si nce Articles 52-55 are concerned, like Articles 50-51,
with "electronic publication import entities", we also think they do not deal with foreign individuals.
We therefore conclude that the United States has not established its claim that Articles 52-55
discriminate against foreign importers or privately he ld enterprises in China and thus give rise to a
breach of paragraphs 5.2 and 84(b). Also, we note that the United States has not established that
Articles 52-55 result in an inconsistency when considered together with other challenged measures.
Paragraph 84(b)
7.486 Regarding the US claim concerning alleged discre tion, we note that the United States has not
explained how Articles 52-55 confer discretion. It is not clear to us that they do. Even if it were the
case that Article 52 required the consent of the local press and publication bureau
378, the United States
has not specifically argued, let alone demonstrated, that this local bureau enjoys discretion as to
whether to give its consent. It does not seem plausible to assume that the local bureau faces
constraints that are less strict than those faced by the GAPP. Therefore, the local bureau would

376 United States' response to question No. 154(a).
377 United States' first written submission, para. 259.
378 China's translation of Article 52 does not refer to any consent requirement.

probably need to follow the GAPP's plans for the total number, structure and deployment of electronic
publication import entities. We recall in this respect that we have rejected the US claim that Articles
50 and 51 confer impermissible discret ion. Furthermore, we note that Article 55 refers to permits or
licences to be obtained in accordance with other la ws that are not being challenged. The United
States has not demonstrated that the grant of a permit or licence under these other laws is
discretionary. In addition, we recall that Article s 52-55 are concerned with "electronic publication
import entities", and that they do not deal with fore ign individuals. We further recall that the United
States has not demonstrated that the term "elect ronic publication import entities" could cover foreign
enterprises not registered in China, and that it has not asserted that Articles 52-55 affect Chinese
branches of foreign enterprises not registered in China.
7.487 Based on the foregoing considerations, we ar e not convinced that, as a result of Articles 52-
55, China does not approve applications in a non-di scretionary way, and that it therefore does not
grant the right to import in a non-discretionary wa y. Consequently, we conclude that the United
States has not established that Articles 52-55 r esult in China acting inconsistently with its
commitment in paragraph 84(b) to grant foreign en terprises and foreign individuals trading rights in a
non-discretionary way. Also, we note that the United States has not established that Articles 52-55
result in an inconsistency when considered together with other challenged measures.
(vii) Film Regulation
7.488 The United States notes that the Film Regulation governs, inter alia, the importation of films
for theatrical release into China, including feature films, documentary films, science and educational
films, animation films, and special topic films. 379 The United States also notes that Article 5 of this
measure provides in relevant part that the State shall implement a licensing system for film
importation and that:
"[N]o entity or individual shall, without pe rmission, be engaged in the activities of ...
import ... of films, or import ... a film for which a permit has not been obtained. The
permits or approval documents granted in accordance with these Regulations shall not
be leased, lent, sold, or assigned in any other form."
7.489 The United States further points out that acco rding to Article 30 only enterprises designated
by SARFT may engage in the business of importing fi lms. As a result, the United States maintains,
no enterprise or individual can import films without having been designated. The United States
contends that "designation" means that SARFT exercises its discretion to decide who may import
films and that no application and approval procedures apply.
7.490 The United States asserts in this regard that China has designated only a single wholly state-
owned entity – the China Film Import and Export Cor poration, a subsidiary of China Film Group – to
import films for theatrical release.
380 The United States contends that this monopoly applies to all
films for theatrical release, regardless of whether a film is imported on a revenue-sharing basis or a
flat-fee basis.

379 The United States refers to Article 2 of the Film Regulation.
380 The United States refers to the China Film Group's homepage, available at
http://www.chinafilm.com/gzzy/index_image/20070204/2100.html (saying that it provides that China Film
Group "is the sole importer of foreign theatrical movies in China ..." (Exhibit US-23)) as well as: United Nations
Educational, Scientific and Cultural Organization, "Trends in Audiovisual Markets: China, Mongolia & South
Korea" (June 2007), p. 32 (Exhibit US-12); Screen Digest and Nielsen NRG, "Cinema and Home Entertainment
in China" (January 2007), pp. 41-42 (Exhibit US-24); The Center for American Economic Studies, Chinese
Academy of Social Sciences, "A Study of the Potential of the Chinese Film Industry" (July 2005), p. 31 (Exhibit
US-25) and China eCapital Corporation, "Chinese Media & Entertainment Research: The Chinese Film
Market", March 18, 2005, pp. 40, 65, 79, and 107 (Exhibit US-26).

7.491 The United States claims that China's meas ures granting China Film Group a monopoly on
the right to import films for theatrical release are inconsistent with China's trading rights
commitments. The United States submits that this monopoly not only deprives enterprises in China
(other than China Film Group) as well as foreign enterprises and individuals of the right to import
films for theatrical release. It also discrimin ates against foreign-invested enterprises and foreign
individuals, in contravention of China's trading rights commitments. The United States considers that
Article 30 of the Film Regulation constitutes the legal basis for this monopoly, providing that only
enterprises designated by the Chinese Government are permitted to import films for theatrical release.
7.492 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a resu lt of Articles 5 and 30 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
381
7.493 China argues that paragraphs 5.1, 5.2 or 1.2 of the Accession Protocol govern only trade in
goods. However, in China's view, the United States has failed to establish that motion pictures for
theatrical release, i.e., motion pictures intended to be shown in movie theatres, could be considered as
goods. China submits that the relevant Chinese measures, including the Film Regulation , do not
regulate the importation of goods but regulate services related to the licensing of rights for the
exploitation of motion pictures. Consequently, China considers that paragraphs 5.1, 5.2 and 1.2 of the
Accession Protocol do not apply and that the US claim lacks any legal basis.
7.494 China submits that the commercial exploitatio n of motion pictures for theatrical release
consists of the organization of public projecti ons in movie theatres involving three main service
providers: producers, distributors, and movie theatres. China explains that the distribution of motion
pictures is organized on the basis of copyright li censing agreements whereby the producer grants the
distributor the right to use copies of the motion picture in order to organize its distribution for the
period of time and in the territories agreed with the producer.
7.495 China further notes that, traditionally, motion pictures are imprinted on cinematographic
film.
382 China points out that the negative of the film is developed in a laboratory in order to create
the master negative and other subordinate prints. The distributor will receive copies of this master
negative as well as other related delivery materials (i ncluding soundtracks, and advertising materials)
in order to organize the distribution of the motion picture on its territory. China notes that at the end
of the period of release, all licensed rights will in principle immediately revert to the licensor free of
any claim and the distributor will either need to : (i) return all delivered materials as well as all
materials created by the distributor or (ii) destroy all materials. As far as financial arrangements are
concerned, China points out that the box office revenue is usually shared between producers,
distributors and movie theatres, according to agreed ratios (revenue-sharing). Distributors and
producers may also agree on a lump-sum payment (fee) to the producer for the distribution rights.
7.496 China observes that a motion picture consists of a sequence of pictures that is projected on to
a screen in rapid succession and accompanied by a s oundtrack. As such, China notes, it is intangible
and cannot be possessed. China also notes that motion picture distributors do not buy the motion
picture as such, but only get the limited right to or ganise its release in movie theatres, and that movie-

381 United States' response to question No. 1.
382 China observed, however, that the delivery of motion pictures in physical materials is increasingly
being replaced by delivery in digital form, i.e., by deliv ery without any physical support. According to China,
such use of digital technology in the motion picture business is likely to render the use of physical carriers
obsolete.

goers do not buy the motion picture as such, but only the right to attend the projection. In China's
view, motion pictures for theatrical release cannot th erefore be considered as "goods", i.e., as items
that are tangible and capable of being possessed.383
7.497 China acknowledges that the delivery materials th at carry the motion picture traditionally are
tangible items, i.e., the film reel. China argues, however, that the existence of these materials does
not allow treating motion pictures as goods. According to China, the exploitation of a motion picture
for theatrical release does not consist of the trade of the film reel, but in the exploitation of the
intangible feature that it contains, i.e., an artistic wo rks that is to be projected in movie theatres.
China submits that the film reel is used for th e sole purpose of providing the service of theatrical
distribution. In China's view, it is merely an accessory to the service that is provided.384
7.498 China points out in this regard that, as re flected in agreements concerning theatrical
distribution, the film reels are only "delivery materials", provided for the sole purpose of organizing
the distribution of the motion picture, and only in quantities necessary to permit production,
distribution and projection of the picture. Secondly, China notes that they are only copies of the
"master negative", and they can only be used in accordance with the c onditions agreed by the
copyright owner. In addition, China states that they are usually provided by the producer free of
charge or at their cost price, which confirms that they do not "contain" the commercial value of the
motion picture. Finally, China recalls that after the exploitation of the motion picture, they are either
returned to the producer or destroyed. Moreove r, China notes that all rights concerning materials
created from the delivery materials (such as altern ate language tracks, dubbed or sub-titled versions)
belong to the licensor. In other words, neither the distributor nor the theatres "possess" the motion
picture that the delivery materials temporarily carry.
7.499 China submits that international classificati on instruments, such as the United Nations'
Central Product Classification (the "CPC"), confirm th at the activities involved in the exploitation of
motion pictures for theatrical releas e are classified as services, and that the only goods category is the
film reel, which China contends is described as being used only for the purpose of providing the
services necessary for the projection of the relevant motion picture.
7.500 Regarding the measure at issue, China asserts that the Chinese measures challenged by the
United States do not treat the importation of motion pictures as the importation of goods, but as a
licensing service for the exploitation rights of motion pictures for their theatrical distribution. China
submits that under these measures, the "importation" of motion pictures consists of three main steps.
First, the importation entity designated by the SARFT organizes the distribution of foreign motion
pictures in Chinese theatres through a licence granted by the copyright owner. China notes in this
regard that Article 33 of the Film Regulation provides in relevant part th at "a film importation entity
shall use the film work after obtaining the licence from copyright owner and can only use it within the
scope of such license". China points out that in pr actice, the entity enters into a licence agreement
with the foreign producers or distributors of the sel ected motion pictures. Secondly, China notes that
the designated entity ensures the temporary impor tation of the materials containing the motion

383 China refers to the Appellate Body report on US – Softwood Lumber IV, para. 59.
384 China considers relevant in this context the judg ment of the European Court of Justice in the case
Federación de Distribuidores Cinematográficos v Estado Español and Unión de Productores de Cine y
Televisión where the Court stated:
"The exploitation of cinematographic films in a theatre or on television, in the context of
which the producers authorize the distributors to make copies of their films and to organize
public performances by means thereof, all in return for remuneration, constitutes a provision
of services. Where it is of a trans-frontier nature, since producers and distributors are not
established in the same Member State, it comes under the provisions of the Treaty with regard
to freedom to provide services." (Judgment of the European Court of Justice of 4 May 1993,
Case C-17/92, ECR 1993 I 02239 et seq.) (Exhibit CN-6).

picture, for the purpose of submitting it to the SAR FT for content review. Thirdly, China explains
that once the content of the motion picture has be en reviewed and approved, the designated entity
proceeds with the customs clearance of the delivery materials for the purpose of the distribution of
motion pictures to Chinese distributors and theatres.
7.501 China submits that, accordingly, the "importati on" of motion pictures in the meaning of the
Chinese measures refers to the licensing of rights for the exploitation of foreign motion pictures in
Chinese movie theatres. China asserts that the "r ight to import" motion pictures granted to the
designated importation entity is in no way the right to import goods, but the right to obtain a copyright
licence. According to China, the measures at is sue regulate the licensing service for the exploitation
rights of motion pictures for their theatrical distri bution. In China's view, since the challenged
measures treat the importation of motion pictures as a licensing service, it follows that the challenged
measures do not fall under paragraphs 5.1, 5.2 and 1.2 of the Accession Protocol.
7.502 China further argues that its GATS Schedule conf irms the absence of any legal basis for the
US claim. China points out in this respect that it made an additional commitment in Sector 2D
concerning the "importation of motion pictures for theatrical release". In China's view, this
commitment confirms that the concept of "importati on" used by China in the context of the regulation
of the motion picture business refers to services and that measures affecting the importation of motion
pictures do not fall under WTO provisions relating to the importation of goods. China considers that
this additional commitment also reflects the common intention of WTO Members to treat under the
GATS the importation into China of motion pictures fo r theatrical release. China also notes that it
specified in its Schedule that its commitment with regard to the importation of motion pictures was
"without prejudice to compliance with China's regul ations on the administration on films". China
submits that in doing so, China expressly reserved its right to regulate services associated with the
importation of motion pictures for theatrical release. China considers, therefore, that its measures
establishing a system of designation for the importation of motion pictures fall under the GATS.
China asserts that any other interpretation woul d undermine China's right to regulate the motion
picture business under the GATS.
7.503 The United States responds that the product which is the subject of its claim is tangible, hard-
copy cinematographic film that can be used to project motion pictures in a theater. The United States
submits that China apparently seeks to deny the ta ngibility of films merely by substituting the term
"motion picture" for "film" and then asserting that a motion picture is intangible. To the United
States, it appears that China seeks to separate th e hard-copy cinematographic film from the content
that it carries, focus only on the content, and assert that the content is not a good. However, the
United States notes that none of its claims depends on the premise that content is a good distinct from
a carrier medium. The United States submits that go ods may be of interest to consumers for different
reasons. In the United States' view, films for theatri cal release happen to be of interest to consumers
because of their content. The United States consider s that the fact that the tangible film carries
content does not transform the film into something other than a good. The United States points out
that all of the relevant products subject to the tr ading rights claims consist of a hard-copy carrier
medium containing content, and that China has not argued that reading materials (e.g., books, etc.),
finished AVHE products or finished sound recordings are not goods.
7.504 The United States rejects China's argument that films for theatrical release are not goods
because they are exploited through a series of servi ces, because the commercial value of the motion
picture lies in the revenue generated by these serv ices, and because the delivery materials containing
film are mere accessories of such services. The Unite d States submits that the vast majority of goods
are commercially exploited through a series of associ ated services and that China's argument would
transform virtually all goods into services. The Un ited States provides the example of a stethoscope,
a good that can be imported and commercially exploite d through the provision of health care services.
According to the United States, the fact that the st ethoscope is used to provide health care services

does not mean that the stethoscope is not a good. The United States also observes that China has
provided no textual basis in the WTO Agreement in support of its assertion that a good used to
provide a service is no longer a good.
7.505 The United States further argues that China itself treats films as goods. First, China concedes
that films must go through customs clearance. Additionally, China's accession schedule of tariff
concessions, which only covers goods, includes unde r heading 3706, "[c]inematographic film,
exposed and developed, whether or not incorporatin g sound track or consisting only of sound track".
Finally, Article 2 of the Regulations of the Pe ople's Republic of China on Import and Export Duties,
provides that "[u]nless otherwise provided for by laws and administrative regulations, the Customs
shall, in accordance with these Regulations, collect import or export duties on all goods permitted by
the People's Republic of China to be imported into or exported out of the Customs territory …". The
United States notes in this respect that in its subm issions China itself admits that it applies customs
duties to films.
7.506 The United States argues, in addition, that Articles III:10 and IV of the GATT 1994, which
deal with cinematographic films, belie China's argument that films for theatrical release are not goods.
Regarding Article III:10, the United States notes th at it sets forth an exception to the national
treatment principle for films, which principle only applies to trade in goods. In the United States'
view, if a film were not a good, it would not be covered by Article III in the first place, and no
exception would be necessary. As for Article IV, the United States argues that although it makes
reference to services, it provides the form that inte rnal quantitative regulations for a particular good –
films – may take, i.e., screen quotas.
7.507 Regarding international classifications of film s, the United States considers that they
demonstrate that films for theatrical release ar e goods. The United States points out that the
Harmonized Commodity Description and Coding Sy stem (HS), which only covers goods, describes
products under heading 3706 as follows: "cinematogr aphic film, exposed and developed, whether or
not incorporating sound track or consisting only of sound track". Similarly, the United Nations' CPC
classifies cinematographic film as a good in Subclass 3895, in addition to classifying the associated
services in Subclass 96113.
7.508 In relation to the measure at issue, the United States observes that China is asking the Panel to
ignore the goods-related aspects of the relevant me asures and conclude that the measures are only
subject to services rules even where they affect both trade in goods and ser vices. This, the United
States maintains, is in contravention of the Appella te Body's guidance, that a measure need not be
analysed under either the goods or services ru les, but rather may be subject to both.
385 In the United
States' view, China's measures th emselves refer to the importation of the good separate from and in
addition to the provision of services us ing the good. Article 5 of the Film Regulation is typical. It
sets forth the requirements for "film production, impor t, export, distribution, and screening, and the
public screening of films". The United States notes that this language refers to both import of films
and the distribution and screening of films. Si nce the relevant measure affects both the good and
certain associated services involving that good, it is subject to both goods and services disciplines.
7.509 The United States notes that China can only point to a single provision – Article 33 – which
makes reference to the licensing process to support its contention that the relevant measures regulate

385 The United States refers to the Appellate Body reports on Canada – Periodicals (p. 17), where the
Appellate Body indicated that while a periodical may be comprised of elements that have services attributes,
i.e., editorial content and advertising content, "they combine to form a physical product – the periodical itself",
and EC – Bananas III (para. 221), where the Appellate Body indi cated that with respect to "measures that
involve a service relating to a particular good or a service supplied in conjunction with a particular good, … the
same measure could be scrutinized under both [the GATT and GATS] agreements…".

services. The United States recalls in this regard that films are treated by China as goods during the
importation process since they are subject to custom s procedures. While the relevant measures may
contain provisions affecting services (copyright licensing), the United States considers that it has
identified other provisions of those measures that regulate trade in goods.
 Thus, the United States
submits, China's measures on films are subject to disciplines governing both goods and services.
7.510 Finally, the United States considers that China' s attempt to use its services commitments with
respect to motion pictures as a shield for its tradin g rights-inconsistent measures is meritless. The
United States does not agree that these services commitments reserved China's right to maintain
measures that are inconsistent with its trading righ ts commitments – let alone the right to maintain a
designation system for the importation of motion pictures for theatrical release. Moreover, in the
United States' view, the text of China's GATS Sc hedule has no relevance to a determination of
whether China's measures restricting who may impor t films are inconsistent with China's trading
rights commitments.
7.511 China responds that the United States is attempting to move the target of its claim from "film
for theatrical release" to "cinematographic film". China submits that the term "film" has a dual
meaning as it can refer either to an artistic work or to a material on which this artistic work may be
recorded. According to China, in order to dis tinguish the artistic work, on the one hand, and the
material, on the other hand, two different concepts are used in international classifications, i.e.,
"motion pictures for theatrical release" (referring to the artistic work) and "cinematographic film"
(referring to the material). China argues that in line with international classifications, the Chinese
measures also make a clear distinction between "motion pictures for theatrical release" and
"cinematographic film". The term "film" in th e English version of relevant Chinese measures,
corresponding to the concept of "motion pict ure", is translated from the Chinese term " Dian Ying".
By contrast, the term "cinematographic film" is translated from the Chinese term " Dian Ying Jiao
Pian", which refers to film ("Jiao Pian") used to project motion pictures ("Dian Ying").386
7.512 China also notes that Article 2 of the Film Regulation specifies the kinds of films to which it
applies: "feature films, documentary films, scien ce and educational films, cartoon and puppet films,
and special subject films". Thus, China notes, films ar e defined in relation to their content, and not in
relation to the material used for their exploita tion. China considers that the Chinese measures
therefore relate to the importation of motion pictures, i.e., the content or the artistic work, and not to
the importation of cinematographic film as such, i.e., the material or physical carrier.387
7.513 China submits that the new US claim relating to cinematographic film, or hard-copy
cinematographic film, does not fall within the Panel's te rms of reference, since they relate to film for
theatrical release. China therefore requests the Pa nel not to make findings in relation to the new
claim. China further requests the Panel to dismiss th e US claim relating to film for theatrical release,
because, having changed the subject of its claim, the United States no longer pursues the
establishment of a prima facie case with regard to that claim.
7.514 Furthermore, China argues that, in any event, th ere is no doubt that, in the specific context of
the commercial exploitation of motion pictures for theatrical release, the impact of the Chinese

386 China points out in this respect that Article 30 of the Film Regulation provides that the importer of
motion pictures ("Dian Ying" in the original Chinese text), not the importer of cinematograph film (" Dian Ying
Jiao Pian"), requires designation.
387 China asserts that it has never disputed that cinematographic film is a good, but considers this fact
irrelevant in the present case. China also notes that cinematographic film is only one of various types of carriers
of motion pictures for theatrical release (e.g., laser discs or hard drives). They may even be transmitted without
any physical carrier. In China's view, the most important feature is that they are intended only for public show
in theatres. This feature distinguishes them from motion pictures for home entertainment using carriers such as
DVDs or video tapes.

measures on the goods involved in this activity does not justify scrutiny of such measures under WTO
disciplines on goods. First, China recalls in this regard its position, based on Articles 30 and 33 of the
Film Regulation , that the system of designation of entities which are granted the right to import
motion pictures for theatrical release relates to trade in services. China submits, in other words, that
its measures regulate the importation of motion pictures for theatrical release as part of the supply of
services, and not as the importation of goods.
7.515 Secondly, China argues that the United States improperly focuses on the good –
cinematographic film – rather than on the measure at issue. In China's view, the measure determines
the applicable WTO rules. In th is respect, China considers that a measure regulating the supply of a
service, although it may have an impact on a tangible good, should be examined under the disciplines
governing trade in services only, if the affected goo d is an accessory to the relevant service. China
submits that, in the context of measures affecting the services related to the exploitation of motion
pictures for theatrical release, cinematographic film should be treated as a me re accessory to these
services. According to China, this accessory nature of cinematographic film is characterized by the
following aspects: (i) cinematographic film is not an object traded in its own right, i.e., it will not be
traded outside of the services that the Chinese me asures regulate; (ii) the exploitation of motion
pictures for theatrical release through a series of ser vices regulated by the relevant Chinese measures
does not require a transfer of ownership of cinematographic film; (iii) the supply of the
cinematographic film is part of the provision of the services of exploitation of motion pictures for
theatrical release and cannot be considered indepe ndently from these services, as specified in the
licensing agreements organizing the theatrical rel ease; and (iv) cinematographic film has no own
commercial value in the context of the services of exploitation of motion pictures for theatrical
release, and does not generate revenue other th an the revenue arising from the supply of these
services. In China's view, it is therefore not possi ble to consider that th e Chinese measures affect
cinematographic film independently of the regula tion of the services related to the exploitation of
motion pictures for theatrical release. According to China, the right to import cinematographic film in
the context of these measures exists only as a logical outcome of the right to import a motion picture
for theatrical release.
7.516 China notes that the United States is attempti ng to rebut China's arguments by referring to
examples which are allegedly similar to the case of cinematographic films. However, China observes,
in presenting these examples, the Un ited States is repeating the same mistake and focuses on the
product rather than on the measure. China submits that if one takes an example of a measure affecting
a good which is not commercially exploited in itsel f but which is accessory to services, the "products-
based" approach proposed by the United States appears all the more irrelevant. China notes that if
such an approach was applied to, e.g., a lottery tic ket imported into a country in order to allow its
inhabitants to participate in the lottery, this appr oach would lead to the conclusion that measures
which regulate the approval of entities allowed to orga nize lotteries, i.e., an entertainment service, fall
under WTO rules on goods when they affect the importation of the lottery ticket. China considers that
such a conclusion would completely overlook the fact that the ticket has no other purpose than to
provide lottery services.
7.517 Additionally, China argues that contrary to what the United States alleges, Article IV of the
GATT 1994 does not support the applicability of the WTO disciplines applicable to goods to the
Chinese measures. China submits that Article IV , because it deals with screen quotas, relates in
essence to trade in services. Chin a notes that the GATT Secretariat, when referring to Article IV
during the Uruguay Round negotiations for audiovisu al services, underlined that "the only subject
matter relating to trade in services to be directly a ddressed in the original thirty five articles of the
GATT is that of cinema quotas".
388 China argues that Article IV contains disciplines on measures
regulating services related to the exploitation of mo tion pictures for theatrical release. China submits

388 China refers to document MTN.GNS/AUD/W/1, para.2 (Exhibit CN-82).

that the purpose of screen time limitations is to reserve a certain exhibition time for domestic motion
pictures for theatrical release, and not for domestic cinematographic film per se. Otherwise, China
maintains, the screen time of a copy of cinematogr aphic film carrying a foreign movie but printed in
domestic laboratories would be counted as part of the quota for domestic motion pictures.
7.518 The United States counters that China's contention that the United States has shifted the
focus of its claim is baseless. The United States maintains that its claims from the beginning have
related to an integrated product that includes a carrier medium carrying content that can be
commercially exploited by projection in a theatre.
7.519 The United States further argues that China's attempt to separate goods containing content
from the content itself also fails to overcome th e US claims. The United States points out that
Article IV of the GATT 1994 refers to the "exhibitio n of cinematograph films" in relation to screen
quotas. Thus, even when discussing the commercial e xploitation of the artistic work in a theatre, the
GATT 1994 uses the term "cinematograph film", not motion pictures. Regarding the fact that the
Harmonized System describes the product as cinema tographic film "for the projection of motion
pictures", this language demonstrates, in the Un ited States' view, that the Harmonized System
contemplates a physical product with integrated content that may be commercially exploited in a
particular way. According to the United States, this HS description does not take films out of the
category of goods, but instead confirms that films containing content to be exploited are goods.
389
7.520 Regarding the use of the term " Dian Ying" in China's measures, the United States notes that
China has conceded that the carri er medium containing content must go through customs clearance as
part of the importation process. The United States c onsiders, therefore, that the motion picture, i.e.,
the content, is part of the integrated product that is treated as an importable good for purposes of
China's measures.
7.521 The Panel will first address what is the subject of the US claim. The US request for the
establishment of a panel refers, in relevant part, to "films for theatrical release". 390 B y i t s e l f , a s
China's arguments show, this expression may be some what ambiguous, in that the term "films" could
mean either the motion picture, i.e., the content proj ected in a theatre, or the film used for projecting
motion pictures, i.e., exposed and developed cinematographic film. The US claim is, however, based
on China's trading rights commitments, which relate to trade in goods. The US panel request thus
suggests that the US claim about films for theatrical release should be understood as a claim about
goods that can be traded. Before the Panel, the Un ited States confirmed this, stating that the subject
of its claim is hard-copy cinematographic film, in any tangible form, that can be used to project
motion pictures in a theatre. 391 Or as the United States also put it, the US claim relates to an
integrated product – a good – that consists of a carr ier medium carrying content that can be used for
projection in a theatre.
7.522 In response to a question from the Panel, the Un ited States has further clarified that hard-copy
cinematographic film comprises positive and negative film. 392 The United States pointed out in this
respect that the good which a film producer/licen sor would send to China pursuant to a film
distribution agreement is typically either an exposed and developed "internegative" or an
"interpositive". The United States explained that an "internegative" is a copy of the "master

389 The United States also notes that China's accession schedule of ta riff concessions incorporates the
HS description of these products under heading 3706.
390 United States' panel request WT/DS363/5, p. 2.
391 United States' responses to question Nos. 14, 15 an d 163. We note China's view that it is redundant
to refer to "hard-copy", or "tangible", cinematographic film as, in its view, cinematographic film is always in
hard copy and refers to a tangible material. China's comments on the United States' response to Panel question
No. 163.
392 United States' response to question No. 13(a).

negative", which in turn is the first copy of the film produced by the produ cer/licensor. The "master
negative" is ordinarily retained by the producer/licensor and not sent to the distributor. The
"internegative" is the visual part of the film without sound track, whereas the "interpositive" is the
"internegative" with the sound track added.
393
7.523 In our view, the United States has not changed the subject of its claim, as China asserts. The
United States has merely clarified the meaning of the expression "films for theatrical release", by
confirming that this expression is intended to describe goods – cinematographic films, whether
negative or positive – that can be used for projec ting motion pictures in theatres. Since we do not
believe that the United States in referring to hard-copy cinematographic film put forward a new claim,
we see no justification for not addressing the substance of this claim. Nor do we agree that in
referring to hard-copy cinematographic film the Un ited States has abandoned its claim in relation to
"films for theatrical release".
7.524 As to whether the US claim c oncerns a good, China is of the view that a motion picture
projected in a theatre could not be considered a good. 394 China does not dispute, however, that
cinematographic film is a good, observing that cinematographic film is one of several possible carriers
of motion pictures for theatrical release.395 In considering this issue, we recall, first of all, that the US
claim concerns hard-copy cinematographic film. In this regard, we find relevant heading 3706 of the
Harmonized Commodity Description and Coding System (HS). Heading 3706 defines as a separate
good "cinematographic film, exposed and developed, whether or not incorporating sound track or
consisting only of sound track". 396 As pointed out by the United States, China's own Schedule of
Concessions, i.e., its goods schedule, contains a he ading with the same number and which covers
"[c]inematographic film, exposed and developed, whether or not incorporating sound track or
consisting only of sound track". 397 Furthermore, in response to a question from the Panel, China
confirmed that it charges customs duties on the importation of exposed and developed
cinematographic film.
398
7.525 We also find instructive the explanatory not e accompanying heading 3706 of the Harmonized
System. It provides that "this heading cove rs developed standard or substandard width
cinematographic film for the projection of motion pictures, negative or positive …". 399 This indicates
that exposed and developed cinematographic films are films "for theatrical release", and that both
negative and positive cinematographic films are consid ered as goods. It further indicates that, despite
the fact that exposed and developed cinematographi c films are used to provide a service, namely, the
projection and exhibition of motion pictures in theatr es, they are considered as goods. Furthermore,
and as also pointed out by the United States, the explanatory note shows that a physical carrier
containing content is treated as a good.
400

393 United States' responses to question Nos. 13(a) and (b).
394 China considers that a motion picture is an inta ngible artistic work (content) and constitutes neither
a good nor a service (China's response to question No. 177(a)).
395 China's response to question No. 178; China's comments on the United States' response to question
No. 164.
396 Exhibit US-53.
397 Exhibit JPN-2.
398 China's response to question No. 132.
399 Exhibit US-53.
400 It is pertinent to note in this context that the Appellate Body in Canada – Periodicals considered
that periodicals are goods comprised of two components: editorial content and advertising content. According
to the Appellate Body, "[b]oth components can be viewed as having services attributes, but they combine to
form a physical product – the periodical itself". Appellate Body Report on Canada – Periodicals, DSR 1997:I,
449 at 463.

7.526 In the light of the above, we consider that "f ilms for theatrical release", as that expression is
used in the US panel request, i.e. hard-copy cine matographic films in any tangible form (including
hard-copy "internegatives" and "interpositives"), are goods for the purposes of China's trading rights
commitments.
7.527 In sum, we have determined that we can address the US claim in respect of films for theatrical
release, and that the expression "films for theatrical release" describes goods. As we explain in more
detail below, the fact that "films for theatrical re lease", as that expression is used in the US panel
request, are goods does not dispose of China's argument that the relevant provisions of the Film
Regulation should be assessed under the GATS rather than under the Accession Protocol. Therefore,
we now proceed to consider China's argument that its trading rights commitments are inapplicable to
the relevant provisions of the Film Regulation.
Applicability

7.528 The United States is asking us to apply China's trading rights commitments to Articles 5 and
30 of the Film Regulation, which both address who may import films. Article 5 provides in relevant
part that "[t]he State shall implement a licensing system with respect to film production, import,
export, distribution, and screening, and the public screen ing of films. No entity or individual shall,
without permission, be engaged in the activities of production, import, distribution or screening of
films, or import, export, distribute or screen a fi lm for which a permit has not been obtained".
Article 30 provides that "[t]he business of importi ng films shall be conducted by film import entities
designated by the [SARFT]; without being designat ed, no entity or individual shall engage in the
business of importing films".
7.529 As we see it, Article 5 in rele vant part regulates who may enga ge in the activity of importing
films.401 Article 30 in relevant part also regulates the business of importing films by establishing who
may conduct that business. Since Articles 5 and 30 regulate who may engage in the business of
importing "films", these articles evidently affect "films".
7.530 China submits that the term "film" in the Eng lish version of Articles 5 and 30 is translated
from the Chinese term " Dian Ying", and not the Chinese term " Dian Ying Jiao Pian ". China states
that "Dian Ying" means "motion picture" and refers to film as an artistic work, whereas " Dian Ying
Jiao Pian" means "cinematographic film", i.e., the physical film (" Jiao Pian") used to project motion
pictures ("Dian Ying").402 China considers, therefore, that Articles 5 and 30 regulate who may import
motion pictures, not who may import cinematographic film. By this, China appears to mean that these
provisions regulate who may import content which would be projected in a theatre.
403 China also
contends that the term "import" in the English version of Articles 5 and 30 is translated from the
Chinese term " Jinkou", which China says covers the introductio n into China of anything of foreign
origin, including content.404
7.531 The United States counters that "Dian Ying" can be translated as "film" or "motion picture".405
China responds that this reflects the fact that the te rm "film" is the ordinary English translation of

401 Article 5 also regulates films, in that it stipulates that only films which have been approved may be
imported. The United States has not challenged that aspect of Article 5 under China's trading rights
commitments, however.
402 China's second written submission, para. 35; China's comments on the United States' response to
question No. 158.
403 China's response to question No. 177; China's comments on the United States' response to question
No. 164.
404 China's response to question No. 177(a).
405 The United States refers to the New Century Chinese English Dictionary (Exhibit US-103). United
States' response to question No. 158.

"Dian Ying", whereas the term "motion picture" is used mainly in American English. According to
China, "Dian Ying" refers to film as an artistic work. 406 The United States notes that Article 31 of the
Film Regulation sets forth the requirement that imported films are subject to "import procedures at
Customs". The United States points out that in this context the Chinese text of the measure also uses
the word "Jinkou" to mean "import". In the United States' view, this shows that China uses the term
"Jinkou" to refer to the import of goods subject to customs procedures.407
7.532 We have requested the independent translator to advise on the correct translation of the terms
"Dian Ying " and " Jinkou" as they appear in Articles 5 and 30. Turning first to the latter term,
"Jinkou", the independent translator confirms that "import" is the correct translation. According to the
independent translator, there is nothing implicit in the term " Jinkou" to indicate whether only goods
can be covered, or whether the term can also a pply to content. In light of this, the term " Jinkou" does
not shed much useful light on the correct translation of the term " Dian Ying" as it could apparently be
used to refer to the import of content as well as goods.
7.533 With regard to the other Chinese term, " Dian Ying", the independent translator's first point is
to note that the term is satisfactorily rendered in English as "film". The independent translator
recognizes, however, that the term "film" in English has a broad scope, as it could be used to refer to
the film as intellectual property or the material on which the film is printed. 408 The independent
translator has, therefore, provided additional advi ce in commenting on the suggested translation.
Thus, the independent translator considers that ther e is considerable merit in China's contention that
particularly in legal texts, where the language is more formal and distinctions which might appear
contrived in vernacular usage are more carefully observed, the term " Dian Ying " on its own is
intended exclusively to refer to the content of a f ilm (i.e., the artistic work) and not to the material
(i.e., the physical medium) on which the film is printed, or the film stock. The independent translator
further observes that even in vern acular usage it would be hard to imagine a context where the term
"Dian Ying" alone referred to the material on which the film is printed, the film stock, rather than the
content.
7.534 The United States responds that the independent translator's conclusion that the term " Dian
Ying" is correctly translated as "film" should be the end of the analysis. In the United States' view, the
additional comments offered by the independent transl ator do not assist in analysing the US claims in
this dispute. The United States argues that it h as not asserted that unexposed, content-free film stock
is the good at issue. Rather, the United States asser ts that the good at issue is film for theatrical
release, i.e., a physical carrier medium that has content embedded on it. China, in contrast, has argued
that the "film" being discussed is simply an inta ngible work. According to the United States, the
independent translator does not discuss this diffe rence. Instead, the United States submits, the
independent translator focuses on the film material itself, with no content involved.
7.535 In our view, it is not implausible that Artic les 5 and 30 are concerned with who may conduct
the business of bringing into China content that can be commercially exploited by projection in
theatres.409 Contrariwise, it seems somewhat less plausible that Articles 5 and 30 are about who may
import content of the described kind on a physical ca rrier, that is to say, that they are about who may

406 China's comments on the United States' response to question No. 158.
407 United States' comments on China's response to question No. 177(a).
408 The independent translator observe s in this respect that at least in British English there would not
seem to be any prima facie distinction between "film" and "motion picture".
409 We note in this context that Article 2 of the Film Regulation specifies that the films to which the
Film Regulation applies include "feature films, documentary films, science and educational films, animation
films, and special topic films". This is consistent with the view that the regulatory co ncern is with the type of
content that is to be produced, imported, distributed and screened, and not with content on a physical carrier.

import hard-copy cinematographic film.
410 If this were the case, the Film Regulation might not apply
to content brought into China without any physical carrier, which China says is a growing trend in the
industry.
411
7.536 At any rate, we do not think that resolving th is issue is critical for the purposes of our
analysis. As we have stated above, we consider th at Articles 5 and 30 in relevant part regulate who
may conduct the business of importing "films". If the term "films" were understood as meaning
"hard-copy cinematographic films", Articles 5 and 30 would necessarily affect "hard-copy
cinematographic films" and thus goods. On the ot her hand, if the term "films" were understood as
meaning "contents that can be commercially exploi ted by projection in theatres", Articles 5 and 30
would not necessarily affect hard-copy cinematogr aphic films. However, as the parties have
explained, typically, "contents that can be commercia lly exploited by projection in theatres" would be
brought into China under the terms of a li censing/distribution agreement between a film
producer/licensor and one or more distributors.
412
7.537 As pointed out above, China contends that, in practice, the designated film importing entity
would itself enter into a licensing/distribution ag reement with a foreign film producer/licensor.
According to China, once the c ontent has been reviewed and approved, the designated importing
entity proceeds with the customs cl earance of the delivery materials. 413 Delivery materials are
provided by the producer/licensor to allow the distributor to organize the distribution of the film
within China. In cases where the film content is brought into China on exposed and developed
cinematographic film as a carrier medium, these delivery materials include the hard-copy
cinematographic film (the "internegative" or "interpositive").
7.538 China's explanation makes clear that even if the term "film" were understood as meaning
"content that can be commercially exploited by pr ojection in theatres", Articles 5 and 30 would affect
hard-copy cinematographic film as a good, provided, of course, relevant content is to be imported on
hard-copy cinematographic film.
414 This is because only licensed and designated film import entities
are allowed to be engaged in the business or activity of importing relevant contents, including in cases
where the carrier to be used to bring the co ntents into China is exposed and developed
cinematographic film.415
7.539 Accordingly, no matter which of the above-menti oned translations of Articles 5 and 30 is
considered to be the correct one, in cases where wh at is imported is hard-copy cinematographic film,
Articles 5 and 30 would necessarily affect hard-copy ci nematographic film and, therefore, a good. As
is clear from the above, the US claim in resp ect of Articles 5 and 30 relates to hard-copy
cinematographic films.
7.540 We do not understand China to contest that Artic les 5 and 30 have, or may have, an effect on
hard-copy cinematographic films (the "internegativ e" or "interpositive") and, therefore, on goods.
However, China argues that Articles 5 and 30 are not subject to the trading rights commitments set
forth in China's Accession Protocol. In China' s view, Articles 5 and 30 are subject only to WTO
disciplines on services, as set forth in the GATS and China's Schedule of Commitments.

410 In response to question No. 180, China stated that the Film Regulation would apply in the same way
to motion pictures transmitted without any physical carrier.
411 China's first written submission, footnote 20 and para. 62.
412 United States' response to question No. 13(b).
413 This is provided for in Article 31 of the Film Regulation.
414 China has confirmed that when cinematograpic film is used as a physical carrier, importation of a
good takes place (China's response to question No. 177).
415 In response to question No. 179, China confirme d that if a foreign motion picture is imported as
exposed and developed cinematographic film containing such motion picture, the designated film importing
entity will import such cinematographic film.

7.541 In discussing this issue, the parties have referred to the Appellate Body report on EC –
Bananas III, which provides in relevant part:416
"Given the respective scope of application of the two agreements, they may or may
not overlap, depending on the nature of the measures at issue. Certain measures
could be found to fall exclusively within the scope of the GATT 1994, when they
affect trade in goods as goods. Certain m easures could be found to fall exclusively
within the scope of the GATS, when they affect the supply of services as services.
There is yet a third category of measures that could be found to fall within the scope
of both the GATT 1994 and the GATS. These are measures that involve a service
relating to a particular good or a service s upplied in conjunction with a particular
good. In all such cases in this third cate gory, the measure in question could be
scrutinized under both the GATT 1994 and the GATS. However, while the same
measure could be scrutinized under both agre ements, the specific aspects of that
measure examined under each agreement c ould be different. Under the GATT 1994,
the focus in on how the measure affects the goods involved. Under the GATS, the
focus is on how the measure affects the suppl y of the service or the service suppliers
involved. Whether a certain measure affec ting the supply of a service related to a
particular good is scrutinized under the GATT 1994 or the GATS, or both, is a matter
that can only be determined on a case-by-case basis."
7.542 It is important to bear in mind that this st atement relates to the applicability of the GATS
versus the GATT 1994, not the GATS versus the tr ading rights commitments in China's Accession
Protocol. As discussed below, China argues that Articles 5 and 30 regulate the service of licensing,
specifically the licensing of the right to exploit foreign motion pictures by organising their theatrical
distribution and exhibition. It is clear from the above-quoted statement of the Appellate Body that
Articles 5 and 30 could possibly be scrutinized under th e GATS to the extent they affect the supply of
a service. We consider that they could also be scrutinized under China's tr ading rights commitments
to the extent they affect who may import a good. In particular, Chinese provisions that restrict who
may import a good may impermissibly restrict the right to trade in that good. Therefore, the mere fact
that Articles 5 and 30 may regulate a service in our view would not remove them from the scope of
application of China's trading rights commitments.
7.543 As discussed above, if the term "films" in Articles 5 and 30 were understood as meaning
"hard-copy cinematographic films", Articles 5 a nd 30 would directly regulate who may engage in
importing of the goods at issue, i.e., "hard-copy cinematographic films". They would therefore appear
to be subject, in principle, to China's trading rights commitments. On the other hand, if the term
"films" were understood as meaning "contents that can be commercially exploited by projection in
theatres", Articles 5 and 30 would not directly re gulate who may engage in importing of the goods at
issue, i.e., "hard-copy cinematographic films". But, as previously explained, in those cases where
relevant content is to be im ported on hard-copy cinematographi c film, Articles 5 and 30 would
necessarily affect who may engage in importing of hard-copy cinematographic films, because
Articles 5 and 30 would then provide that only licen sed and designated importe rs may engage in the
import of content on cinematographic film. In the li ght of this, we think that under this translation
Articles 5 and 30 would also appear to be subject, in principle, to China's trading rights commitments.
7.544 China nevertheless submits that we should not review Articles 5 and 30 in the light of its
trading rights commitments. It argues, in essence, that Articles 5 and 30 regulate the service of
licensing – the licensing of the right to exploit foreign motion pictures by organizing their theatrical
distribution and exhibition – and that although Ar ticles 5 and 30 may have an impact on hard-copy
cinematographic film, they should not be scrutinized under China's trading rights commitments.

416 Appellate Body Report on EC – Bananas III, para. 221.

China submits that hard-copy cinematographic film should be treated as a mere "accessory" to the
aforementioned service, and that Articles 5 and 30 should, therefore, be examined under the
disciplines governing trade in services only.
7.545 According to China, Articles 5 and 30 regul ate the service of licensing of rights to the
exploitation of motion pictures, by regulating who may obtain such a copyright licence.
417 A s a
general matter, we would accept that the licensing of rights can be considered a service that is
provided by the film producer to the film importing entity. Also, Article 33 of the Film Regulation
stipulates that a film importation entity must obtai n permission from the copyright owner to use his
film work and that it must use the film work within the scope of the licence obtained. Thus,
Article 33 appears to contemplate the existence of a licensing agreement between a foreign film
producer and the film importing entity.
7.546 Nevertheless, there are elements which cast doubt on China's position that Articles 5 and 30
regulate the service of licensing of rights. It is tr ue that in those cases where a foreign film producer
wishes to enter into a licensing agreement with a film importing entity, Articles 5 and 30 allow the
SARFT to control with which film import entities fo reign film producers could enter into such an
agreement. But certain films imported into China may no longer be copyright-protected.418 Pursuant
to Articles 5 and 30, they could, however, be im ported only by licensed and designated importers.
Also, the United States has confirmed that in some instances a film producer itself may wish to import
the film into another market, e.g., the Chinese ma rket, to distribute the film in that market. 419 In this
situation, which China has not addressed, there woul d appear to be no need for a licensing agreement
between the film producer and the importer, since the film producer would be the importer.
7.547 At any rate, for the sake of argument, we are prepared to proceed with our analysis on the
assumption that foreign film producers must ente r into licensing agreements with licensed and
designated film import entities in all cases. China submits that in the context of provisions like
Articles 5 and 30 which, in China's view, regulate licensing services, any effect these provisions have
on who may import hard-copy cinematographic film should not be examined under China's trading
rights commitments. In support of this position, China has provided a number of arguments which we
now turn to address.
7.548 China argues that hard-copy cinematographic film has no own commercial value and does not
itself generate revenue since it is only used to make film prints to be distributed to theatres. China
also argues that the ownership of the hard-copy cine matographic film is not transferred to the film
importing entity under a licensing agreement, and that the hard-copy must either be destroyed or
returned. We are not persuaded that we should not apply China's trading rights commitments because
of these elements. We note that other types of goods, such as commercial samples, also may not,
themselves, have a commercial value or generate revenue. Yet we do not think this would remove
them from the scope of applicable WTO disciplin es on trade in goods. Also, the fact that only a
single hard copy may cross China's border for ever y film imported in our view does not provide a
convincing rationale for not applying China's tr ading rights commitments. Other goods, such as
certain tunnel construction machinery and equipment, may likewise not cross a particular border very
often, yet the importing Member would charge customs duties on the importation of such goods in the

417 China also stated that the service regulated is the distribution service (China's response to question
No. 177). We understand from China's submissions that licensing and distribution are linked, in that the
licensing agreement confers the right to exploit a film through theatrical release, which includes the right to
make or use copies of the film and to organise its distribution to theatres. At any rate, we note that in its final
comments to the Panel, China stated that its measure regulate the importation of films for theatrical release "as a
copyright licensing for the exploitation of the motion pictures in Chinese theatres" (China's comments on the
United States' response to question No. 164).
418 The parties appear to agree that this is a possibility. Parties' responses to question No. 53(b).
419 United States' response to question No. 13(b).

same way as they would in the case of goods that are imported very frequently and/or in large
quantities. Likewise, we do not see why the applicability of WTO goods disciplines should turn on
whether the importer of a good has become its owner. In our view, an importing Member could not
prohibit the importation of a book that is being loaned to the importer, arguing that the disciplines of
the GATT 1994 would not be applicable since the book in question has not been sold and no change
in ownership has occurred.
7.549 China further argues that hard-copy cinematographic film is not a good traded in its own
right, in the sense that it would not be traded in the absence of a services agreement under which the
film producer licences the right to exploit the content by organizing its theatrical distribution and
exhibition. China submits that the supply of the ha rd-copy cinematographic film cannot, therefore, be
considered independently from the services agreement. In our view, the mere fact that an import
transaction involving hard-copy cinematographic film is carried out as part, and in fulfilment, of a
services agreement cannot be sufficient to remove it from the scope of China's trading rights
commitments. Many goods are traded to meet the demand of services suppliers who use these goods
to provide a service, and so they would not be trad ed if the relevant service were no longer provided.
For instance, a hospital may need to import special surgical tools. Those tools would obviously be
used by the hospital for the purpose of providing hea lth care services. Nevertheless, we consider that
a possible governmental ban on the importation of these surgical tools should be scrutinized under
WTO disciplines on trade in goods. It is correct th at, in the case of hard-copy cinematographic film,
imports occur as a result of a contractual obligati on under a licensing agreement. This element does
not change our assessment, however. In our view, it merely serves to demonstrate the existence of a
link between the hard-copy cinematographic film and the relevant service.
7.550 Taken together, the elements identified by China could support the view that hard-copy
cinematographic film is an "accessory" to the li censing service to be provided by a film producer
under a licensing agreement. However, even consid ering the various elements together, we are not
persuaded that this would justif y non-application of China's trading rights commitments to Articles 5
and 30 in cases where their application would otherwise be warranted.
7.551 To begin with, we note that the relevant paragr aphs of the Accession Protocol refer, without
qualification, to the right to trade in "all goods".
420 No distinction is made between goods like hard-
copy cinematographic film that are imported as part of licensing agreements and goods that are
imported "in their own right".
7.552 Also, we observe that the above-quoted passage from the Appellate Body report on EC –
Bananas III addresses, inter alia, whether measures affecting a "service supplied in conjunction with
a particular good" could be scrutinized under both the GATS and the GATT 1994. The passage
contains the statement that it is to be determined on a case-by-case basis whether such measures are to
be scrutinized under the GATT 1994, the GATS, or both. We understand this to mean that it must be
determined in each case whether such measures fa ll within the scope of the GATT 1994, the GATS,
or both, by examining whether such measures affect trade in goods as goods and whether they affect
the supply of services as services. 421 We are not convinced that the Appellate Body meant to suggest
that such measures could be analysed under only on e of these agreements if they would also fall
within the scope of application of the other agreement. 422 At any rate, the statement in question does

420 E.g., paragraphs 5.1 and 84(a).
421 We recall that the mere fact that a measure affects a service supplied in conjunction with a particular
good does not necessarily imply that the measure falls within the scope of either the GATT 1994, or the GATS,
or both. For instance, the Member concerned may not have undertaken a commitment regarding the relevant
mode of supply of a service, or regarding the particular service.
422 The United States appears to have the same understanding of the Appellate Body's guidance (United
States' comments on China's response to question No. 199(a)).

not provide any criteria by reference to which it coul d be established, in a particular case, whether it
would be appropriate not to appl y an otherwise applicable agreement to measures affecting a service
supplied in conjunction with a particular good. As a result, we do not think that the Appellate Body's
statement provides us with clear guidance on the precise issue before us.
7.553 China has not identified any other WTO jurisp rudence which would support its position.
China has, however, referred to a judgment by the European Court of Justice based on the Treaty
Establishing the European Community (hereafter the " EC Treaty").
423 According to China, the Court
determined that licensing agreements between film producers in one EC member State and
distributors in another EC member State come under the provisions of the aforementioned EC Treaty
with regard to the freedom to provide services. China points out that the Court disregarded claims
under the EC Treaty with regard to the free movement of goods . China also referred to the opinion of
the Advocate General in the same case.424 The Advocate General stated in relevant part that:
"[A]lthough the exploitation in one Member State of a cinematograph film produced
in another Member State presupposes a trans-frontier movement of goods in the sense
that at least one copy of the film must be imported … the essential feature of the
exploitation of a film does not lie in that physical trade in film bands. … The (trans-
frontier) transfer of the material base of a film is only a logical outcome of [the
producer's making available the rights to distribution together with the right to public
exhibition], so that it is not possible to speak of movement of goods within the
meaning of the Treaty".
7.554 In considering China's reference to jurisprudence of the European Court of Justice, we note
that the Court applied the rules of the EC Treaty, not WTO rules, and that the rules applied by the
Court are in any event different from tho se we are called on to apply in this case.
425 Therefore, the
fact that it may be legally appropriate for the C ourt not to apply EC rules on the free movement of
goods to an import transaction involving hard-copy cinematographic film does not mean that it would
be legally appropriate for a WTO panel not to a pply China's trading rights commitments to an
analogous import transaction.
7.555 We are not convinced that merely because the import transaction involving hard-copy
cinematographic film may not be the "essential feature" of the exploitation of the relevant film,
China's trading rights commitments should not be applied to Articles 5 and 30, even though they
would otherwise be applicable. We cannot make light of the fact that the trading rights commitments
contained in China's Accession Protocol are lega lly binding and an integral part of the WTO
Agreement.
426 We recall in this connection that in acco rdance with Article 19.2 of the DSU, in our
findings, we must not add to Members' obligations or diminish Members' rights. We also note that
China has not identified any serious legal or prac tical consequences which would arise if China's
trading rights commitments are applied to hard-c opy cinematographic films, but which would not
arise if these commitments are applied to other goods.

423 Judgment of the European Court of Justice of 4 May 1993, Case C-17/92 ( Federación de
Distribuidores Cinematográficos v Estado Español and Unión de Productores de Cine y Televisión ), ECR 1993
[I] 02239 et seq. (Exhibit CN-5).
424 Opinion of the Advocate General of 18 February 1993, Case C-17/92 (Federación de Distribuidores
Cinematográficos v Estado Español and Unión de Productores de Cine y Televisión ) ECR 1993 [I] 02239
(Exhibit CN-6).
425 For instance, we note that the Treaty Establishing the European Community establishes a general
freedom to provide services. In contrast, the WTO disciplines on trade in services applicable to China depend,
in part, on the level and extent of the commitments taken by China.
426 Paragraph 2.1 of the Accession Protocol.

7.556 Finally, we must address China's attempt to jus tify its position by reference to its Schedule of
Commitments. China has made an additional comm itment in Sector 2D ("Audiovisual Services") of
its Schedule which states that "[w]ithout prejudi ce to compliance with China's regulations on the
administration on films, China will allow the importation of motion pictures for theatrical release on a
revenue-sharing basis and the number of such imports shall be 20 on an annual basis". China submits
that, through this commitment, it expressly reserve d its right to regulate the importation of motion
pictures for theatrical release as a licensing service and to allow only designated entities to import
motion pictures.
427 China considers that its right to re gulate the motion picture business under the
GATS would be undermined if Articles 5 and 30 were not assessed exclusively under the GATS.
7.557 As we see it, the commitment in question relates to the importation of motion pictures for
theatrical release for distribution on a revenue-shari ng basis. Specifically, China has committed to
allow the importation of up to 20 motion pictures per year for distribution on a revenue-sharing basis.
Any additional imported motion pictures would need to be distributed on the basis of, e.g., an agreed
licence fee (lump-sum payment).
7.558 The "without prejudice" clause contained in Ch ina's additional commitment in our view does
not mean that China's trading rights commitments should not be applied to Articles 5 and 30. While
China may be able to condition an additional comm itment relating to motion pictures on being able to
apply its WTO-consistent domestic Film Regulation s, inclusion of such a condition in China's
Schedule of Commitments does not provide legal cover in cases where any such regulations are
inconsistent with other WTO disciplines, su ch as China's trading rights commitments.
428 In other
words, it is our view that by including a reference to its Film Regulation s in its additional
commitment, China has not reserved a "right" to regulate licensing services in a manner that would
result in a breach of its trading rights commitments.429 As a result, we consider that China's additional
commitment in Sector 2D does not support the conclusion that Articles 5 and 30 should not be
scrutinized under China's trading rights commitments.
7.559 In sum, even if we assume that foreign film producers must, in all cases, enter into licensing
agreements with licensed and designated film im port entities, we are not persuaded by China's
position that any effect Articles 5 and 30 have on who may import hard-copy cinematographic film
should not be examined under China's trading rights commitments.
7.560 We thus conclude that no matter which of the above-mentioned translations of Articles 5 and
30 is considered to be the correct one, these pr ovisions are subject to China's trading rights
commitments, in that they would either directly regulate who may engage in importing of "hard-copy
cinematographic films" or necessarily affect who may engage in importing of such goods.

427 China's response to question No. 36(a).
428 Nothing in Article XVIII of the GATS suggests that by undertaking additional commitments
Members could diminish its other WTO obligations. We note in this context the statement of the Appellate
Body in EC – Poultry with regard to schedules of concessions to th e effect that the term "concessions" suggests
that an importing Member "may yield or waive some of its own rights and grant benefits to other Members, but
that it cannot unilaterally diminish its own obligations" (Appellate Body Report on EC – Poultry , para. 98).
While this statement does not relate to Schedules of Commitments, we believe that the logic followed by the
Appellate Body applies equally to "additional commitments" under the GATS.
429 In its reply to question No. 36(c), China has referred to footnote 6 of China's Schedule of
Commitments, which relates to Sector 4B. The footnote reads: "The restrictions on mode 1 shall not undermine
the rights of WTO Members to the right to trade as stip ulated in Chapter 5 of China's Protocol of accession to
the WTO". In our view, the absence in Sector 2D of a similar footnote does not imply that China's additional
commitment regarding motion pictures has been accepted to undermine the rights of other Members to the right
to trade.

Consistency

7.561 Having determined that China's trading rights commitments are applicable to Articles 5 and
30 of the Film Regulation, we now turn to address the merits of the US claims that Articles 5 and 30
give rise to an inconsistency with China's trading rights commitments.
Article 5
7.562 So far as concerns Article 5, we first recall that it establishes a licensing system for the import
of films. In response to a question from the Panel, China confirmed that all importers of films must
obtain a licence and indicated that importers are granted licences through a designation process. 430
Regarding the US claim in respect of Article 5, we note that the United States has referred to, and
reproduced, this provision, but not explained why and how it is inconsistent wi th one or more of the
cited provisions of the Accession Protocol. In the li ght of this, we consider, and conclude, that the
United States has not met its burden of establishing th at Article 5 gives rise to an inconsistency with
the trading rights commitments under China's Ac cession Protocol. Nor has the United States
established that Article 5 results in an inconsistenc y when considered together with other challenged
measures.
Article 30
7.563 Regarding Article 30, we recall that it impo ses a designation requirement. Pursuant to
Article 30, no entity or individual may engage in the business of importing films without being a film
importing entity designated as such by the SARFT.
7.564 The United States claims that Article 30 is inco nsistent with China's obligation to allow all
enterprises in China and foreign enterprises and indivi duals to import films. According to the United
States, the designation requirement is more than a mere administrative formality. In the United States'
view, it serves a gate-keeping function to limit the number of enterprises selected by the SARFT.431
7.565 The United States further claims that the d esignation requirement introduces significant
discretion into a process that China committed to be "non-discretionary". The United States submits
that it empowers the SARFT to assign trading rights to only those importers of its own choosing on no
basis other than its own discretion.432
Paragraph 84(b)
7.566 We begin our analysis with the second US cl aim, which we understand to be based on
paragraph 84(b). We recall that in accordance with Article 30 no entity or in dividual has the right to
import films without being designated. It also provides that the business of importing films is to be
conducted by designated film import entities. Thus, it would appear that China can designate only
film import entities, not individuals.
7.567 We further note that Article 30 does not explic itly state whether film import entities need to
be registered in China. We recognize that the term "film import entity" is unq ualified. In our view,
this does not necessarily mean, however, that the term could cover also foreign enterprises not
registered in China. We note in this respect th at we have not been given any other trade-related
Chinese laws or regulations that could indicate whet her an "import entity" needs to be registered in
China. We also note Article 16 of the Film Enterprise Rule , which parallels Article 30. The Film

430 China's responses to question Nos. 170 and 171.
431 United States' responses to question No. 11(a) and (d).
432 Ibid.

Enterprise Rule contemplates only enterprises in China as importers of films. In view of these
elements, and the lack of US arguments and evidence on this issue, we consider that the United States
has not demonstrated that the term "film import entities" as it appears in Article 30 could cover
foreign enterprises not registered in China and th at such enterprises could be designated as "film
import entities". We accept, however, that enterprises registered in China, including foreign-invested
enterprises, could be designated as "film import entities".
7.568 As to whether the term "film import entities" could cover Chinese branches of foreign-
registered enterprises, it is sufficient to note that the United States has not asserted that Article 30
affects branches in China and that this results in an inconsistency with China's trading rights
commitments. In fact, the United States has ne ver even mentioned the possibility of foreign-
registered enterprises setting up Chinese branches. Accordingly, we do not examine this issue
further.433
7.569 In examining Article 30, we observe, fina lly, that designation under Article 30 is not
automatic. Rather, we infer from China's responses to questions from the Panel that it is up to the
SARFT to initiate the designation process. 434 We also note that Article 30 contains no criteria to be
followed by the SARFT in deciding whom to designa te. Moreover, China has not contested the US
contention that SARFT can designate importers "of its own choosing". Accordingly, it appears to us
that under Article 30 China needs to exercise discretion in order to grant the right to import films. We
therefore consider that, as a result of Article 30, Ch ina does not grant the right to import films to film
import entities in a non-discretionary way.435
7.570 With these observations about Article 30 in mind, we now turn to the claimed inconsistency
with paragraph 84(b). In view of the fact that th e discretion relates to the designation of "film import
entities", and not individuals, we conclude that Ar ticle 30 does not result in an inconsistency with
paragraph 84(b) with respect to the grant of tradi ng rights to foreign individuals. Furthermore, the
United States has not established that Article 30 resu lts in an inconsistency with paragraph 84(b) in
respect of foreign individuals when considered together with other challenged measures.
7.571 On the other hand, we recall that in our view "film import entities" within the meaning of
Article 30 include foreign-invested enterprises in Ch ina. We therefore conclude that, as a result of
Article 30, China does not grant trading rights to fo reign-invested enterprises in China which wish to
import films into China "in a non-discretionary wa y", and that, for that reason, China is acting
inconsistently with its obligation under paragraph 84(b).
7.572 We also recall that the United States has not asser ted that Article 30 affects Chinese branches
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could
designate foreign enterprises not registered in China as "film import entities". Accordingly, we
conclude that the United States has not establis hed that Article 30 results in China acting

433 Also, it is in any event not clear to us from the information on the record whether Chinese laws or
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in
the sector at issue.
434 China has confirmed that designation can occur exclusively at the Government's own initiative
(China's response to question No. 25(a)). China has further indicated that with respect to import entities for
films for theatrical release, only a de signation process is provided for (China's response to question No. 25(b)).
In support of the latter statement, China specifically referenced Article 30 of the Film Regulation . Finally,
China has stated that Article 30 sets forth that impor ters of foreign films for theatrical release are to be
designated by the SARFT (China's response to question No. 170).
435 If the term "films" in Article 30 were understood as meaning "contents that can be commercially
exploited by projection in theatres", China would, by imp lication, also have discretion in granting the right to
import hard-copy cinematographic films, since only designated importers of contents could import hard-copy
cinematographic films.

inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered
in China. The United States has also not established that Article 30 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.
Paragraphs 5.1, 83(d) and 84(a)
7.573 We understand the other US claim in respect of Article 30 to be based on paragraphs 5.1,
83(d) and 84(a). We recall that Article 30 provides that no entity or individual may engage in the
business of importing films without being designated, and that the business of importing films is to be
conducted by designated film import entities. Thus, as previously noted, it would appear that China
cannot designate individuals.
7.574 Regarding "entities", they can obtain the right to import films only if the SARFT decides to
designate them as film import entities. We have found earlier that the United States has not
established that foreign enterprises not registered in China could be designated as "film import
entities". If they could not be designated, however, they could not, pursuant to Article 30, engage in
the business of importing films. We also recall that the United States has not asserted that Article 30
affects Chinese branches of foreign enterprises not registered in China.
7.575 Having regard to enterprises registered in Chin a, which we have said could be designated as
"film import entities", we note that there is no process whereby entities can submit applications.
436 To
us, this suggests that the designation requirement is not applied merely to ensure compliance with
customs or fiscal requirements, or requirements im posed for "normal business regulation" purposes.
Also, the fact that entities are designated exclusiv ely at the initiative of the SARFT in our view
suggests that the designation requirement is not applie d to allow any and all entities to import films.
We therefore see no reason to disagree with the United States' contention that the designation
requirement set out in Article 30 serves a gate-keeping function. In fact, in response to a question
from the Panel, China has indicated that its designation requirements "result in [a] limited number of
importers".
437 We note in this respect that evidence s ubmitted by the United States shows that China
has assigned the right to import films for theatrical release to only one entity, namely, the China Film
Import and Export Corporation, which is a subsid iary of China Film Group and a Chinese wholly
state-owned enterprise.438
7.576 In the light of the foregoing, we are of the view that by providing in Article 30 that the
business of importing films is to be conducted by SA RFT-designated film import entities, and that no
entity or inidividual may engage in the business of importing without being designated, China has
failed to ensure that all enterprises in China (i ncluding foreign-invested enterprises) and foreign
enterprises not registered in China and foreign i ndividuals have the right to import cinematographic

436 China's response to question No. 25(a).
437 China's response to question No. 172. In its reply, China suggests that the purpose of its various
designation requirements is not to limit the number of importers, but to select entities allowed to import cultural
goods. At the same time, as indicat ed, China specifically noted that "the designation system would result in a
limited number of importers".
438 This evidence includes Article II of the Film Distribution and Exhibition Rule ; Article 12 of the
Digital Film Rule (Exhibit US-66), which provides that only the China Film Group may engage in the business
of importing digital films; and the China Film Group's homepage (Exhibit US-23). China has not contested that
China Film Import and Export Corporation is the only designated importer of films for theatrical release.
In relation to the fact that there is only one designated film importing entity, the United States argues
that Article 30 of the Film Regulation constitutes the legal basis for the China Film Import and Export
Corporation's "monopoly" on the right to import films. However, we see nothing in the text of Article 30 that
would indicate that China is legally barred from designating additional importers.

films.439 We therefore consider, and conclude, that Ar ticle 30 results in China acting inconsistently
with its obligations under para graphs 5.1 and 83(d) (in respect of enterprises in China) and
paragraph 84(a) (in respect of enterprises in China and foreign enterprises and foreign individuals).
Paragraph 5.2
7.577 Finally, we note that in response to a ques tion from the Panel, the United States suggested
that the Film Regulation results in an inconsis tency with paragraph 5.2. 440 It is not clear, however,
whether any such claim would concern Article 5 or Article 30 or both, nor why an inconsistency is
alleged to arise. Consequently , we conclude that the United States has not established any claim
under paragraph 5.2. We also note that th e United States has not established that the Film Regulation
results in an inconsistency with paragraph 5.2 when considered together with other challenged
measures.
(viii) Film Enterprise Rule
7.578 The United States notes that the Film Enterprise Rule further regulates the importation of
films for theatrical release into Ch ina. The United States points out that Article 2 of this measure
limits its application to domestic enterprises involved in, inter alia, the importation and exportation of
films. Article 3 reiterates that the State implements a licensing system with respect to the importation
of films. The United States further notes that consistently with the Film Regulation and the Film
Distribution and Exhibition Rule , Article 16 states that the "[t]he business of importing films shall be
exclusively conducted by film import enterprises that are approved by SARFT". According to the
United States, the Film Distribution and Exhibition Rule indicates that only one such enterprise has
been so approved: China Film Import and Export Corporation.
7.579 As indicated in connection with the Film Regulation , the United States claims that China's
measures granting China Film Group a monopoly on the right to import films for theatrical release are
inconsistent with China's trading rights commitmen ts. In the United States' view this monopoly not
only deprives enterprises in China (other than Ch ina Film Group) as well as foreign enterprises and
individuals of the right to import films for theatri cal release. It also discriminates against foreign-
invested enterprises and foreign individuals, in c ontravention of China's trading rights commitments.
As noted above, the United States considers that Article 30 of the Film Regulation constitutes the
legal basis for this monopoly. The United States submits that Article 16 of the Film Enterprise Rule
confirms this restriction.
7.580 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a resu lt of Articles 3 and 16 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
441
7.581 China argues that paragraphs 5.1, 5.2 or 1.2 of the Accession Protocol govern only trade in
goods. For reasons explained above in relation to the US challenge to the Film Regulation , China
considers that the United States has failed to estab lish that motion pictures for theatrical release, i.e.,

439 If the term "films" in Article 30 were understood as meaning "contents that can be commercially
exploited by projection in theatres", China would, by implication, also have failed to ensure that all enterprises
in China and foreign enterprises and individuals have the right to import hard-copy cinematographic films, since
only designated importers of contents could import hard-copy cinematographic films.
440 United States' response to question No. 1.
441 Ibid.

motion pictures intended to be shown in movie theatres, could be considered as goods. China submits
that the relevant Chinese measures, including the Film Enterprise Rule , do not regulate the
importation of goods but regulate services related to the licensing of rights for the exploitation of
motion pictures. Consequently, China considers th at paragraphs 5.1, 5.2 and 1.2 of the Accession
Protocol do not apply and that the US claim lacks any legal basis.
7.582 The Panel first recalls its determination above that it can address the US claim in respect of
films for theatrical release, and that this clai m concerns goods. The Panel therefore proceeds to
consider China's argument that its trading rights co mmitments are, nevertheless, inapplicable to the
relevant provisions of the Film Enterprise Rule.
Applicability

7.583 The United States is asking us to apply China's trading rights commitments to Articles 3 and
16 of the Film Enterprise Rule , which both address who may import films. Article 3 provides in
relevant part that "[t]he State institutes a licen sing system to the operation qualifications for
production, distribution, projection, import and export of films". Article 16 provides in relevant part
that "[t]he business of importing films shall be ex clusively conducted by film importing enterprises
that are approved by SARFT".
7.584 We note that Article 3 (licensing requirement) and Article 16 (approval requirement) of the
Film Enterprise Rule are similar to Article 5 (licensing requirement) and Article 30 (designation
requirement) of the Film Regulation . Also, China's arguments in support of its position that we
should not apply China's trading rights commitments to Articles 3 and 16 of the Film Enterprise Rule
are the same as those we have discussed previously when addressing the same issue in relation to
Articles 5 and 30 of the Film Regulation. In the light of these elements, we consider that the reasons
which led us to conclude th at Articles 5 and 30 of the Film Regulation are subject to China's trading
rights commitments are also applicable, mutatis mutandis , to Articles 3 and 16. We thus conclude
that these provisions are subject to China's trading rights commitments.
Consistency
7.585 Having satisfied ourselves that China's trad ing rights commitments are applicable to
Articles 3 and 16 of the Film Enterprise Rule, we now turn to address the merits of the US claims that
Articles 3 and 16 give rise to an inconsistency with China's trading rights commitments.
Article 3
7.586 So far as concerns Article 3, we first recall that it establishes a licensing system for the import
of films. In response to a question from the Panel, China confirmed that all importers of films must
obtain a licence and that importers are granted licences through a designation process. 442 Regarding
the US claim in respect of Article 3, we note that the United States has referred to this provision in
response to a question from the Panel, but has not e xplained why and how it is inconsistent with one
or more of the cited provisions of the Accession Protocol. 443 In the light of this, we consider, and
conclude, that the United States has not met its burde n of establishing that Article 3 gives rise to an
inconsistency with the trading rights commitments under China's Accession Protocol. Nor has the

442 China's responses to question Nos. 170 and 171.
443 United States' response to question No. 1. Article 3 is mentioned at para. 66 of the United States'
first written submission in a section entitled "Factual Backgrou nd". Article 3 is not mentioned, however, in the
section of the same written submission – Section IV – where the United States alleges that China's measures are
inconsistent with China's trading rights commitments.
The United States' first written submission mentions Article 3

United States established that Article 3 results in an inconsistency when considered together with
other challenged measures.
Article 16
7.587 Regarding Article 16, we note that unlike Article 30 of the Film Regulation, it refers to the
need to be "approved" by the SARFT, not "designa ted". The United States argues that, despite the
different terminology, the approval process provide d for in Article 16 is not different from the
designation process provided for in Article 30 of the Film Regulation. The United States notes in this
respect that Article 16, like Article 30, is devoid of criteria or other conditions confining the SARFT's
discretion. The United States further argues that the Imported Cultural Products Rule confirms that a
designation and not an approval requirement applies to film importers. 444 According to the United
States, Article 10 of the Imported Cultural Products Rule states that "[m]otion picture import business
shall be exclusively run by import units designated by SARFT".445
7.588 In response to questions on this issue from the Panel, China initially stated that for films for
theatrical release only a designation process is provide d for, and that there is no approval process. 446
Subsequently, and as already pointed out, China indicated that licences under Article 3 of the Film
Enterprise Rule are granted through a designation process. 447 China also stated, however, that
Article 16 provides that importers of films must be approved by the SARFT, and that this contrasts
with Article 30 of the Film Regulation , under which film importers must be designated by the
SARFT. China then went on to explain that, in accordance with China's Law on Legislation, the Film
Regulation prevails over the Film Enterprise Rule .448 Finally, in response to the question whether
Article 16 sets out an approval or a designation requirement, China said that the licence to import
films is granted through a designation process.449
7.589 It is difficult to reconcile China's various re plies. China's view that Article 3 of the Film
Enterprise Rule is applied using a designation process woul d appear to suggest that Article 16 is
likewise so applied, notwithstanding the fact that Article 16 uses the term "approved".450 On the other
hand, China could be understood as indicating that Article 16 would not be applied using a
designation process, but that China nonetheless designates importers, because Article 30 of the Film
Regulation sets out a designation requirement which prevails over the approval requirement contained
in Article 16.
7.590 We note that China has not submitted the text of the relevant provision of the Law on
Legislation.451 We are therefore unable to review it. As a result, it is also unclear to us whether China
would apply only Article 30 of the Film Regulation, or whether China would apply Article 16 so as to
be consistent with Article 30, e.g., by approving only enterprises which it would at the same time
designate under Article 30. Since there is no eviden ce on the record to demonstrate that Article 16 is
not applied by China when determining who may conduct the business of importing films, our
analysis proceeds on the basis that it is applied.

444 United States' response to question No. 11(a).
445 Exhibit US-10.
446 China's response to question No. 25(b). In suppor t of its statement, China referred to Article 30 of
the Film Regulation.
447 China's response to question No. 170.
448 Ibid.
449 China's response to question No. 171.
450 China's response to question No. 171 would also support this understanding.
451 The United States has submitted the text of some provisions of the Legislation Law as Exhibit
US-72, but not the provision relied on by China.

7.591 Pursuant to Article 16, only "approved" film import enterprises may conduct the business of
importing films. The United States claims that Arti cle 16 is inconsistent with China's obligation to
allow all enterprises in China and foreign enterp rises and foreign individuals to import films.
According to the United States, the approval requi rement in Article 16 is more than a mere
administrative formality. In the United States' vi ew, it serves a gate-keeping function to limit the
number of enterprises selected by the SARFT.
452
7.592 The United States further claims that the approval requirement introduces significant
discretion into a process that China committed to be "non-discretionary". The United States submits
that it empowers the SARFT to assign trading rights to only those importers of its own choosing on no
basis other than its own discretion.
453
Paragraph 84(b)
7.593 We begin our analysis with the second US cl aim, which we understand to be based on
paragraph 84(b). We recall that in accordance with Article 16 only "approved" film import
enterprises have the right to import films. There does not appear to be a process whereby applications
could be filed. Article 16 also contains no crite ria to be followed by the SARFT in deciding which
enterprises to approve. It is different, in this respect, from the approval process set out, e.g., in
Articles 41 and 42 of the Publications Regulation. Article 16 is similarly different from the criteria-
based approval process established in the Film Regulation for film distribution entities. 454 Moreover,
China has not contested the US contention that the SARFT can approve importers "of its own
choosing". We thus infer that the SARFT enjoys discretion as to which enterprises to approve.
Accordingly, it appears that under Article 16 China n eeds to exercise discretion in order to grant the
right to import films.
7.594 We understand from Article 2 of the Film Enterprise Rule455 that it applies only to enterprises
inside China.456 The United States has also pointed this out. 457 As a result, it appears that the only
enterprises that could be approved are enterpris es in China, which include foreign-invested
enterprises. Since the SARFT enjoys discretion as to which enterprises to approve, we conclude that,
as a result of Article 16, China does not grant tradi ng rights to foreign-invested enterprises in a non-
discretionary way.
7.595 Regarding foreign enterprises not registered in China and foreign individuals, we note that
Article 16 states that the business of importing film s "shall be exclusively conducted by film import
enterprises that are approved by SARFT". As we understand it, this phrase has the effect of excluding
foreign enterprises not registered in China and foreign individuals from the business of importing
films.458 We therefore consider that Article 16 does not give China the discretion to grant the right to
trade to such enterprises or individuals as importers. Accordingly, we conclude, that the United States
has not met its burden of establishing that Artic le 16 gives rise to an inconsistency with
paragraph 84(b) in relation to foreign enterprises not registered in China and to foreign individuals.

452 United States' responses to question Nos. 11(a) and (d).
453 Ibid.
454 Articles 36 and 37 of the Film Regulation.
455 Article 2 states in relevant part that "[t]hese Provisions are applicable to the management of entry
criteria for companies, enterprises and other economic organizations inside China that engage in the business of
the ... import and export of films, and for outside compan ies, enterprises and other economic organizations that
participate in the production and projection of films".
456 We nonetheless note that, e.g., Article 15 explicitly also applies to individuals.
457 United States' first written submission, para. 66.
458 This understanding is also consistent with the provisions of Article 30 of the Film Regulation.

7.596 Regarding Chinese branches of foreign-register ed enterprises, we observe that the United
States has not asserted that Article 16 affects such br anches and that this resu lts in an inconsistency
with China's trading rights commitments. In fact , the United States has never even mentioned the
possibility of foreign-registered enterprises setting up Chinese branch es. Accordingly, we do not
examine whether, as a result of any effect Arti cle 16 may have on Chinese branches of foreign-
registered enterprises, Article 16 gives rise to an inconsistency with paragr aph 84(b) in relation to
foreign enterprises not registered in China.
Paragraphs 5.1, 83(d) and 84(a)
7.597 The other US claim in respect of Article 16 app ears to be based on paragraphs 5.1, 83(d) and
84(a). We recall in this regard that Article 16 a ppears to apply only to enterprises in China and other
economic organizations in China. Thus, Article 16 has the effect that enterprises, or other economic
organizations, in China that have not been appr oved by the SARFT cannot engage in the business of
importing films. In other words, they can obtain the right to import films only if the SARFT decides
to approve them. As indicated, there appears to be no process whereby they can submit applications.
To us, this suggests that the approval requirement is not applied merely to ensure compliance with
customs or fiscal requirements, or requirements im posed for "normal business regulation" purposes.
Also, the fact that enterprises in China appear to be approved exclusively at the initiative of the
SARFT in our view suggests that the approval requirement is not applied to allow any and all
enterprises in China to import films. We therefor e see no reason to disagree with the United States'
contention that the approval requirement set out in Article 16 serves a gate-keeping function. In this
respect, we recall that evidence submitted by th e United States shows that China has assigned the
right to import to only one enterprise in China.

7.598 In the light of the foregoing, we consider that by providing in Article 16 that only SARFT-
approved enterprises may import films, China has faile d to ensure that all enterprises in China have
the right to import films. Therefore, we conclude that in respect of enterprises in China, Article 16
results in China acting inconsistently with its obligations under paragraphs 5.1, 83(d) and 84(a).
7.599 Regarding foreign enterprises not registered in China and foreign individuals, we recall our
view that Article 16 has the effect of excluding foreign enterprises not registered in China, and foreign
individuals, from the business of importing films. Therefore, we consider that China does not permit
such enterprises or individuals to import films. We thus conclude that Article 16 results in China
acting inconsistently with paragraph 84(a) in respect of such enterprises or individuals.
7.600 Regarding Chinese branches of foreign-registered enterprises, we recall that the United States
has not asserted that Article 16 affects such branches. Accordingly, we do not examine whether, as a
result of any effect Article 16 may have on Chin ese branches of foreign-registered enterprises,
Article 16 gives rise to an inconsistency with para graph 84(a) in relation to foreign enterprises not
registered in China.
Paragraph 5.2
7.601 Separately, we note that in response to a ques tion from the Panel, the United States suggested
that the Film Enterprise Rule results in an inconsis tency with paragraph 5.2.
459 I t i s n o t c l e a r ,
however, whether any such claim would concern Article 3 or Article 16 or both, nor why an
inconsistency with either provision is alleged to arise. Consequently, we conclude that the United
States has not established any claim under paragraph 5.2. We also note that the United States has not
established that the Film Enterprise Rule results in an inconsistenc y with paragraph 5.2 when
considered together with other challenged measures.

459 United States' response to question No. 1.

(ix) Film Distribution and Exhibition Rule
7.602 The United States notes that the Film Distribution and Exhibition Rule primarily addresses
the distribution and projection of films for theatrica l release in China. However, it also notes that
Article II of this measure addresses the importation of films, providing that the "unifying imports and
using imports to generate exports" shall continue to be a principle to be upheld. As further pointed
out by the United States, Article II also states in relevant part that China Film Group film
import/export company shall be "entrust[ed] ... to un ify the importing of films consigned from foreign
countries ...". According to the United States, the Film Distribution and Exhibition Rule thus clarifies
how the requirements of the Film Regulation are to be fulfilled, i.e., ex actly one domestic enterprise,
owned by the State, is to import films for theatrical release: a Chinese wholly state-owned enterprise
called China Film Import and Export Corporation.
7.603 The United States submits that the Film Distribution and Exhibition Rule explicitly
establishes China's film importation monopoly, designating China Film Group as the exclusive
importer of foreign films into China. As indicated in connection with the Film Regulation, the United
States claims that China's measures granting China Film Group a monopoly on the right to import
films for theatrical release are inconsistent with China's trading rights commitments. In the United
States' view this monopoly not only deprives enterpri ses in China (other than China Film Group) as
well as foreign enterprises and individuals of the right to import films for theatrical release. It also
discriminates against foreign-invested enterprises an d foreign individuals, in contravention of China's
trading rights commitments.
7.604 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measur e arise as a result of Article II of the measure, and under paragraphs
5.1 and 5.2 of the Accession Prot ocol and paragraphs 83(d) and 84(a)-(b) of the Working Party
Report. The United States further indicated that, in its view, the parties whose trading rights are being
restricted under this measure are foreign enterprises, including foreign-invested enterprises in China,
foreign individuals and Chinese privately invested enterprises in China.
460
7.605 China notes that the US panel request does not refe r to this measure in relation to the US
claim concerning trading rights. China considers that this measure has not been adequately identified
within the meaning of Article 6.2 of the DSU. Consequently, China requests the Panel to find that
this measure is not within the Panel's terms of reference.
7.606 The Panel recalls its decision at paragraph 7.60 above that the Film Distribution and
Exhibition Rule is not within its terms of reference with respect to the US claim regarding China's
trading rights commitments, and so the Panel refrain s from addressing the merits of the US claim in
respect of Article II of this measure.
(x) 2001 Audiovisual Products Regulation
7.607 The United States notes that according to its Article 2, the 2001 Audiovisual Products
Regulation applies to, inter alia, the importation of audiovisual pr oducts (including audio and video
tapes, records, and audio and video CDs) into China. Thus, the United States points out, China
includes sound recordings within the legal regime governing the importation of audiovisual products.
The United States also notes that according to Article 5 of the 2001 Audiovisual Products Regulation,
the State institutes a licensing system for the importa tion of audiovisual products and that no entity or
individual may engage in the importation of audiov isual products without the necessary permit. The
United States points out that Article 5 further elaborates on the confines of China's audiovisual

460 United States' response to question No. 1.

product import regime by providing that permits and approval documents may not be rented, lent, sold
or assigned.
7.608 The United States further argues that Chin a regulates imported audiovisual products,
including AVHE products, according to whether they are finished or unfinished. According to the
United States, finished AVHE products are legitimate ly produced and replicated outside of China and
require no additional production or replication in Ch ina before being made available to consumers.
Unfinished AVHE products, on the other hand, are master copies to be used to publish and
manufacture copies for sale in China.461
7.609 Regarding what enterprises may import finished audiovisual products in to China, the United
States refers to Article 27 of the 2001 Audiovisual Products Regulation, which states:
"The import of finished audiovisual products shall be handled by finished audiovisual
product import entities designated by the cultural administration under the State
Council. Any entity or individual which has not been designated may not engage in
the import of finished audiovisual products."
7.610 Regarding enterprises that import unfinished audiovisual products, the United States points
out that they must be approved by MOC using a formal application process. The United States
indicates that Chapter II (Articles 8-10) of the 2001 Audiovisual Products Regulation establishes the
application and approval procedures applicable to these enterprises. The United States also refers to
Article 28, which provides, in relevant part, that importers of audiovisual products for publication
must bring their MOC-issued approval documents "to process import procedures at Customs".
7.611 The United States contends that these desi gnation requirements (finished audiovisual
products) and approval requirement s (unfinished audiovisual products) are more than mere
administrative formalities. In the United States' view, they serve a gate-keeping function to limit the
number of enterprises selected by the Chinese Governme nt to import audiovisual products into China.
The United States notes in this respect that under these requirements, only CNPIEC (a Chinese wholly
state-owned enterprise) has been designate d to import finished audiovisual products.
462 A l s o ,
according to the United States, only Chinese wholly state-owned enterprises may be approved to
engage in the importation of unfinished audiovisual products.463
7.612 The United States claims that the designation re quirements for finished audiovisual products
and the approval requirements for unfinished audiovisual products are inconsistent with China's
trading rights commitments, because they inject qualifying criteria and government discretion into a
process that China committed to be "non-discretionary".
7.613 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a resu lt of Articles 5 and 27-28 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working

461 The United States refers to Articles 27 and 28 of the 2001 Audiovisual Products Regulation and to
Articles 8, 10, 13 and 14 of the Audiovisual Products Importation Rule . The United States further points out
that unfinished sound recordings include master recording discs.
462 The United States refers to Article 5 of the Imported Cultural Products Rule (stating that the
"[i]mport of finished audiovisual products shall be exclusively handled by the China [National] Books Import
and Export Corporation") (Exhibit US-10) and Article I of the Circular on Uniform Anti-Fake Logo for
Audiovisual Products (providing that "[a]ccording to the State Council, China National Publications Import and
Export Corporation (CNPIEC) is the only entity that is approved by the State to engage in the importation of
finished audiovisual products") (Exhibit US-19).
463 The United States refers to Article 42 of the Publications Regulation and Article 4 of the Imported
Cultural Products Rule.

Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
464
7.614 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.615 China notes that the US claim in respect of this measure targets both finished and what the
United States calls "unfinished" products, the la tter being, in China's view, audiovisual products
imported for publication purposes. China submits that the concept of "unfinished audiovisual
products" used by the United States in its claim does not appear in the Chinese regulations concerned.
China notes that the concept used in Chinese regulations is that of "audiovisual products used for
publication", which refers to master copies with audi ovisual content that are to be published in China
via copyright licensing agreements.465
7.616 China argues that the United States wrongly assu mes, and fails to establish, that these
"unfinished" audiovisual products are goods. In China's view, it follows that the US claim concerning
trading rights for "unfinished" audiovisual products lacks any legal basis and should be rejected.
7.617 China submits that these master copies carry audiovi sual content that is subject to a copyright
licensing agreement between the foreign right holde r and a Chinese publisher. China explains that
this licensing agreement sets the conditions accord ing to which the audiovisual content will be
exploited in China's territory. China states that the master copy is used for the sole purpose of making
copies in accordance with the licensing agreement. According to China, the master copy would
eventually be returned or destroye d. China considers, therefore, that the importation of the master
copy is only an accessory of copyright licensing. Consequently, China submits, the importation of
audiovisual products used for publication does not correspond to the importation of goods, but to
copyright licensing.
7.618 In other words, China argues that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule regulate the importation of audiovisual products used for
publication as the licensing of the right to make copies of an audiovisual content, and not as the
importation of goods. In China's view, the "right to import" audiovisual products used for publication
consists of the right to enter into a copyright agre ement for the publication of copies of an audiovisual
content, and not of the right to import goods intended for resale.
7.619 China submits that this is reflected in the procedure applicable to foreign audiovisual products
used for publication. In particular, China notes that Article 29 of the 2001 Audiovisual Products
Regulation states that "as regards the importation of a udiovisual products used for publication, the
copyright thereof shall be registered with the ad ministrative department of copyright under the State
Council". China also notes that Article 14 of Audiovisual Products Importation Rule specifies that "in
the event of importing the audiovisual products for publication, application shall be filed with, and the
following documents and materials shall be submitte d to, the Ministry of Culture: … draft of the
copyright trade agreement (versions in Chinese and foreign language), certificate of original
copyright, authorization letter of copyright and the certification of registration issued by the copyright

464 United States' response to question No. 1.
465 China refers to Articles 27 and 28 of the 2001 Audiovisual Products Regulation and to the
Audiovisual Products Importation Rule.

certification agencies of the State …". Accord ing to China, these measures demonstrate that
copyright licensing is a prerequisite for the import operation.
7.620 China argues that since the challenged measures regulate a service, i.e., the licensing of
copyrights for publication of audiovisual content, China's commitments concerning the right to import
goods do not apply to such measures.
7.621 The United States responds that there is no textual basi s for China's assertion that unfinished
AVHE products and unfinished sound r ecordings are not goods. In the United States' view, the fact
that these tangible goods carry content does not take them out of the category of goods. If it did, then
reading materials, finished AVHE products, and fi nished sound recordings, would not be goods, an
assertion that China has not advanced in this dispute.
7.622 The United States also notes that the 2007 Harm onized System, which the United States says
was implemented under the Harmonized System Co nvention, describes products under HS heading
8523, in pertinent part, as follows: "[d]iscs, tapes, solid-state non-volatile storage devices, 'smart
cards' and other media for the recording of sound or of other phenomena, whether or not recorded,
including matrices and masters for the production of discs". 466 In the United States' view, this
description makes clear that these products are goods . The United States also argues that master
copies of videocassettes, VCDs and DVDs, as well as master recording discs, to be reproduced and
sold in China, would be covered by the broad description for HS heading 8524, because these master
copies are "records, tapes and other recorded media for sound or other similarly recorded
phenomena". The United States further points out that the CPC also classifies "recorded media for
sound or other similarly recorded phenomena" other than films under goods subclass 47520.
7.623 In addition, the United States submits that China treats these products as goods. The United
States notes that China's tariff sche dule, which has not yet implemented the 2007 changes to the HS,
incorporates the description of these products under HS heading 8524. 467 Moreover, the United States
points out that in response to a question from the Pa nel, China concedes that it charges customs duties
for hard-copy audiovisual products (includi ng sound recordings) intended for publication. 468
Furthermore, the United States observes that Article 2 of the Audiovisual Products Importation Rule
defines audiovisual products as "audio tapes, video tapes, records, and audio and video CDs which
have recorded content" and cross-references the HS codes for these products, which are provided in
Annex 1 to the measure. In the United States' vi ew, this further reinforces the conclusion not only
that these items are goods, but that China treats them as goods.
7.624 Regarding China's assertion that its measures do not regulate the right to import master copies
of AVHE products or sound recordings, but simply deal with rights to enter into copyright
agreements, the United States argues that, as with films, China may have provisions regulating
copyright licensing, but this does not change the f act that other Chinese provisions directly regulate
who can import the good subject to that licensing. 469 The United States notes in this connection that
China does not contest the conclusion that finished AVHE products and finished sound recordings are
goods, even though these products are also copyright protected.
7.625 The Panel begins by recalling that the provisions of the 2001 Audiovisual Products
Regulation apply to both hard copy sound reco rdings and other audiovisual products. 470 T h e

466 Exhibit US-55.
467 Exhibit JPN-2.
468 China's response to question No. 132.
469 The United States refers to Articles 8-10 of the 2001 Audiovisual Products Regulation and Articles
3, 7 and 8 of the Audiovisual Products Importation Rule.
470 Article 2 of the 2001 Audiovisual Products Regulation.

provisions of the 2001 Audiovisual Products Regulation identified by the United States as provisions
giving rise to an inconsistency with China's trad ing rights commitments are Articles 5, 27 and 28.
The US claims in respect of Articles 5 and 28 concern both finished and what the United States
termed unfinished audiovisual products, i.e., audiovisual products used for publication.
471 The US
claim in respect of Article 27 concerns only fini shed audiovisual products. The Panel will first
address the latter claim.
7.626 Before addressing the claim in respect of Artic le 27, however, we note that in response to a
question from the Panel, the United States suggested that the 2001 Audiovisual Products Regulation
results in an inconsistency with pa ragraphs 5.1, 83(d), 84(a) and 5.2. 472 It is not clear, though, in
respect of which of the provisions at issue – Articl es 5, 27 or 28 – claims are made and under which
of these paragraphs. Nor is it clear why an inconsistency is alleged to arise. Consequently, the United
States in our view has not met its burden of establishing its claims under the aforementioned
paragraphs.
Article 27
7.627 We recall that Article 27 provides that entities or individuals that have not been designated
may not engage in the import of finished audiovisual products. It also provides that the import of
finished audiovisual products must be handled by finished audiovisual product import entities
designated by the MOC. Thus, it would appear that China can designate only finished audiovisual
product import entities, not individuals.
7.628 We further note that Article 27 does not explic itly state whether finished audiovisual product
import entities need to be registered in China. We recognize that the term "finished audiovisual
product import entity" is unqualified. In our view , this does not necessarily mean, however, that the
term "finished audiovisual product import entity" could cover also foreign enterprises not registered in
China. We note in this respect that we have not been given any other trade-related Chinese laws or
regulations that could indicate whether an "import entity " needs to be registered in China. In view of
the foregoing, and the lack of US arguments or ev idence on this issue, we consider that the United
States has not demonstrated that the term "finishe d audiovisual product import entity" as it appears in
Article 27 could cover foreign enterprises not register ed in China and that such enterprises could be
designated as finished audiovisual product import enti ties. We accept, however, that foreign-invested
enterprises in China could be designated as finished audiovisual product import entities.
7.629 As to whether the term "finished audiovis ual product import entities" could cover Chinese
branches of foreign-registered enterprises, it is su fficient to note that the United States has not
asserted that the 2001 Audiovisual Products Regulation affects branches in China and that this results
in an inconsistency with China's trading rights commitments. In fact, the United States has never
even mentioned the possibility of foreign-regi stered enterprises setting up Chinese branches.
Accordingly, we do not examine this issue further.
473
7.630 The United States contends that Article 27 au thorizes the MOC to appoint, based on its own
discretion, the entities of its own choosing th at are permitted to engage in importation. 474 The United
States claims that the designation requirement is inconsistent with China's trading rights
commitments, because it injects qualifying criteria and government discretion into a process that

471 United States' response to question No. 155.
472 United States' response to question No. 1.
473 Also, it is in any event not clear to us from the information on the record whether Chinese laws or
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in
the sector at issue.
474 United States' response to question No. 9.

China committed to be "non-discretionary". We understand this claim to be based on
paragraph 84(b).475
7.631 In considering Article 27, we observe that desi gnation is not automatic. Rather, it is up to the
MOC to initiate the designation process.476 Article 27 contains no criteria to be followed by the MOC
in deciding whom to designate. Moreover, China has not contested the US contention that MOC can
designate importers "of its own choosing". Thus, it appears to us that the MOC enjoys discretion as to
whom to designate. Accordingly, under Article 27, China needs to exercise discretion in order to
grant the right to import finished audiovisual products.
7.632 With these observations about Article 27 in mind, we now turn to the claimed inconsistency
with paragraph 84(b). In view of the fact that the discretion relates to the designation of "finished
audiovisual product import entities", and not individuals, we conclude that Article 27 does not result
in an inconsistency with paragr aph 84(b) with respect to the grant of trading rights to foreign
individuals. Furthermore, the United States has not established that Article 27 results in an
inconsistency with paragraph 84(b) in respect of fo reign individuals when considered together with
other challenged measures.
7.633 On the other hand, we recall that in our view foreign-invested enterprises in China could be
designated as "finished audiovisual product import en tities" within the meaning of Article 27. We
therefore conclude that, as a result of Article 27, China does not grant trading rights to foreign-
invested enterprises for the import of finished audi ovisual products "in a non-discretionary way", and
that, for that reason, China is acting inconsistently with its obligation under paragraph 84(b).
7.634 We also recall that the United States has not asser ted that Article 27 affects Chinese branches
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could
designate foreign enterprises not registered in Ch ina as "finished audiovisual product import entities".
We thus conclude that the United States has not es tablished that Article 27 results in China acting
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered
in China. The United States has also not established that Article 27 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.
7.635 Regarding the US argument that the designation requirement injects qualifying criteria, we
note that we do not see how it does. The United Stat es itself has stated in response to a question from
the Panel that designation is discretionary and th at there are no independent criteria governing how
the competent agency designates importers.477
Article 5
7.636 According to Article 5, the State is to institute a licensing system for, inter alia, the import of
audiovisual products. It further provides that no entity or individual may engage in the import of
audiovisual products without the necessary licence.
7.637 The United States argues that Article 5 establishes an approval requirement. In the United
States' view, Article 5 relates to both finished audi ovisual products and audiovisual products imported
for publication.478 China has not specifically addressed the i ssue of whether Article 5 applies to both

475 We note that at para. 261 of its first written submission, the United States argues that the designation
requirement serves a gate-keeping function to limit the number of enterprises selected to import audiovisual
products into China. However, the US submission does not put forward a claim that the designation
requirement is, therefore, inconsistent with one or more of China's trading rights commitments.
476 China has confirmed this in responses to question Nos. 25(a) and (b) and 31(c).
477 United States' response to question No. 9.
478 United States' response to question No. 155.

finished audiovisual products and audiovisual products imported for publication. We note that the US
claim in respect of Article 5 concerns only audiovisual products imported for publication.
479 It is clear
from Article 28 of the 2001 Audiovisual Products Regulation that the 2001 Audiovisual Products
Regulation applies to audiovisual products imported for publication. 480 Since Article 5 applies
broadly to "audiovisual products", it appears to us that it covers such products.
7.638 The United States claims that the approval requirement introduces qualifying criteria and
discretion into a process that China committed to be "non-discretionary", and that it is therefore
inconsistent with China's trading rights commitm ents. We understand this claim to be based on
paragraph 84(b).481 In considering this claim, we must first examine China's argument that the
provisions of the 2001 Audiovisual Products Regulation are not subject to China's trading rights
commitments.
7.639 The United States has indicated th at its claim in respect of audiovisual products imported for
publication concerns hard-copy, tangible products such as CDs or DVDs. 482 More specifically, the
claim concerns "master copies", such as videocassettes, VCDs and DVDs, or physical sound
recordings, to be used to publish and manufacture copies for sale in China.483
7.640 As to whether these master copies are goods, we note that China does not appear to dispute
that they are. 484 In considering this issue, we find relevant heading 8524 of the 1996 Harmonized
Commodity Description and Coding System (HS), wh ich defines as goods "[r]ecords, tapes and other
recorded media for sound or other similarly record ed phenomena, including matrices and masters for
the production of records, but excluding products of Chapter 37". 485 Similarly, heading 8523 of the
2007 Harmonized System defines as goods "[d]iscs, tapes, solid-state non-volatile storage devices,
'smart cards' and other media for the recording of sound or of other phenomena, whether or not
recorded, including matrices and masters for the production of discs". 486 In our view, both
descriptions are sufficiently broad to cover master copies, such as master video cassettes, VCDs and
DVDs as well as master sound recordings discs.
7.641 As pointed out by the United States, China' s own Schedule of Concessions, i.e., its goods
schedule, incorporates the old HS heading 8524. 487 Furthermore, China has confirmed that it charges
customs duties on the importation of hard-copy audiovisual products intended for publication. 488 The
fact that master copies consist of a physical carrier containing content in our view does not mean that
they are not goods.
7.642 In the light of the above, we consider that the audiovisual products intended for publication
that are the subject of the US claim – tangible master copies – are goods for the purposes of China's
trading rights commitments. Therefore, we pro ceed to consider China's argument that its trading

479 United States' first written submission, paras. 261-262.
480 Article 28 provides that "[a]udiovisual products imported for publication and finished audiovisual
products imported for wholesale, retail or rental shall be submitted to the cultural administration under the State
Council for review of their contents".
481 We note that at para. 261 of its first written submission, the United States argues that the approval
requirement serves a gate-keeping function to limit the number of enterprises selected to import audiovisual
products into China. However, the US submission does not put forward a claim that the approval requirement
is, therefore, inconsistent with one or more of China's trading rights commitments.
482 United States' response to question No. 15.
483 United States' response to question No. 18.
484 China's comments on the United States' response to question No. 164.
485 Exhibit JPN-2 (extracts from Schedule CLII, in HS96 nomenclature).
486 Exhibit US-55.
487 Exhibit JPN-2.
488 China's response to question No. 132.

rights commitments are, nevertheless, inapplicable to Article 5 of the 2001 Audiovisual Products
Regulation.
7.643 As we see it, Article 5 in rele vant part regulates who may enga ge in the activity of importing
audiovisual products intended for publication. Artic le 5 applies to "audiovisual products". It would
appear that this term could cove r the relevant master copies as goods. We note in this respect the
provisions of Article 2 of the 2001 Audiovisual Products Regulation. According to the US translation
of Article 2, the 2001 Audiovisual Products Regulation applies to "such activities as the … import …
of recorded audio and video tapes, records, and audio and video CD's". 489 Thus, if the term
"audiovisual products" in Article 5 covered tangible master copies as goods, Article 5 would directly
regulate who may engage in importing of such mast er copies. Thus understood, Article 5 would be
subject, in principle, to China's trading rights commitments.
7.644 Although China pointed out that master copies carry audiovisual content that is subject to a
copyright licensing agreement, and that its me asures regulate the right to import audiovisual
content490, China has not specifically argued that the te rm "audiovisual products" in Article 5 should
be understood as meaning "audiovisual content that can be commercially exploited". 491 In any event,
in those cases where audiovisual content is impor ted on a hard-copy master copy, Article 5 would
necessarily affect who may engage in importing of hard-copy master copies, because only licensed
importers could engage in importing of audiovisual content on mast er copies. Thus, even if the term
"audiovisual products" in Article 5 were understood as indicated, Ar ticle 5 would appear to be
subject, in principle, to China's trading rights commitments.
7.645 Accordingly, regardless of whether the refere nce in Article 5 to "audiovisual products" is
understood as meaning a good or audi ovisual content, in cases where what is imported are hard-copy
master copies, Article 5 would necessarily affect hard-copy master copies and, therefore, goods.
7.646 We do not understand China to contest that Article 5 has, or may have, an effect on hard-copy
master copies and, therefore, on goods. China ar gues, however, that Article 5 regulates the service of
licensing – the licensing of copyrights for the publication of copies of audiovisual content – and that
although Article 5 may have an impact on hard-copy master copies, it should not be scrutinized under
China's trading rights commitments, but under the di sciplines governing trade in services. According
to China, Article 5 regulates the service of licensing of copyrights by regulating who may enter into a
copyright agreement for the publication of copies of audiovisual content.
492
7.647 We would accept that the licensing of copyrights can be considered a service that is provided
by the foreign right holder to th e Chinese publisher. Also, as pointed out by China, Article 29 of the
2001 Audiovisual Products Regulation states that "[a]s regards the importation of audiovisual
products used for publication, the copyright thereo f shall be registered with the administrative
department of copyright under the State Council". Thus, Article 29 appears to contemplate the
existence of a licensing agreement between a foreign right holder and a Chinese publisher.
7.648 We recognize that in those cases where the Ch inese publisher is the importing entity,
Article 5 appears to allow the MOC to control w ith which import entities foreign right holders could

489 China's translation is not substantially different. China translates the relevant passage of Article 2
as: "… shall apply to such activities as … importation … of audiovisual products with recorded contents such as
audio tapes, video tapes, gramophone records, compact discs and laser discs, etc.".
490 China's response to question No. 192.
491 In response to question No. 192, China draws a distinction between "audiovisual goods" and
"audiovisual content". Article 5 refers to "audiovisual products", however. Also, Article 2 of the 2001
Audiovisual Products Regulation appears to distinguish between "audiovisual products" and the "contents" they
carry.
492 E.g., China's response to question No. 192.

enter into a licensing agreement. It is not clear, however, whether in the case of imports of
audiovisual products for publication the import entity necessarily needs to be the Chinese publisher.
493
At any rate, we are prepared to proceed with our analysis on the assumption that foreign right holders
need to enter into licensing agreements with licensed import entities in all cases.
7.649 China submits that in the context of a provi sion like Article 5 which, in China's view,
regulates licensing services, any effect that provision has on who may import hard-copy master copies
should not be examined under China's trading rights commitments. In support of this position, China
puts forward the argument that a master copy is only an "accessory" to a service, i.e., copyright
licensing.
7.650 We note that a number of elements identified by China – including the fact that master copies
are used for the sole purpose of making copies of an audiovisual content and that they must be
returned or destroyed – could support the view th at hard-copy master copies are accessories to the
licensing service to be provided by foreign right holders under a licensing agreement.
7.651 Nevertheless, we are not persuade d that this would justify non-application of China's trading
rights commitments to Article 5. We note in this regard that we have ex amined the same issue for
hard-copy cinematographic films in the context of our analysis above of the Film Regulation. The
reasons we have given there in our view are also applicable, mutatis mutandis, to the master copies at
issue in the present context.
7.652 In sum, even if it is assumed that foreign right holders must, in all cases, enter into licensing
agreements with licensed import entities, we are no t convinced by China's position that any effect
Article 5 has on who may import hard-copy master copies should not be examined under China's
trading rights commitments. We thus conclude th at Article 5 is subject to China's trading rights
commitments.
7.653 Having determined that China's trading right s commitments, which include paragraph 84(b),
are applicable to Article 5, we now turn to address the merits of the US claim. We begin by recalling
that in accordance with Article 5 only licensed entities or individuals have the right to import
audiovisual products. Thus, reading Article 5 in is olation, it could appear that China can licence not
just entities, but also individuals, to import audiovisual products. However, as already discussed
above, Article 27 of the 2001 Audiovisual Products Regulation suggests that only entities may be
designated to import finished audiovisual products. Similarly, Article 28 of the 2001 Audiovisual
Products Regulation , which applies to finished audiovisu al products and audiovisual products
imported for publication, refers to entities, but omits reference to individuals. Article 28 states in
relevant part that "[a]n entity which imports audi ovisual products for publishing and a business entity
which imports finished audiovisual products shall bring approval documents issued by the cultural
administration under the State Council to process import procedures at Customs". Article 28 of the
2001 Audiovisual Products Regulation appears to be paralleled by Article 26 of the Audiovisual
Products Importation Rule . Like Article 28, Article 26 seems to apply to audiovisual products
imported for publication, in that it refers to "m aster tapes (master discs)" separately from finished
audiovisual products. Moreover, while it refers to "a udiovisual product import units", i.e., entities, it
does not refer to individuals. Elsewhere, e.g., in Article 19, the Audiovisual Products Importation
Rule differentiates between units and individuals.
7.654 Articles 27 and 28 are part of the context of Article 5. Since they appear to indicate that only
entities could be importers of audiovisual products, including those intended for publication, we are
not persuaded that individuals could be licensed under Article 5 to import audiovisual products

493 Referring to Article 29, China has merely indicated that copyright licensing is a prerequisite for
import operations.

intended for publication. We note that this is al so consistent with our understanding that similar
measures, like the Publications Regulation, the 1997 Electronic Publications Regulation and the Film
Regulation, also do not allow individuals to be approve d or designated as importers of the relevant
products.
7.655 Regarding the grant of licences to "entities", we note that Article 5 does not explicitly state
whether import entities need to be registered in Chin a to be licensed. We recall, however, our finding
above that under Article 27 foreign-invested ente rprises in China can be designated as "finished
audiovisual product import entities", and that it has not been demonstrated that foreign enterprises not
registered in China could, likewise, be designate d as "finished audiovisual product import entities".
We see no reason to consider that these types of enterprise would be treated differently by China
when they wish to import audiovisual products that are for publication rather than finished
audiovisual products.494 In light of this, and the lack of US arguments and evidence on this issue, we
consider that the United States has not demonstrat ed that under Article 5 foreign enterprises not
registered in China could be licensed to import audiovisual products for publication. We accept,
however, that foreign-invested enterprises in Chin a could be licensed to import such products. Also,
we note that the United States has not asserted that Article 5 affects Chinese branches of foreign
enterprises not registered in China, and that this r esults in an inconsistency with China's trading rights
commitments.
7.656 In considering Article 5, we not e, additionally, that there does not appear to be any process
for submitting applications and obtaining a licence, nor is there any indication that licences are
granted automatically. We also observe that Article 5 contains no criteria to be followed by the MOC
in deciding whom to licence as importer of audiovisual products intended for publication.495
7.657 The foregoing elements suggest that China enjoys discretion as to the entities to be licensed as
importers. We note that China has not stated otherwise. 496 Accordingly, we consider that, under
Article 5, China needs to exercise discretion in orde r to grant the right to import audiovisual products
intended for publication to foreign-invested enterprises in China. We thus conclude that, as a result of
Article 5, China does not grant trading rights to fo reign enterprises "in a non-discretionary way" and
that, for this reason, China is acting inconsistently with its obligations under paragraph 84(b).
7.658 Since the United States has not demonstrated that foreign enterprises not registered in China
could be licensed to import audiovisual products fo r publication, and since the United States has not
asserted that Article 5 affects Chinese branches of foreign enterprises not registered in China, we
further conclude that the United States has not established that Article 5 results in China acting
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered
in China. The United States has also not established that Article 5 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.

494 We recall in this connection that Article 28 pres cribes the same import procedures for finished
audiovisual products and audiovisual products imported for publication.
495 We note in this context that the United Stat es has referred to Articles 8 and 9 of the 2001
Audiovisual Products Regulation which establish conditions and a process for approval as "audiovisual
publishing entity". The United States has not explained, however, the relevance of these provisions to the
import of audiovisual products for publication. As Articles 8 and 9 relate to the activity of publishing
audiovisual products, not of importing such products, it is not clear to us that these articles are relevant.
496 We recall China's statement in response to a question from the Panel that the licences to be obtained
by importers of films for theatrical release pursuant to Article 5 of the Film Regulation and Article 3 of the Film
Enterprise Rule are granted through a designation process (China's response to question No. 170). China made
no such statement with regard to Article 5 of the 2001 Audiovisual Products Regulation . We nonetheless note
that Article 5 is very similar to the aforementioned provisions relating to films for theatrical release. China
confirmed that designation may occur at the government's initiative only (China's response to question No.
25(a)).

7.659 Furthermore, as we have not been persuade d that individuals could be licensed under
Article 5, we conclude that the United States ha s not established that Article 5 results in an
inconsistency with paragraph 84(b) with respect to the grant of trading rights to foreign individuals.
The United States has also not established that Article 5 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.
7.660 Regarding the US argument that the licensing requirement in Article 5 injects qualifying
criteria
497, we observe that we do not see how it does.
Article 28
7.661 We now address the US claim in respect of Article 28. Article 28 provides, inter alia, that
audiovisual products imported for publication "shall be submitted to the cultural administration under
the State Council for review of their contents". It goes on to say that upon approval by the MOC,
"approval documents shall be issued". Article 28 then provides, and this is the part referred to by the
United States, that entities importing audiovisual products for publication must bring their MOC-
issued approval documents "to process import proce dures at Customs". As we understand it,
Article 28 deals with approvals given to audiovi sual products for publication which are to be
imported. It does not appear to deal with appr ovals given to entities who wish to engage in the
business of importing audiovisual products for publishing.
7.662 The United States has not explained why and how Article 28 results in China acting
inconsistently with its trading rights commitments. It is also unclear, therefore, which of these
commitments is at issue. In the light of this, we conclude that the United States has failed to meet its
burden of establishing that Article 28 is inconsiste nt with China's trading rights commitments under
the Accession Protocol. Also, we note that the United States has not established that Article 28 results
in an inconsistency when considered together with other challenged measures.
(xi) Audiovisual Products Importation Rule
7.663 The United States notes that pursuant to Article 3 of the Audiovisual Products Importation
Rule, which was issued on the basis of the 2001 Audiovisual Products Regulation , the Audiovisual
Products Importation Rule also applies to the importation of both finished and unfinished audiovisual
products into China. As also noted by the United St ates, Article 2 of this measure defines audiovisual
products as "audio tapes, video tapes, records, audio and video CDs which have recorded contents".
7.664 The United States also refers to Article 7 of the Audiovisual Products Importation Rule ,
which says that the State shall maintain a licen sing system for the importation of audiovisual
products. The United States further points out that Article 8 reaffirms that only those enterprises
"designated" by MOC may import finished audiovisu al products into China and that no entity or
individual may import finished audiovisual products without such a designation. Finally, the United
States notes that according to Article 10 the publis hing of imported unfinished audiovisual products
may be conducted by audiovisual publishers to the extent that they have been approved by MOC to do
so.
7.665 The United States argues that Articles 7 and 8 of the Audiovisual Products Importation Rule
replicate the designation and approval requirements found in the 2001 Audiovisual Products
Regulation for importers of finished audiovisual products. The United States claims that this element
of the Audiovisual Products Importation Rule is inconsistent with China's trading rights commitments
in the same way as the 2001 Audiovisual Products Regulation.

497 See supra, para. 7.638.

7.666 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of Articles 7-10 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China, foreign individuals and Chinese privately invested enterprises in China.
498
7.667 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.668 China notes that the US claim in respect of this measure targets both finished and what the
United States calls "unfinished" products. China argues that, for reasons explained above in relation
to the US challenge to the 2001 Audiovisual Products Regulation, the United States wrongly assumes,
and fails to establish, that these "unfinished" audiov isual products are goods. In China's view, the US
claim concerning trading rights for "unfinished" audi ovisual products therefore lacks any legal basis
and should be rejected.
7.669 The Panel notes that the provisions of the Audiovisual Products Importation Rule apply to
both hard-copy sound recordings and ot her hard-copy audiovisual products. 499 The provisions of the
Audiovisual Products Importation Rule identified by the United States as provisions giving rise to an
inconsistency with China's trading rights commitment s are Articles 7-10. We note that Article 3 of
the Audiovisual Products Importation Rule specifically states that it applies to the importation of both
finished audiovisual products and audiovisual products used for publishing. The US claims in respect
of Articles 7 and 10 concern audiovisu al products imported for publication. 500 The US claims in
respect of Articles 8 and 9 concern finished audiovisual products. The Panel will address these claims
in turn.
7.670 Before addressing these claims, we note that in response to a question from the Panel, the
United States suggested that the Audiovisual Products Importation Rule results in an inconsistency
with, inter alia, paragraphs 5.1, 83(d), 84(a) and 5.2. 501 It is not clear, however, which claim is made
in respect of each of the provisions at issue, i.e., Ar ticles 7-10. Nor is it clear why an inconsistency is
alleged to arise. Consequently, we conclude th at the United States has not established any claims
under the aforementioned paragraphs. Nor has the Unite d States established that Articles 7, 8, 9 or 10

498 United States' response to question No. 1.
499 Article 2 of the Audiovisual Products Importation Rule.
500 At para. 263 of the United States' first written submission, the United States observes that the
Audiovisual Products Importation Rule replicates the licensing requirement found in the 2001 Audiovisual
Products Regulation for importers of finished audiovisual products. However, as discussed above, the United
States is challenging the li censing requirement of the 2001 Audiovisual Products Regulation in respect of
"unfinished" audiovisual products. Since the United States is claiming that the Audiovisual Products
Importation Rule is inconsistent with China's trading rights commitments in the same way as the 2001
Audiovisual Products Regulation, we are assuming that the United States is challenging Article 7 in respect of
"unfinished" audiovisual products. We also note China's response to question No. 182, where China says that
Article 8 of the Audiovisual Products Importation Rule is the same as Article 27 of the 2001 Audiovisual
Products Regulation, in that the former provides detailed rule s concerning importation in accordance with the
latter. Thus, the same logic would appear to extend to Article 7 of the Audiovisual Products Importation Rule
and Article 5 of the 2001 Audiovisual Products Regulation.
501 United States' response to question No. 1.

result in an inconsistency with these paragraphs when considered together with other challenged
measures.
Article 7

7.671 As noted above, Article 7 provides that the State is to implement a licensing system for the
importation of audiovisual products. The United Stat es argues that Article 7 replicates the licensing
requirement in the 2001 Audiovisual Products Regulation. The United States claims that this element
of the Audiovisual Products Importation Rule is inconsistent with China's trading rights commitments
in the same way as the corresponding element of the 2001 Audiovisual Products Regulation . Thus,
we understand this claim to concern audiovisual pr oducts intended for publication and to be based on
China's commitment in paragraph 84(b) that it woul d grant trading rights to foreign enterprises and
individuals in a "non-discretionary" way. More par ticularly, the United States appears to claim that
the approval requirement introdu ces qualifying criteria and discretion into a process that China
committed to be "non-discretionary", and that it is therefore inconsistent with paragraph 84(b).
7.672 We first recall our determination above that th e audiovisual products intended for publication
that are the subject of US claims – tangible master copies – are goods for the purposes of China's
trading rights commitments. Article 7 applies to "aud iovisual products". As this term is unqualified,
it would appear that this term could cover the relevant master copies as goods. We note in this respect
the provisions of Article 2 of the Audiovisual Products Importation Rule . It identifies as covered
audiovisual products audio tapes, video tapes, re cords, and audio and video CDs with recorded
content and refers to an annex which provides the HS codes for the covered products. Hence, if the
term "audiovisual products" in Ar ticle 7 covered tangible master copies as goods, Article 7 would
directly regulate who may engage in importing of such master copies. Thus understood, Article 7
would be subject, in principle, to China's trading rights commitments.
7.673 But even if the term "audiovisual products " in Article 7 should be understood as meaning
"audiovisual content that can be commercially exploi ted", in those cases where audiovisual content is
imported on a hard-copy master copy, Article 7 would necessarily affect who may engage in
importing of hard-copy master copies, because only licensed importers could engage in importing of
content on master copies. Thus, even if the term "audiovisual products" in Article 7 were understood
as indicated, Article 7 would appear to be subject, in principle, to China's trading rights commitments.
7.674 China considers, however, that its trading ri ghts commitments under the Accession Protocol
are inapplicable to Article 7 of the Audiovisual Products Importation Rule . We note that Article 7 of
the Audiovisual Products Importation Rule is very similar to Article 5 of the 2001 Audiovisual
Products Regulation . Also, China's arguments in support of its position that we should not apply
China's trading rights commitments to Article 7 of the Audiovisual Products Importation Rule are the
same as those we have discussed previously when a ddressing the same issue in relation to Article 5 of
the 2001 Audiovisual Products Regulation .502 In the light of these elements, we consider that the
reasons which led us to conc lude that Article 5 of the 2001 Audiovisual Products Regulation is

502 We note that, in addition, China referred to Article 14 of the Audiovisual Products Importation Rule
which provides that:
"In regard to audiovisual products imported for the purpose of publishing, application shall be
made to the Ministry of Culture and the following documents and materials submitted: …
Draft of the copyright trade agreement (Chinese and foreign language versions), original
copyright certificate, copyright authorization letter and registration and authentication
document from the State copyright authentication agency …".

subject to China's trading rights commitments are also applicable, mutatis mutandis , to Article 7. 503
We thus conclude that the provisions of Article 7 are subject to China's trading rights commitments.
7.675 Having satisfied ourselves that China's trading rights commitments are applicable to Article 7,
we now turn to address the merits of the US claim that Article 7 gives rise to an inconsistency with
paragraph 84(b). We note in this respect that unde r Article 7 only licensed importers appear to have
the right to import audiovisual products intended for publication.
7.676 Article 7 mentions neither entities nor individuals . It could thus appear that China could
license both entities and individuals. However, we note that the Audiovisual Products Importation
Rule has been drawn up on the basis of the 2001 Audiovisual Products Regulation .504 We also recall
that we have not been persuade d that under Article 5 of the 2001 Audiovisual Products Regulation ,
which is the equivalent of Article 7, individual s could be licensed to import audiovisual products
intended for publication. For these reasons, we do no t see a basis for reaching a different conclusion
with regard to Article 7.505
7.677 Regarding the grant of licences to "entities", we note that Article 7 does not explicitly state
whether import entities need to be registered in China. We recall, however, our view that under
Article 5 of the 2001 Audiovisual Products Regulation foreign-invested enterprises in China could be
licensed to import audiovisual products for publicati on, and that it has not been demonstrated that
foreign enterprises not registered in China could be licensed to import such products. As Article 7 is
based on Article 5, we see no basis for reaching a different conclusion with regard to Article 7.
7.678 As to whether Chinese branches of foreign-regi stered enterprises could be licensed, we note
that the United States has not asserted that the Audiovisual Products Importation Rule affects
branches in China and that this r esults in an inconsistency with Ch ina's trading rights commitments.
In fact, the United States has never even mentione d the possibility of foreig n-registered enterprises
setting up Chinese branches. Accordingly, we do not examine this issue further.506
7.679 We note, finally, that there does not appear to be any process for submitting applications and
obtaining a licence, nor is there any indication that licences are granted automatically. We also note
that Article 7 contains no criteria to be followed by the MOC in deciding whom to licence as importer
of audiovisual products intended for publication.
7.680 The foregoing elements suggest to us that Ch ina enjoys discretion as to the entities to be
licensed as importers. We note that China has not stated otherwise. 507 Accordingly, we consider that
under Article 7 China needs to exercise discretion in order to grant foreign-invested enterprises in

503 In respect of Article 14 of the Audiovisual Products Importation Rule , we note that even if it
supported the view that foreign right holders in all cases need to enter into licensing agreements with licensed
import entities, we are not convinced by China's position th at any effect Article 7 has on who may import hard-
copy master copies should not be examined under China's trading rights commitments.
504 See Article 1 of the Audiovisual Products Importation Rule.
505 As previously pointed out, Article 26 of the Audiovisual Products Importation Rule addresses
import procedures to be followed for master tapes and discs and refers to audiovisual product import units, but
not individuals.
506 Also, it is in any event not clear to us from the information on the record whether Chinese laws or
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in
the sector at issue.
507 We recall China's statement in response to a question from the Panel that the licences to be obtained
by importers of films for theatrical release pursuant to Article 5 of the Film Regulation and Article 3 of the Film
Enterprise Rule are granted through a designation process (China's response to question No. 170). China made
no such statement with regard to Article 7 of the Audiovisual Products Importation Rule. We nonetheless note
that Article 7 is very similar to the aforementioned provisions relating to films for theatrical release.

China the right to import audiovisual products intended for publication. We thus conclude that, as a
result of Article 7, China does not grant trading ri ghts to foreign enterpri ses "in a non-discretionary
way" and that, for this reason, China is act ing inconsistently with its obligations under
paragraph 84(b).
7.681 Since the United States has not demonstrated that foreign enterprises not registered in China
could be licensed to import audiovisual products fo r publication, and since the United States has not
asserted that Article 7 affects Chinese branches of foreign enterprises not registered in China, we
further conclude that the United States has not established that Article 7 results in China acting
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered
in China. The United States has also not established that Article 7 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.
7.682 Furthermore, as we have not been persuade d that individuals could be licensed under
Article 7, we conclude that the United States ha s not established that Article 7 results in an
inconsistency with paragraph 84(b) w ith respect to the grant of trading rights to foreign individuals.
The United States has also not established that Article 7 results in an inconsistency with
paragraph 84(b) when considered together with other challenged measures.
7.683 Regarding the US argument that the licensing requirement in Article 7 injects qualifying
criteria
508, we observe that we do not see how it does.
Article 8
7.684 We recall that Article 8 provides that entities or individuals which have not been designated
may not engage in the import of finished audiovisual products. 509 It also provides that the import of
finished audiovisual products must be entrusted to "audiovisual units" designated by the MOC. Thus,
it would appear that China can designate only audiovisual units, not individuals.
7.685 We further note that Article 8 does not explicitl y state whether audiovisual units need to be
registered in China. We recognize that the term "a udiovisual units" is unqualified. In our view, this
does not necessarily mean, however, that the term "audiovisual units" could cover also foreign
enterprises not registered in China. We note in this respect that we have not been given any other
trade-related Chinese laws or regulations that coul d indicate whether an "import unit" needs to be
registered in China. In view of the foregoing, and the lack of US arguments and evidence on this
issue, we consider that the United States has not de monstrated that the term "audiovisual units " as it
appears in Article 8 could cover foreign enterprises no t registered in China a nd that such enterprises
could be designated as audiovisual units. We acce pt, however, that foreign-invested enterprises in
China could be designated as audiovisual units.
7.686 As to whether the term "audiovisual units" could cover Chinese branches of foreign-registered
enterprises, it is sufficient to recall that the United States has not asserted that the Audiovisual
Products Importation Rule affects branches in China and that th is results in an inconsistency with
China's trading rights commitments. Accordingly, we do not examine this issue further.
7.687 The United States argues that Article 8 rep licates the designation requirement in the 2001
Audiovisual Products Regulation . The United States claims that this element of the Audiovisual
Products Importation Rule is inconsistent with China's trading rights commitments in the same way as
the 2001 Audiovisual Products Regulation . Thus, we understand this claim to be based on China's
commitment in paragraph 84(b) that it would grant trading rights to foreign enterprises and

508 See supra, para. 7.671.
509 We note that Article 8, as translated by the United States, refers to "units" rather than entities.

individuals in a "non-discretionary" way. More par ticularly, the United States appears to claim that
the designation requirement introduces qualifying cr iteria and discretion into a process that China
committed to be "non-discretionary", and that it is therefore inconsistent with paragraph 84(b). The
United States appears to contend that Article 8 authorizes the MOC to appoint entities of its own
choosing to engage in importation.510
7.688 We understand that designation unde r Article 8 is not automatic. Rather, it is up to the MOC
to initiate the designation process. 511 Article 8 contains no criteria to be followed by the MOC in
deciding whom to designate. Moreover, China has not contested the US contention that the MOC can
designate importers "of its own choosing". Thus, it appears to us that the MOC enjoys discretion as to
whom to designate. Accordingly, under Article 8, Ch ina needs to exercise discretion in order to grant
the right to import finished audiovisual products.
7.689 With the foregoing in mind, we now turn to th e claimed inconsistency with paragraph 84(b).
In view of the fact that the discretion relates to the designation of "audiovisual units", and not
individuals, we conclude that Artic le 8 does not result in an inconsis tency with paragraph 84(b) with
respect to the grant of trading rights to foreign individuals. Furthermore, the United States has not
established that Article 8 results in an inconsiste ncy with paragraph 84(b) in respect of foreign
individuals when considered together with other challenged measures.
7.690 On the other hand, we recall that in our view foreign-invested enterprises in China could be
designated as "audiovisual units" within the meaning of Article 8. We therefore conclude that, as a
result of Article 8, China does not grant trading right s to foreign-invested en terprises in China for the
import of finished audiovisual products "in a non-disc retionary way", and that, for that reason, China
is acting inconsistently with its obligation under paragraph 84(b).
7.691 We also recall that the United States has not asserted that Article 8 affects Chinese branches
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could
designate foreign enterprises not registered in China as "audiovisual units". We thus conclude that the
United States has not established that Article 8 results in China acting inconsistently with its
obligation under paragraph 84(b) in respect of foreign enterprises not registered in China. The United
States has also not established that Article 8 results in an inconsistency with paragraph 84(b) when
considered together with other challenged measures.
7.692 Regarding the US argument that the designation requirement injects qualifying criteria 512, we
note that we do not see how it does. The United Stat es has itself stated in response to a question from
the Panel that designation is discretionary and th at there are no independent criteria governing how
the competent agency designates importers.513
Article 9
7.693 Article 9 provides that "[s]uch units as libra ries, audiovisual reference libraries, R&D
institutions and schools wishing to import finished audiovisual products for research and reference in
teaching shall entrust finished audiovisual product import [entities] designated by the [MOC] to
handle the examination and approval importing procedur es". It appears that the procedures at issue
are those concerning the examination of the content of finished audiovisual products and the approval
of importation of such products.

510 United States' response to question No. 9.
511 China appears to have confirmed this in response to question Nos. 25(a) and (b) and 31(c).
512 See supra, para. 7.687.
513 United States' response to question No. 9.

7.694 The United States has not explained why a nd how Article 9 results in China acting
inconsistently with its trading rights commitments. It is also unclear, therefore, which of these
commitments is at issue. In the light of this, we conclude that the United States has failed to meet its
burden of establishing that Article 9 is inconsistent with China's trading rights commitments under the
Accession Protocol. Also, we note that the United St ates has not established that Article 9 results in
an inconsistency when considered together with other challenged measures.
Article 10

7.695 Article 10 provides that "[a]udiovisual publis hing entities may engage in the publishing of
imported audiovisual products within the limits of their approved scope of publishing". Thus,
Article 10 appears to be about the activity of "publishing" rather than importing, and about "imported"
products.
7.696 The United States has not explained why and how Article 10 results in China acting
inconsistently with its trading rights commitments. It is also unclear, therefore, which of these
commitments is at issue. In the light of this, we conclude that the United States has failed to meet its
burden of establishing that Article 10 is inconsiste nt with China's trading rights commitments under
the Accession Protocol. Also, we note that the United States has not established that Article 10 results
in an inconsistency when considered together with other challenged measures.
(xii) Audiovisual (Sub-) Distribution Rule
7.697 The United States notes that the Audiovisual (Sub-) Distribution Rule , which was
promulgated pursuant to the 2001 Audiovisual Products Regulation , is principally focused on the
distribution of AVHE products, including sound reco rdings. The United States points out, however,
that according to Article 21 Chinese-foreign cont ractual enterprises, which are the only foreign-
invested enterprises that may be engaged in the sub-distribution of audiovisual products, are not
allowed to engage in the importation of audiovisual products into China.
7.698 The United States claims that Article 21 of the Audiovisual (Sub-) Distribution Rule is
inconsistent with China's trading rights commitme nts, because it denies Chinese-foreign contractual
audiovisual product distribution enterprises the ri ght to import AVHE products, including sound
recordings.
7.699 In response to a question from th e Panel, the United States indicat ed that the inconsistencies
claimed in relation to this measure arise as a result of Article 21 of the measure, and under
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working
Party Report. The United States further indicated that , in its view, the parties whose trading rights are
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in
China and foreign individuals.514
7.700 China argues that none of the challenged measure s is inconsistent with China's obligations
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol. China submits in this respect that the
United States fails to take account of China's right to regulate trade in a manner consistent with the
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the
importation of reading materials and finished audiovisual products, including finished sound
recordings, are justified under Article XX(a) of the GATT 1994.
7.701 The Panel notes that the United States h as identified Article 21 of the Audiovisual (Sub-)
Distribution Rule as the provision giving rise to an inconsistency with China's trading rights

514 United States' response to question No. 1.

commitments. Article 21 provides that "[a] Ch inese-foreign contractual joint venture for sub-
distribution of audiovisual products may not engage in the import of audiovisual products". Article 2
of the Audiovisual (Sub-) Distribution Rule indicates that the term "audiovisual products" applies to
sound recordings and other audiovisual products, as it specifically states that the term refers to audio
tapes, video tapes, records, and audio and video CDs with audiovisual recorded contents.
7.702 The United States claims that Article 21 denies Chinese-foreign contractual joint ventures the
right to import audiovisual products. Chinese-fore ign contractual joint ventures are enterprises in
China. Therefore, we understand the United States ' claim to be based on paragraphs 5.1, 83(d) and
84(a).
Paragraphs 5.1, 83(d) and 84(a)
7.703 The legal effect of Article 21 is that Chinese -foreign contractual joint ventures for the sub-
distribution of audiovisual products do not have, and cannot obtain, the right to import audiovisual
products. We therefore consider that, by maintaini ng Article 21, China has failed to ensure that "all
enterprises in China", which includes Chinese-fo reign contractual joint ventures for the sub-
distribution of audiovisual products, have the right to import all goods. This is contrary to China's
obligations under paragraphs 5.1, 83(d) and 84(a). We thus conclude that Article 21 is inconsistent
with China's trading rights commitments under the Accession Protocol.
7.704 Since Article 21 concerns only Chinese-forei gn contractual joint ventures, we further
conclude that the United States has not establis hed that Article 21 results in China acting
inconsistently with paragraph 84(a) in respect of foreign individuals or foreign enterprises other than
foreign-invested enterprises in China.
Paragraphs 5.2 and 84(b)

7.705 As indicated, the United States has also claimed that the Audiovisual (Sub-) Distribution Rule
results in an inconsistency with paragraphs 5. 2 and 84(b). The United States has not explained,
however, why and how it considers an inconsistency with these paragraphs arises. Consequently, we
conclude that the United States has not met its burden of establishing an inconsistency with
paragraph 5.2 or 84(b). Also, we note that the United States has not established that Article 21 results
in an inconsistency with these paragraphs when considered together with other challenged measures.
(xiii) Summary of conclusions
7.706 As indicated above, in view of the large numb er of measures and provisions challenged, we
summarize below the Panel's main conclusions.
Catalogue (Articles X.2-X.3) and Foreign Investment Regulation (Articles 3-4)
(a) Article X.2 of the Catalogue of Prohibited Foreign Investment Industries, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , result in
China acting inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a)
and, hence, paragraph 1.2.
(b) Article X.3 of the Catalogue of Prohibited Foreign Investment Industries, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , result in
China acting inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a)
and, hence, paragraph 1.2.

(c) The Panel has exercised judicial economy in respect of the US claims under
paragraphs 5.2 and 84(b) to the extent they re late to foreign-invested enterprises. In
respect of foreign individuals and foreign enterprises not registered in China, the
United States has not established that Artic les X.2 and X.3, in conjunction with
Articles 3 and 4, result in China acting inconsistently with either of the
aforementioned paragraphs.
Several Opinions (Article 4)

(a) Article 4 results in China acting incons istently with paragraph 5.1 as well as
paragraphs 83(d) and 84(a) and, hence, paragraph 1.2.
(b) The Panel has exercised judicial economy in respect of the US claims under
paragraphs 5.2 and 84(b) to the extent they re late to foreign-invested enterprises. In
respect of foreign individuals and foreign enterprises not registered in China, the
United States has not established that Article 4 results in China acting inconsistently
with either of the aforementioned paragra phs. Consequently, no inconsistency with
paragraph 1.2 has been established either.
Publications Regulation (Articles 41-43)
(a) The United States has not established that Article 43 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.
(b) In respect of three requirements contained in Article 42, Article 42, in conjunction
with Article 41, results in China acting in consistently with pa ragraph 5.1 as well as
paragraphs 83(d) and 84(a) and, hence, paragraph 1.2, except for audiovisual
products. In relation to five other require ments contained in Article 42, the United
States has not established that Article 42 resu lts in China acting inconsistently with
paragraph 5.1, or paragraphs 83(d) or 84( a). Consequently, no inconsistency with
paragraph 1.2 has been established either.
(c) The United States has not established that Article 42 results in China acting
inconsistently with paragraph 5.2 as well as paragraph 84(b) (discrimination) in
respect of foreign individuals and forei gn enterprises not registered in China.
Consequently, no inconsistency with paragraph 1.2 has been established either. To
the extent that Article 42 affects foreign-i nvested enterprises, the Panel has exercised
judicial economy in respect of one US claim based on the aforementioned paragraphs.
In respect of another US claim, the United States has not established that Article 42
results in China acting inconsistently with paragraph 5.2 or paragraph 84(b)
(discrimination). Consequently, no inc onsistency with paragraph 1.2 has been
established either.
(d) The United States has not established that Article 42 results in China acting
inconsistently with paragr aph 84(b) (discretion). C onsequently, no inconsistency
with paragraph 1.2 has been established either.
(e) Article 41 results in China acting inconsiste ntly with paragraph 84(b) (discretion)
and, hence, paragraph 1.2.
Importation Procedure (paragraphs 2 and 8)
(a) The Panel did not rule on the US claims in respect of the Importation Procedure.

1997 Electronic Publications Regulation (Articles 8 and 50-55)
(a) The United States has not established that Article 8 results in China acting
inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a).
Consequently, no inconsistency with paragraph 1.2 has been established either.
(b) The United States has not established that Article 8 results in China acting
inconsistently with paragraph 5.2 or paragraph 84(b) (discrimination). Consequently,
no inconsistency with paragraph 1.2 has been established either.
(c) The United States has not established that Article 8 results in China acting
inconsistently with paragr aph 84(b) (discretion). C onsequently, no inconsistency
with paragraph 1.2 has been established either.
(d) The United States has not established that Articles 50 and 51 result in China acting
inconsistently with paragr aph 84(b) (discretion). C onsequently, no inconsistency
with paragraph 1.2 has been established either.
(e) The United States has not established that Articles 50 and 51 result in China acting
inconsistently with paragra phs 5.2 or 84(b) (discrimin ation). Consequently, no
inconsistency with paragraph 1.2 has been established either.
(f) The United States has not established that Articles 50 and 51 result in China acting
inconsistently with the second senten ce of paragraph 84(b) (requirements for
obtaining trading rights). Consequently, no inconsistency with paragraph 1.2 has
been established either.
(g) The United States has not established that Articles 52 to 55 result in China acting
inconsistently with paragra phs 5.2 or 84(b) (discrimin ation). Consequently, no
inconsistency with paragraph 1.2 has been established either.
(h) The United States has not established that Articles 52 to 55 result in China acting
inconsistently with paragr aph 84(b) (discretion). C onsequently, no inconsistency
with paragraph 1.2 has been established either.
Film Regulation (Articles 5 and 30)
(a) The United States has not established that Article 5 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.
(b) Article 30 results in China acting inconsiste ntly with paragraph 84(b) (discretion)
and, hence, paragraph 1.2.
(c) Article 30 results in China acting incons istently with paragraph 5.1 as well as
paragraphs 83(d) and 84(a) and, hence, paragraph 1.2.
(d) The United States has not established any inconsistency with paragraph 5.2.
Film Enterprise Rule (Articles 3 and 16)
(a) The United States has not established that Article 3 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.

(b) Article 16 results in China acting inconsiste ntly with paragraph 84(b) (discretion)
and, hence, paragraph 1.2.
(c) Article 16 results in China acting incons istently with paragraph 5.1 as well as
paragraphs 83(d) and 84(a) and, hence, paragraph 1.2.
(d) The United States has not established any inconsistency with paragraph 5.2.
Film Distribution and Exhibition Rule (Article II)

(a) The Panel did not rule on the US claims in respect of the Film Distribution and
Exhibition Rule.
2001 Audiovisual Products Regulation (Articles 5, 27-28)
(a) Article 5 results in China acting inconsistent ly with paragraph 84(b) (discretion) and,
hence, paragraph 1.2.
(b) Article 27 results in China acting inconsiste ntly with paragraph 84(b) (discretion)
and, hence, paragraph 1.2.
(c) The United States has not established that Article 28 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.
(d) The United States has not established any in consistency with pa ragraph 5.1, 83(d),
84(a) or 5.2. Consequently, no inconsistency with paragraph 1.2 has been established
either.
Audiovisual Products Importation Rule (Articles 7-10)
(a) Article 7 results in China acting inconsistent ly with paragraph 84(b) (discretion) and,
hence, paragraph 1.2.
(b) Article 8 results in China acting inconsistent ly with paragraph 84(b) (discretion) and,
hence, paragraph 1.2.
(c) The United States has not established that Article 9 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.
(d) The United States has not established that Article 10 results in China acting
inconsistently with its trading rights commitments under the Accession Protocol.
(e) The United States has not established any in consistency with pa ragraph 5.1, 83(d),
84(a) or 5.2. Consequently, no inconsistency with paragraph 1.2 has been established
either.
Audiovisual (Sub-) Distribution Rule (Article 21)
(a) Article 21 results in China acting incons istently with paragraph 5.1 as well as
paragraphs 83(d) and 84(a) and, hence paragraph 1.2.
(b) The United States has not established any inco nsistency with paragraph 5.2 or 84(b).
Consequently, no inconsistency with paragraph 1.2 has been established either.

7.707 We note that our findings of inconsistency in respect of the Film Regulation and the Film
Enterprise Rule constitute final conclusions, as do the findi ngs of inconsistency in respect of the 2001
Audiovisual Products Regulation and the Audiovisual Products Importation Rule , insofar as they
concern audiovisual products intended for publicati on. The Panel's findings of inconsistency in
respect of other measures and the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule , insofar as they concern finished audiovisual products, are tentative
conclusions. This is because China has argued that if we find any inconsistencies in respect of the
latter category of measures and products, they woul d be justified under Article XX(a) of the GATT
1994. Thus, before coming to an y final conclusions on these measures, we must assess the merits of
China's Article XX(a) defence.
2. China's defence based on the "right to regulate trade" and Article XX(a) of the
GATT 1994
7.708 The Panel now turns to address the broad defence ra ised by China based on the "right to
regulate trade", as confirmed by paragraph 5.1 of the Accession Protocol, and Article XX(a) of the
GATT 1994. Specifically, China argues that the challe nged measures, except to the extent that they
apply to films for theatrical release and audiovisu al products intended for publication, are covered by
its "right to regulate trade" in a WTO-consistent manner, and are consistent with, and therefore
justified by, the provisions of Article XX(a). Chin a submits that, for this reason, its measures are
fully compatible with its WTO obligations.
7.709 Article XX(a) of the GATT 1994 provides:
 "Subject to the requirement that such measures are not applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prev ail, or a disguised restriction on
international trade, nothing in this Agre ement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
 (a) necessary to protect public morals;
 ..."
7.710 Before examining China's defence, it is useful to give an overview of the parties' main
arguments.
7.711 China argues that what the United States is ch allenging through its claims based on China's
trading rights commitments is a series of measures on the basis of which China selects and limits the
number of entities to which the right to import the produc ts at issue is granted. In China's view, its
measures establishing a system for the selection of im port entities fall within the scope of its "right to
regulate trade", as defined in paragraph 5.1 of th e Accession Protocol, and are fully justified under
Article XX(a). China considers, therefore, that its measures are fully compatible with its WTO
obligations.
7.712 China submits that Chinese regulations govern ing the importation of cultural goods establish
a content review mechanism and a system for the selection of import entities directed at protecting
public morals in China. China notes that cultural go ods are unique in that they may have a potentially
serious impact on societal and individual morals. China argues that imported cultural goods, because
they are vectors of different cultural values, ma y collide with standards of right and wrong conduct
which are specific to China.

7.713 China explains that as a result of the high le vel of protection of pub lic morals adopted by
China in this sector, China set up an effective and efficient content review mechanism which prohibits
the importation of cultural goods, the content of which could have a negative impact on public morals.
China notes that the content review mechanism is operated through a system for the selection of
import entities which play an essential role in the content review process. China submits that
although this may result in limitations of the right to trade, the system is consistent with China's "right
to regulate trade" as defined in paragraph 5.1 and justified under Article XX(a).
7.714 China points out that the measures at issue defi ne which contents have a negative impact on
public morals and must therefore not be allowed to be imported into China. China notes that these
contents cover a wide range of issues, ranging fr om the depiction or condoning of violence or
pornography, to other important values, including the protection of Chinese culture and traditional
values. China further argues that the measures at issue establish a content review mechanism for
imported cultural goods based on a selection of import entities that ensures an effective contribution
of these entities to the content revi ew. China submits, therefore, that the laws and regulations
providing for this selection system are designed to protect public morals.
7.715 Moreover, China submits that the selection of import entities is "necessary" to protect public
morals. According to China, the selection of import entities is a decisive element of the effective and
efficient content review mechanism for imported cultural goods. More specifically, China argues that
its selection criteria, i.e., (i) an appropriate organizational structure of the selected entities, (ii) a
reliable, competent and capable personnel within the selected entities, (iii) appropriate geographical
coverage by the selected entities and (iv) a limite d number of selected entities, contribute to an
efficient and effective content review and to the fu lfilment of its objective, i.e., the prohibition of
cultural products with inappropriate content. China also argues that the selection of import entities is
necessary to avoid any possible circumvention of the content review process in the case of imported
products. Furthermore, China submits that the selection of import entities has a limited impact on
international trade. For China, it is clear, ther efore, that the contribution of the import entities to
content review is necessary to protect public morals.
7.716 China also argues that its measures limiting the ri ght to import to certain selected enterprises
are not arbitrary in view of the fact that dom estic publishers of cultural goods face comparable
limitations, are applied reasonably and in good faith, and therefore comply with the requirements of
the chapeau of Article XX.
7.717 The United States argues that China has not met its bur den to demonstrate that its measures
satisfy the requirements of Article XX(a). In th e United States' view, China's measures are neither
necessary to protect public morals, nor are they consistent with the chapeau of Article XX. The
United States submits that, fundamentally, denying tr ading rights to all foreign importers and to all
privately owned Chinese importers cannot be jus tified under Article XX. The United States argues
that content review, which is China's concern, is independent of importation and can be performed by
individuals or entities unrelated to the importation process at any time before, during or after that
process. The United States observes in this rega rd that CNPIEC – the monopoly importer of AVHE
products and sound recordings – conducts conten t review before it even begins negotiating
importation.
515 The United States further points out that Article 31 of the Film Regulation provides
that "[t]hose intending to import fi lms for public screening shall, befo re importing, submit the film to
the Film Censorship Board for review". Thus, the United States argues, for imported films the
designated state-owned importer does not even perform the content review.
7.718 The United States considers that the measures at issue are not "necessary" within the meaning
of Article XX(a), and that they constitute "arbitrary or unjustifiabl e discrimination" and a "disguised

515 The United States refers to China's first written submission, para. 225.

restriction on international trade". The United St ates argues that while Chin a asserts that its selected
importers play a critical role in content review, it never explains why the entities involved in content
review need to monopolize the importation process. The United States recalls that according to the
Appellate Body, "a necessary measure is ... located significantly closer to the pole of 'indispensable'
than to the opposite pole of simply 'making a contribution to'." 516 The United States contends that,
given the absence of a nexus between the challenge d measures and the protection of public morals,
China's measures denying trading rights lie far too distant from the pole of indispensability to qualify
as "necessary" within the meaning of Article XX(a).
7.719 The United States further recalls that the Appe llate Body has not found a measure to be
necessary where there is a "reasonably available WTO-consistent alternative". 517 The United States
submits that in the present case, there are many such alternatives at hand. According to the United
States, content review can be conducted before, durin g or after importation by any number of entities,
with no need to give China's state-owned enterprises a monopoly on importing. The United States
asserts that China's "in-house" content review re gime for domestic producers offers a fully WTO-
consistent alternative to China's measures. In the United States' view, the existence of this regime by
itself demonstrates that China's measures are not necessary.
7.720 Furthermore, the United States considers that China's arguments regarding the chapeau of
Article XX are unpersuasive. The United States reca lls that under the chapeau , "measures are not [to
be] applied in a manner which would constitute a m eans of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail, or a disguised restriction on international trade."
According to the United States, as applied, China's measures ban foreign and private Chinese
importers from the business of importing the relevant products into China, thereby protecting the
business interests of a limited group of Chinese stat e-owned enterprises. The United States submits
that China has never explained why content revi ew cannot be conducted by foreign enterprises,
foreign individuals and privately held enterprises in China. Nor does the United States consider that
China has shown that entities engaging in content revi ew must also be the exclusive importers of the
relevant products into China.
7.721 The Panel notes that, in essence, China's defence presents the issue whether the measures
which the Panel has found to be inconsistent with paragraph 5.1 of the Ac cession Protocol and/or
paragraphs 83(d), 84(a) and/or 84(b) of the Worki ng Party Report (and thus w ith paragraph 1.2 of the
Accession Protocol) may nevertheless be maintain ed – on the grounds that they are covered by
China's right to regulate trade in a WTO-consistent manner and that the right to regulate trade takes
precedence over the relevant obligations contained in the aforementioned paragraphs.
7.722 In connection with China's argument, it is well to recall some of the conclusions we have
arrived at earlier. First, the relevant obligation in paragraph 5.1, but also the relevant obligations in
paragraphs 83(d) as well as 84(a) and (b), should be understood as being without prejudice to China's
right to regulate trade in a WTO-consistent manner. Secondly, the "right to regulate trade" in a WTO-
consistent manner in our view includes, by implication, a consequent right to regulate importers of the
relevant goods. More specifically, the "right to re gulate trade" permits China to regulate importers of
the relevant goods if: (i) the regulation of importe rs has a reasonable link to the regulation of the
goods at issue, and thus is incidental to the regula tion of the relevant goods and (ii) the regulation of
importers is WTO-consistent.
7.723 In relation to the last point, we note that the parties have focused their arguments on the
second condition, i.e., on whether the Chinese measures at issue, which restrict certain importers' right

516 The United States refers to Appellate Body Report on Korea – Various Measures on Beef, para. 161.
517 The United States refers to Appellate Body Reports on US – Gambling , para. 308, and Korea –

to trade, are WTO-consistent, and in particular, whet her they are consistent with Article XX(a). Our
analysis proceeds accordingly. For the purposes of our analysis concerning the second condition, we
will assume that China's restrictions of the right to trade are incidental to regulation of the relevant
goods. Should we find that the WTO-consistency condition is satisfied, we would need to examine, in
addition, whether the first condition is, in fact, met.
7.724 Consistent with the foregoing, we consider next which of the relevant measures China claims
are justified under Article XX(a).
(a) Measures claimed to be justified by Article XX(a)
7.725 The Panel understands from China's submissions that the measures China claims are justified
under Article XX(a) concern reading materials, wh ich include books, newspa pers, periodicals and
electronic publications; and finished audiovisual products, including finished sound recordings.
518
China is not seeking to defend under Article XX(a) an y of the relevant measures concerning film for
theatrical release.519 This is because of China's position that these measures are not subject to China's
trading rights commitments under the Accession Protocol. As previously pointed out, China has put
forward the same argument in relation to relevant provisions of Chinese rules and regulations which
concern audiovisual produc ts imported for publication.
520 It is, therefore, our understanding that
China does not invoke Article XX(a) in respect of relevant provisions concerning these products.521
7.726 Thus, taking account of our earlier findings of inconsistency based on the Accession Protocol,
we deduce that China's Article XX( a) defence covers the following measures and provisions (except
to the extent that they apply to films for theat rical release and audiovisual products intended for
publication):
(a) The Catalogue and the Foreign Investment Regulation (Articles X.2 and X.3 as well
as Articles 3 and 4);522
(b) the Several Opinions (Article 4);523
(c) the Publications Regulation (Article 42 in conjunction with Article 41, and
Article 41);
(d) the 2001 Audiovisual Products Regulation (Article 27);
(e) the Audiovisual Products Importation Rule (Article 8); and
(f) the Audiovisual (Sub-)Distribution Rule (Article 21).
7.727 We note that China in its submissions to the Panel has not explained specifically for each of
the above-mentioned provisions why they are justifie d under Article XX(a). In response to a request
from the Panel for elaboration, China merely stated that "all trading rights related provisions in

518 E.g., China's first written submission, paras. 200-209.
519 China's response to question No. 182.
520 China's first written submission, para. 126.
521 This understanding is consistent with the fact that in its first written submission, at para. 154, China
only references finished audiovisual products.
522 That the Catalogue and, by implication, the Foreign Investment Regulation are covered by China's
Article XX(a) defence is clear to us from China's response to question No. 182.
523 That the Several Opinions is covered by China's Article XX(a) defence is clear to us from China's
response to question No. 182 and footnote 49 of China's first written submission.

identified measures could be justified under Ar ticle XX(a), because the system of selecting
importation entities undertaking content review is, as a whole, necessary to protect public morals".524
7.728 Since China asserts that its restrictions of the ri ght to trade are connected to a content review
mechanism, it is well to make clear at the outset that only some of the above-mentioned measures
contain provisions which prohib it relevant products (reading materials and finished audiovisual
products) from carrying certain content, and which requi re that the content of such products must be
reviewed before they are imported into China. Also, it is important to point out that the part played by
import entities in the content review process differs depending on the product at issue.
7.729 Hence, we note that neither the Foreign Investment Regulation nor the Catalogue, nor the
Several Opinions, contain provisions which prohibit releva nt products from carrying certain content
and require that their content must be reviewed before the products are imported. The same holds true
for the Audiovisual (Sub-)Distribution Rule.525
7.730 The remaining measures contain provisions of the described type. Specifically, the
Publications Regulation in Articles 26 and 27 identifies content which publications may not contain.
Article 44 states that publications imported by approved or designated publication import entities may
not include any content prohibited under Article 26 or 27. It further stipulates that publication import
entities are "responsible for examining the content of the publications" imported. China has explained
that the GAPP, i.e., the competent Chinese Government authority, has a subsidiary role, but that it
may intervene in the day-to-day content review. In particular, China has pointed out that the GAPP
carries out annual inspections of the publication im port entities, to make sure that they fulfil their
obligations in respect of content review. Furt hermore, pursuant to Article 44, publication import
entities may request the GAPP to review a publicati on if they are unable to determine whether the
publication is in conformity with Articles 26 and 27. Finally, pursuant to Article 45, a publication
import entity must, before importing publications, pr ovide the GAPP with a list of the publications
they intend to import. China has stated that, b ased on the list, the GAPP may decide to review the
content of certain publications itself. If it finds that the importation of the publication in question
should be prohibited, the GAPP can prevent the re levant publication import entity from importing the
publication.
7.731 The 2001 Audiovisual Products Regulation in Article 3 likewise identifies content which
audiovisual products, including finished audiovisual products, may not contain. Article 28 provides
that finished audiovisual products must be submitt ed to the MOC for content review and approval.
The approval documents issued by the MOC are need ed to import the products. China notes that
import entities must provide, as part of their appl ications, a report reviewing the content of the
products to be imported. This is confirmed by a review application submitted by China that contains
a "review opinion" provided by the only importing entity for finished audiovisual products, the
CNPIEC.
526 The opinion states that after a preliminary review by the importing entity, the entity did
not find any prohibited content. Nonetheless, China has also pointed out that in the case of finished
audiovisual products to be imported, the final c ontent review is carried out by the MOC, i.e., a
Chinese government authority. 527 The MOC conducts its review ba sed on "samples" of the products
to be imported.528

524 China's response to question No. 182.
525 We note in passing that this presents the issue whether the provisions in these measures which we
have determined to be inconsistent with China's trading rights commitments can be considered to be incidental
to any regulation of the relevant products. As indicated above, we will revert to this issue should we find that
the provisions in question are consistent with Article XX(a).
526 Exhibit CN-25.
527 China's response to question No. 196.
528 China's response to question No. 191.

7.732 Finally, the Audiovisual Products Importation Rule in Article 6 identifies content which
audiovisual products, including finished audiovisual products, may not contain. Article 11 provides
that audiovisual import entities must submit finished audiovisual products to be imported to the MOC
for content review. Pursuant to Article 18, the MOC must either approve applications or reject them.
It is, therefore, the MOC that performs the final co ntent review in respect of finished audiovisual
products to be imported.
529
7.733 It is clear from the foregoing that none of the provisions which we have found to result in
China acting inconsistently with its trading rights commitments under the Accession Protocol are
provisions which prohibit certain content or require content review prior to importation. We observe
in this respect that the United States has not ques tioned China's right to review the content of reading
materials and finished audiovisual products that are to be imported into China.
530
7.734 Having addressed the measures in respect of which China invokes Article XX(a), we next
consider whether Article XX(a) is an applicable provision in the circumstances of the present case.
(b) Applicability of Article XX(a)
7.735 China recalls that the "without prejudice" clause of paragraph 5.1 of the Accession Protocol
provides that the "right to regulate trade" must be exercised in a manner consistent with the WTO
Agreement. According to China, the term "WTO Agreement" includes the WTO Agreement and all
its Annexes. Hence, China argu es, China has the right to take measures regulating trade that are
authorized by any of the WTO agreements.
7.736 More specifically, China argues that, since its commitment in paragraph 5.1 concerns the
right to import and export goods, China's right to re gulate trade must be interpreted in conjunction
with WTO agreements applicable to trade in goods, including the GATT 1994. 531 In China's view, it
follows that China has the right to take measures pursuing policy ob jectives in a manner consistent
with Article XX of the GATT 1994.
7.737 China submits that it therefore has the right, u nder paragraph 5.1, to impose restrictions and
conditions on the grant of trading rights, including by limiting the right to import the products at issue
in this dispute to certain selected entities, provide d that it does so in a manner consistent with
Article XX.
7.738 China also recalls its position that, like the commitment in paragraph 5.1, the other trading
rights commitments at issue – i.e., those contained in paragraphs 83(d), 84(a) and 84(b) – are without
prejudice to China's right to regulate trade in a ma nner consistent with the WTO Agreement. As a
consequence, China considers that it can rely on Article XX to justify breaches not only of
paragraph 5.1, but also of paragraphs 83(d), 84(a) and 84(b).
7.739 The United States considers that the relationship between Article XX(a) of the GATT 1994
and the Accession Protocol is a question of broad sy stemic import. The United States also considers,
however, that it is not necessary to determine whet her Article XX applies to China's commitments
contained in the Accession Protocol.
7.740 The United States notes that the Appellate B ody was faced with a similar situation in US –
Customs Bond Directive . The United States points out that in that dispute, the Appellate Body was

529 China's response to question No. 191.
530 E.g., United States' comments on China's response to question No. 184.
531 China points out that Annex 1A on "Multilate ral Agreements on Trade in Goods" of the WTO
Agreement includes the GATT 1994.

presented with an appeal concerning an affirmative defence under Article XX(d) of the GATT 1994 to
justify a measure found to be inconsistent with the Anti-Dumping Agreement. The United States notes
that that appeal raised the issue of the availabilit y of such an Article XX defence. The United States
explains that the Appellate Body elected to examine first, on an arguendo basis, whether the measure
at issue was justified under Article XX before turning to the question of whether Article XX was
applicable. After finding that the measure was not "necessary" within the meaning of Article XX(d),
the Appellate Body concluded that it did not need to express a view on the question of the availability
of the Article XX defence.532
7.741 In respect of the measures at issue, the United States submits that they reside well outside of
the parameters of Article XX(a), a nd that their application fails to meet the requirements contained in
the chapeau of Article XX. In the United States' view, it is, therefore, not necessary to determine
whether Article XX is available as an affirmative defence to China's commitments contained in the
Accession Protocol.
7.742 The Panel begins by recalling that, in its view, the relevant obligations stipulated in
paragraphs 5.1, 83(d) as well as 84(a) and (b) s hould all be understood as being without prejudice to
China's right to regulate trade in a manner consistent with the WTO Agreement.
7.743 It is clear that the WTO Agreement includes the GATT 1994, and that the GATT 1994
includes Article XX(a). Nevertheless, China's i nvocation of Article XX(a) presents complex legal
issues. We observe in this respect that Article XX contains the phrase "nothing in this Agreement",
with the term "Agreement" referring to the GATT 1994, not other agreements like the Accession
Protocol. The issue therefore arises whether Article XX can be directly invoked as a defence to a
breach of China's trading rights commitments unde r the Accession Protocol, which appears to be
China's position, or whether Article XX could be invoked only as a defence to a breach of a
GATT 1994 obligation.
7.744 The United States invites the Panel to examine arguendo China's Article XX defence to a
breach of its trading rights commitments and to determine on that basis whether China's defence
would have merit before resolving the issue whether Ar ticle XX is available as a defence. As pointed
out by the United States, the Appellate Body in the US – Customs Bond Directive case followed a
similar approach. That case presented the issue of whether the United States could invoke
Article XX(d) as a defence for a measure which had been found to be inconsistent with, inter alia,
Article 18.1 of the Anti-Dumping Agreement. The Appellate Body fou nd it appropriate to examine
first whether the measure at issue met the requirements of Article XX(d). The Appellate Body
indicated that, if necessary, it would return to the "systemic" issue whether Article XX(d) was
available as a defence after having ex amined the merits of the defence.
533 It turned out, however, that
the Appellate Body had no need to revert to the issue of the availability of the defence.534
7.745 We find it appropriate in this case to follow th e approach of the Appellate Body in the US –
Customs Bond Directive case. Thus, we will proceed on the assumption that Article XX(a) is
available to China as a defence fo r the measures we have found to be inconsistent with its trading
rights commitments under the Accession Protocol. Based on that assumption, we will examine
whether the relevant measures satisfy the requirements of Article XX(a). Should we find that this is
the case, we would revert to the issue of whether Ar ticle XX(a) can, in fact, be directly invoked as a
defence to a breach of China's trading rights commitments under the Accession Protocol.

532 The United States refers to the Appellate Body Report on US – Customs Bond Directive ,
paras. 304-319.
533 Appellate Body Report, US – Customs Bond Directive, para. 310.
534 Ibid., para. 319. The Appellate Body upheld the panel's finding that the measure at issue did not
meet the requirements of Article XX(d).

(c) Application of Article XX(a) to China's measures
7.746 The Panel commences its Article XX(a) analysis by recalling that according to the Appellate
Body, examination of a measure under Article XX is two-tiered. A panel must first examine whether
a measure falls under one of the exceptions listed in the various sub-paragraphs of Article XX.
Subsequently, a panel must examine whether the me asure in question satisfies the requirements of the
chapeau of Article XX.
535 For an Article XX defence to succeed, both elements of the two-tiered test
must be met.
7.747 It is up to the party invoking an Article XX de fence to demonstrate that a measure qualifies,
and is provisionally justified, under one of the sub- paragraphs of Article XX, and also to demonstrate
that the measure complies with the requirements of the chapeau of Article XX.536
7.748 Therefore, China as the party invoking an ex ception under Article XX(a) is required to show,
first, that the relevant measures fall within th e scope of sub-paragraph (a) of Article XX and,
secondly, that these measures satisfy the requirements of the chapeau of Article XX.
7.749 Consistent with the above, we now go on to assess whether China has met its burden of
showing that its measures fall within the scope of sub-paragraph (a) of Article XX.
(i) Provisional justification of the measures at issue under sub-paragraph (a) of Article XX
7.750 The Panel begins its inquiry by considering the link China alleges to exist between import
entities, the content review mechanism for imports of reading materials and finished audiovisual
products, and the protection of public morals within China's territory.
Link between import entities, content review and the protection of public morals
7.751 China considers that reading materials and finished audiovisual products are so-called
"cultural goods", i.e., goods with cultural content. China submits that they are products of a unique
kind with a potentially serious negative impact on pu blic morals. China explains that, as vectors of
identity, values and meaning, cultural goods play an essential role in the evolution and definition of
elements such as societal features, values, ways of living together, ethics and behaviours. China notes
in this respect the UNESCO Universal Declaration on Cultural Diversity , which China says was
adopted by all UNESCO Members, including the United States. In its Article 8, the Declaration
states that cultural goods are "vectors of identity, values and meaning" and that they "must not be
treated as mere commodities or consumer goods".
537 In China's view, it is clear, therefore that,
depending on their content, cultural goods can have a major impact on public morals.
7.752 China points out that because of this impact of cultural goods, it put in place an appropriate
content review mechanism so as to prevent the dissemination of cu ltural goods with a content that
could have a negative impact on public morals in China. China notes that it implements a content
review mechanism in respect of both products imported into China and domestically produced
products. In respect of the imported products, China points out that their importation is prohibited if
they have content that could have a negative impact on public morals in China. China further notes
that the prohibition on content that could have a ne gative impact on public morals is enforced through
dissuasive sanctions, including fines, the revocation of operating licences and criminal sanctions.

535 Appellate Body Report on Brazil – Retreaded Tyres, para. 139.
536 Appellate Body Report on US – Gasoline, DSR 1996:I, 3 at 21.
537 UNESCO document CLT-2002/WS/09 (Exhibit CN-17).

7.753 Regarding the types of content which China thinks must be prohibited from cultural products
that are distributed in China, China notes that it includes a wide range of content ranging from
violence or pornography to other important values, including the protection of the Chinese culture and
traditional values. China notes that its measure s concerning reading materials and finished
audiovisual products contain provisions which specifically define the types of content that relevant
products may not contain. Specifically, and having regard to the relevant measures, China identifies
Articles 26 and 27 of the Publications Regulation , Article 3 of the 2001 Audiovisual Products
Regulation and Article 6 of the Audiovisual Products Importation Rule.
7.754 China further argues that in the case of products to be imported it is critical that the content
review be carried out at the border. China notes that it has therefore estab lished a system for the
selection of import entities directed at protecting public morals in China. According to China, its
administrative authorities are not in a position, due to limited resources, to carry out content review all
by themselves without creating undue delays. China maintains that import entities therefore need to
be given a role in the content review. China contends that the contribution of the import entities to the
content review is a substantial and essential condition for an effective and efficient content review.
China considers that the importance of the input by the import entities in the content review process
justifies the appropriate selection of those entities by the competent Chinese authorities, even if it may
result in restrictions of the right to import. China argues that what is at st ake is the effectiveness and
efficiency of the content review.
7.755 China submits that, accordingly, the objectiv e behind the Chinese regulations and rules
challenged by the United States is to prevent th e importation of reading materials and finished
audiovisual products with a content that could have a negative impact on public morals in China.
China notes that the measures at issue first define which type of content has a negative impact on
public morals and must therefore not be allowe d for importation into China and then establish a
content review mechanism for imported products and a system for the selection of import entities that
ensures an effective contribution of these entities to the content review.
7.756 The United States does not specifically argue that the measures at issue are not measures to
protect public morals. The United States is challe nging the means China has chosen to achieve its
objective of protecting public morals. More par ticularly, the United States argues that it is not
"necessary" within the meaning of Article XX(a) for importers to perform content review. According
to the United States, content review is indepe ndent of importation and can be performed by
individuals or entities unrelated to the importation process.
7.757 The Panel begins its analysis by addressing those of the relevant measures which China says
identify prohibited content and require that the cont ent of reading materials and finished audiovisual
products must be reviewed before they are imported into China. They are the Publications
Regulation, the 2001 Audiovisual Products Regulation and the Audiovisual Products Importation
Rule.
7.758 We note China's contention that the types of content which are prohibited under the
aforementioned measures could have a negative impact on public morals in China, if brought into
China as part of physical products. 538 To consider this contention, we first need to address the
meaning of the concept of "public morals" as it appears in Article XX(a).

538 We note China's reference to the UNESCO Declaration on Cultural Diversity . We observe in this
respect that China has not invoked the Declaration as a defence to its breaches of trading rights commitments
under the Accession Protocol. Rather, China has referred to the Declaration as support for the general
proposition that the importation of products of the type at issue in this case could, depending on their content,
have a negative impact on public morals in China. We have no difficulty accepting this general proposition, but

7.759 We note that the panel and Appellate Body in US – Gambling examined the meaning of the
term "public morals" as it is used in Article XIV(a) of the GATS, which is the GATS provision
corresponding to Article XX(a). The panel in US – Gambling, in an interpretation not questioned by
the Appellate Body, found that "the term 'public morals' denotes standards of right and wrong conduct
maintained by or on behalf of a community or nation".
539 The panel went on to note that "the content
of these concepts for Members can vary in time and space, depending upon a range of factors,
including prevailing social, cultural, ethical and religious values." 540 The panel went on to note that
Members, in applying this and othe r similar societal concepts, "should be given some scope to define
and apply for themselves the concepts of 'public mo rals' ... in their respective territories, according to
their own systems and scales of values." 541 Since Article XX(a) uses the same concept as
Article XIV(a), and since we see no reason to depa rt from the interpretation of "public morals"
developed by the panel in US – Gambling , we adopt the same interpretation for purposes of our
Article XX(a) analysis.
7.760 Turning to the types of content which are pr ohibited under the aforementioned measures, we
note that, for reading materials, they are set forth in Articles 26 and 27 of the Publications Regulation.
Pursuant to Article 26, no publication may contain content that:
"(1) Defies the basic principles specified in the Constitution;
(2) jeopardizes the solidarity, sovereignty an d territorial integrity of the nation;
(3) divulges national secrets, jeopardizes na tional security or injures the national
glory and interests;
(4) incites hatred or discrimination of the nationalities, undermines the solidarity
of the nationalities or infringes upon customs and habits of the nationalities;
(5) propagates evil cults or superstition;
(6) disturbs public order or destroys social stability;
(7) propagates obscenity, gambling or violence, or instigates crimes;
(8) insults or defames others, or infringes upon legitimate interests of others;
(9) jeopardizes social morality or fine cultural traditions of the nationalities;
(10) otherwise prohibited by laws, admini strative regulations and provisions of the
State."
7.761 Article 27 of the Publications Regulation provides:
"Publications catering to minors shall not contain any content enticing minors to
imitate acts that violate public ethics or acts that are illegal or criminal, nor shall they
contain horror and cruelty which harm the physical and mental health of minors."

note, as indicated, that we need to focus more specifically on the types of content that is actually prohibited
under China's relevant measures.
539 Panel Report on US – Gambling, para. 6.465; Appellate Body Report on US – Gambling, para. 299.
540 Panel Report on US – Gambling, para. 6.461.
541 Ibid., para. 6.461.

7.762 In response to questions from the Panel as to whether all of the contents listed as prohibited
could have a negative impact on public morals, China st ated that, if disseminated within China, all of
these types of prohibited content could have a negative impact on public morals in China. 542 China
stated that all of the listed items reflect standards of right and wrong conduct specific to China. The
United States does not specifically contest China' s assertion that reading materials and finished
audiovisual products containing the types of cont ent prohibited by China could have a negative
impact on public morals in China. Thus, our situation is different from that faced by the panel in US –
Gambling, where Antigua and Barbuda disputed whether Internet gambling was actually contrary to
public morals in the United States, given the view of Antigua and Barbuda that the United States was
a significant consumer of gambling and betting services.543
7.763 In considering China's lists of prohibited cont ent, we recall that the United States has not
specifically contested that if content defined by China as prohibited were imported as part of a
physical product, this could have a negative impact on public morals in China. We further recall that
the content and scope of the concept of "public morals" can vary from Member to Member, as they
are influenced by each Members' prevailing social, cultural, ethical and relig ious values. We note,
finally, our ultimate conclusion on the "necessity" of the measures at issue to protect public morals in
China.544 In the light of these elements, we will proceed with our analysis on the assumption that each
of the prohibited types of content listed in China's measures is such that, if it were brought into China
as part of a physical product, it could have a nega tive impact on "public morals" in China within the
meaning of Article XX(a) of the GATT 1994.
7.764 In addition to specifying the types of prohib ited content, the measures in question also
prescribe that the content of reading materials and finished audiovisual products to be imported into
China must be reviewed prior to importation. To recall, for reading materials, Article 44 of the
Publications Regulation provides that publication import entitie s are responsible for examining the
content of the publications they wish to import. For finished audiovisual products, Article 28 of the
2001 Audiovisual Products Regulation provides that import entities are to submit finished audiovisual
products to be imported to the MOC for a review of their content. The Audiovisual Products
Importation Rule contains a corresponding provision in its Article 11.
7.765 We also recall that in accordance with the Publications Regulation, import entities make final
content review decisions for reading materials (s ubject to intervention by the GAPP in accordance
with Article 44 and 45 of the Publications Regulation ), whereas, in accordance with the 2001
Audiovisual Products Regulation , the competent Chinese authority makes final content review
decisions for finished audiovisual products. 545 China also pointed out, however, that for finished
audiovisual products, the import entities selected by China conduct a preliminary content review, by
submitting review reports to the authorities as part of their application for a final content review. 546
China further notes that as a result of their own eval uation of content, import entities may also refrain
from submitting manifestly inappropriate content to the competent authorities. China contends that
for these products, the import entities "greatly facilitate" the final content review decisions to be made
by the competent authorities.547

542 China's responses to question Nos. 42 and 184.
543 Panel Report on US – Gambling, para. 6.444.
544 See infra, para 7.911.
545 China's responses to question Nos. 185, 191 and 196.
546 China has submitted an actual example of an ap plication for content review concerning finished
audiovisual products. It supports China's contention th at review reports are to be submitted by applicants
(Exhibit CN-25). China has also provided an example where an import entity's preliminary content review has
led it not to submit an application (Exhibits CN-31 and CN-32).
547 China's first written submission, para. 207.

7.766 It is clear to us that the above-mentioned Ch inese requirements that the content of reading
materials and finished audiovisual products must be examined prior to importation, and that such
products cannot be imported if they contain prohibite d content, are measures to protect public morals
in China.
7.767 We further note that in the case of the Publications Regulation there is a very close link
between import entities and the content review which is designed to protect public morals in China.
This is because under that Regulation entities importi ng reading materials have final responsibility for
content review. In the case of the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule , the link to content review is somewhat less close. To recall, under these
measures final responsibility for content review decisions lies with the competent authorities.
Nevertheless, a link exists, for the record indi cates that entities importing finished audiovisual
products must not only submit applications for c ontent review, but are required to provide review
reports to the competent authorities. Their prel iminary evaluation also results in manifestly
inappropriate content not being submitted for review.
7.768 We shall examine further below whether, and if so , to what extent, the restrictions of the right
to import contained in the Publications Regulation, the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule contribute to the protection of pub lic morals in China. At this
point, we merely note China's contention that its rest rictions of the right to import not only contribute
to, but are essential for, achieving its objective of protecting public morals by preventing the
importation into China of relevant products with inappropriate content.
7.769 We now turn to consider the remaining measures – the Catalogue, the Foreign Investment
Regulation, the Several Opinions and the Audiovisual (Sub-)Distribution Rule . We recall that these
measures do not contain any provisions prohibiting relevant products from carrying certain contents,
nor do they require that the content of such produc ts must be reviewed before they are imported into
China.
7.770 We commence our analysis with the Catalogue and the Foreign Investment Regulation . In
response to a question from the Panel, China said that while its system for selecting import entities
undertaking content review in respect of relevant pr oducts is set out in other measures, measures such
as the Foreign Investment Regulation and the Catalogue are not "isolated measures".
548 Referring to
the Catalogue, China observes that it is a summary of fo reign investment policy in various sectors,
and that it therefore inevitably includes a provisi on excluding foreign-invested enterprises from
engaging in the import of relevant products. China submits, however, that this exclusion is the result
of its system of selecting import entities.549
7.771 We note that Article 1 of the Foreign Investment Regulation states that the Regulation has
been drawn up to guide the orientation of foreign i nvestment so that it fits with the national economic
and social development plan of China, and to help pr otect the lawful rights and interests of investors.
Regarding the Catalogue, we recall that Article 3 of the Foreign Investment Regulation states that it
serves as the basis for the examination and appr oval of foreign-invested projects and policies
applicable to foreign-invested ente rprises. We also note that the Catalogue covers a wide variety of
sectors, not just the cultural sector.
7.772 Thus, considered by themselves, the Catalogue and the Foreign Investment Regulation do not
suggest that Articles X.2 and X.3, in conjunction with Articles 3 and 4, are connected to the content
review mechanism for the relevant products. We agree with China, however, that these provisions

548 China's response to question No. 182.
549 Ibid.

must be considered in context, i.e., that they must be considered in the light of, and together with,
other applicable rules and regulations.
7.773 In this regard, China has confirmed that as a result of other measures establishing, or referring
to, the content review mechanism for th e relevant products, which include the Publications
Regulation, only wholly state-owned enterprises are permitted to import the relevant products.550 This
necessarily implies that foreign-inv ested enterprises in China cannot im port relevant products. It is
therefore possible, as argued by Chin a, that Articles X.2 and X.3 of the Catalogue are intended to
reflect this, by including the relevant industry in th e prohibited category of foreign-invested projects.
While it is conceivable that China would prohibit foreign investors from investing in import entities
importing the relevant products for different reasons (e.g., to prevent foreign control), on balance, we
find China's argument more plausible in the light of the information on the record.
7.774 We therefore consider that the mere fact that the Catalogue and the Foreign Investment
Regulation are not explicitly linked to the content revi ew mechanism for the relevant products does
not demonstrate that Articles X.2 and X.3 of the Catalogue, in conjunction with Articles 3 and 4 of
the Foreign Investment Regulation, make no contribution to the protection of public morals in China.
Whether they do is an issue we shall examine in the next subsection.
7.775 Regarding the Several Opinions, we note that according to its preamble it has been issued in
order to standardise the work of bringing foreign capita l into the cultural sector, improve the quality
and level of the utilization of foreign capital, protect the safety of the State's culture, and promote the
healthy and orderly development of the cultural industry. Thus, there is no indication in the Several
Opinions itself that it is linked to the content review mechanism for the relevant products.
7.776 It is conceivable that Article 4 of the Several Opinions prohibits foreign investors from setting
up and operating import entities importing the relevant products for reasons that are unrelated to the
fact that the content of these products is to be reviewed. On balance, however, we find it more
plausible that Article 4 is intended to reflect the f act that other measures which establish, or refer to,
the content review mechanism (e.g., the Publications Regulation or the Imported Cultural Products
Rule) stipulate that only wholly state-owned enterpri ses are permitted to import the relevant products.
Since the Several Opinions is about the introduction of foreign capital into the cultural industry, it
does not seem unusual that it would also speak to whether foreign investors can invest in import
entities importing the relevant products.
7.777 We therefore consider that the mere fact that the Several Opinions is not explicitly linked to
the content review mechanism for the relevant prod ucts does not demonstrate that Article 4 makes no
contribution to the protection of public morals in Ch ina. Whether it does is an issue we shall examine
in the next subsection.
7.778 Turning, finally, to the Audiovisual (Sub-)Distribution Rule , we note that its Article 1
indicates that the Rule has been drawn up in orde r to expand Chinese-foreign cultural exchange and
economic cooperation and reinforce the administrati on of Chinese-foreign contractual joint ventures
for the sub-distribution of audiovisual products. 551 Article 1 further indicates that the Rule is based,
inter alia , on the 2001 Audiovisual Products Regulation . We recall that Article 28 of the 2001

550 China's response to question No. 46( a). See, e.g., Article 42 of the Publications Regulation. For
finished audiovisual products, this is confirmed by, e.g., Article 4 of the Imported Cultural Products Rule.
551 China has provided a somewhat different transla tion of Article 1 which notably does not use the
term "sub-distribution". According to China's translatio n, Article 1 states that th e measure was "formulated …
for the purpose of enlarging foreign cultural exchanges and economic cooperation as well as strengthening
administration of Sino-foreign distribution contractual joint ventures of audiovisual products". Regarding the
translation of the term Fen Xiao, see infra, para. 7.931.

Audiovisual Products Regulation imposes a content review requirement on imports of finished
audiovisual products. Article 20 of the Audiovisual (Sub-)Distribution Rule provides that Chinese-
foreign contractual joint ventures may not deal in audiovisual products whose import has not been
approved by the MOC. Article 21 – the provision at issue – makes clea r that Chinese-foreign
contractual joint ventures may not themselves e ngage in the import of audiovisual products.
Accordingly, the Audiovisual (Sub-)Distribution Rule does not itself indicate a link between
Article 21 and the content review mechanism for finished audiovisual products, although Article 20
does make clear that imports of finished audiovisual products are subject to content review.
7.779 While it is conceivable that Article 21 prohib its Chinese-foreign contractual joint ventures
from engaging in the import of finished audiovisual pr oducts for reasons that are unrelated to the fact
that the content of these products is to be review ed, we note China's argument that measures like the
Audiovisual (Sub-)Distribution Rule are not isolated measures and are the result of its system of
selecting importers with the content review mechanis m in mind. In this regard, we recall that the
2001 Audiovisual Products Regulation does not stipulate that only state-owned enterprises can be
designated as import entities. However, there was apparently only one designated importing entity for
finished audiovisual products – the w holly state-owned CNPIEC – when the 2001 Audiovisual
Products Regulation was promulgated, and no additional entity has been designated since.
552 W e
think it is possible that Article 21 is intended to refl ect the fact that, for reasons related to the content
review requirement, only a wholly state-owne d enterprise was permitted to import finished
audiovisual products. On balance, we find the la tter view more plausible, in the light of the
information on the record, than the aforementioned alternative view.
7.780 We therefore consider that the mere fact that the Audiovisual (Sub-)Distribution Rule is not
explicitly linked to the content review mechanism for finished audiovisual products does not
demonstrate that Article 21 makes no contribution to the protection of public morals in China.
Whether it does is an issue we shall examine in the next subsection.
7.781 With the foregoing in mind, we now turn to exam ine whether China's restrictions of the right
to import relevant products are "necessary" to protect public morals.
"Necessity" of the measures at issue to protect public morals

7.782 The Panel begins its "necessity" analysis by reca lling relevant guidance from the Appellate
Body. In Korea – Various Measures on Beef , the Appellate Body indicated that "the word
"necessary" is not limited to th at which is 'indispensable'". 553 It further clarified that it is through "a
process of weighing and balancing a series of factors" that it must be determined whether a measure is
"necessary" within the meaning of Article XX.554
7.783 In US – Gambling – a case which concerned the equivalent of Article XX in the GATS, i.e.,
Article XIV of the GATS – the Appellate Body elaborated on the factors to be weighed and balanced:
"The process begins with an assessment of the 'relative importance' of the interests or
values furthered by the challenged measure. Having ascertained the importance of
the particular interests at stake, a panel should then turn to the other factors that are to
be 'weighed and balanced'. The Appellate Body has pointed to two factors that, in

552 See Article 1 of the Circular on Uniform Anti-Fake Logo for Audiovisual Products. We note in this
context that China indicated that its policy of not allowing the importation of cultural goods with content that
could have a negative impact on public morals was alrea dy in effect during its accession negotations. See also
Article 5 of the Imported Cultural Products Rule.
553 Appellate Body Report on Korea – Various Measures on Beef, para. 161.
554 Ibid., para. 164.

most cases, will be relevant to a panel's determination of the 'necessity' of a measure,
although not necessarily exhaustive of factors that might be considered. One factor is
the contribution of the measure to the realization of the ends pursued by it; the other
factor is the restrictive impact of the measure on international commerce."
555
7.784 The Appellate Body also indicated, however, that possible alternatives to the challenged
measures may also need to be considered:
"A comparison between the challenged meas ure and possible alternatives should then
be undertaken, and the results of such comparison should be considered in the light of
the importance of the interests at issue. It is on the basis of this 'weighing and
balancing' and comparison of measures, taki ng into account the interests or values at
stake, that a panel determines whether a measure is 'necessary' or, alternatively,
whether another, WTO-consistent measure is 'reasonably available'."
556
7.785 Regarding who has to demonstrate that the challenged measures is "necessary" or that a
reasonably available alternative exists, the Appellate Body stated that:
"[T]he responding party must show that its measure is 'necessary' to achieve
objectives relating to public morals or public order. In our view, however, it is not
the responding party's burden to show, in the first instance, that there are no
reasonably available alternatives to achieve its objectives. In particular, a responding
party need not identify the universe of less trade-restrictive alternative measures and
then show that none of those measures achieves the desired objective. The WTO
agreements do not contemplate such an impracticable and, indeed, often impossible
burden.
Rather, it is for a responding party to make a prima facie case that its measure is
'necessary' by putting forward evidence a nd arguments that enable a panel to assess
the challenged measure in the light of th e relevant factors to be 'weighed and
balanced' in a given case. The responding party may, in so doing, point out why
alternative measures would not achieve the same objectives as the challenged
measure, but it is under no obligation to do so in order to establish, in the first
instance, that its measure is 'necessary'. If the panel concludes that the respondent has
made a prima facie case that the challenged measure is 'necessary'—that is,
"significantly closer to the pole of 'indispen sable' than to the oppo site pole of simply
'making a contribution to''—then a pane l should find that challenged measure
'necessary' within the terms of Article XIV(a) of the GATS."
557
7.786 Finally, in a recent case, Brazil – Retreaded Tyres , the Appellate Body summed up the entire
analysis in the following terms:
"[I]n order to determine whether a measure is 'necessary' within the meaning of
Article XX(b) of the GATT 1994, a panel mu st consider the relevant factors,
particularly the importance of the interest s or values at stake, the extent of the
contribution to the achievement of the measure's objective, and its trade
restrictiveness. If this analysis yields a preliminary conclusion that the measure is
necessary, this result must be confirmed by comparing the measure with possible
alternatives, which may be less trade restrictive while providing an equivalent

555 Appellate Body Report on US – Gambling, para. 306 (footnotes omitted).
556 Ibid., para. 307.
557 Ibid., paras. 309-310 (footnote omitted).

contribution to the achievement of the objective. This comparison should be carried
out in the light of the importance of the interests or values at stake."
558
7.787 As pointed out above, the Appellate Body in US – Gambling observed that for the purposes of
determining whether a measure is "necessary", the cont ribution of that measure to the realization of
the ends pursued by it and the restrictive impact of the measure on international commerce are "two
factors that, in most cases, will be relevant to a panel's determination of the 'necessity' of a measure,
although not necessarily exhaustive of factors that might be considered". 559 In the case before us, we
consider that both factors are rele vant. Regarding the restrictive im pact on international trade, we
note that restrictions of the right to import may have an adverse impact on imports. For instance, if no
enterprise or individual were granted the right to im port a particular product, imports of the particular
product would obviously be adversely affected.
7.788 We recall that we have agreed to proceed on the assumption that Article XX is available as a
direct defence for measures that are inconsistent with China's trading rights commitments under the
Accession Protocol. Therefore, and consistently with the statement by the Appellate Body in US –
Gambling, we think that in the case before us, an a dditional factor should be taken into account.
Specifically, we think that we should weigh not only the restrictive impact the measures at issue have
on imports of relevant products, but also the restrictiv e effect they have on those wishing to engage in
importing, in particular on their right to trade. In our view, if Article XX is assumed to be a direct
defence for measures in breach of trading rights co mmitments, it makes sense to consider how much
these measures restrict the right to import. This wo uld appear to parallel a situation where a Member
imposes a WTO-inconsistent ban on imports of pr oducts and where an Article XX defence requires
examination of how much the ban restricts imports of those same products.560 Accordingly, we find it
appropriate to consider two different types of restrictive impact in this case.
7.789 A further preliminary observation is in order, in relation to the measures that are at issue in a
"necessity" analysis. It is well-established that it is the WTO-inconsistent measure that a responding
party seeks to justify which must be "necessary". 561 Therefore, in the case at hand, the measures, the
necessity of which China must establish, are the provisi ons that restrict the right to import contrary to
China's trading rights commitments under the Accession Protocol. The separate provisions
prescribing that the competent Ch inese authorities and/or import entities review the content of
imported finished audiovisual produc ts and reading materials, and that such products may not be
imported if they carry prohibited content, are not at issue. We understand that both parties take the
same view.562
7.790 China has stated that it is n ecessary for China to review the content of all imports of the
aforementioned products in order to avoid the importa tion of products with content that could have a
negative impact on public morals in China, and to achieve its high level of protection of public
morals. As previously pointed out, the United St ates has not questioned China's right to perform
content reviews in respect of imports of reading ma terials and finished audiovisual products. Nor has
it questioned China's right to prohibit the importation of such products if they carry content prohibited
in China. For the purposes of our "necessity" analysis, we will, therefore, proceed on the presumption
that the provisions prescribing content reviews and prohibiting imports of products with inappropriate
content are WTO-consistent.

558 Appellate Body Report on Brazil – Retreaded Tyres, para. 178.
559 Appellate Body Report on US - Gambling, para. 306.
560 The Panel in Brazil – Retreaded Tyres observed in this regard that the import ban before it was "by
design as trade-restrictive as can be" (Panel Report on Brazil – Retreaded Tyres, para. 7.211).
561 E.g., Appellate Body Report on US – Gasoline, DSR 1996:I, 3, at 20.
562 Parties' responses to question No. 55; China's response to question No. 181.

7.791 In respect of the measures at issue, China argu es that the various restrictions of the right to
import are necessary to ensure that the content re view can be performed in respect of relevant
imported products in a manner which achieves the high level of protection China seeks to achieve.
Thus, China's own argument suggests that, by them selves, the measures at issue – the provisions
restricting the right to import relevant products – would not achieve the objective of protecting public
morals. For this to be possible, the above-mentioned separate provisions prescribing the content
review in respect of imports of the relevant products need, also, to be in place.
7.792 In response to a question from the Panel, both pa rties expressed the view that a measure can
be characterized as "necessary" within the meani ng of Article XX even if it does not achieve the
desired objective all by itself. 563 We see no need to take a position on whether this would be correct
in all circumstances. In the speci fic circumstances facing us, however, we are able to agree with the
parties. More particularly, we consider that if China can demonstrate that, having adopted the other,
unchallenged, provisions pursuant to which importers are to make fi nal content review decisions or
are to assist the competent Chinese authorities to make content review decisions, the various
restrictions of the right to import are "necessary" to achieve its objective of protecting public morals
in China, those restrictions would be provisiona lly justified under Article XX(a), unless there are
WTO-consistent alternative measures that are reasonably available to China.
7.793 With the foregoing in mind, we now proceed to examine whether China has made a prima
facie case that the measures at issue are "necessar y" within the meaning of Article XX(a). If
appropriate, we will subsequently examine whet her reasonably available and WTO-consistent
alternatives have been identified.
Analysis of the measures at issue
7.794 As indicated, China argues that the selection of impor t entities is "necessary" to protect
public morals within China within the meaning of Article XX(a) of the GATT 1994. In relation to the
importance of the value pursued by the measures at issue, China notes that public morality is a value
of vital importance for China. According to Chin a, there are few values of such importance. The
preservation of public morals is a crucial policy issue in virtually all States and forms a central
element of social cohesion and the ability of communities to live together.
7.795 China further points out that it pursues a high leve l of protection of public morals within its
territory. China seeks to prevent the importation of reading materials or finished audiovisual products
with content that could have a ne gative impact on public morals in China. China notes that this is
illustrated by the dissuasive sanctions which may be imposed in case of infringements of relevant
Chinese regulations governing the content review.
7.796 Regarding the contribution the measures at is sue make to the achievement of China's
objective, China contends that its mechanisms fo r selecting import entities not only contribute to, but
are essential for, achieving the objective of avoiding the importation of reading materials and finished
audiovisual products with inappropriate content into China. In China's view, the selection of import
entities is a decisive element of an effective a nd efficient content review mechanism for imported
products. China notes that it selects import entities based on essentially four criteria which contribute
to the efficient implementation of the content review mechanism and to the fulfilment of its objective.
They are that import entities must: (i) have an appropriate organizational structure, (ii) have a reliable,
competent and capable personnel, (iii) be limited, ove rall, in their number, and (iv) have appropriate
geographical coverage within China's customs territory.

563 Parties' responses to question No. 200.

7.797 Regarding the first two selection criteria, China recalls that the content review mechanism is
the expression of a public policy ac tivity. According to China, it is , therefore, necessary that the
administrative authority be certain that the selected entity to whom such a public activity has been
attributed will act in accordance with all the require ments of Chinese laws and regulations that apply
to such a public activity. In China's view, the or ganizational structure of the selected import entities
must, therefore, be such that there is enough confidence on the part of the administrative authority that
the content review will be conducted both efficiently and effectively.
7.798 China submits that content review is also a complex public policy activity. According to
China, in order to implement the content review efficiently and up to the standard defined by China, it
is important that the import entities correctly unde rstand the meaning, purpose, scope and manner of
implementing the content review in accordance w ith the requirements of the relevant laws and
regulations and maintain sufficient and regular exchanges with the administrative authorities.
7.799 China further submits that, generally, most of the preparatory work necessary for the content
review is carried out by the import entities, and that their work most of the time is just validated by
the relevant administrative authority. According to China, this illustrates the perfect understanding by
the import entities of the content review mechanism and its purpose and the capacity of these entities
to carry out the content review in an effective and efficient manner.
7.800 China considers that carrying out the content review in an efficient and effective manner
requires an appropriate internal structure. China notes the example of CNPIEC which has
implemented a three-level review and decision-making procedure. According to China, the material
capacity of the entities, i.e., whether the entities di spose of sufficient technical equipment and know-
how in order to ensure an efficient and timely re view of the contents (e.g. computers, software,
display devices, etc.) is an additional element to take into consideration.
7.801 China further argues that it is also crucial that the professionals involved in the content review
be specifically and appropriately qualified and ha ve sufficient experience and training in, and
knowledge of, the sector in question, especially in re lation to content review matters. China notes in
this respect that content review is a complex procedure in which every product must be reviewed in its
entirety.
564 In China's view, it is equally important th at these professionals be familiar with Chinese
values and public morals, and capable of effici ently communicating with, and understanding, the
administrative authorities. China contends that the professionals' linguistic capacities are also
relevant. China notes that those engaged in the c ontent review should generally master a wide range
of foreign languages in order to ensure appropriate understanding of the imported contents and their
proper alignment with the review principles.
7.802 Regarding the criterion that the number of import entities should be limited, China points out
that the rules and regulations at issue provide for the limitation of the total number of entities
approved for engaging in the importation of cultural goods.565 China submits that limiting the number
of entities authorized to engage in the importation of cultural goods is an important factor contributing
to the prevention of any breaking of the rules relati ng to prohibited content and to circulation within
China of content that has a negative impact on the public morals.
7.803 China argues that limiting the number of importation entities enables the administrative
authorities to have efficient control over whether t hose entities comply with the rules and procedures
on content review. In China's view, it is obvious th at the workload for the administrative authorities
would be much heavier if they had to review the reports submitted by a large number of entities and to

564 China notes that the CNPIEC, fo r example, employs more than 70 highly qualified and trained
censors.
565 China cites as an example Article 42 of the Publications Regulation.

carry out annual inspections of that large number of entities. China further argues that limiting the
number of entities also allows for enhanced and more effective cooperation between these entities and
the relevant State authorities. This is essential in order to ensure the consistency of the content review
operated on the cultural goods imported into the territory of China.566
7.804 As indicated, according to China, another cr iterion for selecting import entities is the import
entities' geographical presence within China, a nd whether this corresponds to the development
prescribed by the State's plans. China explains that this concerns, in particular whether the entities,
through branches, have premises in a large number of customs areas, so that no entry gate into the
Chinese market is overlooked. According to China, the objective is to have a small number of
companies with extensive geographical coverage. China considers that in order to meet the
requirement of prohibiting cultural goods with in appropriate content it is essential that entities
participating in the content review be located close to the entry points of the goods into the Chinese
territory. China argues that this also serves the purpose of preventing any risk of dissemination of
unauthorized and inappropriate contents within China.
7.805 Regarding the impact of the measures at issue on trade, China submits that its system for the
selection of import entities has a limited impact. Acco rding to China, the fact that the import entities
correctly understand the meaning, scope and ma nner of implementing the content review in
accordance with the requirements of the relevant re gulations allows them to carry out the content
review in a smooth manner. This avoids unaccep table delays which might have been caused by
multiple exchanges between the administrative authority and the import entities.
7.806 China argues that unnecessary trade-distorting effects can also be avoided because import
entities are selected on the basis of their organizational structure and the qualifications of their
personnel. China notes that the CNPIEC, for example, implements internal processes ensuring that it
can finish the review of a publication within 30 minutes after receiving it, including during weekends
and national holidays. In China's view, the fact that there is a limited number of selected import
entities with premises at the border and in a large number of customs areas similarly minimize
customs congestion or the need for transportation within China.
7.807 China further submits that the overall increase of titles imported into China indicates that the
selection system does not have a negative impact on trade. China points out that statistical data show,
for example, that while 586 newspaper titles wh ere imported in China in 2002, 767 different
newspapers were imported in 2006. For periodical s, China says, 36,032 titles were imported in 2002
and 45,178 in 2006. For audiovisual products, Ch ina notes that 11,464 titles were imported in 2002
and 31,123 in 2006.
567
7.808 The United States points out at the outset that it is not challenging China's right to determine
its desired level of protection. The United Stat es is challenging the mean s China has chosen to
achieve those ends. The United States is of the view that the means Ch ina has selected are not
"necessary". More particularly, the United States cons iders that China has failed to demonstrate that
the measures at issue are "necessary" within the meaning of Article XX(a).
7.809 The United States contends that China has to establish a nexus between prohibiting all foreign
importers and all privately owned Chinese importers from importing the products at issue and
achieving its content review goals. The United States argues in this respect that while China asserts
that its selected importers play a critical role in content review, it has never explained why the entities

566 China notes that the GAPP and the MOC regularl y hold meetings with the import entities' review
staff in order to provide information and guidance for the content review.
567 China refers to statistical information containe d in Exhibits CN-33, CN-34, CN-35, CN-36 and
CN-37.

involved in content review need to monopolize the importation process. According to the United
States, content review is independent of importati on and can be performed by individuals or entities
unrelated to the importation process at any time befo re, during or after that process. In the United
States' view, there is no nexus between the challenge d measures and the protection of public morals.
The United States submits, therefore, that China's me asures denying trading rights lie far too distant
from the pole of indispensability to qualify as "necessary" within the meaning of Article XX.
7.810 More specifically, the United States argues that China's own system de-links content review
from importation. The United States points out in this regard that the Chinese Government itself
reviews the content of all foreign films before any su ch film is permitted to be imported into China.
Also, importers are not integral to the content revi ew process for all relevant products. Furthermore,
the United States notes that for, e.g., audiovisual pro ducts and films for theatrical release, the Chinese
Government is the only entity performing the conten t review. According to the United States, this
demonstrates that it is not necessary for importers to perform content review in order to achieve
China's objective.
7.811 The United States also does not believe that it is necessary to reserve importation to wholly
state-owned enterprises, since, as indicated, Chin a's own agencies are capable of handling content
review and state-owned enterprises are not needed to play the role of forced middleman. In the
United States' view, China is, therefore, able to maintain its level of protection even when state-owned
enterprises are not serving as intermediaries between producers and the Chinese Government.
7.812 Regarding the number of content review entities the United States does not consider that it
needs to be drastically limited, as China suggests. The United States submits that China's own system
for content review confirms this. The United States points out, for example, that in 2007 there were
806 domestic book and electronic publication publishe rs in China conducting "in-house" content
review, compared with only 42 state-owned publica tion import entities. The United States considers,
therefore, that China's assertion that it cannot sup port an increased number of importers participating
in content review is not credible.
7.813 The United States further argues that the Appe llate Body has not found a measure to be
necessary where there is a reasonably available WTO- consistent alternative. As indicated further
below, the United States asserts in this regard th at China has numerous alternatives to achieve its
content review objectives that do not restrict the right to import.
7.814 The Panel notes that some of the specific provi sions it needs to examine present certain
similarities. For the purposes of its analysis, the Panel will group similar provisions and examine
them together. The first group of provisions whic h the Panel will address (hereafter referred to as the
"criteria" provision) comprises two conditi ons stipulated in Article 42 of the Publications Regulation.
The second group of similar provisions (hereafter the "discretion" provisions) comprises:
(i) Article 41 of the Publications Regulation , (ii) Article 27 of the 2001 Audiovisual Products
Regulation and (iii) Article 8 of the Audiovisual Products Importation Rule. The last group (hereafter
the "exclusion" provisions) comprises: (i) a further condition set out in Article 42 of the Publications
Regulation, (ii) Articles X.2 and X.3 of the Catalogue and Articles 3 and 4 of the Foreign Investment
Regulation, (iii) Article 4 of the Several Opinions; and (iv) Article 21 of the Audiovisual
(Sub-)Distribution Rule

7.815 In respect of the first factor to be considered as part of our "necessity" analysis – the
importance of the particular interests or values furt hered by the provisions at issue – there is no need
to analyse each of the above-mentioned groups separately. We thus address this factor at the outset.
7.816 We note in this regard China's statement that public morality is a value of vital importance for
China. According to China, the preservation of publ ic morals is a crucial policy objective in virtually

all States and forms "a central element of soci al cohesion and the capacity of communities to live
together".568 The United States has not indicated any di sagreement with China's assessment of the
importance of public morals as a value or interest pursued by Members.
7.817 In our view, it is undoubtedly the case that th e protection of public morals ranks among the
most important values or interests pursued by Members as a matter of public policy. We do not
consider it simply accident that the exception re lating to "public morals" is the first exception
identified in the ten sub-paragraphs of Article XX. We therefore concur that the protection of public
morals is a highly important value or interest.
7.818 Consistently with the importance of the value or interest furthered by its measures, China has
stated that it pursues a high level of protection of pub lic morals within its territory. China has stated
that, through the measures at issue, it seeks to prevent the importation of reading materials and
finished audiovisual products with content that c ould have a negative impact on public morals within
its territory. According to China, its high level of protection is illustrated by the fact that its
prohibition on the importation of reading materials and finished audiovisual products with prohibited
content is complemented by dissuasive sanctions (e .g., fines, revocation of operating licences or, in
serious cases, criminal sanctions). China indicated that such sanctions may be imposed in case the
applicable rules on content review are not correctly followed.
7.819 We note that it is up to each Member to determin e what level of protection is appropriate in a
given situation. 569 We have previously indicated that several of the measures at issue contain
provisions which prohibit relevant products (reading materials and finished audiovisual products)
from carrying certain content, and which require that the content of such products must be reviewed
before they can be imported into China. In ou r view, these provisions are consistent with China's
contention that it seeks to achieve a high level of prot ection of public morals in respect of the relevant
products. Therefore, in reviewing the necessity of the provisions at issue, we will bear in mind the
high level of protection of public mo rals China has determined to be appropriate for its territory in
respect of the relevant products.
7.820 With these considerations in mind, we now turn to examine the "criteria" provisions.
"Criteria" provisions
7.821 We note that the relevant provision – Article 42 of the Publications Regulation – sets forth
different types of approval criteria to be met by publication import entities. Specifically, the criteria
in question are that publication import entities need to have a suitable organization and qualified
personnel, and that applications to establish publication import entities n eed to meet the State plan for
the number, structure and distribution of import entities. We will address the two criteria in turn.
Suitable organization and qualified personnel

7.822 Article 42 of the Publications Regulation requires that publication import entities must have a
suitable organization and personne l which satisfies qualification requirements determined by the
State. We have determined that this condition in Article 42, in conjunction with Article 41, results in
China acting inconsistently with paragraph 5.1 of the Accession Prot ocol as well as paragraphs 83(d)
and 84(a) of the Working Party Report and, hen ce, paragraph 1.2 of the Accession Protocol. We

568 China's first written submission, para. 186.
569 Appellate Body Reports on Brazil – Retreaded Tyres, para. 210; EC – Asbestos, para. 168; Korea –

noted that enterprises in China that do not satisfy this condition cannot obtain the right to import the
relevant products.
7.823 We begin our analysis by considering the cont ribution this condition makes to the realization
of the objective pursued by it, i.e., the protection of public morals in China. As an initial matter, we
note that we agree with China that content review is a public policy function. We therefore also agree
that if the responsibility for the conduct of content review is conferred on im porters of the relevant
products, as is the case under the Publications Regulation
570, China needs to have adequate
confidence that the importers that will carry out the content review are capable of doing so in a way
that ensures that no products with prohibited content are imported into China.
7.824 Regarding, more specifically, the condition that publication import entities need to have a
suitable organization, we understand that this me ans, e.g., an organizationally separate review
structure, a hierarchical system to allo w for multi-level reviews in non-routine cases 571, a clear
allocation of responsibilities for final content review decisions, and adequate material resources to
support the review function. Thus understood, it s eems to us that having a suitable organization is
likely to contribute materially to the protection of public morals in China, in that it would help
minimize review errors and create the right incenti ves (e.g., so as to avoid potential conflicts of
interest).
7.825 The other condition in Article 42 is that publica tion import entities have personnel that satisfy
qualification requirements established by the State. 572 Relevant qualifications appear to include the
ability to read and understand the language of th e content to be imported as well as a thorough
understanding of, and familiarity with, the applicable legal review standards and their interpretation
and application. In our view, there is no question that requiring adequately qualified review personnel
contributes materially to the protection of public mo rals in China. Without such personnel, there
would be a substantial risk that import entities would not carry out content review properly.
7.826 The next factor to be analysed is the rest rictive impact of the condition in question.
Regarding the restrictive impact on imports, we agr ee with China that the fact of having a suitable
organization and qualified pers onnel would allow publication im port entities to conduct content
review in a prompt and efficient manner that would minimize any delays in importing that are caused
by the need to conduct such a review. This is pa rticularly so in the case of publications that appear
daily, such as newspapers. We further note China' s argument that the number of titles of newspapers
and publications imported into China has gone up be tween 2002 and 2006. In our view, this does not
necessarily indicate that the condition in question has not had any trade-restrictive effects. The
statistics do not indicate what might have been if the condition had not been imposed, although they
do seem to confirm that the condition is compatible with an increase in imports.
7.827 Regarding the restrictive impact on those wishing to engage in importing, we observe that the
condition in question restricts the right to import of enterprises in China that do not satisfy the
condition. Significantly, however, it does not a priori exclude particular types of enterprise in China
from the right to engage in importing.
7.828 Having addressed the relevant factors separately, it remains for us to weigh and balance them
with a view to coming to a conclusion whether, overall, the condition that publication import entities
have a suitable organization a nd qualified personnel is "necessary" within the meaning of
Article XX(a). Specifically, we must weigh the f act that the condition in question makes a material

570 See Article 44 of the Publications Regulation.
571 Evidence submitted by China indicat es that a three-level review system is required of publication
import entities (Exhibit CN-22).
572 We note that relevant requirements have not been submitted to the Panel.

contribution to the protection of public morals against the fact that the condition does not a priori
exclude particular types of enterprise in China from the right to engage in importing and is likely to
minimize unnecessary delays in importing. At the same time, we also need to take account of the fact
that the protection of public morals is a highly im portant governmental interest and that China has
adopted a high level of protection of public morals within its territory. Weighing these factors, we
reach the conclusion that, in the absence of reasonably available alternatives, the condition in question
is "necessary" to protect public morals in China.
State plan for the number, structure and distribution of import entities

7.829 There is, as indicated, another provision setti ng forth an approval criterion which we which
we need to consider. Article 42 requires that the GAPP may only approve publication import entities
if they are in conformity with the State plan for the number, structure and distribution [geographical
coverage] of publication import entities. We have determined that this requirement in Article 42, in
conjunction with Article 41, results in China acting inconsistently with paragraph 5.1 of the Accession
Protocol as well as paragraphs 83(d) and 84(a) of th e Working Party Report and, hence, paragraph 1.2
of the Accession Protocol. We noted that enterprise s in China that do not fit in with the State plan
cannot obtain the right to import the relevant products.
7.830 We first consider whether this requirement makes a contribution to the realization of the
objective pursued by China, i.e., the protection of p ublic morals in China. We recall that under the
Publications Regulation , the publication import entity is res ponsible for the conduct of content
review.
7.831 We understand China to contend that the require ment that approvals must be granted in
accordance with its State plans for the number, structure and distribution of import entities is designed
to ensure essentially two things: first, that only a limited number of import entities are approved, and,
secondly, that each approved import entity has extensive geographical presence (distribution), through
branches, in a large number of customs areas, and with branches located close to the entry points of
imports into China.
7.832 With these introductory remarks in mind, we tu rn to consider the contribution made by the
State plan requirement to the pr otection of public morals in Ch ina. Since in the case of the
Publications Regulation the publication import entities are responsible for content review, we can see
that limiting the number of import entities can make a material contribution. It would appear that
with a limited number of publication import entities, it is easier for the GAPP to interact with these
entities with a view to ensuring, and enhancing, the consistency of the review work of these entities.
Similarly, a limited number of entities allows the GAPP to devote more time to conduct careful ex
post controls of compliance with applicable cont ent review requirements, e.g., through the annual
inspections.
7.833 We are not persuaded that a wide geographical distribution of the branches of import entities
in itself makes a significant contribution to the protection of public morals.
573 However, there appears
to be a close link between the desired wide geogra phical distribution of the branches and the desired
limitation on the number of import entities. Absent a sufficiently wide distribution of branches, the
limitation on the number of import entities could r esult in delayed importation or more costly

573 China's response to question No. 43. It is wort h noting that the CNPIEC, for instance, operates a
system of centralized content review by the parent company. The local branches do not appear to be involved in
the substantive review (Exhibit CN-26, p. 5).

importation, in that it might otherwise not be possible to use convenient points of entry.
574 W e
therefore think that the number and distribution elements can and should be viewed as complementary
and as forming a single whole.
7.834 We next turn to analyse the restrictive impact of the requirement in question. Regarding the
restrictive impact on imports, we note China's argum ent that even though China limits the number of
import entities pursuant to the State plan, it approves only entities with branches in a large number of
customs areas and in proximity to the border. Ac cording to China, this guarantees that there are no
unnecessary delays in importing due to customs cong estion or due to the need for long distance
transport within China. We note that evidence submitted by China indicates that the CNPIEC, which
imports books, newspapers, periodicals and electronic publications and has 22 branches in China, tries
to make sure that any imported publications arrive at the nearest point of entry and that they are
delivered through the local branches.575 We also recall that statistical information submitted by China
shows that the number of book, newspaper and periodical titles has increased between 2002 and 2006,
although the number for electronic publications has decreased during the same period. The statistics
do not demonstrate that the limited number of importe rs, which limits the choi ce of business partners
that foreign producers can use, has not had any trade-r estrictive effects. Nevertheless, in the light of
the geographical distribution criterion, it would seem that limiting the number of import entities does
not necessarily have a major adverse impact on imports of relevant products.
7.835 Regarding the restrictive impact on those wishing to engage in importing, we note that the
requirement in question restricts the right to import of enterprises in China that do not fit in with the
State plan. The geographical distribution criterion is likely to be more difficult for enterprises to
satisfy than, e.g., the previously discussed require ment to have an appropriate organization and
qualified personnel. Nevertheless, as explained, the requirements do not a priori exclude particular
types of enterprise in China from establishing an import entity.
7.836 Based on the above examination of the relevant factors, we can now come to a conclusion
whether, overall, the relevant requirement concerning conformity with the State plan for the number,
structure and distribution of such entities is "necess ary" within the meaning of Article XX(a). In
weighing and balancing the relevant factors, we take account, first of all, of the fact that the protection
of public morals is a highly important governmental interest and that China has adopted a high level
of protection of public morals within its territory. We must take account, in addition, of the fact that
the requirement of conformity with the State plan is apt to make a material contribution to the
protection of public morals; that it is unclear to what extent, if any, it limits overall imports of relevant
products, but that it is nonetheless likely to minimize unnecessary delays in importing; and that it does
not a priori exclude particular types of enterprise in China from establishing an import entity.
Weighing these factors, we conclude that, in the absence of reasonably available alternatives, the State
plan requirement in Article 42 of the Publications Regulation can be characterized as "necessary" to
protect public morals in China.
"Discretion" provisions
7.837 We now address the second group of relevant pr ovisions, the "discretion" provisions. The
first of these provisions is Article 41 of the Publications Regulation, which stipulates that no entity or
individual shall engage in the business of im porting newspapers or periodicals without being
designated. China has confirmed, however, th at the GAPP can only designate publication import
entities for newspapers or periodicals that have b een approved by the GAPP under Article 42. We
have determined that in respect of foreign-invest ed enterprises in China Ar ticle 41 results in China

574 In response to question No. 43, China remarked that a wide geographical coverage helps ensure that
content review minimizes adverse effects on imports.
575 Exhibit CN-26.

acting inconsistently with paragraph 84(b) (discr etion) of the Working Party Report and, hence,
paragraph 1.2 of the Accession Protocol.
7.838 The second relevant provision is Article 27 of the 2001 Audiovisual Products Regulation ,
which provides that entities or individuals which have not been designated by the MOC may not
engage in the import of finished audiovisual produc ts, and that the import of these products must be
handled by designated finished audiovisual product import entities. We have determined that in
respect of foreign-invested enterprises in China Artic le 27 results in China acting inconsistently with
paragraph 84(b) (discretion) and, hence, paragraph 1.2.
7.839 The remaining provision is Article 8 of the Audiovisual Products Importation Rule. It mirrors
the provisions of Article 27 of the 2001 Audiovisual Products Regulation .576 As a consequence, it
results in the same inconsistencies as Article 27.
7.840 We first examine whether the above-mentioned designation requirements make a contribution
to the realization of the objective pursued by China, i.e., the protection of public morals in China. We
recall at the outset that designations under the a bove-mentioned requirements occur exclusively at the
initiative of the relevant administrative authority and that there is no application process. The relevant
authority enjoys discretion as to which entity to designate.
7.841 In response to questions from the Panel, Chin a has provided an explanation of why it uses
different processes for the selection of import entities for different products. China recalled that in the
books and electronic publications sectors, it uses an approval system, whereas in the periodicals,
newspaper and finished audiovisual products sector s, it uses a designation system. According to
China, compared with books and electronic public ations, the content review of newspapers and
periodicals requires a higher quality of content revi ew personnel and a more st ringent organization to
ensure greater efficiency and to avoid unnecessary dela ys to normal trade flows. In relation to the
content review of finished audiovisual products, Ch ina contends that it requires more technical and
facility support than is required for other products.
577
7.842 Regarding Article 41 of the Publications Regulation, we are not convinced, based on China's
explanation, that the designation requirement app licable in the newspaper and periodicals sectors
makes an independent contribution to the protection of public morals in China. As stated by China,
the designation requirement is imposed to ensure that newspapers and periodicals are reviewed
efficiently and with a view to avoiding unnecessary de lays, which is important notably in the case of
publications that appear daily. This efficiency aspect appears to relate to the effect on trade of the
content review carried out by publication import entiti es, not to how effective their content review is
in protecting public morals.
7.843 Turning to the other designation requirements at issue, i.e., those set forth in Article 27 of the
2001 Audiovisual Products Regulation and Article 8 of the Audiovisual Products Importation Rule ,
we note that they are different, in that they do not complement an approval system, but are used in
lieu of an approval system. 578 We note that China has indicated that for both types of selection
processes, the principles guiding the selection of im port entities are fundamentally the same. China
recalled that they include that import entities would only be selected if they have a suitable
organization and qualified personnel, and that the overall number of import entities would remain
limited.
579

576 China's response to question No. 182
577 China's responses to question Nos. 40 and 172.
578 China's response to question No. 25(b).
579 China's first written submission, paras. 155-156.

7.844 It is clear that giving the MOC the discretion to designate finished audiovisual product import
entities allows the MOC to select import entities in accordance with the aforementioned guiding
principles. To recall, in the case of finished audiovisual products, the MOC makes final content
review decisions, while the designated finished audiovisual product import entities carry out a
preliminary review. We can see that as a result of designating entities with a suitable organization
and qualified personnel, the MOC might receive he lpful review reports, and the entities concerned
might submit fewer products for review, because they would filter out those that are not suitable for
importation. This might allow the MOC to be more effective in reviewing the content of finished
audiovisual products to be imported, as a consequence of a more efficient use of its resources. In this
way, the designation requirement would appear to make an indirect, albeit not insignificant,
contribution to the protection of public morals in China. We are not persuaded, however, that
restricting the right to import finished audiovisual products in a discretionary way makes a greater
contribution than would be the case under an approval system similar to the one applied by China for
books and electronic publications.
7.845 The next factor to be addressed is the restrictive impact of the "discretion" provisions. We
begin with the restrictive impact on imports. Regarding Article 41 of the Publications Regulation, we
accept that the discretion to designate import entities that meet particularly strict organizational and
personnel requirements allows China to select entities that can carry out content review in a prompt
and efficient manner and that can keep to a minimum any delays in importing which are caused by the
need to conduct such a review. Regarding Article 27 of the 2001 Audiovisual Products Regulation
and Article 8 of the Audiovisual Products Importation Rule , we similarly accept that the discretion to
designate import entities that have sufficient techni cal and facility support gives China the possibility
to select entities which can keep to a minimum any delays in importing associated with content
review.
7.846 China has also indicated, however, that the d esignation system would result in a limited
number of import entities. We recall in this respec t that statistical information submitted by China
shows that the number of newspaper, periodicals and audiovisual product titles has increased between
2002 and 2006. This seems to indicate that the d esignation system is compatible with an increase in
imports. However, it does not necessarily indicate that the fact that the designation system results in a
limited number of importers, and thus in a limite d choice of business partners for foreign producers,
has not had any trade-restrictive effects.
7.847 Regarding the restrictive impact on those wishing to engage in importing, we observe that the
designation requirements in question restrict the right to import of foreign-invested enterprises in
China that are not designated as import entities. We r ecall in this regard China's statement that these
requirements would result in a limited number of im port entities. Also, we recall that there is no
process for submitting applications and the competent authorities enjoy discretion as to whom to
designate. In contrast, under the approval require ment set out, e.g., in Articles 41 and 42 of the
Publication Regulation, applications can be submit ted and the criteria that must be satisfied are
specified. In this sense, the designation requirements in question would appear to interfere more with
the right to trade than the approval requirement set out, e.g., in Articles 41 and 42 of the Publications
Regulation. Indeed, we think it can be plausibly assume d that most enterprises seeking to obtain the
right to trade would prefer the approval requirement to the designation requirements.
7.848 Based on the above examination of the relevant factors, we must now determine whether,
overall, the designation requirements are "necessary" within the meaning of Article XX(a). In
weighing and balancing the relevant factors, we must take account, first of all, of the fact that the
protection of public morals is a highly important gove rnmental interest and that China has adopted a
high level of protection of public morals within its territory. In respect of Article 41 of the
Publications Regulation, we must take account, in addition, of the fact that it is not apparent to us that
the designation requirement contained in Article 41 makes an independent contribution to the

protection of public morals in China; that it is uncl ear to what extent, if any, it limits overall imports
of relevant products, but that it allows China to select entities that do not cause unnecessary delays in
importing; and that it interferes more with the right to trade than would an approval requirement like
the one that China already appli es, pursuant to Article 42 of the Publications Regulation, to entities
wishing to import newspapers or periodicals. Cons idering that the requirement in question does not
appear to make an independent contribution to pr otecting public morals in China and that it has a
significant restrictive impact on those wishing to engage in importing – more so than would an
approval requirement – it cannot, in our view, be characterized as a "necessary" restriction of the right
to trade, even though the protection of public morals is a highly important interest and its restrictive
impact on trade may seem limited. We therefore conc lude that China has not demonstrated that the
designation requirement in Article 41 of the Publications Regulation is "necessary" to protect public
morals in China.
7.849 In respect of Article 27 of the 2001 Audiovisual Products Regulation and Article 8 of the
Audiovisual Products Importation Rule , other than the importance of the interest and China's level of
protection, the factors to be weighed are the fact that the designation requirements contained in these
provisions make an indirect, albeit not insignificant, contribution to the protection of public morals in
China, although that contribution appears to be no more significant than would be the case under an
approval requirement like the one that China already applies, e.g., for books and electronic
publications; that it is unclear to what extent, if any, they limit overall imports of relevant products,
but that they allow China to select entities that do not cause unnecessary delays in importing; and that
they are more restrictive of the right to trade than would be an approval requirement. When weighing
the fact that the designation requirements make an indirect contribution to the protection of public
morals (which an approval requirement would appear equally capable of making) against the fact that
they have a more significant restrictive impact on those wishing to engage in importing than would an
approval requirement, it is difficult to see how these designation requirements could be characterized
as "necessary" restrictions of the right to trade, even accepting that the protection of public morals is a
highly important interest and that their restrictiv e impact on trade may seem limited. We therefore
conclude that China has not demonstrated that the designation requirements in Article 27 of the 2001
Audiovisual Products Regulation and Article 8 of the Audiovisual Products Importation Rule are
"necessary" to protect public morals in China.
"Exclusion" provisions
7.850 The final group of provisions we need to examine encompasses various "exclusion"
provisions. They include Article 42 of the Publications Regulation, and specifically the condition that
publication import entities must be wholly state-owne d enterprises. We have determined that by
imposing this condition, Article 42, in conjunc tion with Article 41, results in China acting
inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84( a) and, hence, paragraph 1.2.
The condition excludes enterprises in China other than wholly state-owned ones, including foreign-
invested enterprises, from being granted the right to import relevant products.
580
7.851 In addition, the group of "exclusion" provisions is made up of Articles X.2 and X.3 of the
Catalogue and Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several
Opinions; and Article 21 of the Audiovisual (Sub-)Distribution Rule . We have discussed these
provisions earlier in our Article XX analysis. We have determined that these additional provisions
result in China acting inconsistently with paragr aph 5.1 as well as paragraphs 83(d) and 84(a) and,
hence, paragraph 1.2, in that they exclude forei gn-invested enterprises from being granted the right to
import relevant products.

580 We include the state ownership condition among the "exclusion" provisions rather than the "criteria"
provisions because unlike the "criteria" provisions the condition in question a priori excludes certain types of
enterprise from the right to engage in importing.

State ownership condition
7.852 We commence our analysis with Article 42 of the Publications Regulation. We first consider
whether the state ownership condition makes a contri bution to the realization of the objective pursued
by China, i.e., the protection of public morals in China.
7.853 We recall that under the Publications Regulation the publication import entity is responsible
for the conduct of content review. In response to questions from the Panel, China stated that the
reason behind the state ownership condition is that the cost incurred by publication import entities as a
result of their obligation to conduc t content review is substantial.
581 China has indicated that the
content review costs consist of the labour and tr aining cost, the cost of material resources and the
losses incurred in case publications ordered by cust omers fail to pass the content review and the
customers must be compensated. China also recalls that content review is a public policy function.
Therefore, China maintains, the Government cannot require privately owned enterprises in China to
bear the substantial cost. Chin a suggests that the situation is different for wholly state-owned
enterprises, inasmuch as in the case of these enterp rises the State owns all equity. China asserts, in
addition, that wholly state-owned enterprises are curr ently considered to be the only entities that fulfil
the above-discussed technical and organizational requirements set out in Article 42.582
7.854 In considering China's arguments, we note th at China does not contend that publication
import entities need to be wholly state-owned becau se they perform a public po licy function. Rather,
China contends that they need to be wholly state-owned because content review is costly. 583 I n
China's view, privately-owned enterprises cannot be expected to pay for performing a public interest
function. Accordingly, what we need to examine is the latter contention. We nonetheless note that, in
our understanding, the state-owned publication import entities are profit-making enterprises. 584 As a
result, they would seem to face essentially the same incentive structure as privately owned enterprises
would if they were allowed to be importers. In ot her words, it is not apparent that wholly state-
owned enterprises would be inherently more careful in conducting content review than privately
owned ones. We also recall that China enforces the prohibition of importi ng inappropriate content
through external "dissuasive sanctions". 585 In the light of these elements, there does not appear to be
any reason to think that privately owned enterprises would be less likely to comply with the content
review requirements than wholly state-owned ones. As noted, however, China has in any event not
advanced any such arguments.
7.855 Returning to China's argument about the cost of content review, we note that we have asked
China to provide an estimate of the cost involved for import entities. China replied that it was unable
to do so. 586 Nevertheless, evidence submitted by Chin a indicates that the CNPIEC, a wholly state-
owned publication import entity, spends RMB 3 million per year for its review staff, as labour and
training costs. It seems that the CNPIEC incurre d an additional cost of RMB 4 million in 2006 as a
consequence of "the seizure of publication by the screen of content review".
587 While these are
substantial amounts, they must be compared with th e size of CNPIEC's operations and its revenues.
The evidence in question does not provide information on CNPIEC's re venues or its profitability. It

581 China's responses to question Nos. 46(a), 185 and 188(b).
582 China's second written submission, para. 104.
583 Ibid.
584 In response to question No. 195, China indicated that "the importer enjoys the financial benefit of
distributing publications that pass the content review" and that it can, therefore, be expected to bear the cost of
content review.
585 China's first written submission, para. 141; China's response to question No. 188(a).
586 China's response to question No. 185.
587 Exhibit CN-26, p. 6.

nonetheless indicates that in 2006 CNPIEC impor ted books, newspapers, periodicals, electronic
publications and audiovisual products worth more than USD 127 million.588
7.856 Based on the – very limited – evidence before us, we are not convinced that the cost
associated with content review is so high that it would dissuade all privately owned enterprises in
China from seeking to enter the business of importing publications. 589 In other words, China in our
view has not demonstrated that it would be unreasonabl e, or futile, to try to impose the cost of content
review on such enterprises. 590 In fact, as already pointed out, even wholly state-owned enterprises
apparently need to finance the cost, and any lo sses, associated with content review through their
business activities. 591 Even assuming that wholly state-owned enterprises had access to capital on
more favourable terms than privately owned ones, or content themselves with lower profits, the
evidence before us still does not indicate that th ere would be no privately owned enterprises that
would be interested in entering the business of importing publications.
7.857 Therefore, China has not persuaded us that re quiring publication import entities to be wholly
state-owned contributes to the protection of publ ic morals in China b ecause they are the only
enterprises in China that are able, or should be exp ected, to bear the cost associated with content
review.
7.858 We note that China advances an additional ar gument in support of the state ownership
condition – that only wholly state-owned enterprise s are currently capable of satisfying the condition
that publication import entities need to have a su itable organization and qua lified personnel. China
appears to suggest that this is because of the cost involved in satisfying the condition. 592 A s s e e n
above, the evidence before us shows that the CNPI EC spends a substantial amount of money to pay
for, and train, its review staff. As we have al so pointed out, however, based on the evidence before
us, we are not convinced that the cost associated with the need to have qualified personnel and a
suitable organization is so high as to make it impossibl e, or not worthwhile, to fulfil this condition.
We further note that publication import entities and Chinese publishing entities employ staff capable
of understanding and applying content review sta ndards. We are therefore not convinced that
privately owned enterprises would be unable to attr act qualified personnel, or that they would be
unable to obtain the organizational know-how needed to conduct content review properly.
7.859 Therefore, we are unable to accept China's a dditional argument that requiring publication
import entities to be wholly state-owned contributes to the protection of public morals in China
because, for the time being, they are the only enterpri ses in China that are able to satisfy the condition
that publication import entities have a suitable organization and qualified personnel.
7.860 Regarding the first factor, we thus conclude that the arguments and evidence put forward by
China do not support the view that the state-owners hip requirement makes a material contribution to
the protection of public morals in China.

588 Exhibit CN-26, p. 2
589 Privately-owned enterprises could be dissuaded, for instance, by the prospect of insufficient profits
due to the cost associated with content review or the risk of losses linked to content review.
590 We note that privately-owned enterprises need to comply with numerous regulatory requirements
that are imposed for public policy r easons (e.g., environmental protection, workplace safety, etc.) and that
impose costs on these enterprises. Similarly, privately-owned enterprises need to pay corporate taxes to the
government. This indicates that the me re fact that certain costs, or taxes, are imposed on enterprises for public
policy reasons does not imply that only wholly state-owned enterprises are able, or should be expected, to bear
these costs.
591 China's response to question No. 195.
592 China's response to question No. 46(b).

7.861 We next turn to analyse the restrictive impact of the state-ownership requirement. Regarding
the restrictive impact on imports, we note China's argument that the number of titles of newspapers
and publications imported into China has gone up be tween 2002 and 2006. In our view, this does not
necessarily indicate that the requirement in question has not had any trade-restrictive effects. The
statistics do not indicate what might have been had no state-ownership requirement been imposed,
although they do seem to confirm that the requirement is compatible with an increase in imports.
China further contends, although without elaborati on, that the fact that only wholly state-owned
entities may import reading materials does not, in itself, adversely affect imports.
593 To us, it is not
self-evident, however, that denying foreign producers of reading materials the opportunity to enter the
Chinese market through privately owned importers of their choice, including ones in which they
might have invested themselves, has no impact on imports.
7.862 Regarding the restrictive impact on those wishing to engage in importing, we observe that the
state-ownership requirement completely denies the ri ght to import to enterprises in China that are not
wholly state-owned, including foreign-i nvested enterprises. In other words, it a priori excludes such
enterprises from the right to engage in importing the relevant products.
7.863 Based on the above examination of the relevant factors, we can now come to a conclusion
whether, overall, the requirement that publica tion import entities must be wholly state-owned
enterprises is "necessary" within the meaning of Article XX(a). In weighing and balancing the
relevant factors, we note, first of all, that th e protection of public morals is a highly important
governmental interest and that China has adopted a high level of protection of public morals within its
territory. This said, as explained above, we have not been persuaded that the requirement in question
makes a material contribution to the protection of public morals. Also, while it is unclear from the
evidence on record to what extent, if any, the re quirement in question limits imports of relevant
products, it is clear that it completely excludes partic ular types of enterprise in China from the right to
engage in importing. Weighing these factors, we reach the conclusion that China has not
demonstrated that the requirement in question is "necessary" to protect public morals in China.
Exclusions relating to foreign-invested enterprises
7.864 We now turn to consider the above-mentioned provisions of the Catalogue, the Several
Opinions and the Audiovisual (Sub-)Distribution Rule , which exclude foreign-invested enterprises.
We begin our analysis by considering whether th ese provisions make a contribution to the protection
of public morals in China.
7.865 As we have explained earlier, we find it plausi ble that these provisions are intended to reflect
the fact that other measures stipulate that only w holly state-owned enterprises are permitted to import
the relevant products. As we have also explained, however, China has not convinced us that requiring
publication import entities to be wholly state-owned contributes to the protection of public morals in
China because they are the only ente rprises in China that are able, or should be expected, to bear the
cost associated with content revi ew. The same holds true for electronic publication import entities
and finished audiovisual product import entities.
594 By necessary implication, then, we are also not
persuaded that Articles X.2 and X.3 of the Catalogue, in conjunction with Articles 3 and 4 of the
Foreign Investment Regulation ; Article 4 of the Several Opinions ; or Article 21 of the Audiovisual
(Sub-)Distribution Rule contribute to the protection of public morals in China by excluding foreign-
invested enterprises from being approved or designated import entities.

593 China's response to question No. 186.
594 In fact, China's argument is even less convincing for these types of entities since they do not make
final content review decisions.

7.866 The next factor to be addressed is the restri ctive impact of the provisions in question.
Regarding the restrictive impact on imports, we not e China's argument that the number of titles of
newspapers, publications and audi ovisual products imported into China has gone up between 2002
and 2006. In our view, this does not necessarily i ndicate that the "exclusion" provisions do not have
any trade-restrictive effects. Although the sta tistics seem to confirm that imports have increased
despite these exclusions, they do not indicate what might have been if the relevant exclusions had not
been imposed. For example, it is not evident to us that denying foreign producers of relevant products
the opportunity to use importers of their choice, such as foreign-invest ed enterprises in China
(including ones in which they might have invested themselves), or to act as their own importers, has
no impact on imports.
7.867 Regarding the restrictive impact on those wishing to engage in importing, we observe that the
"exclusion" provisions completely deny the right to import to foreign-invested enterprises in China.
In other words, they a priori exclude such enterprises from the ri ght to engage in importing relevant
products.
7.868 Based on the above examination of the relevant factors, we must now come to a conclusion
whether, overall, Articles X.2 and X.3 of the Catalogue, in conjunction with Articles 3 and 4 of the
Foreign Investment Regulation ; Article 4 of the Several Opinions; and Article 21 of the Audiovisual
(Sub-)Distribution Rule are "necessary" within the meaning of Article XX(a). In weighing and
balancing the relevant factors, we first recall the fact that the prot ection of public morals is a highly
important governmental interest and that China has adopted a high level of protection of public morals
within its territory. We must take account, in additi on, of the fact that we are not persuaded that these
requirements, which exclude foreign-invested ente rprises, contribute to the protection of public
morals; that it is unclear to what extent, if any, they limit overall imports of relevant products; and
that they completely exclude particular types of enterprise in China from the right to engage in
importing. Considering that it is not apparent to us that the requirements in question make a
contribution to protecting public morals and that they completely deny the right to import to relevant
enterprises in China, they cannot, in our view, be ch aracterized as "necessary" restrictions of the right
to trade, even though the protection of public morals is a highly important interest and their restrictive
impact on trade may seem limited. We therefore conclude that China has not demonstrated that
Articles X.2 and X.3 of the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation; Article 4 of the Several Opinions ; or Article 21 of the Audiovisual (Sub-)Distribution
Rule are "necessary" to protect public morals in China.
Analysis of alternatives proposed by the United States
7.869 The Panel has found above that, absent reasonably av ailable alternatives, Article 42 of the
Publications Regulation is "necessary", in part, within the meaning of Article XX(a). More
specifically, the Panel has found that two of the approval criteria set forth in Article 42 – the condition
concerning suitable organization and qualified personnel as well as th e condition concerning the State
plan for the number, structure and distribution of import entities – can be characterized as
"necessary". The Panel recalls in this respect the A ppellate Body's statement that if a panel reaches
the preliminary conclusion that a challenged measure is necessary, this result must be confirmed by
comparing the measure with possible alternatives, wh ich may be less trade restrictive while providing
an equivalent contribution to the achievement of th e objective. The Appellate Body also stated that
this comparison should be carried out in the light of the importance of the interests or values at stake.
7.870 Relevant Appellate Body jurisprudence on Artic le XIV(a) of the GATS further indicates that
it is up to the complaining party to raise WTO-cons istent alternatives. Specifically, the Appellate
Body observed that:

"If … the complaining party raises a WTO-consistent 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, w hy the proposed alternative is not, in fact,
'reasonably available'. If a responding part y demonstrates that the alternative is not
'reasonably available', in the light of th e interests or values being pursued and the
party's desired level of protection, it follo ws that the challenged measure must be
'necessary' within the terms of Article XIV(a) of the GATS."
595
7.871 In Brazil – Retreaded Tyres, the Appellate Body further stated that:
"If the complaining Member has put forw ard a possible alternative measure, the
responding Member may seek to show that the proposed measure does not allow it to
achieve the level of protection it has cho sen and, therefore, is not a genuine
alternative. The responding Member may al so seek to demonstrate that the proposed
alternative is not, in fact, 'reasonably availa ble'. As the Appellate Body indicated in
US – Gambling , '[a]n alternative measure may be found not to be 'reasonably
available' ... where it is merely theoreti cal in nature, for instance, where the
responding Member is not capable of taking it, or where the measure imposes an
undue burden on that Member, such as prohibitive costs or substantial technical
difficulties.' If the responding Member dem onstrates that the measure proposed by
the complaining Member is not a genuine a lternative or is not 'reasonably available',
taking into account the interests or values being pursued and the responding
Member's desired level of protection, it follows that the measure at issue is
necessary."
596
7.872 With the Appellate Body's guidance in mind, we now proceed to examine the United States'
contention that there are WTO-consistent alternatives reasonably available to China.
7.873 The United States argues that China has numerous WTO- consistent alternatives to achieve
its content review objectives that do not restrict the right to import. The United States submits that
content review can be conducted be fore, during or after importation by any number of entities, with
no need to give China's state-owned enterprises a monopoly on importing. The United States points
out that China's "in-house" content review re gime for domestic producers offers a fully WTO-
consistent alternative to China's measures. In the United States' view, the existence of this regime by
itself demonstrates that China's measures are not necessary.
7.874 The United States considers that foreign-inv ested and privately held enterprises could,
themselves, conduct the content review of the pro ducts they import, by training or hiring content
review experts. The United States notes that su ch enterprises could follow the approach currently
taken by the CNPIEC and conduct the content review prior to engaging in the importation process.
The United States considers that the importing ente rprise could likewise perform that review during
the time that importation is under way or once th e importation is complete, but before the good is
released into commerce into China.
7.875 Alternatively, the United States proposes that the Chinese Government could conduct the
review of products imported by foreign-invested a nd privately held importers. Or, the United States
submits, foreign-invested and privately held impor ters in China could hire domestic Chinese entities
with the appropriate expertise to perform the nece ssary review. Such entities could, in the United
States' view, conduct the content review before, during or after importation. The United States

595 Appellate Body Report on US – Gambling, para. 311.
596 Appellate Body Report on Brazil – Retreaded Tyres, para. 156 (footnotes omitted).

observes that in all cases, content review would o ccur before the product enters the stream of
commerce in China.
7.876 China responds that what the United States has pr oposed are no more than mere suggestions
or speculations rather than "reasonably availabl e" alternative measures. In China's view, no WTO-
consistent alternatives are reasonably available beca use there is no evidence th at such alternatives
would allow China to guarantee the level of prot ection it seeks. China argues that the level of
protection of public morals China seeks to en force cannot accommodate dissociation between the
importation business and the performance of the conten t review. China contends that having different
entities to conduct importation and content review would have a significant negative effect on the
efficiency of both the content review and the im portation, resulting in unacceptable delays in the
importation process.
7.877 China further argues that the content review must be carried out at the importation stage,
before any cultural product is imported into Chin a's territory. China considers that any proposed
alternative under which the content review would be carried out after im portation cannot meet the
level of protection required to prevent any disse mination of imported cultural goods with prohibited
content.
7.878 Regarding the proposal that foreign-invested and privately held enterprises in China could
conduct the content review, China argues that follo wing the United States' proposal would mean that
an unlimited number of foreign-invested entities could hire or develop different levels of expertise
depending on the type of cultural product imported. China submits, however, that the right to import
cannot be granted to each applicant, as it would be impossible for the Chinese Government to review
and control the capacity of each importer registered in China to conduct the content review. China
considers that making an unlimited number of entities subject to such review and control would lead
to an unbearable administrative burden and costs for the Chinese authorities. Ch ina further notes that
there would be considerable concern that the cont ent review would not be performed in a harmonized
manner that would allow China to guarantee an adequate level of protection.
7.879 With regard to the proposal that Chinese comp anies could be hired to perform the content
review, China argues that this does not appear to be a practicable solution. China considers that
having a different entity to conduct the importation and the content review respectively would result
in undue delays in trade and/or lowering the effici ency and effectiveness of the content review. China
recalls that conducting the content review is a ssociated with significan t responsibility and severe
punishment in case of violation. China observes in this respect that it is not aware of any entity
capable of conducting the content review which would be willing to be hired to perform content
review on behalf of other entities.
7.880 Furthermore, China submits that foreign indi viduals and foreign enterprises (exporters or
publishers) not in China could not carry out the content review. China argues that the burden of
examining and supervising the huge number of foreign individuals and entities would cause
unacceptable costs and substantial technical difficulti es. China further points out that its laws and
regulations do not have the required extraterrito rial jurisdiction to enfo rce compliance with the
content review requirements in a way which can be examined by the Chinese authorities. China notes
that because foreign entities are not registered in China according to China's laws and regulations,
they cannot be held liable for any failure to pr event cultural goods with prohibited content to be
imported into China. In addition, China submit s that foreign entities may not fully understand the
concept of public morals as understood by China sin ce the content of this concept is specific to each
WTO Member.
7.881 In China's view, in addition to being imprac ticable, the alternatives proposed by the United
States would present an increased risk of the c ontent review not being performed in a manner

allowing the achievement of the high level of prot ection sought by China, i.e., a complete ban on any
prohibited content. For China, it follows that th e United States' proposals are merely theoretical and
cannot, therefore, be viewed as "reasonably available" alternatives to the current Chinese measures.
7.882 The United States disagrees that content review cannot be disassociated from importation,
arguing that China's own system de-links these unrel ated activities. The United States points out that
the CNPIEC, which is among the largest Chinese whol ly state-owned importers of reading materials
in China, reviews the content of reading mate rials independently from, and in advance of,
importation. The United States further argues th at the GAPP reviews the catalogues of reading
materials submitted by importers prior to impor tation and may prevent the importation of any
products with prohibited content. The United St ates also points out that the Chinese Government
itself reviews the content of all foreign films before any such film is permitted to be imported into
China. In the United States' view, this effectively demonstrates that achieving China's desired level of
enforcement – i.e., preventing the dissemination of products with prohibited content into China – does
not require content review to occur in association with importation activities. The United States also
contends that the Chinese Government, not the st ate-owned importer, undertakes final content review
for audiovisual products, and that for reading materi als, the state-owned importers take part in the
content review process, but the Chinese Government plays the central role.
7.883 The United States further argues that China's con cerns regarding cost of content review are
addressed under the US proposals. The United States submits that two of the US proposals – either
having the foreign importers and privately held im porters in China conduct content review after
obtaining the necessary expertise, or having these importers hire domestic entities with the
appropriate expertise to conduct c ontent review – would require minimal additional costs. These
proposals essentially involve substituting foreign importers and privately held importers in China into
the roles currently played by the state-owned impor ters. The United States considers that its third
proposal – having the Chinese Government conduct a ll content review – would also require minimal
additional costs, as much of the content review of imported products is already performed by the
Chinese Government, and the Chinese Government is already bearing the costs of these activities.
The United States submits that, if necessary, China c ould also take advantage of provisions already in
its law that authorize charging fees for the review of content.
597
7.884 The United States also rejects China's arguments regarding alleged problems associated with
the examination and supervision of reviewers. In the United States' view, the content review system
applicable to domestic products demonstrates Ch ina's ability and willingness to oversee hundreds of
domestic content review entities. The United States notes that, e.g. in 2007, there were 363 domestic
audiovisual publishers licensed in China and author ized to conduct content review of their products
"in-house".598 Similarly, according to the United States, in 2007, there were 806 domestic book and
electronic publication publishers in China conducting "in-house" review.599 The United States further
argues that a system in which government officials review the content of products imported by foreign
importers and privately held importers would im pose no additional structural burden, because these
reviewers are already in place and are being examined and supervised in the context of the content
review of imported products.

597 The United States refers to Article 44 of the Publications Regulation.
598 The United States refers to "Bulletin of Statistics", General Administration of Press and Publication
webpage, available at: http://www .gapp.gov.cn/cms/cms/website/zhrmghgxwcbzsww/layout3/xxml33.jsp?
channelId=1392&siteId=21&infoId=459130.
599 The United States refers to "Bulletin of Statistics", General Administration of Press and Publication
webpage, available at: http://www .gapp.gov.cn/cms/cms/website/zhrmghgxwcbzsww/layout3/xxml33.jsp?
channelId=1392&siteId=21&infoId=459130.

7.885 Finally, the United States considers that Chin a's objections regarding its alleged inability to
assert jurisdiction under the US proposals are also unavailing. The United States notes that under the
US proposals in which the Chinese Government or enterprises in China are conducting content
review, China's ability to assert jurisdiction is clear . Regarding China's assertion that no entity would
be willing to conduct content re view on behalf of other entities because the responsibility and
penalties involved are too great, the United States s ubmits that this ignores China's own arguments
that state-owned enterprises are the only entities capable of reviewing products manufactured by other
producers.
7.886 The Panel notes that the United States has proposed several alternatives that it considers
would be reasonably available to China. There is no need to examine each of the alternatives put
forward by the United States, provided that the Panel is satisfied that at least one of them constitutes a
genuine alternative and is reasona bly available, taking into account the interest being pursued and
China's desired level of protection.
7.887 We begin our analysis with the US proposal that the Chinese Government could conduct the
review of relevant products imported into China. We understa nd that under this proposal the Chinese
Government could make final content review deci sions before they are cleared through customs,
which China says is important to prevent prohi bited content from being disseminated in China.600 We
also understand that this proposal would involve no r estriction of the right to import, and thus there
would be no need for selecting importers, in that im porters would neither make preliminary nor final
content review decisions.
7.888 We first consider the contribution made by the US proposal to the realization of the objective
pursued by China, i.e., the protection of public mora ls in China. More specifically, we consider
whether a requirement that relevant products mu st be submitted to the Chinese Government for
content review before they may be imported into China would make an equivalent contribution to the
one made by the relevant provisions. In this respect, it is clear to us that such a requirement would
make a material contribution to the protection of pub lic morals in China. By requiring that products
to be imported must be submitted to the Chinese Go vernment for review, and specifically to qualified
governmental content reviewers, China could have adequate confidence that the content review is
carried out in accordance with the applicable rules. The Government could also easily ensure the
consistent application of the rules on content re view. Thus, if the Chinese Government had sole
responsibility for content review, this would, in ou r view, ensure that no products with prohibited
content are imported into China. It is therefore not apparent that this particular US proposal would
not allow China to achieve its desired level of protec tion of public morals. In other words, we are not
convinced that the US proposal does not constitute a "genuine alternative", in the sense that it is an
alternative which China could not reasonably be ex pected to employ, taking into account China's
desired level of protection.
7.889 Another factor we must consider is the restrictive impact of the US proposal. We begin by
considering the restrictive impact on imports. In response to a question from the Panel, China stated
that requiring the government to be solely r esponsible for conducting the content review may
adversely affect the efficiency of the content review and trade flows. China points in this respect to
the large quantities of reading materials imported into China, the time constraints for newspapers and
periodicals and the numerous customs entry points through which reading materials are being
imported.601
7.890 In considering China's response, we note, first of all, that China appears to assume that the
Chinese Government would conduct the content review in one central location. It is arguable,

600 China's responses to question Nos. 188(a) and 189.
601 China's response to question No. 195.

however, that the Government could also maintain offices with qualified content reviewers in a large
number of customs areas and close to the entry points. In this way, it could achieve a geographical
coverage comparable to that which China curren tly seeks to achieve through its State plans for the
number and distribution of publication import entiti es. In the absence of any indication to the
contrary, we see no reason to reject this possibility from the outset.
7.891 Furthermore, even if there were important reas ons for the content review of relevant products
to be done in one central location, it is not clear to us that implementing the US proposal would
inevitably result in additional delays. Time-sensitiv e publications to be imported, such as newspapers
and periodicals, could be submitted electronically to the Government for content review. We
recognize that we are concerned with imports of hard copies and that, theoretically, the electronic
version submitted for content review could differ fr om the hard copy to be imported. China has
explained, however, that publication import en tities conduct content review "based upon samples and
other information" of the books, ne wspapers and periodicals to be im ported and that their content is
"double checked" when they reach customs.
602 In the light of this, we do not see why the content of
time-sensitive publications could not, likewise, be "double checked" when they reach customs,
including by comparing the hard copies with the electronic copies submitted to China's Government
for content review. We are therefore not persuade d that if content review were conducted in one
central location this would inevitably result in additi onal delays. It should, moreover, be noted that
unlike the provisions at issue, the US proposal would not result in any restriction of the right to
import. It would thus not produce any of the adve rse effects on imports which the restriction of the
right to trade would produce.
7.892 In respect of electronic publications and audi ovisual products, China has explained that under
its current system samples are brought into Ch ina under temporary importation procedures. The
samples are submitted to the competent authorities fo r content review. The authorities then either
approve importation of the product or not. Importers are to present the approval documents to the
customs authorities at the time of importation.
603 It does not appear to us that the US proposal, if
implemented, would result in more serious delays than China's current measures.
7.893 Regarding the restrictive impact of the US proposal on those wishing to engage in importing,
we have already stated that the proposal would invo lve no restriction of the right to import relevant
products. The US proposal would therefore have no restrictive impact on those wishing to engage in
importing the relevant products.
7.894 Having made an initial assessment of the US pr oposal in its own right, we must now compare
it with the "criteria" provision which we have foun d to be "necessary" in part. Specifically, we found
that two approval criteria set forth in Article 42 of the Publications Regulation to be prima facie
"necessary" (the organization and personnel criterion a nd the State plan criterion). We first recall our
view that the US proposal would allow China to ach ieve its desired high leve l of protection of public
morals. Furthermore, as explained, making the Chinese Government solely responsible for the review
of the content of the relevant products would, in our view, make a material contribution to the
protection of public morals in China. We have pr eviously determined that the relevant two approval
criteria likewise make, or are apt to make, a materi al contribution to the realization of the same
objective. It is clear, therefore, that implementing the US proposal would make a contribution that is
at least equivalent to that of the provision at issue.
7.895 With regard to the restrictive impact on imports, we are not persuaded based on the
information before us that implementing the US proposal would necessarily produce more delays in
the importation of reading materials than application of the two approval criteria at issue. In relation

602 China's response to question No. 191.
603 Ibid.

to the two criteria, we recall that it is unclear to what extent, if any, their application limits overall
imports of relevant products by restricting the right to import to certain importers. The US proposal
would not result in any restriction of the right to import and thus would not produce any adverse trade
effects resulting therefrom.
7.896 As far as the restrictive impact on those wishing to engage in importing is concerned, we have
pointed out that the US proposal would have no restrictive impact on those wishing to engage in
importing the relevant products. The two a pproval criteria provisions do not result in a priori
exclusions, but nonetheless have a restrictive impact on certain enterprises who would wish to engage
in importing.
7.897 It can thus be said that the US proposal woul d be significantly less restrictive than the two
approval criteria in terms of its impact on those wishing to engage in importing. In terms of its impact
on imports, the information on the record does not suggest to us that the US proposal is likely to have
a more serious adverse effect than the criteria at issue.
7.898 It emerges from the above considerations th at implementing the US proposal would make a
contribution that is at least equivalent to that of the relevant two approval criteria. At the same time,
the US proposal would have a significantly less restrictive impact on importers – in fact, it would
have no such impact – without there being any indication that it would necessarily have a more
restrictive impact on imports of relevant products than the approval criteria at issue.
7.899 This result of our comparison of the US proposal with the two approval criteria set forth in
Article 42 must be considered in the light of the im portance of the interest at stake. We therefore
recall once more that the protection of public mora ls is a highly important governmental interest.
Even taking account of the importance of public mora ls as a governmental interest, however, we note
that the result of our comparison is quite clear. Th e situation facing us is not one where the proposed
alternative has a less restrictive impact but also makes a less significant contribution to the realization
of the relevant objective. In such a hypothetical situation, consideration of the importance of the
interest at stake could incline us toward the view that the proposed alternative would not be adequate.
The situation facing us in the present case is one wh ere the proposed alternative makes an equivalent
or better contribution to the realization of the objec tive of protecting public morals and does not just
have a marginally less restrictive impact, but a si gnificantly less restrictive impact, specifically on
those who wish to engage in importing. In this situ ation, the mere fact that public morals are a highly
important governmental interest is not sufficient, in our view, to justify the two approval criteria at
issue.
7.900 In the light of this, we consider that the US proposal that the Chinese Government be given
the sole responsibility for the conduct of the content review is an alternative which would support the
conclusion that the approval criteria at issue are not, in fact, "necessary" within the meaning of
Article XX(a), provided this alternative is "reasonably available" to China. Before reaching a final
conclusion, therefore, we must examine whether this condition is met.
7.901 In examining whether the alternative proposed by the United States is "reasonably available"
to China, we first note that there is no concern th at the Chinese Government might not be capable of
taking the alternative measure, such that the measure would merely be a theoretical possibility. As
China itself has confirmed, the Chinese Government already makes the final content review decision
in respect of electronic publications, audiovisual products and films for theatrical release. 604 China
has not asserted that its Government would lack th e capacity to make content review decisions with
regard to books, newspapers or periodicals. In fact, the Publications Regulation already provides that

604 China's responses to question Nos. 191 and 196.

China's Government can conduct a review of books, ne wspapers or periodicals at its own initiative or
at the request of a publication import entity.
605
7.902 China appears to consider that implementing the US proposal would impose an undue burden
on it. China has asserted that its administrative authorities are not in a position, due to limited
resources, to carry out a comprehensive and thorou gh content review by themselves without creating
undue delays. China has pointed out that the content review of books, newspapers or periodicals to be
imported would demand substantial resources considering the large quantities of imports involved and
the time-sensitive nature of reading materials like newspapers and periodicals.606
7.903 We recognize that implementing the US proposal might make it necessary for China to
allocate additional human and financial resources to the authorities tasked with performing content
review. At least this would seem a possible conse quence for the content review of books, newspapers
or periodicals for which publication import entiti es are currently making final content review
decisions.
7.904 It is worth recalling in this context that only wholly state- owned enterprises are currently
allowed to import relevant products. China argues in this respect that th ese enterprises can be
required to bear the cost of performing the content review because the State owns all equity. China
states that it is not in a position to require private investors to bear this cost. 607 Thus, it is currently
the Chinese Government which has to finance the content review activities of the import entities that
make preliminary or final content review decisions. To that extent, it is not apparent to us that the
cost to the Chinese Government would be any high er if the US proposal were implemented. To
recall, the main difference would be that content review would be conducted, not by incorporated
wholly state-owned enterprises, but by non-incorporated offices comprising the Government of China.
7.905 In any event, we note that China has not provided any data or estimate that would suggest that
the cost to the Chinese Government would be unr easonably high or even pr ohibitive. Moreover,
when we asked China whether it coul d charge fees for the content review for all relevant products if
the Chinese Government were to perform the conten t review, China merely stated that allowing the
Government to perform the content re view was not only a matter of money. 608 This response appears
to suggest that China could, in principle, charge fees whenever it reviews th e content of a product to
be imported. In fact, as also pointed out by the United States, Article 44 of the Publications
Regulation already provides that when a publication import entity requests the competent authority to
review the content of a product to be imported because the entity is unable to determine whether the
content is prohibited or not, the competent author ity may charge fees in accordance with standards
approved by China's State Council.
7.906 Based on the foregoing, we consider that Chin a has not demonstrated that the alternative
proposed by the United States would impose on Ch ina an undue burden, whether financial or
otherwise. As explained, it would appear that China could in any event lessen any burden by charging
appropriate fees.
7.907 Accordingly, we consider that China has not demonstrated that the alternative proposed by
the United States is not "reasonably av ailable" to it. We also note in this connection that China has
not argued that the alternative proposed by the Un ited States would be WTO-inconsistent. We see no
reason to believe that the alternative in question would be inherently WTO-inconsistent or that it
could not be implemented by China in a WTO-consistent manner.

605 China's response to question No. 196.
606 China's response to question No. 185.
607 China's responses to question Nos. 46(a) and 188(b).
608 China's response to question No. 195.

7.908 We can now come to an overall conclusion rega rding the alternative proposed by the United
States under which the Chinese Government would be given the sole responsibility for the conduct of
the content review. We conclude that China h as not demonstrated that, the proposed alternative
notwithstanding, the relevant two approval criteria set forth in Ar ticle 42 are "necessary" because the
proposed alternative is not a genuine alternative or is not "reasonably available".
7.909 Having thus found that there exists at least one alternative in relation to which China has not
demonstrated the "necessity" of the approval criteria at issue, we need not, and therefore do not,
proceed to an analysis of the other alternatives pr oposed by the United States. We merely note that
the United States has also proposed an alternativ e which would not require the Chinese Government
to conduct the content review. Under that altern ative, approved Chinese entities with the necessary
expertise could perform the content review, at the request of importers of relevant products and before
the products are allowed to be imported into Chin a. Such domestic entities could be state- or
privately-owned. China has said that it is not aware of any Chinese entity which would be willing to
be hired to perform content reviews at the request of importers. China recalls in this respect that it
enforces its content review standa rds through external dissuasive sanctions. China has not explained,
however, why such entities could not charge fees fo r their services that would adequately compensate
for the risk of being sanctioned and for other potential liabilities they might face.
Conclusion
7.910 As we have now completed all of the analyti cal steps involved in a "necessity" analysis, we
are in a position to conclude this part of our examination of China's Article XX(a) defence.
7.911 We have found that none of the provisions of Ch ina's measures which we have determined to
be inconsistent with China's trading rights commi tments under the Accession Protocol is "necessary"
within the meaning of Article XX(a). In respect of these provisions, China has either not made a
prima facie case that they are "necessary", or Chin a has not demonstrated that an alternative put
forward by the United States is not a genuine alternative or is not reasonably available to China, in the
light of the interest being pursued and China's desired level of protection.
(ii) Compliance with the requirements of the chapeau of Article XX
7.912 The Panel recalls its conclusion above that China has not established th at the measures at
issue are "necessary" within the meaning of Article XX(a) to protect public morals. In the light of this
conclusion, there is no need to go on to exam ine whether the relevant measures satisfy the
requirements of the chapeau of Article XX, as Chin a claims. Even if these measures satisfied the
requirements of the chapeau, they would not be ju stified under Article XX. As a result, the Panel
refrains from making additional findings based on the provisions of the chapeau of Article XX.
(d) Conclusion
7.913 Having regard to the Panel's finding that none of the relevant measures has been demonstrated
to be "necessary" within the meaning of Ar ticle XX(a) to protect public morals, the Panel comes to
the overall conclusion that these measures are not justified under the provisions of Article XX(a).
7.914
In view of our conclusion that China has in any event not established that the measures at
issue satisfy the requirements of Article XX(a), we need not, and hence do not, revert to the issue
whether Article XX(a) is in fact applicable as a di rect defence to breaches of China's trading rights
commitments. We thus take no position on this issue.

3. Overall conclusions
7.915 The Panel recalls that for the purposes of its analysis of whether the relevant Chinese
restrictions of the right to trade are covered by Ch ina's "right to regulate trade" in a WTO-consistent
manner, the Panel has assumed that these restrictions of the right to trade are incidental to regulation
of the relevant products. Since we have found that the relevant restrictions have not been established
to be consistent with Article XX( a), and, hence, the WTO Agreement, we need not go on to examine
whether the restrictions in question are, in fact, inci dental to regulation of the relevant products. It is
clear already at this stage in the analysis that China has not established its asserted defence.
7.916 The Panel further recalls that, in view of Chin a's defence based on its right to regulate trade
and Article XX(a), the Panel has described as tent ative its previous findings that the measures
governing reading materials and finished audiovisual products are inconsistent with China's trading
rights commitments under the Accession Protocol. As the Panel has not been persuaded of the merits
of China's defence, the Panel can now confirm its earlier conclusions.
7.917 Thus, the Panel's earlier findings of inconsis tency in respect of the measures governing
reading materials and finished audiovisual produ cts should be considered to constitute final
conclusions in the same way as the Panel's fi ndings of inconsistency in respect of the Film Regulation
and the Film Enterprise Rule , as well as the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule (insofar as they concern audiovisual products intended for
publication). The Panel recalls that a detailed summ ary of the conclusions of the Panel – which are
now final conclusions in their entirety – is provided above, at paragraph 7.706, and so there is no need
to set out these conclusions again.
D. C
LAIMS UNDER THE GATS
7.918 The Panel notes that the United States has ma de claims under the General Agreement on
Trade in Services (GATS) with respect to the dist ribution of reading materials, audiovisual home
entertainment (AVHE) products and sound recordings. Its claims focus on violations of China's
national treatment commitments (Article XVII), but extend also to violations of China's market access
commitments (Article XVI). The claims concer n exclusively the distribution within China by
foreign-invested enterprises presen t in China – that is, they concern supply of distribution services
through "commercial presence" in China of these entities.
7.919 China's GATS commitments on national treatme nt and market access, which were negotiated
with other WTO Members prior to its accession in December 2001, are inscribed in its Schedule and
attached to the GATS.
7.920 The Panel notes that WTO Members, including China, employ a uniform format for their
services schedules. Each schedule consists of four columns. The heading of each column reads:
(i) sectors or sub-sectors; (ii) limitations on market access; (iii) limitations on national treatment;
and (iv) additional commitments. In the second and third columns, inscriptions are made for each of
the four modes of supply: cross-border, consump tion abroad, commercial pr esence, and presence of
natural persons, and may be take n in three forms: "Unbound", "None " and specified limitations, to
indicate no, full and partial commitments. As part of the schedule format, there is a separate section
at the beginning of a schedule where a Member may inscribe market access and national treatment
limitations that apply to all scheduled sectors, unless otherwise specified. Inscriptions in this section
are called "horizontal commitments".
7.921 This schedule structure gives each WTO Member flexibility in defining the precise scope of
its commitments. Having chosen on which service sectors it wishes to commit, a Member may
specify the exact extent to which these commitments are to apply by indicating full market access and

national treatment, or partial or no commitment with respect to the four modes of supply. As stated,
this case involves only the supply of distribution services through "commercial presence", also known
as "mode 3". In the case of making partial commitment, a Member may inscribe limitations in one of
the two columns: either under "limitations on ma rket access" or under "limitations on national
treatment". If a limitation affects both market access and national treatment then, by a convention set
out in Article XX:2 of the GATS (avoiding the need to repeat an inscription), it is to be inscribed only
in the market access column.
7.922 We recognize that GATS schedules are an integral part of the GATS
609, and are thus legally
part of the WTO Agreement. Consistent with Artic le 3.2 of the DSU, we interpret commitments in
schedules according to the "customary rules of in terpretation of public in ternational law" which
include Articles 31 and 32 of the Vienna Convent ion. For services commitments, this has been
confirmed by the Appellate Body in US – Gambling, which stated that
"[T]he task of identifying the meaning of a concession in a GATS Schedule, like the
task of interpreting any other treaty text, involves identifying the common intention of
Members. … we consider that the meaning of the United States' GATS Schedule
must be determined according to the rules c odified in Article 31 and, to the extent
appropriate, Article 32 of the Vienna Convention."610
7.923 Apart from the WTO Agreement and its constituen t parts, various instruments have been
recognized in previous dispute settlement cases as having potential value in assisting the interpretation
of GATS schedules. These instruments include the 1991 United Nations Provisional Central Product
Classification (hereafter "CPC") and the GATT Secretariat document "Services Sectoral
Classification List" (MTN.GNS/W/120, hereafter "W/120"), both of which deal with the classification
of services. The Appellate Body has identifie d document W/120 and the 1993 Guidelines for the
Scheduling of Specific Commitments under the GA TS (hereafter the "1993 Scheduling Guidelines"),
which are not binding on WTO Members, as suppl ementary means of interpretation within the
meaning of Article 32 of the Vienna Convention.611
7.924 We turn now to a detailed examination of the US claims with respect to the distribution of
reading materials, AVHE products and sound recordings.
1. Distribution of reading materials: claims under Article XVII of the GATS
7.925 The United States requests the Panel to find that specified Chinese measures affecting the
distribution of "reading materials" (which it de fines as consisting of books , newspapers, periodicals
and electronic publications) are inconsistent w ith China's national treat ment commitments under
Article XVII of the GATS. According to th e United States, these measures impose on foreign-
invested enterprises that are service suppliers in China:
(a) A prohibition on the distribution of imported reading materials;
(b) A prohibition on the so-called master distribution of reading materials (except
electronic publications);
(c) A prohibition on the so-called master wholesale and wholesale of electronic
publications; and

609 Article XX:3 of the GATS provides: "Schedules of specific commitments shall be annexed to this
Agreement and shall form an integral part thereof."
610 Appellate Body Report on US – Gambling, para. 160.
611 Appellate Body Report on US – Gambling, para. 196.

(d) Discriminatory requirements for the so-called sub-distribution of domestically
published reading materials (except electronic publications).
7.926 The United States claims that these measures a ffect the supply through commercial presence
of "Wholesale Trade Services", as well as "Retailing Se rvices" with respect to master distribution,
listed in Sector 4 of China's Services Schedule.
7.927 For the purposes of these US claims, the parties agree that the term "electronic publications"
refers to products as defined in relevant Chinese legislation.
612 This definition covers edited photo,
text, audio and video information saved as digita l codes on media such as CDs, DVDs, and IC cards,
but does not include what the United States refers to as AVHE products and sound recordings.
7.928 As indicated in Section II, a number of transl ation issues have arisen during the course of the
proceedings. Some of these relate to the GATS claims on the distribution of reading materials. In
particular, the parties disagree on the translation of the terms Fa Xing, Zong Fa Xing, and Zong Pi Fa
in the relevant Chinese measures. China argues that each of th ese terms reflects a unique Chinese
concept and cannot be translated into English. The United States holds that the terms should be
translated, respectively, as "distribution", "master distribution " and "master wholesale ".
7.929 The Panel notes that the independent translator has provided views, at our request, on the
translation of the terms at issue. With respect to Fa Xing , the independent translator indicates that
there "would not seem to be any reason why 'distr ibution' should not be deemed an acceptable
translation", "nor would there seem to be any comp elling reason for leaving the term in Chinese". In
the case of Zong Pi Fa , the independent translator notes that "there would seem to be no cogent
reason not to translate" this term. The translator agrees with the use of "wholesale" but, instead of
"master wholesale", considers that "wide-ranging whol esale" or "large-scale wholesale" would be the
best translation. With regard to Zong Fa Xing, the independent translator notes that the expression is
composed of word elements found in the other two terms, namely Fa Xing and Zong Pi Fa .
Accordingly, the translator sees "large-scale distribution" as the best translation for Zong Fa Xing.
7.930 The Panel sees no reason to disagree overall with the translations provided by the independent
translator in these matters. As regards the terms Zong Fa Xing and Zong Pi Fa, however, we note that
the independent translator chooses the terms "large -scale distribution" and "large-scale wholesale"
over the terms suggested by the United States, namely "master distribution" and "master wholesale".
Despite this indication by the independent translator , we prefer to use the terms suggested by the
United States. Our considerations for doing so ar e several. First, the difference in wording between
the versions of the United States and the independent translator's translations ("master" vs. "large-
scale") is minor, and so has little substantive effect on the Panel's analysis of the relevant claims.
Second, what matters for our legal analysis is whether the activities involved qualify as wholesale or
retail services as claimed, not how they are named. Third, we note further that the issue of the "scale"
was not a concept raised or argued by the parties. These considerations lead us to prefer, in English,
to qualify the distribution and wholesale activities at issue by use of the term "master", rather than
"large-scale". We shall also use, when necessary, the phonetic symbols of the original Chinese terms.
7.931 In addition, the parties also disagree on the translation of the term Fen Xiao in the relevant
Chinese measures. While the United States submits th at it should be translated as "sub-distribution",
China argues that "distribution" is a more accura te translation. We note that the independent
translator indicates that the term Fen Xiao could be translated as either "distribution" or "retail sale".
We also note in the relevant Chinese measures that Fen Xiao is encompassed by Fa Xing
 and defined
as consisting of wholesale and retail. The parties do not dispute this. Again, what matters for our
legal analysis are the service activities involved, not so much how they are named. In addressing the

612 1997 Electronic Publications Regulation, Article 2 (Exhibit US-15).

measures which use the term Fen Xiao, we therefore will specify the relevant activity or activities
(e.g. "wholesale", "retail", or "wholesale and retail") in our assessment. We shall also use, when
necessary, the phonetic symbols of the original Chin ese terms. With respect to the titles of certain
measures which contain the term Fen Xiao , we will use, for the sake of convenience, the term
"(sub-)distribution".
7.932 We now turn to our assessment of the US clai ms under the GATS with respect to reading
materials. The first three of these claims concern prohibitions on the supply of the service by foreign-
invested enterprises. We will ex amine these claims first, and will then consider the US claim
concerning discriminatory requirements imposed on foreign-invested enterprises.
(a) Prohibitions on foreign-invested enterprises
7.933 With respect to the distributio n of reading materials, the Un ited States makes three claims
concerning the prohibitions on the supply of this type of services by foreign-invested enterprises, each
concerning a specific category of distribution services and reading materials. We deal with these in
turn.
(i) Prohibition on the wholesale of imported reading materials
7.934 The United States notes that Article 3 of the Imported Publications Subscription Rule
distinguishes between two categories of distribution of imported reading materials: the "limited
distribution category" and the "non-limited distri bution category". The United States also notes that
Article 3 requires all imported newspapers and periodicals, as well as imported books and electronic
publications in the "limited distribution category" to be distributed "under subscription to
subscribers", and imported books and electronic publications in the "non-limited distribution
category" to be distributed "by sales through the market".
7.935 The United States notes that pursuant to Article 4 of the Imported Publications Subscription
Rule, only certain GAPP-designated publication impor ters are permitted to distribute imported
newspapers and periodicals as we ll as imported books and electroni c publications in the "limited
distribution category". The United States argues that as Article 42 of the Publications Regulation
provides that only wholly Chinese state-owned ente rprises are permitted to import reading materials,
the effect of Article 4 of the Imported Publications Subscription Rule is to reserve the distribution of
imported newspapers and periodicals as well as imported books and electronic publications in the
"limited distribution category" to Chinese wholly state-owned enterprises. The United States further
argues that as it excludes foreign-invested enterprises from distributing (including wholesaling and
retailing) these imported reading materials in China, Article 4 of the Imported Publications
Subscription Rule affects wholesale trade services in a manner inconsistent with Article XVII of the
GATS.
7.936 With respect to imported books and electronic publications in the "non-limited distribution
category", the United States notes that Article 39 of the Publications Regulation states that GAPP is
responsible for promulgating measures governing foreign-invested enterprises engaging in the
distribution of books, newspapers, and periodicals. The United States notes that Article 16 of the
Publications Market Rule specifies that the Publications (Sub-)Distribution Rule governs foreign-
invested enterprises seeking to engage in the distri bution of books, newspapers and periodicals. The
United States also notes that Article 2 of the Publications (Sub-)Distribution Rule limits foreign-
invested enterprises to the distribution of books, ne wspapers and periodicals published in China. The
United States contends that as China has prom ulgated no additional m easures granting foreign-
invested enterprises the right to engage in the distribution of reading materials, the Publications
(Sub-)Distribution Rule, particularly Article 2, prohibits foreign-invested enterprises from engaging in
the wholesaling of imported books and electronic publications in the "non-limited distribution

category" by limiting the distribution activities of fo reign-invested enterprises exclusively to the
distribution of books, newspapers and periodicals that are published in China.
7.937 The United States submits that China has insc ribed no conditions or qualifications on its
national treatment commitments with respect to the wholesaling of reading materials, through
commercial presence, in its GATS Schedule. The te rms, limitations, conditions, and qualifications
scheduled in China's horizontal commitments do not , according to the United States, cover Chinese
measures that prohibit foreign-invested enterprises from engaging in wholesaling of imported reading
materials.
7.938 The United States also submits that the measur es at issue affect the wholesaling of reading
materials through commercial presence within the meaning of Article XVII of the GATS because they
directly regulate the wholesale distribution of reading materials in China.
7.939 The United States argues that because these measu res distinguish between foreign-invested
wholesalers and wholly Chinese-owned wholesalers solely based on origin, foreign-invested
wholesalers and wholly Chinese-owned wholesalers ar e "like service suppliers" for the purpose of
Article XVII of the GATS.
7.940 The United States further argues that foreign- invested wholesalers receive less favourable
treatment than that accorded to domestic wholesaler s, since foreign-invested wholesalers do not have
the right to wholesale imported reading materials. The United States maintains that since this
prohibition is not justified by any of the terms, li mitations, conditions or qu alifications on market
access or national treatment inscribed by China in its Services Schedule, the measures that maintain
this prohibition are therefore inconsistent with China's obligations under Article XVII of the GATS.
7.941 China does not present specific argumentation rebutting the US claim.
7.942 In the absence of specific arguments by China rebutting the US claim, the Panel needs to
consider only whether the United States has made a prima facie case of the inconsistency of the
measures at issue with Article XVII of the GATS. For this purpose, we will examine first whether
China has made commitments on national treatment under the GATS with respect to the wholesale of
imported reading materials supplied through comme rcial presence. We will then assess whether the
measures identified by the United States are inconsistent with any such commitments.
Whether China has undertaken national treatment commitments with respect to the wholesale
of imported reading materials through commercial presence (mode 3)
7.943 We begin by looking at the national treatment provision in Article XVII of the GATS, which
states:
"1. In the sectors inscribed in its Schedule , and subject to any conditions and
qualifications set out therein, each Member shall accord to services and service
suppliers of any other Member , in respect of all measures affecting the supply of
services, treatment no less favourable than that it accords to its own like services and
service suppliers."
2. A Member may meet the requirement of paragraph 1 by according to services
and service suppliers of any other Member, either formally identical treatment or
formally different treatment to that it accords to its own like services and service
suppliers.

3. Formally identical or formally differe nt treatment shall be considered to be
less favourable if it modifies the conditions of competition in favour of services or
service suppliers of the Member compared to like services or service suppliers of any
other Member." (emphasis added)
7.944 The wording of Article XVII indicates that we need to determine: whether the services at
issue, i.e. the wholesale services supplied thr ough commercial presence, are inscribed in China's
Schedule; the extent of China's national treat ment commitments, including any conditions or
qualifications, with respect to these services entered in its Schedule; whether the measures at issue
affect the supply of these services; and whether these measures accord less favourable treatment to
service suppliers of other Members, in comparison with like domestic suppliers.
7.945 We first determine whether China has in fact "inscribed in its Schedule" the wholesale
services supplied through commercial presence. The relevant part of China's Services Schedule,
relating to commitments currently in force, reads as follows:
Sector or
sub-sector
Limitations on
Market Access
Limitations on
National treatment
Additional
Commitments
4. DISTRIBUTION
SERVICES
(as defined in Annex 2)

B. Wholesale Trade
Services
(excluding salt, tobacco)

(3) None, within
three years after
accession, except
for chemical
fertilizers,
processed oil and
crude oil within
five years after
accession

(3) None

Foreign-invested
enterprises are
permitted to distribute
their products
manufactured in
China, including the
products listed in the
market access or
sector or sub-sector
column, and provide
subordinate services
as defined in Annex 2.

Foreign service
suppliers are permitted
to provide the full
range of related
subordinate services,
including after sales
services, as defined in
Annex 2, for the
products they
distribute.
 (Footnote omitted, emphasis added, the notation "(3)" indicates that the commitment relates to
commercial presence)

7.946 Examining the initial, sectoral column of China' s Schedule, we note that it contains a section
entitled "4. Distribution Services", under which is inscribed a section entitled "B. Wholesale Trade
Services (excluding salt and tobacco)". This entry indicates that China has indeed undertaken specific

commitments covering wholesale services, subject to any "conditions and qualifications" that may be
set out in its Schedule.
7.947 We must now determine whether the commitm ent listed in China's Schedule as "Wholesale
Trade Services" covers the wholesale services at issu e in this claim. We note that "Wholesale Trade
Services" appears in China's Schedule as part of S ector 4 "Distribution Services". Under the heading
of Sector 4 is a reference to Annex 2 of China' s Schedule which defines "Distribution Services".
Annex 2 states that distribution services "are genera lly covered by CPC 61, 62, 63, and 8929". We
note that the CPC is frequently referenced by Members in drawing up their Schedules. The CPC
categories which China refers to cover the whole range of services involving the distribution of goods,
including CPC 62262 on "wholesale trade services of books, magazines, newspapers and stationary".
7.948 Reinforcing this specific mention of CPC sector s covering the distribution of goods, Annex 2
also specifies that "the principal services" in each subsector of distribution services – including
wholesaling – is "reselling merchandise ". Wholesaling in Annex 2 is defined further as "the sale of
goods/merchandise to retailers to industrial, commerc ial, institutional, or other professional business
users, or to other wholesalers and related subordina ted services." We note as well that China's
commitments on wholesaling are intended to cover the wholesale of all goods, and therefore reading
materials, regardless of whether they are of impor ted or domestic origin, since the exceptions listed
include only "salt and tobacco". We note finally that China does not contest the US assertion that its
entry under Sector 4.B. "Wholesale Trade Services" c overs the services at issue in this claim. We
conclude therefore that China's Schedule covers the wholesale of reading materials, including all
imported reading materials.
7.949 Having determined that the services identified by the United States – wholesale of imported
reading materials supplied through commercial presen ce – are within a sector that is covered by
China's commitments, we proceed to the next step. That is to determine whether, under the terms of
Article XVII, China has inscribed any "conditions and qualifications" to its national treatment
commitments with respect to the services identified by the US in this claim.
7.950 As noted above, a Member may limit the extent to which it grants market access or national
treatment for the services listed in its Schedule, by inscribing the "conditions and qualifications"
(which we refer to more simply as "limitations") mentioned in Article XVII either under "limitations
on market access" or under "limitations on national tr eatment". A Member's obligations on market
access and/or national treatment are determined with re ference to any such limitations inscribed in its
schedule. Therefore, to determine the extent of China's national treatment commitments with respect
to the services at issue, we need to examine China's Schedule to see whether, with respect to supply
through commercial presence, there are any lim itations inscribed (a) beside "Wholesale Trade
Services", in the national treatment column or (b) in the national treatment column of the horizontal
section of China's Schedule, as those limitations inscribed in the horizontal section apply to all the
sectors in the Schedule unless otherwise specified. In both cases, we must also examine the market
access column, as whenever a limitation affects both market access and national treatment, it is to be
inscribed only in the market access column, in accordance with Article XX:2 of the GATS.
7.951 We now examine China's Schedule to determine the extent of commitments with respect to
the service and mode of supply at issue. We st art with the column entitled "Limitations on national
treatment" and examine the entries with respect to wholesale trade services supplied through mode 3
(commercial presence). We note that China has inscribed "None", meaning "no limitations" on
national treatment. We then look at the "Limitati ons on market access" column of China's Schedule
with respect to the same service and mode of supply. Here, Ch ina has entered a series of limitations
with respect to certain products. Each of these limitations, however, expressly specifies a date of
expiry within, at most, five years from the date of China's accession to the WTO. As China entered
the WTO on 11 December 2001, all limitations on market access limitations thus expired by

11 December 2006. The only entry in the colu mn on "Limitations on market access" in China's
Schedule for the service sector and mode of supply at issue that currently remains in force is therefore
"None" – that is, "no limitations" on market access. Apart from what may be contained in its
"horizontal" section, which we examine next, China's Schedule therefore indicates that at present, for
the supply of wholesale trade services through comme rcial presence for reading materials, China has
undertaken full market access and national treatment commitments.
7.952 We proceed to examine the "horizontal" section of China's Schedule. The relevant part,
relating to limitations with respect to the suppl y of services through commercial presence, reads as
follows:
Sector or
sub-sector
Limitations on
Market Access
Limitations on
National treatment
I. HORIZONTAL
COMMITMENTS
 ALL SECTORS
INCLUDED IN
THIS SCHEDULE

(3) In China, foreign invested enterprises include
foreign capital enterprises (also referred to as wholly
foreign-owned enterprises) and joint venture
enterprises and there are two types of joint venture
enterprises: equity joint ventures and contractual joint
ventures.
1
 The proportion of foreign investment in an
equity joint venture shall be no less than 25 per cent
of the registered capital of the joint venture.
 The establishment of branches by foreign
enterprises is unbound, unless otherwise indicated in
specific sub-sectors, as the laws and regulations on
branches of foreign enterprises are under formulation.
 Representative offices of foreign enterprises
are permitted to be established in China, but they shall
not engage in any profit-making activities except for
the representative offices under CPC 861, 862, 863,
865 in the sectoral specific commitments.
 The conditions of ownership, operation and
scope of activities, as set out in the respective
contractual or shareholder agreement or in a licence
establishing or authorizing the operation or supply of
services by an existing foreign service supplier, will
not be made more restrictive than they exist as of the
date of China's accession to the WTO.
 The land in the People's Republic of China is
State-owned. Use of land by enterprises and
individuals is subject to the following maximum term
limitations:
(a) 70 years for residential purposes;
(b) 50 years for industrial purposes;
(c) 50 years for the purpose of education,
science, culture, public health and physical education;
(d) 40 years for commercial, tourist and
recreational purposes;
(e) 50 years for comprehensive utilization or
other purposes.

(3) Unbound for all the
existing subsidies to
domestic services suppliers
in the sectors of audio-visual,
aviation and medical
services.
 1 The terms of the contract, concluded in accordance with China's laws, regulations and other measures,
establishing a "contractual joint venture" govern matters such as the manner of operation and management of
the joint venture as well as the investment or other contributions of the joint venture parties. Equity participation

by all parties to the contractual joint venture is not re quired, but is determined pursuant to the joint venture
contract.

7.953 Under the heading "All Sectors Included in this Schedule", China has inscribed several
limitations on the supply of services through comme rcial presence, relating to national treatment and
market access. In the "Limitations on nationa l treatment" column, China has entered a single
limitation, relating to subsidies to domestic suppliers in audiovisual, aviation and medical services,
but not, however, with respect to wholesale trade services. In the "Limitations on market access"
column, China has inscribed several limitations that are applicab le to the supply of wholesale trade
services. Apart from that relating to land use, these market access limitations are expressed as giving
formally different treatment to foreign service s uppliers, and thus under Artic le XX:2 also constitute
limitations on national treatment in terms of Article XVII of the GATS.
7.954 In sum, with respect to wholesale trade services supplied through commercial presence, China
has listed no limitations in the national treatment co lumn of its Schedule. This national treatment
commitment is only subject to the limitations listed in the market access column of China's Schedule,
which were examined earlier. These limitations, cont ained in the horizontal part of China's Schedule,
cover the legal forms and manner of doing business of a foreign wholesaler. They do not however
restrict the types of materials that the foreign wh olesaler is entitled to distribute. China has thus
undertaken a national treatment commitment with r espect to the wholesale of reading materials,
including imported reading materials.
7.955 Having determined the scope and extent of Ch ina's national treatment commitments, we are
now in a position to examine whether China, with respect to the measures challenged by the United
States, "accord[s] to services and service suppliers of any other Member, in respect of all measures
affecting the supply of services, treatment no less favourable than that it accords to its own like
services and services suppliers", in terms of Article XVII:1 of the GATS.
Whether the measures at issue are inconsistent with China's national treatment commitments
under Article XVII of the GATS
7.956 The Panel now examines whether the measures clai med by the United States to prohibit the
wholesale of imported reading materials by foreign-i nvested enterprises are inc onsistent with China's
national treatment commitments under Article XVII of the GATS. For this purpose, in accordance
with Article XVII, we next need to determine wh ether the measures at issue affect the relevant
services and whether these measure s accord less favourable treatment to service suppliers of other
Members, in comparison to like domestic suppliers.
7.957 We note that the US claim concerns two types of imported reading materials, each distributed
through its own channel. First, a subscripti on channel covers reading materials subject to
subscription, including all imported newspapers and periodicals, as well as imported books and
electronic publications in the "limited distribution cat egory". Second, a "market sale" channel covers
reading materials subject to sales through the market, namely imported books and electronic
publications in the "non-limited distribution cate gory". We will group the measures at issue under
two headings, depending on which distribution channel they concern.
Measures prohibiting foreign-invested enterprises from wholesaling imported reading
materials that are required to be distributed through subscription ( imported
newspapers and periodicals, and certain imported books and electronic publications)
7.958 The United States claims that China prohibits foreign-invested enterprises from wholesaling
all imported newspapers and periodicals, and imported books and electronic publications in the
"limited distribution category", pursuant to Article 42 of the Publications Regulation and Article 4 of

the Imported Publications Subscription Rule . The United States maintains that Article 42 of the
Publications Regulation provides that only Chinese wholly state-owned enterprises are permitted to
import reading materials of any kind, and that Article 4 of the Imported Publications Subscription
Rule then grants an approved sub-set of these who lly state-owned enterprises the exclusive right to
distribute these particular reading materials through subscription. The United States notes that China
has defined "distribution" to include wholesale and retail services. The United States thus asserts that
foreign-invested enterprises are prohibited from engaging in the wholesale distribution of the
imported reading materials subject to subscription and receive less favourable treatment than that
accorded to like domestic wholesalers.
7.959 The Panel notes that Article 3 of the Imported Publications Subscription Rule defines the
reading materials which are subject to subscription:
"The state manages the distribution of imported publications by categories. In regard
to imported newspapers and periodi cals, and imported books and electronic
publications in the limited distribution category, they shall be distributed under
subscription to subscribers, and supplied by categories."
7.960 Article 4 of the Imported Publications Subscription Rule provides that subscriptions for
reading materials in the limited distribution cate gory must be handled by a "publication import
entity":
"Subscriptions placed by subscribers for imported books and electronic publications
in the limited distribution category shall be handled by publication import entities
designated by the Administration of Press and Publication in compliance with their
approved scope of business."
7.961 Finally, Article 42 of the Publications Regulation provides that a "publication import entity"
must be a wholly state-owned enterprise:
"In order to establish a publication import entity, the applicant shall meet the
following conditions:

(2) be a wholly state-owned enterprise and have a sponsoring entity under a superior
agency recognized by the publication administration under the State Council."
7.962 Reading these measures together, the Panel observes, consistently with the US view, that: (i)
subscription is the only distribution channel availa ble to imported newspape rs and periodicals and
imported books and electronic publications in the limite d distribution category; (ii) foreign-invested
enterprises in China are excluded from distributing these imported reading materials because only
designated publication import entities which are w holly Chinese state-owned are permitted to handle
the subscription. We note that China does not contest this interpretation.
7.963 Since the service activity referred to in th ese measures is subscription, we must first
determine whether China's commitments on "Wholesal e Trade Services" (Sector 4.B.) cover this
activity in order to determine the consistency of these measures with Article XVII of the GATS. We
then need to determine whether these measures affect the supply of the services at issue in a manner
which accords "less favourable treatment" with respect to like service suppliers of other Members.
7.964 Turning to China's Schedule, we recall our findi ng in paragraph 7.946 that China has listed in
its Schedule wholesale trade services. Annex 2 of China's Schedule defines distribution and its

component services, indicating that the core characteristic of distribution services (including
wholesaling) is "reselling merchandise". Wholesaling is specifically defined in Annex 2 as "the sale
of goods/merchandise to retailers to industrial, commercial, institutional, or other professional
business users , or to other wholesalers and related subordinated services" (emphasis added).
613 I n
examining the language of the definition, we w ould understand the term "professional business users"
to refer to either entities or individuals. We also note that Annex 2 defines retail services as "the sale
of goods/merchandise for personal or household cons umption either from a fixed location (e.g. store,
kiosk, etc) or away from a fixed location and related subordinated services". It appears that wholesale
as defined in Annex 2 covers not only the sale to in stitutional users, but also the sale to individuals
who are professional business users.
7.965 We further note that the term "subscription" mentioned in the Imported Publications
Subscription Rule refers to the subscription placed by sub scribers with publication import entities for
imported publications to satisfy the reading need s of entities or individuals. This shows that
subscribers can be entities or individuals and that the subscription is made through publication import
entities. However, the measure does not specifically de fine the term "subscription". We note that the
dictionary meaning of "subscription", in the context of book trade, refers to "a method of bringing out
a book, by which the publisher or author undertakes to supply copies of the book at a certain rate to
those who agree to take copies before publication".
614 This definition shows that subscription is a
common form of selling publications, i.e. selling based on a specific order. Since the measure at issue
does not specifically define the term "subscription", it appears that the common meaning of this term
is applicable here.
7.966 We note the explanation given by the GAPP official with respect to the Imported Publications
Subscription Rule , in evidence submitted by the United States. 615 According to the GAPP official,
subscription is a way to distribute those imported pub lications that are not allowed to enter the retail
market, including imported newspapers and periodicals and imported books and electronic
publications in the limited distribution category. The GAPP official further explained that this
subscription system:
"[I]s to ensure that the distribution and sales of imported publications, after they are
imported [into China], are all controlled by the state-owned Publication Import
Operation Entities, and thus to prevent ot her companies, domestic or foreign, from
meddling in this business." 616
7.967 This statement supports the understanding that under the measure at issue, the designated
publication import entities sell publications they import to those particular consumers, i.e. subscribers,
who have made a specific order. This service activ ity at issue, i.e. subscription, thus involves
reselling and consumers therein can be either entities or individuals. We also note that China does not
contest the evidence advanced by the United States under this claim.
7.968 Therefore, to the extent that subscribers are en tities, i.e. commercial, industrial or institutional
users, or other professional business users, includi ng individuals whose purchase of reading materials

613 We note that the definition of "wholesaling" in Annex 2 of China's Schedule appears to be
inadvertently missing a comma after the word "retailers". The definition should read: "… retailers, to industrial
…" and not "... retailers to industrial ...". Since the definition of retailing se rvices limits this activity to the sale
of goods/merchandise "for personal or household consumption" the omission of a comma after "retailers" in the
phrase "retailers to industrial, commercial or professional business users" would lead to an absurd result. China
acknowledges in its response to Panel question No. 101 that a wholesaler may sell directly to certain end-users.
614 Oxford English DictionaryOnline, available at http://dictionary.oed.com./entrance.dtl
615 Answers to the Media Inquiry by the Person in Charge of the GAPP Over the Implementation of
Imported Publications Subscription Rule (Exhibit US-31).
616 Ibid.

is not for personal or household consumption, th e distribution of reading materials through this
"subscription" model falls within the meaning of wholesale trade services, since in terms of China's
definition in Annex 2, it involves "reselling" of merchandise to " industrial, commercial, institutional,
or other professional business users". In this respect, we reca ll the principle enunciated by the
Appellate Body in US – Gambling , whereby a commitment in a service sector applies to all services
within that sector, including subsectors, unless otherwise specified.617
7.969 We therefore conclude that China's commitm ent on "Wholesale Trade Services" (Sector 4.B
in China's Schedule) covers the sub scription activity referred to in the Imported Publications
Subscription Rule , to the extent that subscribers are "indus trial, commercial, institutional, or other
professional business users".
7.970 With respect to whether the measures at issue "a ffecting" the supply of the services at issue,
we recall that the Appellate Body in EC – Bananas III opined:
"[T]he term of 'affecting' reflects the intent of the drafters to give a broad reach of the
GATS. The ordinary meaning of the word "affecting" implies a measure that has "an
effect on", which indicates a broad scope of application. This interpretation is further
reinforced by the conclusions of previous panels that the term 'affecting' in the context
of Article III of the GATT is wider in scope than such terms as 'regulating' or
'governing'."
 618
7.971 We note that it is not in dispute that the measu res at issue regulate or govern the distribution
of imported reading materials. Since the term "aff ecting" is wider in scope than "regulating" or
"governing", we therefore consider that these measur es are "affecting" the supply of reading materials
distribution services for the purpose of Article XVII.
7.972 We next examine the US argument that th ese measures accord to foreign-invested
wholesalers treatment less favourable than that accorded to domestic wholesalers in the sense of
Article XVII. For this purpose, we need to determine whether, under these measures, foreign-
invested enterprises prohibited from engaging in the wholesale the imported reading materials at issue
are "like" Chinese enterprises permitted to engage in the supply of this service.
7.973 Our first step must be to determine whether foreign-invested enterprises prohibited under the
measures at issue from establishing as wholesalers are "service suppliers of another Member" within
the meaning of Article XVII. Applying the releva nt definitions set out in Article XXVIII of the
GATS, we observe that a service supplier of another Member, supplying a service through
commercial presence, can be any entity "owned" or "controlled" by persons of another Member.
619

617 Appellate Body Report on US – Gambling, para. 180.
618 Appellate Body Report on EC – Bananas III, para. 220.
619 Article XXVIII(g) of the GATS defines "service su pplier" as "any person that supplies a service".
"Person" is defined as "either a natural person or a juridical person" in Article XXVIII(j). Article XXVIII(m)
defines "juridical person of another Member" as "(i) constituted or otherwise organized under the law of that
other Member, and is engaged in substantive business operations in the territory of that Member or any other
Member; or (ii) in the case of supply of a service through commercial presence, owned or controlled by: 1.
natural persons of that Member; or 2. juridical persons of that other Member identified under subparagraph (i)".
Article XXVIII(l) of the GATS prov ides: "'juridical person' means any legal entity duly constituted or
otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership,
joint venture, sole proprietorship or association." Artic le XXVIII(n) further provides that a juridical person is:
"(i) 'owned' by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by
persons of that Member; (ii) 'controlled' by persons of a Member is such persons have the power to name a
majority of its directors or otherwise to legally direct its actions; (iii) 'affiliated' with another person when it

We note that China has indicated in the horizontal commitments of its Services Schedule that, with
respect to the supply of a service through commercial presence, there are three permissible forms of
foreign-invested enterprises in China: wholly fo reign-owned enterprises, e quity joint ventures and
contractual joint ventures. In light of the relevant definitions of the GATS, and in the absence of any
contrary evidence before us, we can conclude that th ere are, or can be, foreign-invested enterprises in
China that are owned or controlled by persons of another Member, and thus qualify as "service
suppliers of another Member".
7.974 We also note that Article XVII of the GATS applies to "all measures affecting the supply of
services", which include those measures affecting the establishment of commercial presence by
"service suppliers of another Member". Article XXVIII (d) of the GATS defines "commercial
presence" as "any type of business or profession al establishment, including through: (i) the
constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a
branch or a representative office, within the territo ry of a Member for the purpose of supplying a
service." (emphasis added) Therefore for the purpo se of Article XVII, and depending on the measures
at issue, the term "service suppliers of anot her Member" supplying a service through commercial
presence includes entities that have established a commercial presence in the host Member and/or
entities that seek to establish in the host Member.
7.975 We note that the measures at issue (examined in detail below) are alleged by the United States
to prohibit foreign-invested enterprises from engagi ng in the wholesale of imported reading materials
while permitting wholly Chinese-owned enterprises to engage in the supply of this service, subject to
approval. The measures at issue distinguish between suppliers that may be permitted to engage in the
wholesale of imported reading materials and supplie rs that are prohibited from engaging in this
service, based exclusively on the suppliers' origin. When origin is the only factor on which a measure
bases a difference of treatment between domestic se rvice suppliers and foreign suppliers, the "like
service suppliers" requirement is met, provided there will, or can, be domestic and foreign suppliers
that under the measure are the same in all material respects except for origin. We note that similar
conclusions have been reac hed by previous panels.
620 We observe that in cases where a difference of
treatment is not exclusively linked to the origin of service suppliers, but to other factors, a more
detailed analysis would probably be required to determine whether servi ce suppliers on either side of
the dividing line are, or are not, "like".
7.976 Therefore, to the extent that, under the measur e at issue, a differen ce of treatment between
foreign-invested enterprises that would, if not prohibited, engage in the wholesale of imported reading
materials and wholly Chinese-owned enterprises that are permitted to supply this service is based
exclusively on the origin of servi ce suppliers, the "like" service suppliers requirement in Article XVII
is met, as long as there will, or can, be domestic and foreign suppliers that under the measure are the
same in all material respects except fo r origin. In our view, there is no doubt that under the measure
at issue, there will, or can, be foreign-invest ed enterprises prohibited from engaging in the wholesale
of imported reading materials that are the same in all material respects as wholly Chinese-owned
enterprises permitted to supply this service, except for th eir origin. We also note that the parties do
not dispute the likeness of the service suppliers under the measures at issue. We thus consider that,
for the measure at issue, the "like" service suppliers requirement in Article XVII is met.
7.977 As observed above, under Article 4 of the Imported Publications Subscription Rule and
Article 42 of the Publications Regulation, only wholly Chinese-owned enterprises are permitted to

controls, or is controlled by, that other person; or when it and the other person are both controlled by the same
person".
620 E.g, Panel Report on Canada – Wheat Exports and Grain Imports , paras 6.164-6.167, and Panel
Report on Argentina – Hides and Leather, paras. 11.168-11.169. Although these cases concern trade in goods,
we consider that the same reasoning applies here.

distribute those imported reading materials that are required to be distributed through subscription.
As a result, foreign-invested enterprises are prohi bited from wholesaling these reading materials. We
must now examine whether the formal prohibition on the supply of certain services by a foreign
service supplier that a like domestic supplier may undertake, constitutes "no less favourable"
treatment in terms of Article XVII.
7.978 This treatment is to be assessed in terms of the "conditions of competition" between like
services and services suppliers, as specified in Article XVII:3 of the GATS:
"Formally identical or formally different treatment shall be considered to be less
favourable if it modified the conditions of competition in favour of services or service
suppliers of the Member compared to like services or service suppliers of any other
Member."
7.979 In our view, a measure that prohibits fore ign service suppliers from supplying a range of
services that may, subject to satisfying certain c onditions, be supplied by th e like domestic supplier
cannot constitute treatment "no less favourable", since it deprives the foreign service supplier of any
opportunity to compete with like domestic suppliers. In terms of paragraph 3 of Article XVII, such
treatment modifies conditions of competition in the most radical way, by eliminating all competition
by the foreign service supplier with respect to the service at issue.
7.980 We recall that China's national treatment co mmitments on wholesaling through commercial
presence are only subject to the limitations listed in the market access column of its Schedule. We
note that nothing in China's Schedule appears to justify a measure prohibiting foreign-invested
enterprises, including those that qualify as service suppliers of other Members, from engaging in the
wholesale of imported reading materials.
7.981 The Panel concludes therefore that Article 4 of the Imported Publications Subscription Rule
and Article 42 of the Publications Regulation are together inconsistent with China's national treatment
commitments under Article XVII of the GATS.
Measures prohibiting foreign-invested enterprises from wholesaling imported reading
materials that are distributed by "sales through the market"
 (certain imported books
and electronic publications)
7.982 The Panel turns now to the US claim with respect to imported books and electronic
publications in the "non-limited distribution category" . These reading materials are to be distributed
by "sales through the market", pursuant to Article 3 of the Imported Publications Subscription Rule.
7.983 The United States claims that China also pr ohibits foreign-invested enterprises from
wholesaling imported reading materials that are distributed by sales through the market and thus treats
foreign-invested wholesalers less favourably than wholly Chinese-owned wholesalers. According to
the United States, since the Publications (Sub-)Distribution Rule is the only measure that governs
foreign-invested enterprises seeking to engage in the distribution of books, newspapers and
periodicals in China pursuant to Article 39 of the Publications Regulation and Article 16 of the
Publications Market Rule , the Publications (Sub-)Distribution Rule , particularly Article 2, prohibits
foreign-invested enterprises from engaging in the wholesaling of any imported books, newspapers and
periodicals by limiting the distribution activities of fo reign-invested enterprises exclusively to the
distribution of books, newspapers and periodicals that are published in China.
7.984 We begin our assessment by observing that Article 2 of the Publications (Sub-)Distribution
Rule states:

"This Rule is applicable to foreign-invest ed enterprises inside China engaged in the
distribution of books, newspapers and periodicals.
Books, newspapers and periodicals as men tioned in this Rule refer to books,
newspapers and periodicals published by a publishing entity approved by the
publishing administration under the State Council.
Distribution as mentioned in this Rule refers to the wholesale and retail of books,
newspapers and periodicals."
7.985 We note that, contrary to what the United States claims, Article 2 of the Publications
(Sub-)Distribution Rule does not itself prohibit foreign-invested enterprises from engaging in
wholesaling of any imported books, ne wspapers and periodicals. Rather, Article 2 establishes the
scope of the Publications (Sub-)Distribution Rule . It makes clear that the Rule applies to foreign-
invested enterprises engaging in the distribution of books, newspapers a nd periodicals published in
China. It says nothing about whether foreign-invest ed enterprises may engage in the wholesaling of
imported books, newspapers a nd periodicals. Therefore, we consider that Article 2 cannot, by itself,
give rise to an inconsistency with WTO obligations.
7.986 We note that in accordance with Article 39 of the Publications Regulation, the establishment
of foreign-invested enterprises engaging in the dist ribution of books, newspape rs and periodicals is
permitted. This provision further states:
"The specific measures and procedures for implementation shall be stipulated by the
publication administration under the State C ouncil jointly with its department in
charge of foreign and economic cooperation in compliance with relevant provisions."
7.987 We further note that the Article 16 of the Publications Market Rule , which was drawn up on
the basis of the Publications Regulation, provides:
"To set up a book, newspaper and periodical distribution enterprise, a Chinese-foreign
equity joint venture, contractual joint venture, or a foreign capital enterprise shall
follow the Publication (Sub-)Distribution Rule jointly drawn up by the GAPP and the
Ministry of Foreign Trade and Economic Cooperation".
7.988 The Publications (Sub-)Distribution Rule was issued based on, inter alia , the Publications
Market Rule. The requirements with respect to the estab lishment of foreign-invested enterprises
engaging in the wholesale and retail of reading materials are respectively contained in Articles 7 and 8
of the Publications (Sub-)Distribution Rule.
7.989 We observe the US assertion that no Chinese measures other than the Publications
(Sub-)Distribution Rule authorize foreign-invested enterprises to engage in the distribution of reading
materials. We also note that China does not contest the US assertion and that the evidence on record
does not suggest otherwise.
7.990 The Publications (Sub-)Distribution Rule therefore appears to be the sole regulation
governing the establishment of foreign-invested en terprises engaging in the distribution of reading
materials. Since its application is limited to b ooks, newspapers and period icals published in China,
there is no possibility, in view of Article 16 of the Publications Market Rule , for foreign-invested
wholesalers to engage in the wholesaling of any imported books, newspapers and periodicals. We
note that China does not contest this observation. We also note that in answer to a Panel question,

China confirms that, by virtue of Article 2 of the Publications (Sub-)Distribution Rule , foreign-
invested enterprises are prevented from wholesaling imported reading materials.621
7.991 We note that the United States submits in its first written submission that the distribution of
all imported reading materials is closed to fore ign-invested enterprises but open to like wholly
Chinese-owned competitors. We also note that China does not contest the latter US assertion.
7.992 We note further that Article 8 of the Publications Market Rule sets out the requirements with
respect to the establishment of a wholesaler of re ading materials. Article 16 of the same measure,
cited above, suggests that these requirements only apply to the establishment of a wholly Chinese-
owned wholesaler. Article 2 of this measure indicates that the publications that wholly Chinese-
owned enterprises may wholesale include books, news papers, periodicals and electronic publications,
regardless of whether these publications are domestica lly published or imported. It follows that the
Publications Market Rule permits wholly Chinese-owned enterprises to wholesale imported reading
materials.
7.993 Consequently, for the category of imported read ing materials that is not required to be
distributed through subscription, the Publications (Sub-)Distribution Rule , specifically Article 2, in
conjunction with Article 16 of the Publications Market Rule , has the effect of prohibiting foreign-
invested enterprises from supplying wholesaling services for a category of products that wholly
Chinese-owned enterprises are permitted to supply.
7.994 As noted above, China's national treatment commitment with respect to wholesale trade
services implies a commitment to all services comprised in that sector, including the wholesale of
imported reading materials, with the sole excepti on of the wholesale of salt and tobacco. As well,
foreign-invested enterprises in China qualify as " service suppliers of another Member" as long as the
entity is owned or controlled by persons of another Member. Also, as noted above, when origin is the
only factor on which a measure bases a difference of treatment between domestic and foreign service
suppliers, the "like" service suppliers requirement in Article XVII is met, as long as there will, or can,
be domestic and foreign service suppliers that under the measure are the same in all material respects
except for origin. In our view, there is no doubt that under the measure at issue, there will, or can, be
foreign-invested enterprises prohibited from engagi ng in the wholesale of imported reading materials
that are the same in all material respects as wholly Chinese-owned enterprises permitted to supply this
service, except for their origin. We also note that th e parties do not dispute the likeness of the service
suppliers under the measure at issue. We thus co nsider that, for the measure at issue, the "like"
service suppliers requirement in Article XVII is met.
7.995 For the measures at issue, it is not in dispute that they regulate or govern the distribution of
imported reading materials. We therefore consider that these measures are "affecting" the supply of
the services at issue for the purpose of Article XVII.
7.996 Since the measures at issue have the effect of prohibiting foreign service suppliers from
wholesaling imported reading materials, while lik e Chinese suppliers are permitted to do so, these
measures clearly modifies the conditions of comp etition to the detriment of the foreign service
supplier and thus constitutes "less favourable treatment" in terms of Article XVII.
7.997 We thus conclude that the Publications (Sub-)Distribution Rule , specifically Article 2, in
conjunction with Article 16 of the Publications Market Rule , is inconsistent with China's national
treatment commitments under Article XVII of the GATS

621 China's response to question No. 78.

Conclusion

7.998 The Panel finds that Article 4 of the Imported Publications Subscription Rule and Article 42
of the Publications Regulation are together inconsistent with Ch ina's national treatment commitments
under Article XVII of the GATS as they prohibit foreign-invested enterprises, including service
suppliers of other Members, from engaging in the wholesale of imported reading materials subject to
subscription, while like domestic service suppliers are not similarly prohibited.
7.999 The Panel also finds that the Publications (Sub-)Distribution Rule , specifically Article 2, in
conjunction with Article 16 of the Publications Market Rule , is inconsistent with China's national
treatment commitments under Article XVII of the GA TS as it prohibits foreign-invested enterprises,
including service suppliers of other Members, from engaging in the wholesale of imported reading
materials subject to sales through the market, while like domestic service suppliers are not similarly
prohibited.
(ii) Prohibition on the "master distribution" (Zong Fa Xing) of books, newspapers and
periodicals
7.1000 The United States submits that China prohibits foreign-invested enterprises from engaging in
the master distribution of books, newspapers a nd periodicals through three measures, namely the
Catalogue, the Foreign Investment Regulation and the Several Opinions. The United States alleges
that these measures are discriminatory and inconsis tent with China's national treatment commitments
on wholesale trade services and retailing services supplied through commercial presence in its
Schedule.
7.1001 China rejects the claim on wholesaling, contending that Zong Fa Xing (expressed as "master
distribution" by the United States) of reading materials is not committed under wholesale trade
services (Sector 4.B.) of China's Schedule. While acknowledging that the operation of one type of
Zong Fa Xing entity corresponds to retailing, China does not respond to the US claim on the
inconsistency of the measures at issue with Ch ina's GATS commitments with respect to retail
services.
7.1002 The Panel will examine in turn the US claim with respect to wholesale trade services and
retail services.
Claim with respect to wholesale trade services
7.1003 In addressing the claim with respect to w holesale trade services, we will examine first
whether China's commitments on wholesale trade se rvices cover the master distribution of books,
newspapers and periodical. We will then assess whet her the measures at issue are inconsistent with
China's national treatment obligations under Article XVII of the GATS.
Whether China's commitments on whol esale trade services cover the master
distribution of books, newspapers and periodicals
7.1004 The United States claims that the master distribution of books, newspapers and periodicals is
covered by China's specific commitments with resp ect to wholesale trade services. According to the
United States, master distribution is a form of dist ribution as defined in Annex 2 of China's Schedule.
The United States notes that when master distribution is operated by entities other than publishers, it
involves reselling reading materials purchased from publishers. The United States submits that the
activity of master distribution also encompasses retailing as admitted by China. The United States
argues that if indeed it were China's intention to exclude master distribution from its distribution

services commitments in Sector 4 of its Services Sche dule, it should have done so with a limitation to
that effect.
7.1005 The United States submits that master dist ribution involves services that qualify as
wholesaling as defined in Annex 2 of China's Sche dule, namely the sale of reading materials to
industrial, commercial, institutional and other professional business users.
7.1006 The United States further submits that several Chinese legal instruments and other sources
confirm that master distribution is known as "first-l evel wholesale". The United States notes that this
is the right to organize the distribution of a particular reading material, including the right to designate
which "second-level wholesalers" may distribute the publication in a certain region in China.
According to the United States, the Master Distribution Rule and the Books Market Opinions are two
of the measures that define master distribution as "first-level wholesale", and provide that master
distribution involves the responsibility for the distribution of a particular title or class of books.
7.1007 China argues that there are two different distribution channels for reading materials in China:
Zong Fa Xing (referred to by the United States as "master distribution") and Fen Xiao (referred to by
the United States as "sub-distribution") which both are "autonomous", "top to bottom" channels.
China further argues that its legislation clearly distinguishes the two separate distribution channels,
and the products subject to one channel are not dist ributed in the other. According to China, while
Fen Xiao corresponds to traditional distribution activities, Zong Fa Xing is a separate and unique
concept, corresponding to a separate activity subject to a distinct disci pline. China points out that the
distinction of the two distribution channels alr eady existed in 1999 when China concluded its GATS
accession negotiations.
7.1008 China contends that only wholesale and retail, the two aspects of Fen Xiao, are specified in
China's GATS commitments and that it never intended to include Zong Fa Xing. According to China,
if its commitments included Zong Fa Xing , it would have specified it explicitly in Annex 2 of its
Services Schedule. In its answer to a Panel ques tion, China further argues that Sector 4 of its
Schedule, which is defined in Annex 2 thereof, is not intended to cover all distribution services and
that Zong Fa Xing does not fall within the scope of Annex 2 of its Schedule, but would appear to fall
under Sector 4.E., entitled "Other", of document W/120.
622
7.1009 More specifically, China submits that Zong Fa Xing does not correspond to wholesaling as
defined in Annex 2 of its Services Schedule. According to China, Zong Fa Xing can be operated by
two types of operators, either by the pu blisher for its own publications, or by a Zong Fa Xing entity
commissioned by the publisher. China states that in both cases, Zong Fa Xing is operated by a single
exclusive distributor, which directly sells readi ng materials to end consumers without relying on
intermediaries. "Distribution Trade Services", of which wholesaling is a sub-sector, is defined in
Annex 2 of China's Schedule as "being characterized as reselling merchandise accompanied by a
variety of related subordinated services". China contends that since distribution services as defined in
Annex 2 of China's Schedule, including wholesaling, do not cover the initial sale from the producer to
the first intermediary of the distribution channel, distribution must involve the resale of goods.
According to China, in case s where the publisher operates Zong Fa Xing and sells its own
publications directly to the end-consumer, the activity involved is not a distribution service as defined
in Annex 2 of China's Schedule because it do es not involve reselling; in cases where Zong Fa Xing is
operated by a Zong Fa Xing entity, the operation corresponds to retailing services, since the entity
purchases publications from the publisher and then r esell them to end-consumers without relying on
any intermediary. Therefore, Zong Fa Xing is not covered by China's commitments on wholesale
trade services under Sector 4.B of its Schedule.

622 China's response to question No. 98.

7.1010 With respect to the two legal instruments re ferred to by the United States, which describe
master distribution as "first-level wholesale", China ar gues that this concept is not applicable after the
adoption in 1999 of the Interim Provisions on the Administration of the Publications Market.
7.1011 The Panel recalls at the outset that the parties do not agree on the translation of the Chinese
term Zong Fa Xing, referring to the service activity subject to the claim. The parties do not however
dispute its function as defined in Chinese legislation. In fact, both parties refer to Article 2 of the
Publications Market Rule when defining the term. In our view, the translation of Zong Fa Xing is not
a key issue under this claim, since the parties agr ee that the term refers to the exclusive sale of
publications by a Zong Fa Xing entity in accordance with the Publications Market Rule. As noted at
the beginning of this section, we prefer to use "mast er distribution" to refer to the service activity at
issue. We shall also use the phonetic symbol of th e original Chinese term when necessary. We note
that the main issue under the claim is whether th e master distribution of books, newspapers and
periodicals is covered by China's GATS commitments on wholesale trade services under Sector 4.B
of its Schedule.
7.1012 We have already determined in paragraph 7.948 that the wholesaling of books, newspapers
and periodicals is covered by China's commitments under "Wholesale Trade Services" (Sector 4.B).
We now need to determine whether the master distri bution of such materials falls within the scope of
wholesaling as defined in Annex 2 of China's Schedule.
7.1013 We begin by noting that our interpretation of China's commitment on wholesale trade services
must begin with the ordinary meaning of the words, in their context, contained in that commitment, in
accordance with Article 31 of the Vienna Convention. A first observation is that the term master
distribution, or Zong Fa Xing , does not appear anywhere in Chin a's Schedule. Accordingly, any
distinction drawn in Chinese law between master distribution and other forms of distribution cannot,
contrary to what China argues, be determinative for the interpretation of the scope of China's GATS
commitment. The interpretation of China's commitm ents must be based on the meaning of the words
contained in those commitments.
7.1014 With respect to the wording of China's co mmitments on distribution services, China argues
that if it had meant to make a commitment with resp ect to master distribution it would have inscribed
words to this effect in Annex 2 of its Schedule. We cannot agree with this view. A description of a
service sector in a GATS schedule does not need to enumerate every activity that is included within
the scope of that service, and is not meant to do so. Article XXVIII(e) of the GATS defines "sector"
generally as "the whole of that service sector, incl uding all of its subsectors". A service sector or
subsector in a GATS schedule thus includes not onl y every service activity specifically named within
it, but also any service activity that falls within the scope of the definition of that sector or subsector
referred to in the schedule.
7.1015 Therefore, in our view, the fact that Chin a's Schedule does not mention the term master
distribution does not automatically mean that the ac tivities described by that term are not covered by
its Schedule. In order to determine whether mast er distribution is the subject of commitments in
China's Schedule, we need to examine the main elements of China's wholesale trade services
commitment, and then determine whether these elemen ts include the activities comprised in the term
"master distribution".
7.1016
 We begin by revisiting Annex 2 of China's Schedule, which defines "distribution services"
under Sector 4. Annex 2 provides:
"The principal services rendered in each subsector can be characterized as reselling
merchandise, accompanied by a variety of related subordinated services, including
inventory management; assembly, sorting and grading of bulk lots; breaking bulk lots

and redistributing into smaller lots; deliv ery services; refrigeration, storage,
warehousing and garage services; sales pr omotion, marketing and advertising,
installation and after sales services incl uding maintenance and repair and training
services." (emphasis added)
7.1017 Annex 2 points to the core characteristic of "d istribution services" as defined by China in its
Schedule – reselling merchandise. In addition to characterizing distribution services (which include
wholesale trade services), the definition provides a lengthy and open list of "subordinated" service
activities, which in isolation do not constitute "reselling merchandise" but may represent activities
that are commercially significant for a distributor to undertake in connection with "reselling
merchandise". This open list of subordinated services is similar to the list of services contained in the
CPC Headnote for Section 6 discussed by the Appellate Body in EC – Bananas III. In that case, the
Appellate Body emphasized the importance of servi ces auxiliary to wholesaling, supporting our view
that the range of wholesale trade services inscribed in China's Schedule is broad. The Appellate Body
said:
"[T]he CPC Headnote characterizes the ' principal services' rendered by wholesalers
as 'reselling merchandise'. This means that 'reselling merchandise' is not necessarily
the only service provided by wholesalers. The CPC Headnote also refers to 'a variety
of related, subordinated services' that may accompany the 'principal service' of
'reselling merchandise'. It is difficult to c onceive how a wholesaler could engage in
the 'principal service' of "reselling" a produc t if it could not also purchase or, in some
cases, import the product. Obviously, a wholesaler must obtain the goods by some
means in order to resell them. ..."
623
7.1018 Having examined the notion of "distribution ser vices" in Annex 2 of China's Schedule, we
continue our interpretation of the Annex by exam ining the definition of "wholesaling". Wholesaling
is defined in Annex 2 as "the sale of goods/merchandise to retailers to industrial, commercial,
institutional, or other professional business users , or to other wholesalers and related subordinated
services". (emphasis added) Retailing services, by comparison, are defined as "the sale of
goods/merchandise for personal or household consumption either from a fixed location (e.g., store,
kiosk, etc.) or away from a fixed location and related subordinated services". (emphasis added)
7.1019 Based on the language in Anne x 2, we conclude that the definition of "wholesaling"
applicable to China's Schedule involves "reselling merchandise", but does not require that a
wholesaler sell to an intermediary. Instead, a whol esaler may sell directly to "industrial, commercial,
institutional, or other professional business users", as well as, in the terms of Annex 2, to other
wholesalers and to retailers.
7.1020 With this understanding of the definition of wholesaling in China's Schedule, the Panel is now
in a position to examine the types of activities comprised in master distribution, and to determine
thereby whether these activities are included within China's commitments on wholesale trade services.
7.1021 At the outset, both parties take the view that master distribution by a publisher is not at issue
in the claim with respect to wholesaling. The ar guments of the parties focus on master distribution
involving a "master distribution entity" that purchases material from a publisher for resale.
7.1022 In attempting to show the nature of "master distribution", the United States points to the
Master Distribution Rule and the Books Market Opinions, both issued by the GAPP, China's
competent authority responsible for publication an d distribution of reading materials. They are
designed to provide administrative guidance on th e distribution of books, and both describe master

623 Appellate Body Report on EC – Bananas III, para. 226.

distribution as "first-level wholesale". The Master Distribution Rule is binding on administrative
agencies.
7.1023 China explains that the concept of "first-level wholesale" is not applicable after the adoption
in 1999 of the Interim Provisions on the Administration of the Publications Market . However, China
provides no evidence to support this assertion. Nor does China present to the Panel the text of this
regulation to show that the concept of "first-level wholesale" was abolished. In particular, China does
not demonstrate that the measures cited by the United States have been formally repealed or have no
legal effect. We therefore proceed on the basis that these two measures remain in force, and that their
description of master distribution should be taken into account.
7.1024 We note that Article 2 of the Master Distribution Rule provides that
"[T]he master distribution of books (namely, 'master wholesale' or 'master sales on
commission') refers to such distribution matters: once the printing and production of a
book are completed, the general responsibility in respect of the distribution of that
book is unified to be assumed by an indivi dual publishing or distributing entity, the
latter accordingly organizes the first-level wholesale."
7.1025 This provision suggests that there is a dist ribution process for the books subject to master
distribution. In this process, once a book is produ ced, first, all the copies move from the publisher to
a "master distribution" entity, and then the latter distribute the book further downstream. We note that
China confirms that a "master distribution" entity is not an agent of the publisher, but an exclusive
seller.
624 This implies that a "master distribution" entity purchases books from a publisher for resale.
The notion of "first-level wholesale" implies that there exists, at least, a second-level wholesale.
Otherwise there would be no need for this notion. When a master distribution entity sells books to
other wholesalers, its activity appears to constitute first-level wholesale and the wholesale by other
wholesalers appears to be second-level wholesale. Th e activity of the master distribution entity thus
involves reselling and it falls within the definition of "wholesale" contained in Annex 2 of China's
Schedule.
7.1026 Further, in its reply to a question from the Pa nel, China accepts that a master distribution
entity can sell publications to industrial, commerc ial, institutional, or other professional business
users, as long as they are end users. 625 We therefore find that, when operated by entities other than
publishers, master distribution may involve services that qualify as wholesaling as defined in Annex 2
of China's Schedule – namely the sale of reading ma terials to industrial, commercial, institutional and
other professional business users.
7.1027 Based on the considerations above, the Panel concludes that, when operated by entities other
than publishers, the principal characteristics of master distribution may involve wholesaling within the
meaning of Annex 2 of China's Schedule, because fo r publications subject to master distribution, the
master distribution entity purchases them from publishers and then may sell them either directly to
industrial, commercial, institutional, or other pr ofessional business users, or to other wholesalers or
retailers.
7.1028 Having established that the master distributio n of books, newspapers and periodicals is
covered by China's GATS commitments on wholesale trade services, we must now determine whether
the measures at issue are inconsistent with China' s national treatment commitments in this sector as
claimed by the United States.

624 China's response to question No. 93.
625 China's response to question No. 101.

Whether the measures at issue are inconsistent with China's national treatment
commitments under Article XVII of the GATS
7.1029 The United States alleges that China prohibits foreign-invested enterprises from engaging in
the master distribution of books, newspapers and periodicals in three measures: the Catalogue, the
Foreign Investment Regulation and the Several Opinions. The Catalogue, which is incorporated by
reference into the Foreign Investment Regulation , explicitly states that there can be no foreign
investment in the master distribution of books, newspapers and periodicals. Article 4 of the Several
Opinions prohibits foreign-invested enterprises from e ngaging in the master distribution of reading
materials.
7.1030 The United States submits that these three measures affect the wholesaling of reading
materials supplied through commercial presence with in the meaning of Article XVII because they
directly regulate the wholesale distribution of readin g materials in China. The United States further
argues that because these measures distinguish betw een foreign-invested and wholly Chinese-owned
service suppliers solely based on origin, the forei gn-invested suppliers and wholly Chinese-owned
suppliers are "like" suppliers for the purpose of Article XVII of the GATS.
7.1031 The United States finally argues that by prohib iting foreign-invested wholesalers of reading
material from engaging in these services through comm ercial presence, China has radically modified
the conditions of competition in favour of whol ly Chinese-owned reading material wholesalers.
Consequently, the measures are inconsistent with Article XVII of GATS.
7.1032 China does not provide a specific rebuttal to the US arguments.
7.1033 The Panel notes that, having already examined an d established China's commitments with
respect to the master distribution of books, news papers and periodicals, we must now determine
whether the United States has demonstrated that the measures it challenges – the Catalogue, the
Foreign Investment Regulation , and the Several Opinions – are inconsistent with Article XVII of the
GATS.
7.1034 As noted above in paragragh 7.198, although Ch ina has asked the Panel not to examine the
Several Opinions, we have determined that it is a "measure " taken by another Member which can be
the subject of dispute settlement and we will therefor e proceed with an analysis of the US claim with
respect to that measure as well as the Catalogue and the Foreign Investment Regulation which China
does not argue the Panel should refrain from examining.
7.1035 We begin by looking at the terms of the Foreign Investment Regulation. Article 3 of this
measure provides that the Catalogue is the basis for the examination and approval of foreign-invested
projects and policies applicable to foreign-invest ed enterprises, and Article 4 requires that the
encouraged, restricted and prohibited foreign-invested projects be listed in the Catalogue. Article 3
states in relevant part:
"The Catalogue of Industries for Guiding Foreign Investment and the Catalogue of
Priority Industries Available for Foreign I nvestment in the Mid-West Region are the
basis for the examination and approval of foreign-invested projects and foreign-
invested enterprises policies."
7.1036 Article 4 categorizes foreign-invested projects as follows:
"Foreign-invested projects are divided in to four categories: those encouraged,
permitted, restricted, and prohibited.

The encouraged, restricted and prohibited categories of foreign-invested projects are
listed in the Catalogue of Industries for Guiding Foreign Investment."
7.1037 We note that the Foreign Investment Regulation does not expressly prohibit foreign
investment in the master distribution of books, news papers, and periodicals. As indicated in this
measure, its purpose is to guide the orie ntation of foreign investment in China.
626 While it sets out
those areas where foreign investment is encouraged, restricted, or prohibited, 627 those areas are
generic, only representing the orientation. It incorporates by reference, however, the Catalogue. In
the Catalogue, the specific industries or activities where fo reign investment is prohibited are listed,
including the master distribution of books, newspapers and periodicals.
7.1038 Turning to the Catalogue, we note that it consists of three sub- Catalogues: a Catalogue of
industries encouraged for foreign investment; a Catalogue of industries with restricted foreign
investment; and a Catalogue of prohibited foreign investment industries. Under the heading
"Catalogue of Prohibited Foreign Investment Industries", Article X:2 refers to "Publication, master
distribution, and import operations of books, newspapers and periodicals".
7.1039 When read together, we find that Article X:2 of the Catalogue of Prohibited Foreign
Investment Industries, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation ,
prohibits foreign investment in the master distribution of books, newspapers and periodicals.
7.1040 Finally, turning to the Several Opinions, we note that Article 4 provides that:
"Foreign investors are prohibited from engaging in the publication, master
distribution and import of books, newspapers and periodicals, ..."
7.1041 It is evident that Article 4 of the Several Opinions on its face prohibits foreign investment in
the master distribution of books, newspapers and periodicals.
7.1042 This prohibition is admitted by China which, in answer to a Panel question, accepts that
foreign-owned companies are prevented from a pplying for a licence for master distribution. 628 I n
accordance with Article 2 of the Foreign Investment Regulation , foreign investment refers to the
establishment of Chinese-foreign equity joint vent ures, Chinese-foreign contractual joint ventures,
and foreign-capital enterprises and other forms of foreign-invested enterprise. 629 Therefore, the
prohibition on foreign investment in master distri bution prevents foreign-invested enterprises from
engaging in the supply of master distribution services in China.
7.1043 Since these measures directly regulate the wholes ale of reading materials, they affect the
supply of the relevant services through commercial presence within the meaning of Article XVII.
7.1044 According to the United States, wholly Chinese-ow ned enterprises are permitted to engage in
the master distribution of reading materials. We note that China does not contest the US assertion.
We also note that there is nothing on the record to suggest that wholly Chinese-owned enterprises are
subject to any restrictions. As noted above, there ar e, or can be, foreign-invested enterprises in China
that are owned or controlled by persons of anothe r Member, and thus qualify as "service suppliers of
another Member". Recalling the requirements of Article XVII of the GATS, we now examine

626 Articles 1 and 3 of the Foreign Investment Regulation (Exhibit US-9).
627 Articles 5, 6 and 7 of the Foreign Investment Regulation (Exhibit US-9).
628 China's response to question No. 100.
629 Article 2 of the Foreign Investment Regulation states that the Regulation applies to "investment
projects in China which establish Chinese-foreign equi ty joint ventures, Chinese-foreign contractual joint
ventures, and foreign-capital enterprises and other forms of foreign-invested enterprise projects" (Exhibit US-9).

whether the foreign-invested enterprises prohibite d from supplying "master distribution" services in
China are "like" wholly Chinese-owned enterprises to which no such prohibition applies.
7.1045 We note that the prohibition on foreign investment in master distribution contained in the
measures at issue is solely based on the origin of th e investor. In other words, the distinction between
those who are permitted to supply the "master distribution" services and those who are prohibited
from engaging in the service is made based exclusivel y on the origin of the service supplier. No
criterion other than the origin of the service supplier is indicated in the measures. As noted above, to
the extent that, under the measure at issue, a di fference of treatment between foreign-invested
enterprises that would, if not prohibited, engage in the master distribution of reading materials and
wholly Chinese-owned enterprises that are permitted to supply this service is based exclusively on the
origin of service suppliers, the "like" service supplie rs requirement in Article XVII is met, as long as
there will, or can, be domestic and foreign suppliers that under the measure are the same in all
material respects except for origin. In our view, th ere is no doubt that there will, or can, be foreign-
invested enterprises prohibited from engaging in the master distribution of reading materials that are
the same in all material respects as wholly Chinese-owned enterprises permitted to supply this service,
except for their origin. We also note that th e parties do not dispute the likeness of the service
suppliers under the measures at issue. We thus co nsider that, for the measures at issue, the "like"
service suppliers requirement in Article XVII is met.
7.1046 The Panel must now examine whether, by reason of the prohibition, "less favourable"
treatment is accorded to the foreign service supplier.
7.1047 As noted above, the measures at issue prohibit foreign-invested enterprises, including those
that qualify as service suppliers of other Members, from engaging in the master distribution of reading
materials while like wholly Chinese-owned enterprises are not similarly prohibited. As a result of this
prohibition, service suppliers of other Members have no access whatsoever to the Chinese market for
"master distribution". The Chinese measures thus deprive service suppliers of other Members of any
opportunity to compete with like Chinese service supp liers in supplying master distribution services.
As noted above, we consider that the removal of any opportunity to compete is an extreme form of
"less favourable" treatment within the meaning of Article XVII.
Conclusion
7.1048 We recall our previous findings that the "m aster distribution" of books, newspapers and
periodicals is covered by China's commitments on wholesale trade services, and that China has
undertaken national treatment commitments on these services supplied through commercial presence.
We recall further our finding that none of the limitations on national treatment that China has
inscribed in its Schedule can justify the prohibition on the "master distribution" of books, newspapers
and periodicals by foreign-invested enterprises in Chin a in respect of wholesale. We note that this
prohibition is contained in Article X:2 of the Catalogue of Prohibited Foreign Investment Industries
of the Catalogue which is incorporated by reference in the Foreign Investment Regulation, and
Article 4 of the Several Opinions . The Panel therefore finds that in the cases where master
distribution involves wholesale, Article X:2 of the Catalogue of Prohibited Foreign Investment
Industries of the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation, is inconsistent with China's national tr eatment obligations under Article XVII of the
GATS. The Panel also finds that Article 4 of the Several Opinions is inconsistent with Article XVII.
Claim with respect to retail services
7.1049 The Panel notes that the United States also claims an inconsistency of the measures at issue
with China's national treatment commitments for Retailing Services (Sector 4.C), supplied through
commercial presence, within the meaning of Article XVII of the GATS. While the panel request is

not limited to Sector 4.B (Wholesale Trade Services ), but covers all of China's commitments under
Sector 4, including retailing, the claim with r espect to retailing was brought up only in the United
States' second written submission.
7.1050 We note in this respect the Appellate Body's view, expressed in EC – Bananas III , that
nothing in the DSU or GATT practice suggests that all claims be set out in a complaining party's first
written submission.
630 Thus, a complaining party may, in principle, set out a claim for the first time in
its second written submission. We recall that th e second substantive meeting took place some four
weeks after the parties had presented their second wr itten submissions. Therefore, when the United
States included in its second written submission the cl aim with respect to the inconsistency of the
measures at issue with China's national treatment commitments for Retailing Services (Sector 4.C),
there was still the possibility for China, the defending party, to provide a rebuttal to the US claim. We
note that China has chosen not to do so.
7.1051 We note that the United States has put forward this claim based on a statement by China to
the Panel. In its first written submission, China explains:
"In cases where an entrusted Publication Zong Fa Xing entity operates Zong Fa Xing
of reading materials, it will itself sell th e reading materials to the end-consumer
without relying on further interm ediaries. Such an operation of Zong Fa Xing, in fact
corresponds to retailing services, which have been defined in Annex 2 of China's
Schedule to the GATS as '[...] the sale of goods/merchandise for personal or
household consumption either from a fixed location (e.g. store, kiosk, etc.) or away
from affixed location and related subordinated services.'"631 (emphasis added)
7.1052 Moreover, in response to a question from the Panel, China confirmed that publications subject
to Zong Fa Xing can be sold through the Zong Fa Xing entity's own retail shops.632 In doing so, China
refers to Article 2 of the Publications Market Rule, noting that "Zong Fa Xing is an exclusive sale".633
7.1053 In considering the US claim concerning retailing, we observe that the United States asserts as
a fact that master distribution may also involve re tail services. China has admitted this fact in the
context of the present panel proceedings. As in dicated above, China did so in a formal written
submission to the Panel and subse quently confirmed its statement in a written response to a question
from the Panel. We consider that in these partic ular circumstances the United States need not adduce
further evidence to make out a prima facie case th at master distribution can also involve retail
services.
7.1054 We note that China has made market access and national treatment commitments on retail
services (Sector 4.C.) in its Services Schedule. The relevant part of China' s Schedule, relating to
commitments currently in force on the supply of retail services through commercial presence, reads as
follows:

630 The Appellate Body in EC – Bananas III stated: "There is no requirement in the DSU or in GATT
practice for arguments on all claims relating to the matter referred to the DSB to be set out in a complaining
party's first written submission to the panel. It is the panel's terms of reference, governed by Article 7 of the
DSU, which set out the claims of the complaining partie s relating to the matter referred to the DSB." (Appellate
Body Report on EC – Bananas III, para. 145.)
631 China's first written submission, para. 283.
632 China's response to question No. 104.
633 Ibid.

Sector or
sub-sector
Limitations on
Market Access
Limitations on
National treatment
Additional
Commitments
4. DISTRIBUTION
SERVICES
(as defined in Annex 2)

C. Retailing Services
(excluding tobacco)

(3) Foreign service
suppliers may supply
services only in forms of
joint ventures in five
Special Economic Zones
(Shenzhen, Zhuhai,
Shantou, Xiamen and
Hainan) and six cities
(Beijing, Shanghai,
Tianjin, Guangzhou,
Dalian and Qingdao). In
Beijing and Shanghai, a
total of no more than four
joint venture retailing
enterprises are permitted
respectively. In each of
the other cities, no more
than two joint venture
retailing enterprises will
be permitted. Two joint
venture retailing
enterprises among the
four to be established in
Beijing may set up their
branches in the same city
(i.e. Beijing). ...
None, within three years
after accession, except
for: retailing of chemical
fertilizers, within five
years after accession;
and- those chain
stores which sell products
of different types and
brands from multiple
suppliers with more than
30 outlets. For such
chains stores with more
than 30 outlets, foreign
majority ownership will
not be permitted if those
chain stores distribute
any of the following
products: motor vehicles
(for a period of five years
after accession at which
time the equity limitation
will have been
eliminated), and products
listed above and in

(3) None

Foreign-invested
enterprises are permitted
to distribute their
products manufactured in
China, including the
products listed in the
market access or sector or
sub-sector column, and
provide subordinate
services as defined in
Annex 2.

Foreign service suppliers
are permitted to provide
the full range of related
subordinate services,
including after sales
services, as defined in
Annex 2, for the products
they distribute.

Sector or
sub-sector
Limitations on
Market Access
Limitations on
National treatment
Additional
Commitments
Annex 2a of the Protocol
of China's WTO
Accession. The foreign
chain store operators will
have the freedom of
choice of any partner,
legally established in
China according to
China's laws and
regulations.

7.1055 As we have done in the context of our analysis in paragraphs 7.946 to 7.948 with respect to
China's commitments on wholesaling, we observe that China's commitments on retail services are
intended to cover the retail of all goods (except tobacco which China speci fically excluded), and
therefore including reading materials. Accordingly, to the extent that the master distribution of books,
newspapers and periodicals involves retail services, it is covered by China's commitments on retail
services contained in Sector 4.C. of its Schedule.
7.1056 We now apply the approach used in paragra phs 7.950 to 7.954 to determine the extent of
China's national treatment commitments on retail se rvices. We note that China has inscribed no
limitation (i.e. "none") in the national treatment co lumn for retail services. China's national treatment
commitments on retail services are therefore only subject to relevant limitations listed in the market
access column of its Schedule, in both Sector 4.C. and the horizontal section. We further note that
none of these limitations could justify a total prohibition on the supply of retail services of reading
materials by foreign service suppliers through commercial presence.
7.1057 We recall our previous findings: the measures at issue, namely the Catalogue, the Foreign
Investment Regulation and the Several Opinions are measures affecting the supply of services within
the meaning of Article XVII of the GATS; under these measures, foreign- invested enterprises
(including service suppliers of other Members) pr ohibited from engaging in the services at issue and
wholly Chinese-owned enterprises supplying such services are like service suppliers under
Article XVII of the GATS; and the prohibition on foreign-invested enterprises from supplying master
distribution services constitutes "less favourable treatment" within the meaning of Article XVII.
7.1058 We also recall our previous findings that the prohibition on the "master distribution" of books,
newspapers and periodicals by foreign-invested enterp rises in China is contained in Article X:2 of the
Catalogue of Prohibited Foreign Investment Industries of the Catalogue which is incorporated by
reference in the Foreign Investment Regulation, and in Article 4 of the Several Opinions. The Panel
therefore finds that in the cases where master dist ribution involves retail services, Article X:2 of the
Catalogue of Prohibited Foreign Investment Industries of the Catalogue, in conjunction with
Articles 3 and 4 of the Foreign Investment Regulation, is inconsistent with China's national treatment
commitments under Article XVII of the GATS. The Panel also finds that Article 4 of the Several
Opinions is inconsistent with Article XVII.
(iii) Prohibition on the "master wholesale" (Zong Pi Fa) and wholesale of electronic publications
7.1059 The United States claims that China prohibits forei gn-invested enterprises from engaging in
the master wholesale and wholesale of electronic publications in a manner inconsistent with
Article XVII of the GATS. Under this claim, the United States first challenges the 1997 Electronic
Publications Regulation . The United States submits that Article 62 of the 1997 Electronic
Publications Regulation prohibits foreign-invested enterprises from engaging in the master wholesale

and wholesale of any electronic publications. According to the United States, this is inconsistent with
China's national treatment commitments with resp ect to wholesaling through commercial presence as
inscribed in its Schedule.
7.1060 China argues that Zong Pi Fa ("master wholesale" as expressed by the United States) is
obsolete since the 1997 Electronic Publications Regulation was repealed on 15 April 2008 by a new
legislation, the 2008 Electronic Publications Regulation. According to China, the latter does not refer
to Zong Pi Fa . China takes the view that the US claim with respect to Zong Pi Fa of electronic
publications is irrelevant, since this form of distribution for electronic publications no longer exists.
7.1061 In the same way, China argues th at the US claim with respect to the wholesale of electronic
publications is irrelevant. China concedes that the 1997 Electronic Publications Regulation prohibits
foreign-invested enterprises from engaging in th e wholesale of electronic publications. China
however submits that the current measures, the Publications Market Rule and the Publications
(Sub-)Distribution Rule, which govern the wholesale of electronic publications, do not maintain such
a prohibition. According to China, this is confirmed by the Response of GAPP on Electronic
Publications in 2005 and two GAPP Approval Decisions ta ken respectively in 2006 and 2007, which
authorize foreign-invested enterprises to engage in the wholesale of electronic publications.
7.1062 The United States rejects China's arguments. It contends that the 2008 Electronic
Publications Regulation cited by China does not in fact replace the provisions relevant for this dispute
that are found in the 1997 Electronic Publications Regulation. According to the United States, the
prohibition on the master wholesale and wholesale of electronic publications by foreign-invested
enterprises is unchanged, because the Publications Market Rule and the Publications
(Sub-)Distribution Rule do not provide the right for foreign-invested enterprises to engage in the
master wholesale and wholesale of electronic publications.
7.1063 The United States therefore maintains its request for a finding from the Panel on the
consistency of the 1997 Electronic Publications Regulation with Article XVII of the GATS. In
addition, the United States seeks a finding from the Panel on the consistency of the Publications
(Sub-)Distribution Rule with Article XVII.
7.1064 Before examining the US claim, the Panel needs to address one preliminary matter which
concerns whether there is a need to make a finding on the 1997 Electronic Publications Regulation, as
it has been repealed.
Preliminary matter

7.1065 We recall our previous finding in Section VII.C.1(b)(vi) that despite China's assertion that the
1997 Electronic Publications Regulation no longer has legal effect, a ruling by the Panel on the US
claims could assist in securing a positive solution to the dispute. We therefore now proceed to
examine the US claim, determining: (i) wh ether China has undertaken national treatment
commitments with respect to the master wholesale and wholesale of electronic publications through
commercial presence; and (ii) whether the measures at issue are inconsistent with China's national
treatment commitments under Article XVII of the GATS.
Whether China's commitments on wholesale trade services cover master wholesale and
wholesale of electronic publications
7.1066 As noted at the beginning of this Section, the parties disagree on the translation of the Chinese
term Zong Pi Fa . As in our observations on the term Zong Fa Xing , we do not consider that the
precise translation of the term Zong Pi Fa is a significant issue in this claim, and we will use "master
wholesale" to refer this service activity. We shall also use, where appropriate, the phonetic symbols

of the original Chinese terms. The issue before us is whether master wholesale and wholesale of
electronic publications are covered by China' s GATS commitments on "Wholesale Trade Services"
(Sector 4.B. in China's Schedule) as alleged by the United States.
7.1067 The Panel has already found that China' s GATS commitments cover the wholesale of
electronic publications through commercial presence. The issue now is whether master wholesale is
an activity that is within the definition of th e "Wholesale Trade Services " specified in China's
Schedule.
7.1068 The Panel notes China's statement that Zong Pi Fa (master wholesale) was synonymous with
Zong Fa Xing (master distribution), but was exclusively used in the context of electronic
publications.
634 The United States does not contest this stat ement and we have no reason to disagree.
Thus, we understand that the activities involved in master wholesale ( Zong Pi Fa ) are of the same
nature as the activities involved in master distribution ( Zong Fa Xing ). As noted above, when
operated by entities other than publishers, the prin cipal characteristics of master distribution may
involve wholesale within the meaning of Annex 2 of China's Schedule, because for reading materials
subject to master distribution, the master dist ribution entity may purchase them from publishers and
then may sell these reading materials either directly to industrial, commercial, institutional, or other
professional business users, or to other wholesalers or retailers. We therefore have found that master
distribution is covered by China's commitments on "Wholesale Trade Services" (Sector 4.B. in
China's Schedule). For the same reasons, we find th at the master wholesale of electronic publications
is also covered by those commitments.
Whether the measures at issue are inconsistent with China's national treatment commitments
under Article XVII of the GATS
7.1069 Having established that China has undertaken commitments with respect to the master
wholesale and wholesale of electronic publications, the Panel now proceeds to examine whether the
measures challenged under this claim are inconsistent with Article XVII of the GATS.
1997 Electronic Publications Regulation
7.1070 We note that the 1997 Electronic Publications Regulation was aimed at regulating the
production, publication, reproduction, import and di stribution of electronic publications in China.
635
It is therefore a measure affecting the supply of wholesale trade services of electronic publications for
the purpose of Article XVII. Chapter 6 of the 1997 Electronic Publications Regulation sets out rules
governing the distribution of electronic publications, which include, inter alia, master wholesale and
wholesale. Under this chapter, Article 62 provides:
"The establishment of an electronic publica tion distribution entity shall meet the
following conditions:
A. The distribution entity shall have a name and articles of association;
B. It shall have a prescribed scope of business;
C. It shall have necessary capital and equipment;
D. It shall have a fixed place business; and

634 China's first written submission, para. 259.
635 1997 Electronic Publications Regulation, Article 2. (Exhibit US-15)

E. It shall have technical and manage rial personnel familiar with electronic
publications.

Wholly foreign-owned enterprises, Chin ese-foreign equity joint ventures and
Chinese-foreign contractual ventures may not engage in master wholesale or
wholesale of electronic publications"
7.1071 According to the United States, foreign-invest ed enterprises are prohibited from engaging in
the master wholesale and wholesale of electronic publications while wholly Chinese-owned
enterprises are permitted to supply these services. Chin a has never contested the US contention. We
note that there is nothing on the record to suggest that wholly Chinese-owned enterprises are subject
to any restrictions. Article 62 of the 1997 Electronic Publications Regulation appears to confirm this
observation. This provision explicitly prevents wh olly foreign-owned enterprises, Chinese-foreign
equity joint ventures and Chinese-foreign contractua l ventures, i.e. the three permissible forms of
foreign-invested enterprises in China, from engaging in the master wholesale and wholesale of
electronic publications. It follows that the conditi ons for establishment set out in the same provision
only apply to wholly Chinese-owned enterprises.
7.1072 As noted above, there are, or can be, foreign-i nvested enterprises that are owned or controlled
by persons of another Member, and thus qualify as "service suppliers of another Member". The
prohibition contained in Article 62 of the 1997 Electronic Publications Regulation is based solely on
the origin of service suppliers, and wholly Chinese-owned enterprises are not subject to this
restriction. To the extent that, under the measure at issue, a difference of treatment between foreign-
invested enterprises that would, if not prohibited, engage in the master wholesale and wholesale of
electronic publications and wholly Chinese-owned enterprises that are permitted to supply these
services is based exclusively on the origin of service suppliers, the "like" service suppliers
requirement in Article XVII is met, as long as ther e will, or can, be domestic and foreign suppliers
that under the measure at issue are the same in all material respects except for origin. In our view,
there is no doubt that there will, or can, be fore ign-invested enterprises prohibited from engaging in
the master wholesale and wholesale of electronic publications that are the same in all material respects
as wholly Chinese-owned enterprises permitted to suppl y these services, except for their origin. We
also note that the parties do not dispute the lik eness of the service suppliers under the measure at
issue. We thus consider that, for the measure at issue, the "like" service suppliers requirement in
Article XVII is met.
7.1073 Similarly to our earlier observations, the prohibition imposed on foreign-invested
wholesalers, which includes service suppliers of other Members, deprives the latter of any opportunity
to compete with like Chinese wholesalers in th e master wholesale and wholesale of electronic
publications. The prohibition thus has radically modi fied conditions of competition in favour of like
wholly Chinese-owned wholesalers. We consider th at the measure which explicitly maintains this
prohibition, namely Article 62 of the 1997 Electronic Publications Regulation , accords to foreign-
invested wholesalers less favourable treatment within the meaning of Article XVII of the GATS.
7.1074 As noted above, China's national treatment commitments on wholesale trade services through
commercial presence are only subject to the limitati ons listed in the market access column of its
Schedule. We note that nothing in China's Schedule could justify a measure that prohibits foreign-
invested enterprises from engaging in the master wholesale and wholesale of electronic publications.
The Panel therefore finds that Article 62 of the 1997 Electronic Publications Regulation is
inconsistent with Article XVII of the GATS.

Publications (Sub-)Distribution Rule
7.1075 In its second written submission, the United States requests the Panel to find that the
Publications (Sub-)Distribution Rule is inconsistent with Article XVII of the GATS because it
prohibits foreign-invested enterprises from enga ging in the master wholesale and wholesale of
electronic publications. This claim is based on China's argumentation in responding to the first set of
Panel questions. The United States indicates that the Publications (Sub-)Distribution Rule is
identified in the panel request and is included in the Panel's terms of reference.
7.1076 China argues that the Publications Market Rule and the Publications (Sub-)Distribution Rule
are the measures currently governing the wholesaling of electronic publications by foreign-invested
enterprises, and that they do not prohibit foreign- invested enterprises from engaging in the wholesale
of electronic publications.
636 According to China, this was confirmed by the Response of GAPP on
Electronic Publications in 2005 and the two GAPP Approval Decisions.637
7.1077 The United States rejects China's argument, contending that the Publications
(Sub-)Distribution Rule prevents foreign-invested enterpri ses from engaging in the master wholesale
and wholesale of electronic publications because it does not provide for such right to foreign-invested
enterprises. The United States indicates that the two GAPP Approval Decisions cited by China apply
only to the wholesaling of domestically published el ectronic publications, and fail to provide for the
wholesaling of imported electronic publications or for the master wholesale of electronic publications.
According to the United States, the Response of GAPP on Electronic Publications in 2005 only
addresses sub-distribution and not master wholesale of electronic publications regardless of whether
they are imported or domestically produced.
7.1078 The Panel begins by observing that the Publications Market Rule and the Publications
(Sub-)Distribution Rule are identified as specific measures at i ssue in the panel request with respect
the US claim regarding the distribution of reading ma terials and thus are within the Panel's terms of
reference. We next examine the relevant provis ions in the two measures which are cited by China as
the measures currently governing the wholesaling of electronic publications by foreign-invested
enterprises.
7.1079 We note that the Publications Market Rule indeed applies to the wholesale of electronic
publications. Article 2 of the Publications Market Rule provides that the measure applies to the
distribution activities of publications which consists of newspapers, periodicals, books and electronic
publications. Articles 8 and 9 of this measur e set out the conditions and procedures for the
establishment of an enterprises engaging in the wh olesale of publications. We however recall our
previous observation in paragraph 7.992 that it does not contain detailed rules on the establishment of
foreign-invested enterprises engaging in the distri bution of reading materials. Article 16 of the
Publications Market Rule states:
"To set up a book, newspaper and periodical sub-distribution ( Fen Xiao) enterprise, a
Chinese-foreign equity joint venture, contr actual joint venture, or a foreign capital
enterprise shall follow the Publication (Sub-)Distribution Rule jointly drawn up by
the GAPP and the Ministry of Foreign Trade and Economic Cooperation".
7.1080 While the Publications (Sub-)Distribution Rule states that it applies to the distribution
activities of books, newspapers and periodicals by fore ign-invested enterprises in China, it provides
that these activities consists of wholesale and retail and that "books, newspapers and periodicals" refer

636 China's response to question No. 91.
637 Ibid.

to books, newspapers and pe riodicals published in China. 638 Electronic publications are not
mentioned in the Publications (Sub-)Distribution Rule as such. The Panel notes however that, in
response to a question from the Panel, China stat es that since 2004 the distribution of electronic
publications by foreign-invested ente rprises is no longer governed by the 1997 Electronic
Publications Regulation, but by the Publications Market Rule and the Publications (Sub-)Distribution
Rule. China submits that this is confirmed by the Response of GAPP on Electronic Publications in
2005 and two GAPP Approval Decisions taken respectively in 2006 and 2007.639
7.1081 We note that the Response of GAPP on Electronic Publications was addressed to the
Shanghai Municipal Bureau of Press and Publicatio n, the press and publication administration in the
municipality of Shanghai which has the authority to examine and approve the application for the
establishment of foreign-invested enterprises engaging in the distribution of publications in
Shanghai.640 The Response of GAPP on Electronic Publications explicitly states that foreign-invested
enterprises are permitted to engage in the distribution ( Fen Xiao) of electronic publications and that
the local administration shall apply the Publications (Sub-)Distribution Rule in examining
applications for establishment. The Response of GAPP on Electronic Publications states:
"Foreign invested enterprises can engage in distribution ( Fen Xiao ) of electronic
publications but shall first obtain administrative licence in accordance with relevant
laws and regulations.
... For specific conditions, procedures and time, please refer to the Publications
(Sub-)Distribution Rule."
7.1082 We also note that the two GAPP Approval Deci sions, respectively addressed to the Shanghai
Municipal Bureau of Press and Publication a nd the Beijing Municipal Bureau of Press and
Publication, authorize the establishment of Ch inese-Foreign joint ventures that would engage, inter
alia, in the wholesale of domestically published electronic publications. The two GAPP Decisions
both require that the municipal press and publication administrations apply the Publications
(Sub-)Distribution Rule in their examination and approval of th e applications for the establishment of
Chinese-Foreign joint ventures engaging, inter alia , in the wholesale of domestically published
electronic publications. The 2006 GAPP Approval Decision , addressed to the Shanghai Municipal
Bureau of Press and Publication, states:
"[W]e hereby approve Shanghai Bertelsma nn Culture Industry Co. Ltd., a joint
venture based in Shanghai invested by Ch ina Technology Books Co. Ltd. which is a
subsidiary of Shanghai Xinhua Publishing Group, and German Bertelsmann Joint
Stock Limited Company, to increase the business of wholesale and online sale of
domestically published books, newspapers, periodicals and electronic publications….
Please handle the relevant formalities according to the Publications
(Sub-)Distribution Rule."
7.1083 In another example, the 2007 GAPP Approval Decision , addressed to Beijing Municipal
Bureau of Press and Publication states:
"The Joyo Amazon Co. Ltd is approved to be established in Beijing by joint
investment of Beijing Century Joyo Info rmation Technology Co. Ltd. and Amazon
Europe Co. Ltd.

638 Article 2 of the Publication (Sub-)Distribution Rule (Exhibit US-28).
639 Exhibits CN-42 and 43.
640 Article 10 of the Publications (Sub-)Distribution Rule (Exhibit US-28).

The business scope of the Joint Venture with respect to the distribution of
publications is engaging in the wholesale, retail and online sale of domestically
published books, periodicals, newspapers and electronic publications...
Please handle the relevant formalities according to the Publications
(Sub-)Distribution Rule. ..."
7.1084 We note that the GAPP is the competent administration that implements the Publications
(Sub-)Distribution Rule. It is also one of the two governmental departments that drew up and issued
the Rule. We further note that the GAPP's administ rative decisions are addressed to the municipal
press and publication administrations to guide their practice in examining and approving
establishment applications. We understand that these decisions are not only effective for those
specific cases, but also serve as precedents fo r future practice of local press and publication
administrations. In our view, the Response of GAPP on Electronic Publications and the two GAPP
Decisions referred to support the view that the Publications (Sub-)Distribution Rule is applied to the
establishment of foreign-invested enterprises engaging in, inter alia , the wholesale of electronic
publications, even though electronic publications are not explicitly mentioned in the Rule.
7.1085 We also note, as the United States points out, that the two GAPP Decisions only approve the
establishment of foreign-invested enterprises enga ging in the wholesale and retail of domestically
published reading materials, including electronic pub lications. We recall that Article 2 of the
Publications (Sub-)Distribution Rule defines "books, newspapers and periodicals" as books,
newspapers and periodicals published in China and that electronic publications are not mentioned
therein. It appears reasonable to assume that, when the measure is applied to an additional type of
reading materials, i.e. electronic publications, its application would not go beyond the limitation on
"books, newspapers and periodicals". The two GA PP Decisions seem to confirm this understanding.
Indeed, the GAPP Decisions explicitly state that the business scope of the joint ventures is the
distribution of "domestically published books, news papers, periodicals and electronic publications".
They further require the administrative agencies to "handle the relevant formalities according to the
Publications (Sub-)Distribution Rule ". In response to a Panel question, China also confirms that
foreign-invested enterprises can only engage in the wholesaling of domestically published electronic
publications.
641
7.1086 We recall the US allegation that the Publications (Sub-)Distribution Rule prevents foreign-
invested enterprises from engaging in the wholesale of imported electronic publications or master
wholesale of any electronic publications because it does not provide for the right of foreign-invested
enterprises to engage in these service activities. The US argument is based on China's
acknowledgement that the Publications (Sub-)Distribution Rule together with the Publications Market
Rule are the measures currently governing the wholesale of electronic publications.
7.1087 As noted above, the Publications Market Rule does not provide detailed rules on the
distribution of reading materials by foreign-i nvested enterprises. To the extent that the Publications
(Sub-)Distribution Rule is applied to the distribution of electronic publications, it is limited to the
electronic publications published in China. Neither the Publications Market Rule nor the Publications
(Sub-)Distribution Rule provides that foreign-invested enterp rises are permitted to engage in the
master wholesale of any electronic publications or the wholesale of imported electronic publications.
We also note, however, that neither of the tw o measures explicitly prohibits foreign-invested
enterprises from engaging in these activities.

641 China's response to question No. 235.

7.1088 The issue before the Panel is whether the fact that the Publications (Sub-)Distribution Rule
does not explicitly address these ac tivities means that foreign-invest ed enterprises are excluded from
engaging in these activities in violation of Chin a's GATS commitments on wholesaling. In other
words, the Panel needs to consider: (i) whether the Publications (Sub-)Distribution Rule has the
effect of prohibiting foreign-invested enterprises fro m engaging in these activities; (ii) if so, whether
such prohibition constitutes "less favourable" treat ment accorded to service suppliers of another
Member than that accorded to like Chinese suppliers within the meaning of Article XVII of the
GATS.
7.1089 As noted above, the Publications (Sub-)Distribution Rule was issued based on, inter alia, the
Publications Market Rule . The wording of Article 16 of the Publications Market Rule suggests that
the Publications (Sub-)Distribution Rule is intended to be the so le regulation governing the
establishment of foreign-invested enterprises e ngaging in the wholesale and retail of reading
materials. There appears to be no other regulation that could serve as a legal basis for such
establishment. Since the Publications (Sub-)Distribution Rule only applies to the establishment of
foreign-invested enterprises engaging in the whol esale and retail of reading materials published in
China, it, together with Article 16 of the Publications Market Rule , has the effect of excluding
foreign-invested enterprises from engaging in ot her distribution activities relating to reading
materials. We note in this context, regarding wholly Chinese-owned enterprises, that the Publications
Market Rule applies to the wholesale of electronic pub lications and does not subject wholly Chinese-
owned enterprises to this restriction. Indeed, under the Publications Market Rule , wholly Chinese-
owned enterprises are permitted to engage in the wholesale of any electronic publications, whether
imported or domestically published.
7.1090 We therefore find that to the extent that it is applied to electronic publications, the
Publications (Sub-)Distribution Rule , together with the Publications Market Rule , prohibits foreign-
invested enterprises from engaging in the wholesale of imported electronic publications.
7.1091 The Panel must now determine whether the pr ohibition of foreign-i nvested enterprises from
wholesaling imported electr onic publications under the Publications (Sub-)Distribution Rule
constitutes a breach of Article XVII of the GATS, as claimed by the United States.
7.1092 Since China states that the Publications Market Rule and the Publications (Sub-)Distribution
Rule are the measures that currently govern the distribution of electronic publications, it is evident
that they "affect" the supply of electronic publications distribution services for the purpose of
Article XVII.
7.1093 As noted above, China's national treatment co mmitment to the wholesale trade services sector
implies a commitment to all services comprised in that sector, including the wholesale of imported
electronic publications. As well, to the extent that, under the measure at issue, a difference of
treatment between foreign-invested enterprises that would, if not prohibited, engage in the wholesale
of imported electronic publications and wholly Chinese-owned enterprises that are permitted to
supply this service is based exclusively on the origin of service suppliers, the "like" service suppliers
requirement in Article XVII is met, as long as ther e will, or can, be domestic and foreign suppliers
that under the measure at issue are the same in all material respects except for origin. There is no
doubt that there will, or can, be foreign-invested enterprises prohibited from engaging in the
wholesale of imported electronic publications that ar e the same in all materi al respects as wholly
Chinese-owned enterprises permitted to supply this servi ce, except for their origin. We also note that
the parties do not dispute the likeness of the service s uppliers under the measure at issue. We thus
consider that, for the measure at issue, the "like" service suppliers requirement in Article XVII is met.
7.1094 As we observed earlier, the total prohibiti on on foreign service suppliers from wholesaling
imported electronic publications, when like Chinese s uppliers are permitted to do so, clearly modifies

the conditions of competition to the detriment of the foreign service supplier, and thus constitutes
"less favourable" treatment in terms of Article XVII. The Panel therefore finds that, to the extent that
it is applied to the wholesale of electronic publications, the Publications (Sub-)Distribution Rule , in
conjunction with the Publications Market Rule, constitutes a breach of Article XVII of the GATS.
7.1095 With respect to the US assertion that the Publications (Sub-)Distribution Rule also prohibits
foreign-invested enterprises from engaging in the master wholesale of any electronic publications, we
note that this measure only applies to two types of distribution activity, name ly wholesale and retail.
It does not apply to master wholesale. We also note that the Response of GAPP on Electronic
Publications and the two GAPP Approval Decisions do not refer to master wholesale either. We are
thus not convinced that the United States has made a prima facie case that the Publications
(Sub-)Distribution Rule prohibits foreign-invested enterpri ses from engaging in the master wholesale
of any electronic publications.
Conclusion

7.1096 Based on the considerations in paragraphs 7.1070-7.1074, the Pa nel finds that Article 62 of
the 1997 Electronic Publications Regulation is inconsistent with China's national treatment
obligations under Article XVII of the GATS as it pr ohibits foreign-invested enterprises, including
service suppliers of other Members, from engaging in the master wholesale or wholesale of electronic
publications while like domestic service suppliers are not similarly prohibited.
7.1097 Based on considerations in paragraphs 7.1078-7.1095, the Panel finds that to the extent that it
is applied to the wholesale of electronic publications, the Publications (Sub-)Distribution Rule , in
conjunction with the Publications Market Rule , is inconsistent with China's national treatment
obligations under Article XVII of the GATS as th ese two measures together have the effect of
prohibiting foreign-invested enterprises, including service suppliers of other Members, from engaging
in the wholesale of imported electronic publicatio ns while like domestic service suppliers are not
similarly prohibited.
7.1098 We do not find an inconsistency of the Publications (Sub-)Distribution Rule with
Article XVII in respect of the master wholesale of electronic publications as the United States has not
established that the Publications (Sub-)Distribution Rule prohibits foreign-invested enterprises,
including service suppliers of other Members, from engaging in the master wholesale of any
electronic publications as claimed.
(b) Discriminatory requirements applying to foreign-invested enterprises
7.1099 Having examined the US claims concerning discriminatory prohibitions by China on the
distribution of reading materials by foreign-invest ed enterprises, we now turn to the US claims
concerning alleged discriminatory requirements applie d by China to foreign-invested enterprises, in
cases where the wholesale of reading materials by them is authorized.
7.1100 The United States submits that, where foreign-invested enterprises are permitted to engage in
the sub-distribution of books, news papers and periodicals published in China, they are subject to
various discriminatory requirements. The United St ates claims that each of the five discriminatory
requirements – with respect to registered capital, operating terms, pre-establishment legal compliance,
examination and approval process, and GAPP deci sion-making criteria – constitutes a breach of
Article XVII of the GATS, as each of them is inconsistent with China's national treatment
commitments on "Wholesale Trade Services" (Sector 4.B of China's Schedule) supplied through
commercial presence. According to the United Stat es, these discriminatory requirements are imposed
through the Publications (Sub-)Distribution Rule and the (Sub-)Distribution Procedure.

7.1101 China requests the Panel not to consider the re quirements concerning the "pre-establishment
legal compliance", "approval process requirements" a nd "decision-making criteria" to be within its
terms of reference, because they are not specifically mentioned in the US panel request. China also
requests the Panel not to consider the (Sub-)Distribution Procedure as it is not a "measure" within the
meaning of Article 3.3 of DSU.
7.1102 The Panel recalls its finding in paragraph 7.104 that the requirements concerning pre-
establishment legal compliance, examination and approval process, and GAPP decision-making
criteria, as well as the Sub-Distribution Procedure are not within its terms of reference. The Panel
will therefore examine only whether the alleged discriminatory requirements with respect to
registered capital and operating terms are inconsistent with Article XVII of the GATS.
(i) Registered capital requirement
7.1103 The United States alleges that the requirement that the foreign-invested reading materials
wholesaler shall have a registered capital of no less than RMB 30 million (approximately US$4
million) is inconsistent with Article XVII of the GATS, as this requirement is higher than the RMB 2
million (approximately US$286,000) that a wholly Chinese-owned reading material wholesaler is
required to have. The United States notes that the capital requirement for foreign-invested
wholesalers is contained in Article 7.4 of the Publications (Sub-)Distribution Rule , while that for
wholly Chinese-owned wholesalers is set out in the Publications Market Rule. For the United States,
this fifteen-fold difference in capital requirement accords to foreign-invested wholesalers treatment
significantly less favourable than that accorded to like Chinese-owned wholesalers and modifies
conditions of competition. The United States adds that China has not listed in its Schedule any
limitations on its national treatment commitment with respect to the wholesaling of reading materials
supplied through commercial presence. According to the United States, the limitations that are listed
by China in the horizontal section of its Schedule do not cover the case of a higher registered capital
requirement for foreign-invested wholesalers. The United States submits therefore that the
requirement is inconsistent with China's national treatment comm itments under Article XVII of the
GATS.
7.1104 China argues that formally different treatment between domestic and foreign services and
services suppliers is not sufficient for establishing a violation of Article XVII of the GATS.
According to China, the different registered capita l requirement does not impact the actual conditions
of competition since foreign-invested wholesalers benefit from a degree of flexibility that is not
available to wholly Chinese-owned wholesalers. China submits that wholly Chinese-owned
wholesalers have to contribute the entire register ed capital before incorporation, while foreign-
invested wholesalers can contribute the registered cap ital in several subsequent instalments, including
after incorporation. China maintains that the United States fails to make a prima facie case under
Article XVII of the GATS as it has not demonstrated that the re gistered capital requirement on
foreign-invested wholesalers has modified the condi tions of competition to the detriment of foreign
service suppliers.
7.1105 The United States submits that China is incorrect in countering that wholly Chinese-owned
wholesalers, unlike foreign-invested wholesalers, mu st contribute the entirety of their registered
capital prior to establishment. The United States notes that the
2005 Company Law allows wholly
Chinese-owned enterprises to contribute their regi stered capital in instalments over time as well.
China, in its answer to a question from the Panel, conf irms that after the amendment of the Company
Law in 2005, both foreign-invested and wholly-C hinese owned enterprises may contribute their
registered capital in instalments over the same period of time.
7.1106 The Panel begins by examining the provision of the Publications (Sub-)Distribution Rule that
sets the registered capital requirement for foreign- invested enterprises for the purpose of wholesaling

books, newspapers and periodicals in China. Article 7.4 of the Publications (Sub-)Distribution Rule
states:
"The following conditions shall be satisfi ed for the establishment of a foreign-
invested books, newspapers and periodicals wholesale enterprise:

(4) A registered capital of no less than 30 million RMB;"
7.1107 The Panel then examines the relevant provision of the Publications Market Rule , which sets
the registered capital requirement for wholly Chinese-owned wholesalers of books, newspapers and
periodicals in China. Article 8.4 states:
"To set up a publication wholesale enterprise or for some other unit to engage in the
wholesale of publications, the following conditions must be met:

(4) Having a registered capital of no less than 2 million RMB."
7.1108 This provision confirms that the registered cap ital requirement for wholly Chinese-owned, as
compared to foreign-invested wholesalers of books, newspapers and periodicals in China is
significantly lower.
7.1109 The Panel notes that China argued, at least in itially, that the greater capital requirement
imposed on foreign-invested wholesalers is "balance d" by the flexibility accorded to those foreign
wholesalers, and not wholly Chinese-owned ones, to pay in the registered capital amount in
instalments. However, China's initial statement that only foreign-invested wholesalers benefit from
flexibility in payment of their registered capita l no longer, according to China itself, represents
Chinese law.
642 Since 2005, both foreign-invested and wholly Chinese-owned enterprises may
contribute their registered capital in instalments over the same period of time. Article 26 of the 2005
Company Law makes no distinction between Chinese and foreign firms in this respect:
"The registered capital of a limited liabilit y company shall be the total amount of the
capital contributions subscribed to by all th e shareholders that have registered with
the company registration authority. The amount of initial capital contributions made
by all shareholders of this company shall be no less than 20% of its registered capital,
nor less than the legally-defined minimu m amount of registered capita, and the
outstanding part shall be paid off by the shareholders within 2 years as of the date of
the incorporation of this company: in terms of an investment company, that
outstanding part may be paid off within 5 years."
7.1110 The Panel notes also that the 2006 Implementation Opinions provides that the capital
contribution made for a foreign-invested co mpany shall meet the requirements of the 2005 Company
Law. Further, paragraph 11 of Article 20 of China's Company Registration Regulation provides that:
"For a shareholder of a foreign-invested limited liability company, the amount of his
initial capital contributions shall meet the requirements of laws and administrative
regulations, and the outstanding part shall be paid off within two years from the date

642 China's response to question No. 224.

of the incorporation of that company or within five years if that company is an
investment company."
7.1111 We therefore understand, and China acknowledges, that after the amendment of the Company
Law in 2005, both foreign-invested and wholly-C hinese owned enterprises may contribute their
registered capital in instalments over the same period of time.
7.1112 We note that Article XVII of the GATS applies to "all measures affecting the supply of
services". We understand that measures affecting the ability of foreign service suppliers to establish a
commercial presence, such as the registered capit al requirement on service suppliers at issue,
constitute such measures, and are thus within the scope of Article XVII. We note that the parties do
not dispute this. We next examine whether the registered capital requirement under the measure at
issue constitutes "less favourable treatment" under Article XVII of the GATS.
7.1113 As noted above, in order to establish "less favourable treatment" for the purpose of
Article XVII, we also need to determine whether, under the measur e at issue, foreign-invested
wholesalers and wholly Chinese-owned wholesalers are "like" service suppliers. We consider that
foreign-invested wholesalers qualify as "service supp liers of another Member" as long as the entity is
owned or controlled by persons of another Member. We note that under the measure at issue, the
difference of treatment, i.e. the registered capital requirement, is based exclusively on the origin of
service suppliers. We consider that the "like" servi ce suppliers requirement in Article XVII is met, as
long as there will, or can, be domestic and foreign suppliers that, under the measure at issue, are the
same in all material respects except for origin. In our view, there is no doubt that there will, or can, be
foreign-invested wholesalers subject to a higher registered capital requirement that are the same in all
material respects as wholly Chinese-owned enterprises not subject to such limitation, except for their
origin. We also note that the parties do not di spute the likeness of the service suppliers under the
measures at issue.
7.1114 With respect to the difference in the registered capital requirement, we note that the parties do
not dispute that such difference has an impact on the conditions of competition between foreign-
invested wholesalers and like, wholly Chinese-owned wholesalers. Clearly, differing requirements in
the amount of minimum capital required to establish a business affect service suppliers' market access
opportunities.
7.1115 We observe that, with respect to the s upply of services through commercial presence, if
service suppliers from other Members are subject to a higher registered capital requirement than that
for domestic service suppliers, they face a higher cost for market entry that would, in some cases,
have a negative effect on their ability to compete with domestic service suppliers. In this dispute, a
Chinese wholesaler needs to raise no less than 2 million RMB for its establishment while a foreign-
invested wholesaler has to raise no less than 30 million RMB. As demonstrated by the United States,
15 wholly Chinese-owned wholesalers could establish their businesses using the amount of capital
required to establish a single foreign-invested wholesaler in China. It is evident that the threshold for
market entry of wholly Chinese-owned wholesalers is significantly lower than that for foreign-
invested wholesalers. This places foreign-invest ed wholesalers at a competitive disadvantage in
seeking to establish a commercial presence so as to supply the Chinese market through commercial
presence.
7.1116 Looked at from a different angle, one can see that the 30 million RMB registered capital
requirement would exclude from the Chinese market all foreign-invested enterprises who cannot raise
this amount of capital, while Chinese suppliers that ar e similarly not able to meet a registered capital
requirement of RMB 30 million would not be excluded (assuming they could nonetheless meet the
RMB 2 million threshold).

7.1117 The Panel also notes that China has decided to insert in other parts of its own Schedule of
commitments similar types of alleged discriminatory capital or asset requirements. For example,
China's commitment on technical testing and analys is services, which is found under the sector
heading "Other Business Services", lists an entry under mode 3 which limits establishment of joint
ventures to those with no less than US$350,000 in registered capital. Further, under the sector
heading "Tourism and Travel-Related Services", China's commitment on travel agency and tour
operator services also lists a registered capital requirement of no less than RMB 4 million for the
establishment of a joint venture travel agency or tour operator, which is scheduled to be brought down
to RMB 2.5 million within three years after accession. Although these examples are not
determinative in the Panel's analysis of the preci se measure at issue here, they do support the view
that China was aware of the possib ility of inscribing such limitations in its Schedule, but that it chose
not to do so.
7.1118 As noted above, under the measure at issue, foreign-invested wholesalers who are service
suppliers of another Member and wholly Chinese wh olesalers will, or can, be "like" service suppliers
in the sense of Article XVII. Furthermore, in light of the above considerations, we consider that the
significantly greater amount of registered cap ital required for foreign-invested wholesalers
unfavourably modifies the conditions of competition that they face by exacting a higher price for
market entry. We consider therefore that China accord s foreign-invested wholesalers supplying
services through commercial presence treatment less favourable than th at accorded to like, wholly
Chinese-owned wholesalers within the meaning of Article XVII of the GATS.
7.1119 Finally, we recall that China does not inscribe in Sector 4.B. (Wholesale Trade Services) of
its Services Schedule a specific limitation that foreign-invested wholesalers are subject to a higher
registered capital requirement. Consequently, Chin a is not entitled to maintain a measure containing
such a condition.
7.1120 Thus, the Panel concludes that the registered cap ital requirement set forth in Article 7.4 of the
Publications (Sub-)Distribution Rule is inconsistent with Article XVII of the GATS.
(ii) Operating term requirement
7.1121 The Panel now examines the second of the two me asures, an operating term requirement, that
the United States claims applies only to foreign-i nvested wholesalers and discriminates against them
contrary to Article XVII of the GATS.
7.1122 The United States notes that pursuant to Article 7.5 of the Publications (Sub-)Distribution
Rule, the operating term for foreign-invested wholesalers is limited to 30 years, while wholly
Chinese-owned wholesalers are free of any term limitations. The United States argues that the
30-year term places foreign-invested wholesalers at a competitive disadvantage as their continued
operations are subject to the discretion of government authorities. The United States further argues
that this imposes considerable uncertainty on co mmercial relationships, particularly when an
operating term is close to its expiry. In the view of the United States, maintaining current business
and generating new business becomes more difficult when a foreign-invested wholesaler cannot
guarantee that it will continue to be in business af ter the expiry of its operating term. The United
States also argues that the limited operating term not only disadvantages foreign-invested enterprises
in terms of their post-30 year operations, but also undermines the quality of their pre-30 year
operations. According to the United States, this requirement imposes a chilling effect on the business
opportunities and commercial relationships available to foreign-invested enterprises.
7.1123 China argues that, to succeed in its claim, the United States must show not merely that
foreign invested wholesalers are treated differently from domestic wholesalers, but also that they are
treated less favourably. According to China, th e United States must show that the different

requirements affecting foreign-invested wholesaler s alter the conditions of competition so that
foreign-invested wholesalers are placed at a genuine and concrete competitive disadvantage compared
to like domestic wholesalers. China further argue s that the 30-year operating term requirement for
foreign invested wholesalers has no impact on actual conditions of competition. China submits that
an operating term that is close to expiry can be extended pursuant to a non-discretionary, automatic
and simplified procedure. China further submits that in practice, neither the wholly-Chinese
wholesaler nor the foreign-invested wholesaler is subject to any actual time-limitation for their
activity. China maintains that denying its right to introduce the requirement on operating terms would
undermine its sovereign right to regulate market acc ess in the field of services consistently with its
GATS commitments.
7.1124 The United States disagrees with China's assertions, cont ending that the extension of the
operating term is not automatic under Chinese law, but requires an approval process that is not
governed by objective criteria. The United States notes that any extension of the operating term
requires the agreement of all investors and board directors, and must comply with China's laws,
regulations and policies on foreign investment. The United States thus understands that under
Chinese law, each of these parties holds a veto on ex tension and can use that leverage to extract
concessions from the foreign-invested parties. The United States argues that this artificial and
unnecessary commercial situation places undue strain and extra burdens on the foreign-invested
wholesalers, a predicament not faced by wholly Chinese-owned wholesalers. The United States also
notes that even after the agreement of the joint ve nture parties is secured, extension of the operating
term depends on approval by governmental authorities, which is not based on objective criteria.
7.1125 Rejecting the US arguments above, China submits that the operating term requirement for
foreign-invested enterprises in China is in fact adopted to protect the reasonable expectations and
interests of such enterprises by guaranteeing th eir business activity within the approved business
scope and operating term. China further submits that it has the sovereign right to determine and
adjust which sectors of its economy should be open to foreign investment in a manner not inconsistent
with its international obligations. According to China, with an operating term, the business of
foreign-invested enterprises is free from the influence of any change in foreign investment policy, and
this helps to minimize the uncertainty in foreign investment policy faced by foreign service providers.
7.1126 China indicates that the extension of the opera ting term is required by law to meet three
conditions: the agreement of all investors, the ag reement of all directors and compliance with the
laws, regulations and policies on foreign investment a pplicable at the time of application. According
to China, these three conditions are neutral; as long as the application for extension satisfies the three
conditions, the examining authority is obliged by law to grant approval.
7.1127 The Panel begins its analysis by observing that it is uncontested that foreign-invested
wholesalers are subject to a maximum 30-year operating term, whereas wholly Chinese-owned
wholesalers face no such limitation. Foreign-invest ed wholesalers are therefore accorded treatment
that is formally different from that accorded to wholesalers who are wholly Chinese-owned. The
parties do not dispute this. The issue for us to ex amine is whether this formally different treatment
constitutes "treatment no less favourable" under Article XVII of the GATS.
7.1128 We need first to examine whether, under the measure at issue, foreign-invested wholesalers
and wholly Chinese-owned wholesalers are "like" service suppliers for the purpose of Article XVII.
We consider that foreign-invested wholesalers qua lify as "service suppliers of another Member" as
long as the entity is owned or controlled by pers ons of another Member. We note that under the
measure at issue, the difference of treatment, i.e. the operating term requirement, is based exclusively
on the origin of service suppliers. We consider that the "like" service suppliers requirement in
Article XVII is met, as long as there will, or can, be domestic and foreign suppliers that, under the
measure at issue, are the same in all material respects except for origin. In our view, there is no doubt

that there will, or can, be foreign-invested whol esalers subject to a 30-year operating term limitation
that are the same in all material respects as w holly Chinese-owned enterprises not subject to such
limitation, except for their origin. We note that the parties do not dispute the likeness of the service
suppliers under the measures at issue.
7.1129 Since the operating term requirement governs the distribution of reading materials by foreign-
invested enterprises, we consider that it is "affec ting" the supply of the relevant services for the
purpose of Article XVII.
7.1130 We recall the requirement under Article XVII that a Member accord "no less favourable
treatment" to foreign services or service suppliers than it does to like domestic ones. Under
paragraph 2 of Article XVII, the treatment need not be identical. Formally different treatment may be
accorded to foreign services or service suppliers, as long as that treatment does not modify conditions
of competition in favour of like domestic services or service suppliers. Therefore, China's formally
different treatment of foreign-invested wholesalers with respect to operating term does not necessarily
indicate an inconsistency with Article XVII. It is for the United States, as the complaining party, to
demonstrate that the formal difference in treat ment by China has modified the conditions of
competition in favour of wholly Chinese-owned wholesalers.
7.1131 The demonstration of "less favourable treatment " of foreign services or service suppliers
under Article XVII must proceed through careful analysis of the measure and the market. In
examining the national treatment obligation applyi ng to trade in goods, the Appellate Body in US –
FSC (Article 21.5 – EC) stated:
"The examination of whether a measure involves 'less favourable treatment' of
imported products within the meaning of Article III:4 of the GATT 1994 must be
grounded in close scrutiny of the 'fundament al thrust and effect of the measure
itself'
643. This examination cannot be rest on simple assertion, but must be founded
on a careful analysis of the contested measure and of its implications in the
marketplace. At the same time, however, the examination need not be based on the
actual effects of the contested measure in the marketplace
644."645
7.1132 We consider that this statement by the Appellate Body is relevant also to an analysis under
Article XVII of the GATS, since an examination of "less favourable treatment" involves, in goods as
well as services cases, an analysis of the effects of a measure on conditions of competition.
7.1133 We first examine the basic requirement for a maximum 30-year operating term. It is
contained in paragraph 5 of Article 7 of the Publications (Sub-)Distribution Rule, which states
"7. Establishment of a foreign-invested enterprise for the wholesale of books,
newspapers and periodicals requires the following conditions:

5) The term of business shall be no more than 30 years."

643 (footnote original) Appellate Body Report on Korea – Various Measures on Beef , supra,
footnote 44, para. 142.
644 (footnote original) Appellate Body Report on Japan – Alcoholic Beverages II, supra, footnote 116,
at 110.
645 Appellate Body Report on US – FSC (Article 21.5 – EC), paras. 215 and 221.

7.1134 We now turn to the conditions which a foreign- invested enterprise must fulfil in order to
extend the 30-year operating term. The parties refer us to four Chinese regulations that set out the
requirements for an extension: the Chinese-Foreign Equity Joint Venture Law , the 2000 Chinese-
Foreign Contractual Joint Venture Law, the Foreign-Funded Enterprise Law, and the Opinions on the
Extension of Operating Terms. These regulations all provide, in similar language, the date by which
an application for the extension of the operating term shall be submitted to the approval authority, and
the time allowed for the authority to decide whether to approve the application. 646 Paragraph 1 of the
Opinions on the Extension of Operating Terms states:
"[I]f a foreign-invested enterprise wants to extend its operation terms, it shall apply
for extension to the approving authority prior to the 180 th day before the expiry date
of the operation terms ('Ma ndatory Time Period'). The approving authority shall
decide whether to approve or not to a pprove within 30 days after receipt of
application. If no decision is made before the expiry date of the operation terms,
approval for extension shall be deemed to have been granted."
7.1135 Apart from the timely submission of the request, three substantive conditions must be met for
an extension to be granted. Article 3 of the Opinions on the Extension of Operating Terms states:
"The application for extension shall meet the following conditions:
(1) the extension shall be agreed by all investors;
(2) the extension shall be agreed by all directors of the Board; and
(3) the extension shall comply with the laws, regulations and policies on foreign
investment at the time of application."
7.1136 The main issue before us is whether the requi rement to renew the 30-year operating term
unfavourably modifies "conditions of competition" to the detriment of the foreign-invested
wholesaler. The Panel observes that the extension procedure on its face is not a mere formality. First,
a positive decision by the competent authority is required, and a time period for its decision is given.
Thus, the application by the foreign-invested whol esaler is not a simple requirement to notify the
competent authority. Secondly, there are three s ubstantive conditions laid down that a wholesaler's
application must fulfill. The failure to meet any of the three conditions leads to the rejection of the
application. Thus any single investor, or any single member of the Board of directors, in effect has
the power to veto an application to extend the opera ting term of the foreign-invested wholesaler. This
potential veto, which matures at the end of the 30- year operating term, accords significant bargaining
power to any individual investor or board member, undermining the normal governance rules of these
affected wholesalers. Likewise, the requirement to "comply with the laws, regulations and policies on
foreign investment at the time of application" could well mean that a wholesaler who had been
authorized to do business in a particular way unde r its initial licence, and had continued to do so
legally for the duration of its operating term, might find that its application to extend its operating
term is denied since the conditions of its initia l licence might no longer accord with China's current
"laws, regulations and policies on foreign investme nt". In sum, the occurrence of any of these
eventualities could impose significant costs on the foreign-invested wholesaler.
7.1137 These considerations indicate to the Panel th at the maximum 30-year operating term imposed
on foreign invested wholesalers, coupled with a re newal process subject to three conditions, imposes

646 Article 13 of the Chinese-Foreign Equity Joint Venture Law (Exhibit CN-48), Article 24 of the 2000
Chinese-Foreign Contractual Joint-Venture Law (Exhibit CN-49), Article 20 of the Foreign-Funded Enterprise
Law (Exhibit CN-50), and Article 1of the Opinions on the Extension of Operating Terms (Exhibit CN-51).

risk, and therefore may lead to costs, on foreign- invested wholesalers that their like wholly Chinese-
owned competitors do not bear. As demonstrated by the United States, the disadvantages experienced
by foreign-invested wholesalers are particularly acute in the context of multi-year and supply
contracts, where repeat services cannot be guarant eed by the foreign-invested enterprises as the
expiration of its operating term a pproaches. Producers and customer s alike are likely to disfavour
suppliers with operating term limitations because that restraint entails the risk of service interruptions.
Foreign-invested wholesalers may also have difficu lty in securing in a timely manner the finances
needed for their continued operations due to uncertainties in the extension of operating terms.
7.1138 Although these costs stem from risks that are r ealized only toward the end of the 30-year
operating term, they nonetheless have a present value. That present value can be evaluated as early as
the moment a decision is being taken whether to est ablish a new foreign-invested wholesaler. In this
way, the 30-year operating term requirement, together with the associated renewal procedures, could
potentially affect the current conditions of compe tition between foreign-invested and wholly Chinese-
owned wholesalers. This would particularly aff ect those foreign-invested wholesalers who have
operation plans for more than 30 years.
7.1139 We therefore understand that the operating te rm requirement and the associated renewal
procedures, which only apply to fo reign-invested wholesalers, indeed have implications in the
marketplace. We observe that China has the undoubt ed right to regulate trade in services under the
GATS, including by adjusting its foreign investment policy. This regulation must however be in
accordance with the GATS commitment s that China has chosen to make in its Schedule. Should
China wish to maintain discriminatory measures on foreign service suppliers in service sectors for
which it has undertaken national treatment commitme nts, then it must indicate those measures as
limitations in its Schedule. We recall that Chin a has not inscribed in Sector 4B (Wholesale Trade
Services) of its Schedule any limitation related to a limited operating term for foreign-invested
wholesalers. Consequently, China is not entitled to maintain such a condition under Article XVII of
the GATS.
7.1140 In light of the above considerations, we fi nd that the operating term requirement and the
associated renewal procedures modify, with respect to foreign-invested wholesalers who qualify as
"service suppliers of another Member", the conditi ons of competition in favour of wholly Chinese-
owned wholesalers. As noted above, we consider that, for th e measure at issue, the "like" service
suppliers requirement in Article XVII is met. We therefore consider that China has accorded foreign-
invested wholesalers treatment less favourable than that accorded to wholly Chinese-owned
wholesalers within the meaning of Article XVII of the GATS.
7.1141 The Panel therefore finds that the operating term requirement provided for by Article 7.5 of
the Publications (Sub-)Distribution Rule is inconsistent with Article XVII of the GATS.
(iii) Conclusion
7.1142 Based on the considerations in paragraphs 7. 1106-7.1120 and 7.1127-7.1141, the Panel finds
that the requirements concerning registered capital and operating term for foreign-invested
wholesalers respectively contained in para graphs 4 and 5 of Article 7 of the Publications Sub-
Distribution Rule are inconsistent with China's national treatment obligations under Article XVII of
the GATS.
2.
Distribution of sound recordings in electronic form: claims under Article XVII of the
GATS
7.1143 The United States submits that China takes measures that prohibit foreign-invested
enterprises from engaging in the electronic distri bution of sound recordings . This prohibition is

inconsistent with Article XVII of the GATS, accor ding to the United States, because it violates
China's national treatment commit ments under mode 3 with respect to "sound recording distribution
services", as listed in Sector 2.D. of its Services Schedule. According to the United States, each of the
four Chinese measures – the Internet Culture Rule , the Circular on Internet Culture , the Network
Music Opinions , and the Several Opinions – is inconsistent with Article XVII. The United States
submits that the four measures taken together also breach Article XVII as they create a regime
governing the electronic distribution of sound recordi ngs. The United States further submits that the
Catalogue and the Foreign Investment Regulation are also part of this regime.
7.1144 China rejects the US claims, contending that the services at issue are "network music
services", a new type of service totally different from the "sound recording distribution services"
listed in China's Schedule. According to China, "sound recording distribution services" only covers
the distribution of sound recordings embedded in physical media.
7.1145 The Panel notes that the major issue in dispute un der this claim is whether the services at
issue, which the United States say s are affected by specified Ch inese measures, are "sound recording
distribution services" listed in the sectoral column of China's Schedule and can therefore be covered
by China's national treatment commitment. Accordin gly, we will first determine whether the services
at issue are "sound recording distribution services" listed in China's Schedule. We will then examine
the measures identified by the United States under this claim, to determine whether they affect the
services at issue and are inconsistent with Ch ina's national treatment commitments under "sound
recording distribution services".
(a) Whether China has undertaken GATS commitments for the distribution of sound recordings
in electronic form
7.1146 In order to address the question of whether the services at issue are covered by China's GATS
commitments on "Sound recording distribution services" , the Panel first needs to identify the services
that have been invoked by the United States, and then determine the scope of China's commitments
for these services.
(i) Services at issue
7.1147 For the United States, the services at issue are the "electronic distribution of sound
recordings". In its panel request, the United St ates claims that Chinese measures place market access
restrictions and discriminatory requirements on fo reign service suppliers seeking to engage in the
"digital distribution of sound recordings" that is, the distribution of sound recordings not embedded in
a physical medium. For the United States, "sound r ecordings" include songs, "ring tones" and "ring
back tones". In its answer to a question from th e Panel, the United States submits that "electronic
distribution" of the services at issue should be un derstood in a broad sense. According to the United
States, such "distribution" encompasses wholesale, retail, and other transmission activities over the
Internet and through other electromagnetic means. It should be understood to cover the dealing out,
dispersing, or otherwise the moving of a good or service further downstream in the chain from
production to consumption. Thus, the "electronic distribution of sound recordings" encompasses the
wholesale and retail of sound recordings, as well as other activities involved in conveying the sound
recording downstream and to the ultimate consumer, whether distributed through the Internet, telecom
networks, or other electronic means.
7.1148 China submits that the United States in its panel request limits the scope of its claim to
distribution of sound recordings over the Internet, and not by other means such as telecommunications
systems, including mobile telephony. According to China, transmission of music through other
electromagnetic means is therefore not within the scope of the dispute.

7.1149 The United States notes that the measures at issue, in particular the Network Music Opinions,
are more broadly applicable to dissemination over the "network". This would include wired or
wireless media such as the internet and mobile communications.
7.1150 The Panel notes China's argument that the services at issue raised by the United States do not
include the transmission of music by electronic mean s other than the Internet, since the United States
in the panel request limits its clai m to the digital distribution of sound recordings over the Internet.
The relevant section of the panel request reads as follows:
"The measures at issue, however, appear to place market access restrictions and
discriminatory requirements on foreign service suppliers seeking to engage in the
digital distribution of sound recordings. For example, the Interim Regulations on
Internet Culture Administration (the 'Inter im Regulations') defi ne 'internet cultural
activities' as including activities such as w holesaling and retailing of 'internet cultural
products' on the internet (including to mob ile telephones). The Interim Regulations
further define "internet cultural products" as including various kinds of 'network
audiovisual products', including both audiovi sual products that have been produced
specifically for transmission over the internet and products that are the result of the
transformation of an audiovisual product exis ting in physical form into a format that
can be transmitted over the internet. It a ppears, therefore, that the definition of
"internet cultural products" extends to digital sound recordings, and that the definition
of 'internet cultural activities' extends to the digital distribution of such products."
647
7.1151 In examining the panel request, we note that th e United States claims that specific Chinese
measures are inconsistent with Article XVII of the GATS, since these measures discriminate against
foreign service suppliers seeking to engage in the "d igital distribution" of sound recordings. The US
claim is thus specified as "digital" distribution, which China argues means distribution only over the
Internet. In examining the dictionary meaning of "digital", we note that it refers in a technical sense
to "signals or information represented by discrete numeric values of a physical quantity such as
voltage or magnetic polarization (comm only representing the digits 0 and 1)". 648 In a more general
sense, the same dictionary states th at "digital" can refer to "the use of computer technology or digital
communications, especially digital multimedia and the Internet".
7.1152 Looking at this more general meaning of "digital", we take particular note of the use of the
qualifying phrase "especially digital media and the Inte rnet". This indicates to us that there can exist
"digital" communications other than over the Inte rnet, which might include, for example, mobile
telephone networks. From this we deduce that ther e can also be "digital" distribution other than
through the Internet. We see no contextual reason to r estrict the scope of the term "digital" in the US
claim solely to distribution over the Internet.
7.1153 We therefore find that the US claim relating to the "electronic distribution of sound
recordings" include their distribution through the Internet or by other electronic means. We shall refer
to these services in this part as the "services at issue".
(ii) Sectoral scope of "sound recording distribution services"
7.1154 The United States submits that the proper application of the customary rules of treaty
interpretation reflected in the Vienna Convention leads to the conclusion that China's commitments on
"sound recording distribution services" include the distribution of sound recordings through electronic
means, and this conclusion is consistent with the principle of technological neutrality.

647 United States' panel request WT/DS363/5, page 6.
648 Oxford English Dictionary, online version, http://dictionary.oed.com

7.1155 In the United States' view, the ordinary meaning of "recording" is "the action or process of
recording audio or video signals for subse quent reproduction" or "recorded material". 649 Thus, the
term "recording" does not distinguish between record ings of sound stored on physical media or those
stored electronically. Distribution of sound recordi ngs thus includes distribution of any recorded
sound, whether in hard-copy or electronically. Acco rdingly, the ordinary meaning of the term "sound
recording distribution services" includes electronic distribution of sound recordings.
7.1156 The United States argues that the term "dis tribution" does not necessarily mean the
distribution solely of goods, but also services, as suggested by Article XXVIII(b) of the GATS.
Distribution refers to the range of activities undert aken to move a product further downstream. For
the United States, the sale of a sound recording on a CD to a retail outlet or electronically to a
company that then sells it through transmission over the Internet both involve distribution of a sound
recording. The United States asserts that the de finition of "distribution services" in Annex 2 to
China's Services Schedule expressly applies only to the distribution of goods under sector 4, and is
thus not relevant for the interpretation of sector 2.D.
7.1157 For the United States, the definitions of certain terms in the GATS pr ovide relevant context
for the interpretation of China's commitments. Artic le I:3(b) of the GATS defines services broadly to
"includ[e] any service in any sector except services supplied in the exercise of government authority."
In addition, Article XXVIII(e)(i) defines "sector" to mean "with respect to a specific commitment, one
or more, or all, sub-sectors of that service as speci fied in a Member's Schedule." In light of the
ordinary meaning of "sound recording distribution" and the context, the United States submits that
China's commitments in this sector must be read to include the electronic distribution of sound
recordings.
7.1158 Because an analysis of the relevant treaty terms pursuant to Article 31 does not leave the
meaning of the terms of China's GATS schedule ambiguous, obscure, or unreasonable, the United
States contends that there is no need to resort to s upplementary means of interpretation. Even if this
were not the case, an analysis of the supplementary means of interpretation under Article 32 confirms,
according to the United States, its interpretation u nder Article 31 that China's services commitments
cover the electronic distribution of sound recordings.
7.1159 Electronic distribution of sound recordings ex isted before China's accession to the WTO,
according to the United States. China itself was aware that music was being distributed electronically
at the time of its accession. Even if China were correct that it did not intend to make a commitment
with respect to the electronic distribution of sound r ecordings, the United States submits that its intent
is not determinative. In US – Gambling, the panel made clear that a Member's intent is not relevant in
discerning whether the Member has a commitment with respect to a particular means of delivery.
Because China did not explicitly exclude electr onic distribution of sound recordings from its
commitment on sound recording distribution services, the United States contends that China's services
commitments include this form of distribution.
7.1160 According to the United States, its interpretation of China's Schedule is also consistent with
the principle of technological neutrality. Electr onic distribution of sound recordings constitutes a
modern means to supply an existing service. If Ch ina's arguments were accepted, the United States
contends that WTO Members could invoke this reasoning to evade services commitments any time a
new means of delivering a service was developed. On the other hand, the principle of technological
neutrality is consistent, according to the United Stat es, with the concept that the GATS is sufficiently
dynamic so that Members need not renegotiate th e Agreement or their commitments in the face of
ever-changing technology. The United States notes that the Panel in US – Gambling states that "the

649 The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993) Vol. II,
p. 2506 (Exhibit US – 59).

GATS does not limit the various technologically possible means of delivery under mode 1" and that
"if a Member desires to exclude market access w ith respect to the supply of service through one,
several or all means of delivery included in mode 1, it should do so explicitly in its schedule".
According to the United States, this reasoning appl ies equally to China's market access commitments
under mode 3.
7.1161 China submits that its commitments on "sound re cording distribution services" cover the
distribution of sound recordings only in physical form. For China, the commitments should be
interpreted according to the customar y rules of interpretation of public international law, codified in
Articles 31 and 32 of the Vienna Convention.
7.1162 China contends that the term "recording" refers to the physical medium that contains the
result of a recording process. The ordinary definiti on of the term "distribution", according to China,
necessarily refers to the action of mark eting and supplying goods and commodities
650, and does not
refer to "distribution" of sound through electr onic means. Thus, when read together, "sound
recording" and "distribution services" refer to the marketing and supply of a specific category of
goods, namely goods containing recorded music. For China, therefore, "sound recording distribution
services" does not cover the transmission of intangi ble content to users via the Internet. China
submits that this is further confirmed by the specifi c meaning which China attributes to the concept of
"distribution services" provided in Annex 2 to its GATS schedule.
7.1163 China notes that the Republic of Korea, in its answers to the questions of the Panel, submits
that its commitment on "record production and distribution services (Sound Recording)" in Sector
2.D. of its Services Schedule "only covers the pr oduction and distribution of sound recordings in
physical form (e.g. Long-Play (LP) disc)" and th at "electronic production or distribution of sound
recordings is not covered".
7.1164 China also submits that its Services Schedul e has to be interpreted in light of the
circumstances of its conclusion. At the time of negotiations on China's accession to the WTO,
network music services did not, according to Ch ina, constitute an established business operating
within a legal framework. China contends that network music services only emerged fully after China
acceded to the WTO in 2001. Until the breakthrough of network music services around 2003, China
submits that these services were largely illegal. Un til the entry into force of the WIPO Copyright
Treaty in 2002, China argues that no international consensus on the protection of Intellectual Property
Rights had been reached allowing a worldwide legal exploitation of music over the Internet. China
notes that it revised its Copyright Law in 2001 in order to protect for the first time the right to
authorize the legal exploitation of music over the Internet. China submits that its awareness of
technological developments does not alter the conclu sion that the GATS negotiators did not agree to
include a new and unfamiliar service in China's co mmitments under Sector 2.D. of its Services
Schedule.
7.1165 China notes, in addition, that the in dubio mitius principle, applied by the Appellate Body in
EC – Hormones, states that one should not lightly assume that a sovereign state intends to impose
upon itself the more onerous, rather than the less burde nsome, obligation. This suggests, according to
China, that when a GATS commitment cannot be in terpreted clearly to include a new service not
existing at the time of negotiation, it should not be interpreted to do so. Therefore, China argues that
its commitments should not be interpreted as covering the new sector "network music services".
7.1166 In China's view, the United States' reference to the principle of "technological neutrality" is
irrelevant in this dispute, because network musi c services are a service distinct from the distribution

650 American Heritage Dictionary of the English Language , 4th ed. (Houghton Mifflin 2000) (Exhibit
CN-72) and Shorter Oxford English Dictionary, 6th ed. (Clarendon Press 2007) (Exhibit CN-73)

of sound recordings in physical form, and cannot be considered as a mere means of delivery of sound
recording distribution services. China further submit s that the principle of "technological neutrality"
as such and its systemic implications are still unde r consideration among WTO Members. For China,
the application of the principle of technological neutrality, as set out by the panel in US – Gambling,
to the interpretation of Members' GATS Schedules, would conflict with the principle of progressive
liberalisation embodied in the text of the GATS, especially in the Preamble and Article XIX.
7.1167 The Panel recalls that the main issue arising under this claim is whether the services at issue
are covered by China's commitments on "sound recording distribution services" in Sector 2.D. of its
Services Schedule. In resolving this issue, the main interpretative question is whether China's sectoral
entry extends to the supply of such services through the delivery of content to the consumer
"electronically", and not embedded in a physical medium such as a CD or DVD.
(iii) Interpretation of GATS Schedules
7.1168 As noted previously, Article XX:3 of the GATS provides that Members' schedules of specific
commitments form an integral part of the GATS. Therefore, the rules of interpretation that apply to
services schedules are the same as those applicable to the GATS itself. Our interpretation will
therefore need to proceed accordi ng to the customary rules of inte rpretation of public international
law as codified in Articles 31 and 32 of the Vienna Convention.
7.1169 Pursuant to Article 31 of the Vienna Conven tion, we should interpret China's Services
Schedule in good faith in accordance with the ordinary meaning to be given to the terms of the
Schedule when read in their context and in light of the object and purpose of the GATS and the WTO
Agreement. Pursuant to Article 32 we may have recourse to supplementary means of interpretation,
in order to "confirm" the meaning resulting from the application of Article 31, or to determine the
meaning when the interpretation according to Artic le 31 leaves the meaning "ambiguous or obscure"
or, leads to a result which is "manifestly absurd or unreasonable".
7.1170 The relevant part of China's commitments is reproduced as follows:
Sector or sub-sector Limitations on
Market Access
Limitations on
National Treatment
Additional
Commitments
D. Audiovisual Services
- Videos, including
entertainment software
and (CPC 83202),
distribution services
- Sound recording
distribution services

(3) Upon accession, foreign
services suppliers will be
permitted to establish
contractual joint ventures with
Chinese partners to engage in
the distribution of audiovisual
products, excluding motion
pictures, without prejudice to
China's right to examine the
content of audio and video
products (see footnote 1)

(3) None

Without prejudice to
compliance with
China's regulation on
the administration of
films, upon
accession, China will
allow the importation
of motion pictures
for theatrical release
on a revenue-sharing
bases and the
number of such
imports shall be 20
on an annual basis.

Sector or sub-sector Limitations on
Market Access
Limitations on
National Treatment
Additional
Commitments
- Cinema Theatre
Services
(3) Upon accession, foreign
services suppliers will be
permitted to construct and/or
renovate cinema theatres, with
foreign investment no more
than 49 per cent.

(3) None

(Footnote 1 that is referenced here is a footnote contained in the Horizontal part of China's Schedule. It states
that the operation, management and equity participation in a contractual joint venture are determined by the
contract establishing it.)

7.1171 The Panel notes that the parties, in applying the applicable rules of interpretation codified in
Articles 31 and 32 of the Vienna Convention to inte rpret the inscription "sound recording distribution
services" in Sector 2.D. of China's Services Schedul e, have drawn different conclusions. The United
States submits that by this inscr iption, China has made commitment s on the distribution of recorded
sound, whether as a physical or non-physical product. China, on the other hand, contends that its
commitment under "sound recording distribution services" covers the distribution of sound recordings
only as a physical product.
Ordinary meaning
7.1172 We will begin our interpretation of the ordi nary meaning of "sound recording distribution
services" by examining in turn the two main elements that compose this entr y in China's Schedule:
"sound recording", and "distribution services".
"sound recording"
7.1173 We observe that the main interpretative diffi culty in the term "sound recording" is the
meaning of the word "recording". To determine the ordinary meaning of "recording", both parties
have referred to dictionary defini tions. We consider that, of the several definitions of "recording"
offered in this dictionary, the most relevant for our purposes is "recorded material; a recorded
broadcast, performance."
651
7.1174 In light of this dictionary definition, China argues that the word "material" designates the
physical medium containing the result of the recording process, and that a "sound recording" is
therefore a physical object. The United States, on the other hand, holds that the ordinary meaning of
"recording" does not distinguish between recordings of sound stored on physical media and those
stored electronically.
7.1175 In the Panel's view, the reference to the phrase "recorded material" in the cited dictionary
definition can only mean, in a grammatical sense, the "material that is recorded" and not the
"recording material". This is confirmed by the two specific examples given in the dictionary
definition: a "recorded broadcast" and a "record ed performance" are both considered as "recorded
material". Since the terms "broadcast" and "perfo rmance" clearly refer to content, and not to a
particular medium on which the content is embedde d or transferred, the word "material" in the
dictionary definition must refer to content. Ha d the dictionary definition intended to define a
"recording" as a physical object, it would have used a different term, such as "recording material", and

651 Shorter Oxford English Dictionary, 6th ed. (Clarendon Press 2007), Vol. II, p. 2927.

not "recorded material", and given examples of types of physical media on which recordings are
embedded or transferred.
7.1176 An analysis of the ordinary meaning of "sound r ecording", based on this dictionary definition,
suggests therefore that the term cannot be limit ed to sound embedded or transferred on physical
media. In other words, the ordinary meaning of "sound recording" depends not on the technology of
storage or distribution of the sound, but rather on its nature as "content".
"distribution services"
7.1177 Having examined the ordinary meaning of "soun d recording", we now look at the ordinary
meaning of "distribution services". The parties differ also in their views on the meaning of this term.
China submits that it refers to the action of marketing and supplying physical products and
commodities only, while the United States argues that it can also involve the distribution of services.
7.1178 We begin by looking at a dictionary defi nition of the term "distribution". The Shorter Oxford
English Dictionary defines this term, in an economic or commercial sense, as:
"the dispersal of commodities among consumers affected by commerce."
652
7.1179 The term "commodity" is then further defined as:
"[A] thing of use or value; spec. a thing that is an object of trade, esp. a raw material
or agricultural crop"; or "a thing one deals in or makes use of".653
7.1180 According to this dictionary meaning of the term, "distribution" means the "dispersal of
commodities", and this dispersal can include, in its most general sense, anything that is "of use or
value". We note the use of the term "commodities". While historically it may be true that the term
"commodity" was commonly understood to refer mo re to tangible goods than to services, nowadays
technology allows an increasing range of intangible products to be distributed in a commercial sense.
These intangible products, such as digitised content, of ten involve services, and can be distributed to
consumers. In fact, Article XXVIII of the GATS explicitly defines the supply of a service – which, of
course, is not in itself a good – as including its distribution. At least one other dictionary consulted by
the Panel directly supports this interpretation, defining "distribution" as the "movement of goods and
services from the source through the distribution channel".
654 In our view, therefore, distribution can
be understood as referring to a transaction whereby an ything of value, tangible or intangible, is
dispersed among consumers, with or without intermediaries.
7.1181 Our analysis so far, based on an examination of basic dictionary definitions, suggests that the
ordinary meaning of the words "sound recording" refe rs to content, and not to any physical medium
on which the content may be embedded. At the same time, our analysis suggests that the ordinary
meaning of the term "distribution" can be understood as the dispersal of things of value, and that this
can involve tangible or intangible products. Combining both of these elements, our discussion so far
suggests that China's commitment on "sound recording distribution services", covers the distribution
of sound recordings through an electronic medium, and not just the distribution of sound recordings
embedded on a physical medium as argued by China. We must now further examine this preliminary

652 Shorter Oxford English Dictionary 6th ed. (Clarendon Press 2002), Vol. I, p. 721. We note that
other dictionary definitions of the term "distribution", quoted in the context of Article III:4 of the GATT 1994 at
paras. 7.1457-7.1459, are not inconsistent with this definition.
653 Shorter Oxford English Dictionary 5th ed. (Clarendon Press 2007), Vol. I, p. 461.
654 Businessdictionary.com. Emphasis added. The Monash Marketing Dictionary also describes a
distribution channel as the path or route taken by goods and services as they move from producer to final
consumer (www.buesco.monash.edu.au/mkt/dictionary/).

meaning, pursuant to Article 31 of the Vienna Convention , which provides that the ordinary meaning
of the terms of the treaty must be examined in thei r "context" and in light of the "object and purpose"
of the treaty.
Context

7.1182 According to Article 31:2 of the Vienna Convention, the "context" within which a treaty
provision should be interpreted comprises the text of the treaty, including its preamble and annexes,
and certain agreements or instruments made at the ti me of the conclusion of the treaty. With respect
to the interpretation of a GATS Schedule, the Appellate Body in US – Gambling has stated that this
context includes: (i) the remainder of the Member's Schedule, (ii) the substantive provisions of the
GATS, (iii) the provisions of covered agreements other than the GATS, and (iv) the GATS schedules
of other Members.
655 Accordingly, we will now examine our preliminary view of the meaning of
China's commitment on "sound recording distribution services" in the context provided by these
elements.
China's GATS Schedule
7.1183 We note that the entry "sound recording distribu tion services" is inscribed in Sector 2.D. of
China's Schedule, entitled "Audiovisual Services", and th at this sector is in turn one of the sector
groups that China has inscribed in its Schedule. Si nce a panel "must give meaning and effect to all
the terms of the treaty"
656, we consider that we must examine carefully for possible context the whole
of China's Schedule. We consider that this examin ation should include in particular the inscriptions
China has made for Audiovisual Services, as well as those made in other relevant sectors, notably
Distribution Services and its related Annex 2.
7.1184 Recalling that our overall interpretative task, in light of the United States' claim, is to
determine whether China's commitment on the supply of "sound recording distribution services"
through commercial presence covers distribution in non-physical form, we begin with an examination
of China's other inscriptions in the Audiovisual Services sector.
Audiovisual Services (Sector 2.D)
7.1185 China's commitment on "sound recording distribution services" falls within the sectoral
heading of "Audiovisual Services". Having considered the ordinary meaning of this commitment, we
now need to consider as possible context the foll owing other elements inscribed under "Audiovisual
Services": the meaning imparted by the sector head ing itself; the scope of treatment guaranteed
under the market access and national treatment column s that apply to "Sound recording distribution
services"; additional commitments inscribed by Ch ina under the heading Au diovisual Services; and
finally, other sub-sectors falling under audiovisu al services including any specific commitments
applicable to them.
7.1186 We begin our contextual examination of China's GATS Schedule by examining the wording
of the sector heading – Audiovisual Services – that the commitment on sound recording distribution
services falls within. We observe that the core m eaning of the term "audiovisual" means "pertaining
to both hearing and vision." 657 This meaning suggests that the scope of "Audiovisual Services"
extends to activities in which content is sensed by th e user through the faculties of hearing or vision.
It would not appear to exclude any service from its scope on the basis of the medium on which the
content may be coded, stored or transferred. Th is suggests that a service in China's Schedule which

655 Appellate Body Report on US – Gambling, para. 178.
656 Appellate Body Report on US — Gasoline , p.23, DSR 1996:I, 3, at 21.
657 Oxford English DictionaryOnline, available at http://dictionary.oed.com./entrance.dtl.

appears under the heading "Audiovisual Services", unless it is specifically modified in the wording of
the sectoral entry, relates to such core services as producing, distributing, projecting or broadcasting
content ("hearing or vision").
7.1187 We next examine for relevant context th e specific commitments undertaken for "sound
recording distribution services". These specific comm itments – the inscriptions made in the columns
entitled "limitations on market access", "limita tions on national treatment" and "additional
commitments" – serve to qualify the extent of the commitment being undertaken for "Sound recording
distribution services", but may also provide context fo r the scope of sectoral coverage to which that
commitment applies, and which is inscribed in the "sector or sub-sector" column. In this light, we
note that in the "limitations on market access" co lumn of its Schedule, China has inscribed the
following with respect to supply through commercial presence:
"Upon accession, foreign services suppliers w ill be permitted to establish contractual
joint ventures with Chinese partners to engage in th e distribution of audiovisual
products, excluding motion pictures, without prejudice to China's right to examine the
content of audio and video products (see footnote 1)". (emphasis added)
7.1188 The vertical placement of this commitment with in its column shows that it applies to "Sound
recording distribution services", as well as to "V ideos, including entertainment software and
CPC(83202), distribution services". The wording of the commitment is particularly relevant for our
purposes, since it provides further information on the extent of the commitment in terms of its sectoral
scope, namely "audiovisual products, excluding mo tion pictures". Examining more closely this
wording, we note that it refers specifically to a udiovisual "products". We observe that the term
"product" in contemporary usage refers to services as well as goods, a view that finds support in the
Oxford English Dictionary, which defines this te rm in its commercial sense as "[a]n article or
substance that is manufactured or refined for sale (more recently applied also to services)."
658 W e
note also that the CPC, on the basis of which document W/120 was drawn up, and to which many
Members including China make reference in their schedules, is about "products" that include both
goods and services. We find therefore that the use of the term "audiovisual products" in China's
market access commitment is a further indication that "sound recording distribution services" are not
limited to the distribution of physical products, but extend also to the distribution of intangible
products and services.
7.1189 Continuing our examination of the wording of China's market access commitment, we note
that China excludes "motion pictures" from the distribution of "audiovisual products" that are the
subject of its market access commitment. It seems clear to us that China's specific exclusion of the
distribution of "motion pictures" indicates that this service is considered by China to be within the
normal sectoral scope of "audiovisual products". Fu rther, in responding to a question from the Panel,
China indicates that the distribution of motion pictur es is not considered to be the distribution of a
physical good.
659 It follows that China accepts implicitly that the distribution of non-physical

658 Oxford English Dictionary Online, available at http://dictionary.oed.com/entrance.dtl.
659 China's response to question No. 86. The Panel notes in this respect that the CPC contains, under its
services section, a category referring to the production of motion pictures (96112). Obviously, the simple
production of a good could not be said to constitute a service, nor would it make sense to undertake
commitments under the GATS as regards the production of a good. The CPC also contains, under the same
section, a category relating to the distribution of motion pictures (96113). Since the production of motion
pictures could not be said to relate to the production of a good in this context, we similarly consider that the
distribution of motion pictures cannot there relate to the distribution of physical goods, but rather to that of an
intangible product. We also note that the CPC uses the term "cinematogra phic film" when referring to physical
goods (CPC 3895). The wholesale and retailing of cinema tographic films is therefore found in the CPC section
on distribution services (CPC 62263; CPC 63254), which is solely concerned with the distribution of physical

products is included within the sc ope of "audiovisual products" mentioned in China's market access
column. Likewise, the distribution of "audiovisual products" (which as we have seen includes the
distribution of non-physical products) in China's market access commitment must logically be
included within the scope of the sub-sector inscribed in the sector column of China's Schedule. This
is further evidence, in the view of the Panel, that "sound recording distribution services" includes
distribution of non-physical products. The Panel notes that this conclusion applies also to the other
sub-sector covered by the market access commitment, "Videos (...) distribution services", which we
deal with in a later section of these findings.
7.1190 We now examine the column entitled "Add itional Commitments" contained in the
Audiovisual Services section of China's schedule. In this column, China has committed to allow "the
importation of motion pictures for theatrical rele ase on a revenue-sharing basis and the number of
such imports shall be 20 on an annual basis." Both parties agree that this means 20 distinct titles
(content), and not 20 physical copies of titles (goods). In the Panel's view, the entry in this column,
which is scheduled alongside, and therefore in re lation to, the specific commitments on "videos (...)
distribution services" and on "sound recording distribution services" further suggests that the sectoral
scope of these entries cannot be sai d to refer solely to physical products, to the exclusion of services
relating to content.
7.1191 In conclusion, our examination of the ma rket access commitments under Audiovisual
Services (which cover "audiovisual products" excluding "motion pictures"), as well as our analysis of
the entry under additional commitments (which refers to the import of content, not physical products),
provides context that lends support to our prelim inary view that China's entry on "Sound recording
distribution services" does not exclude the dist ribution of music and other sound content as non-
physical products. We note that this conclusion applies also to the other sub-sector covered by
China's market access commitment, "Videos (...) distribution services", which we deal with in a later
section of these findings.
7.1192 Having explored the context provided by Ch ina's market access commitment for "Sound
recording distribution services", we now examine th e other two sub-sectors inscribed by China under
the heading "Audiovisual Services", for further cont extual meaning. These two other sub-sectors are:
"Videos, including entertainment software a nd (CPC 83202), distribution services", and "Cinema
Theatre Services".
7.1193 With respect to the first of these subsectors, "Videos, including entertainment software and
(CPC 83202) distribution services", we will demonstrat e later in paragraphs 7.1320 to 7.1349 that it
covers, inter alia, the distribution of videos embedded in a physical carrier, but is not limited to that.
We find in those paragraphs that the ordinary mean ing of the terms in the entry in light of their
context indicates that the sectoral coverage of "Videos (...) distribution services" extends to the
distribution of video content.
7.1194 As also demonstrated in paragraphs 7.1334 to 7.1336 the terms "distribution services" in the
context of the subsector "Videos (...) distribution services" appears to have a broad meaning in the
specific context of China's Schedule. First, the te rm "distribution services" can cover the distribution
of both physical and non-physical products. Sec ond, the subsector description includes the services
defined in CPC 83202, which encompass rental-lea sing activities, and the movement of products
along the network of commerce to the final consumer. We consider that the concept of "distribution
services" in China's entries relating to videos and to sound recording must have similar meaning. This
view is reinforced by our observation that the text of the market access column referring to the
"distribution of audiovisual products", as well as th e entries in the national treatment and additional

goods. We note that such approach is enshrined in the W/120 and reproduced by various Members in their
schedules of commitments under the GATS.

commitment columns are common to both "Sound r ecording distribution services" and "Videos (...)
distribution services". Further, we see nothing in China's Schedule that would contradict such
reading and that would suggest that "distribution servi ces" in the context of this particular entry has a
narrower meaning. Indeed, we recall that China has chosen not to specify in its Schedule the scope of
its sectoral entry, nor to include a reference to a particular CPC category.
7.1195 We now consider the contextual relevance of the remaining sub-sector under Audiovisual
Services – "Cinema Theatre Services". The word ing of this entry would suggest that the main
activity in this sub-sector is exhibiting motion pi ctures to the public, together with any ancillary
services. With respect to "Cinema Theatre Servi ces", China has inscribed a market access limitation,
for supply through commercial presence, as follows:
"Upon accession, foreign services suppliers w ill be permitted to construct and/or
renovate cinema theatres, with foreign investment no more than 49 per cent".
7.1196 The wording of this commitment indicates, with respect to supply through commercial
presence, that the sectoral scope of the commitment goes beyond projecting motion pictures to include
a service supplier seeking to "construct and/or renovate cinema theatres". We note, however, that this
service activity appears to be covered also by Ch ina's commitments under "Construction and Related
Engineering Services", in Sector 3 of its Schedule. This sector contains a specific reference to
CPC 512, which itself contains a sub-sector 51250 (" For public entertainment buildings"), which is
described as "Construction work (incl. new work , additions, alterations and renovation work) of
public entertainment buildings such as cinemas ...". At first glance, the construction or renovation of
cinema theatres would seem to be covered by bot h Audiovisual Services and Construction Services
sectors.
7.1197 The activity of construction or renovation of cinema theatres cannot, however, fall under both
sectors at once if ambiguity in the level of commitments is to be avoided. In support of this principle,
the Appellate Body in US – Gambling has stated that
"[B]ecause a Member's obligations rega rding a particular service depend on the
specific commitments that it has made with r espect to the sector or subsector within
which that service falls, a specific service cannot fall within two different sectors or
subsectors. In other words, the sectors and subsectors in a Member's Schedule must
be mutually exclusive."
660
7.1198 The mutual exclusivity of sectors and subsectors in Members' Schedules is further explained
by the Appellate Body in these terms:
"If this were not the case, and a Member scheduled the same service in two different
sectors, then the scope of the Member's commitment would not be clear where, for
example, it made a full commitment in one of those sectors and a limited, or no,
commitment, in the other."661
7.1199 Given the specific textual reference to "cons truction and renovation of cinema theatres"
within Audiovisual Services, and the impermissib ility for, as noted by the Appellate Body for the
same service to be covered under different sectors, we deduce that China h as chosen to cover this
activity solely under Audiovisual Services, and not under Construction a nd Related Engineering
Services.

660 Appellate Body Report on US – Gambling, para. 180.
661 Appellate Body Report on US – Gambling, para. 180, footnote 219.

7.1200 We draw three inferences from China's sectoral placement of its commitment covering the
construction and renovation of cinema theatres. First, it would appear to indicate that China wished
also to group under the heading Audiovisual Se rvices activities that are related to audiovisual
services, even if these services have been classified in another sector under relevant classification
systems or according to practices of other WTO Members. Second, as a consequence of this grouping
of related activities under the audiovisual sector, th e range of services included in that sector are
wider-ranging than would otherwise be the case.
7.1201 In particular, the inclusion within "Cinema Th eatre Services" of services "to construct and/or
renovate cinema theatres" shows that sectoral inscriptions under Audiovisual Services contain
services that are not focused on the core activitie s of production, distribution or reproduction of
audiovisual content, but also on services that are only auxiliary to such core activities, and that would
have been classified in other sections of the Sc hedule, under relevant classification systems or
according to practices of other WTO Members. With respect to our interpretation of the scope of
"Sound recording distribution services", this could be an indication that China may have included
within its scope service activities (such as the dist ribution of content embedded in physical products
such as CDs and DVDs) that might otherwise be included in another sector (such as Distribution
Services) of its Schedule. This may be an indi cation that the scope of "Sound recording distribution
services" extends (as agreed by the parties in this case), to the distribution of content embedded in
physical products. However, it does not address the issue of whether the commitment extends also to
the distribution of content not embedded in physi cal products, but conveyed to the consumer on a
non-physical carrier.
7.1202 Third, we consider that the entry "Cinema Theatre Services", despite the fact that it apparently
extends to activities normally covered in sectors other than "Audiovisual Services", still has at its core
the service that is normally understood to fall within "Audiovisual Services": namely services
relating to audiovisual content, in this case the pr ojection or exhibition of motion pictures. This
suggests that China's apparent desire to expand the scope of commitments normally falling under
audiovisual services – by including services and activities normally classified in other sectors – has
not come at the expense of excluding from sector 2.D the services that would normally be considered
to be subject to scheduling under "Audiovisual Services", that is, those relating to audiovisual content.
This is consistent with the view that the en try on "sound recording distribution services" includes
what is normally considered an "Audiovisual Service" , namely the distribution of sound recordings as
content, especially since China has not indicated otherwise in its Schedule.
7.1203 In summary, the context provided by China's in scriptions in the Audiovisual Services sector
of its Schedule support the view that the entry on "Sound recording distribution services" extends to
the distribution of content in non-physical products.
Distribution Services (Sector 4)
7.1204 Having examined the inscriptions China has entere d in the Audiovisual Services sector of its
Schedule, we now examine the entries China has made in other sectors to discover any context useful
in determining the meaning of "sound recording di stribution services". What is striking is that
distribution services are covered, more generall y, in Sector 4 of China's Schedule, entitled
"Distribution Services (as defined in Annex 2)". Annex 2 lists four main sub-sectors: commission
agent services, wholesaling, retailing, and franchising. The Annex states at the outset that the
"principal services rendered in each subsector can be characterized as reselling merchandise". For
commission agents' services, wholesaling, and reta iling it specifies that these services consist of the
sale of "goods/merchandise". Accordingly, it is clear to us that Annex 2, and the sector on
Distribution Services which refers to it, applies only with respect to commission agents' services,
wholesaling, or retailing of goods or merchandise – in other words, the distribution of all physical
products. The only goods that China's commitments under Distribution Services do not cover are

those explicitly listed in the corresponding sector co lumn – salt and tobacco for commission agents'
and wholesale services, and tobacco for retail services.
7.1205 In our view, had China's relevant entr ies under Audiovisual Services (namely "Sound
recording distribution services" and "Video (...) distribution services") been intended to cover
exclusively audiovisual products in physical form , there would have been no need to insert these
entries under a sector other than Distribution Servi ces, where the distribution of physical goods are
generally covered in China's Schedule. Thus, it is reasonable to presume that the coverage of the
entries in China's Schedule under "Audiovisual Se rvices" should extend to the distribution in non-
physical form of audiovisual products. In reaching th is view, we recall that, in order to ensure
unambiguous commitments, the sectors and subsectors in a Member's Schedule must be mutually
exclusive, and that a specific service cannot theref ore be interpreted as falling within two different
sectors or subsectors.662
7.1206 The Panel notes China's view that the refere nce to goods and merchandise, contained in
Annex 2 on Distribution Services supports China' s position that "Sound recording distribution
services", in similar fashion, involves only physical products. We observe however that the definition
of "distribution services" contained in Annex 2 a ppears not to apply to services other than those
covered under Sector 4 – Distribution Services. First, China's heading on "Distribution Services" is
accompanied by the qualifier "as defined in Annex 2", whereas the heading on "Audiovisual Services"
makes no mention of any Annex. Second, the term inology of Annex 2 has little in common with that
used in China's commitments on Audiovisual Services. The terms defined in Annex 2 – "commission
agents' services", "wholesaling services", "retailing se rvices", and "franchising services" – are used in
various sector-specific commitments under Distributi on Services, but not under Audiovisual Services
or any other sector listed in China's Schedule. Simi larly, the definition of "distribution services" in
Annex 2 generally accords with the nature of the services listed under Distribution Services in China's
Schedule, which principally involve "reselling merc handise". Finally, the term "distribution services"
is not used within the GATS and Members' schedules to mean solely "reselling merchandise". China
itself indicates, for example, that "motion picture distribution services" is not concerned with the
distribution of goods or merchandise.
663 We are therefore not convinced that the definition of
"distribution services" contained in Annex 2 is applicable to Audiovisual Services, or that the
definitions in Annex 2 suggest in any way that the "distribution services" referred to under
Audiovisual Services cover only audiovisual content embedded in physical products.
7.1207 The Panel wishes to recall at this point th at the US claim on "Sound recording distribution
services" covers only the distribution of the non-phy sical product. Although not within the scope of
the claim, both parties agree that "Sound recording distribution services" concerning the physical
product are covered in China's Schedule under A udiovisual Services, and not under Distribution
Services where distribution of the physical product is generally covered. Since this is not an issue that
we are asked to rule on in the present dispute, we make no determination on it.
7.1208 Having examined China's Schedule for useful context for the interpretation of "Sound
recording distribution services", we now examine wh ether provisions of the GATS itself can shed
light on this matter.
Provisions of the GATS
7.1209 The Panel recalls that a Member's Schedule, according to Article XX:2, is an integral part of
the GATS, and the provisions of the GATS thus appl y to the inscriptions in China's Schedule. In
examining the definitions in Article XXVIII(b) of the GATS, we note that "the supply of a service" is

662 See paragraphs 7.1197 and 7.1198.
663 China's response to question No. 86.

defined as including the "production, distribution, marketing, sale and delivery of a service"
(emphasis added). This definition makes clear that th e activity of "distribution" is included within the
notion of the supply of a service. Since a "service" is intangible and not itself a good (although the
supply of a service may well involve goods), this defi nition suggests that the supply of a service listed
in a Member's Schedule, unless otherwise specified, can cover the distribution of non-physical
products, such as sound recordings delivered ove r the Internet. In our view, therefore
Article XXVIII:(b) of the GATS is further support fo r the view that the supply of "sound recording
distribution services" that China has committed to in its Schedule applies, unless otherwise specified
in its Schedule, to the distribution of the intangible content of sound recordings, and is not limited, as
China argues, to the distribution of sound recordings as physical products.
GATS Schedules of other Members
7.1210 The Panel observes that other Members' GATS Schedules, like China's, form part of the
GATS. They are treaty text, and reflect the common intention of all Members. Under Article 31 of
the Vienna Convention , GATS Schedules can therefore provide context for the interpretation of
China's commitment on "Sound recording distribution services". We recognize however the need for
caution, recalling the Appellate Body's view that "use of other Members' Schedule as context must be
tempered by the recognition that each Schedule has its own intrinsic logic"
664.
7.1211 As noted above, China has argued that Ko rea's position on the scope of Korea's own
commitment on sound recording provided support for China's view that its commitment in the same
area only concerns the distribution of the physical product, not the electronic distribution of
content.
665 Korea, as a third party, has indeed indicated that it considered its entry to cover only sound
recordings in physical form.666
7.1212 We observe that the relevant entry in Kor ea's Schedule reads as follows: "Record production
and distribution services (Sound Recording)". 667 In examining this sectoral entry, we note that it
subordinates the phrase "Sound Recording" by enclos ing it in parentheses. What Korea focuses its
commitment on is specified as " record production and distribution services" (emphasis added).
Among the dictionary meanings of "record", the most relevant in this usage appears to be:
"A disc or, formerly, a cylinder from which recorded sound or television pictures can
be reproduced. Occasionally also, a recording made on magnetic tape."668
7.1213 We note that the cited dictionary meaning of "record" refers to the medium on which content
is recorded, and not primarily to the content itself. On the basis of this meaning, we cannot agree with
China's view that the wording of Korea's commitm ent, coupled with Korea's statement that its
commitment covers sound recordings only in physical form, supports China's interpretation of its own
commitment on "sound recording distribution services".
7.1214 The Panel also observes that, apart from China and Korea, 15 Members have made
commitments relating to sound or audio recording under Audiovisual Services. 669 Of these, two have
linked "sound recording" explicitl y to the notion of distribution services. The inscriptions in the
column "sectors and sub-sectors" of the Schedules of these Members read as follows:

664 Appellate Body Report on US – Gambling, para. 182; Panel Report on US – Gambling, para. 6.98.
665 See also China's response to question No. 240 and United States' comments on China's response.
666 Korea, response to question No 3.
667 GATS/SC/48.
668 Oxford English Dictionary Online, available at http://dictionary.oed.com/entrance.dtl.
669 Armenia, Cape Verde, Central African Republic, Georgia, Hong Kong China, Japan, Jordan,
Kyrgyz Republic, Malaysia, Panama, Singapore, Chinese Taipei, Tonga, United States, and Vietnam.

Malaysia: "Motion Picture, video tape and audio recording distribution services (CPC
96113)".670
Singapore: "the services covered are producti on, distribution and public display of –
motion pictures; - video recordings; - sound recordings".671

7.1215 With respect to Malaysia's sectoral entry, which refers to "audio recording distribution
services", this phrase appears to be synonymous with "sound recording distribution services" (since
the only change is the substitution of the word "audi o" for "sound"), the ordinary meaning of which
we have examined above. We recall from our previ ous examination that the word "recording" (unlike
the word "record") refers primarily to content, and not to the medium on which content is embedded.
We therefore do not consider that the entry "audi o recording distribution services" in Malaysia's
Schedule lends support to China's view that its co mmitment is restricted to the distribution of
audiovisual content embedded in a physical product. The same can be said of Singapore's entry on
the "production, distribution and public displa y of motion pictures; video recordings; sound
recordings", in that the ordinary meaning of th e terms "sound recordings" can be analysed the same
way as that of "sound recording" in China's Schedule.
7.1216 In view of China's arguments in relation to Korea's Schedule, we note two important aspects
in examining more generally how Members have made commitments in their Schedules on the
distribution of sound recordings. First, when Me mbers' services schedules specify commitments for
audiovisual products in physical form, they tend to do so under their sector on Distribution Services.
Second, when Members' services schedules mention s ound recordings in physical form (either to
specify their inclusion or exclusion from a commitme nt), they tend to do so (unlike China) by using
terms referring to the medium on which the sound r ecording is embedded. For both these points, we
observe that, although the practice of other Memb ers is in no way binding on any Member, this
practice at the very least does not lend support to China's interpretation that its commitment under
Audiovisual Services covers only sound recordings in physical form. Illustrating these two points, we
note that:
(a) Canada has specifically excluded from its wholesale and retailing commitments under
Distribution Services such physical products as "musical scores, audio and video
recordings in 62444" (wholesale) and "music scores, audio and video records and
tapes in 63234" (retailing).
672
(b) Some Members, namely Albania, Croatia, Estonia, Latvia, Lithuania, Moldova and
Peru673, which all acceded to the WTO before China, underscore in their section on
Distribution Services that their wholesale and/or retailing commitments cover audio
and video records and tapes mentioned in the relevant CPC number. These are
specific physical products.
674
(c) Some other Members, including Cambodia, FYR Macedonia, Nepal, Ukraine and
Vietnam, which all acceded to the WT O after China, expressly specified under
Distribution Services that their wholesale and/or retail commitments covered audio
records, scores and tapes, which are all physical products.
675

670 GATS/SC/52.
671 GATS/SC/76.
672 GATS/SC/16.
673 Peru is an original WTO Member.
674 GATS/SC/131; GATS/SC/130; GATS/SC/127; GATS/SC/126; GATS/SC/133; and GATS/SC/134.
675 GATS/SC/138, GATS/SC/139, GATS/SC/140, GATS/SC/142, and GATS/SC/144.

7.1217 Although this point was not raised in the partie s' arguments, the Panel notes further that some
Members, under the Audiovisual Services heading of their schedules, have taken commitments
specifically on "distribution services", typically in relation to "motion pictures and video tapes" (CPC
96113).
676 We observe that CPC 96113 defines these ser vices as involving "the sale or rental of
movies or tapes to other industries for public entertainment, television broadcasting, or sale or rental
to others." (emphasis added) However, the Panel does not consider that this inscription, contained in
some other Members' schedules, suggests that th e "distribution services" mentioned in China's
Schedule in "Sound recording distribution services" are restricted to distribution "to other industries",
as in the case of the services de scribed in CPC 96113. We observe that China has included no
reference to the CPC for its commitment on "S ound recording distribution services", nor has it
otherwise defined in specific terms what this sectoral entry entails. Further, as discussed above and in
the subsequent section, the particular context in which China's sectoral annotation is found, in
particular the accompanying entry on "video, in cluding entertainment software and (CPC 83202),
distribution services", in no way suggests that the "distribution services" in China's entry on "sound
recording distribution services" are restricted to what is spelled out in CPC 96113.
7.1218 We therefore find that the context provided by the Schedules of other Members, does not
point to an interpretation in any way different from that suggested by the other contextual elements
we have examined – that China's entry on "Sound r ecording distribution services" in the Audiovisual
Services sector of its Schedule extends to sound recordings distributed in non-physical form.
Object and purpose

7.1219 We now verify whether our interpretation of China's commitment on "Sound recording
distribution services" is consistent with the object and purpose of the GATS. We note that the
Preamble of the GATS indicates that the Agreement is aimed, inter alia, at establishing "a multilateral
framework of principles and rules for trade in servi ces with a view to the expansion of such trade
under conditions of transparency and progressive libera lization". In light of this general object and
purpose, the Preamble also provides that commitmen ts negotiated under the Agreement should aim at
"securing an overall balance of rights and obligati ons" between the Members. We find that our
interpretation of China's commitment on "Sound reco rding distribution services" is consistent with
this object and purpose.
Preliminary conclusion
7.1220 The Panel has now completed its interpretation of the scope of China's commitment in its
GATS Schedule on "Sound recording distribution services" according the rules set out in Article 31 of
the Vienna Convention . After examining the ordinary meaning to be given to the terms of China's
Schedule when read in their context and in light of the object and purpose of the GATS, we have
reached the preliminary conclusion that this commit ment extends to sound recordings distributed in
non-physical form, through technologies such as the Internet.

676 These Members are: Armenia (GATS/SC/ 137), Cape Verde (GATS/SC/145), Georgia
(GATS/SC/129), Hong Kong, China (GATS/SC/39), India (GATS/SC/42) , Israel (GATS/SC/44), Japan
(GATS/SC/46), Jordan (GATS/SC/ 128), the Republic of Korea (GATS/SC/48), Kyrgyz Republic
(GATS/SC/125), Lesotho (GATS/SC/114), Malaysia (GATS/SC/52), New Zealand (GATS/SC/62), Nicaragua
(GATS/SC/63), Oman (GATS/SC/132), Panama (GATS/SC/124), Saudi Arabia (GATS/SC/141), Singapore
(GATS/SC/76), Chinese Taipei (GATS/SC/136/rev.1), Thailand (GATS/SC/85), Tonga (GATS/SC/143), the
United States (GATS/SC/90), and Viet Nam (GATS/SC/142). Of these, we note that the commitments of Cape
Verde, Saudi Arabia and Tonga - recently acceded Members - expressly specify or clarify in their schedules that
their commitments on motion picture distribution services consist of the licensing of motion pictures.

Supplementary means of interpretation
7.1221 The Panel recalls that pursuant to Article 32 of the Vienna Convention a treaty interpreter
may have recourse to supplementary means of in terpretation "in order to confirm the meaning
resulting from the application of Article 31, or to determine the meaning when the interpretation
according to Article 31 leaves the meaning ambiguous or obscure or leads to a result which is
manifestly absurd or unreasonable." The Panel co nsiders that, in the ci rcumstances of the present
case, recourse to such supplementary means is useful to confirm the Panel's preliminary conclusion.
7.1222 We recall that we have found, in interpreti ng China's sectoral entry on "Sound recording
distribution services" in accordance with Article 31 of the Vienna Convention, that the sectoral scope
of this commitment covers the service of distri buting non-physical products. However, the parties
have presented arguments with respect to documents and circumstances that fall outside the scope of
matters that may be considered under the interpreta tive rules in Article 31 of the Vienna Convention ,
but may be considered under the supplementary rul es in Article 32. We will therefore proceed to
examine: (i) preparatory work in the negotiation of the GATS, including documents that negotiators
may have relied upon in drafting their Schedules, such as document W/120 and the 1993 Scheduling
Guidelines, and (ii) the circumstances of the co nclusion of the China's Protocol of Accession
annexing China's Schedule to the GATS, in particul ar evidence of the existence at that time of
distribution of sound recordings in non-physical form. We undertake this examination to confirm, as
provided under Article 32 of the Vienna Convention , our view that China's sectoral entry includes the
distribution of sound recordings in non-physical form.
Preparatory work – Document W/120 and the 1993 Scheduling Guidelines
7.1223 The Panel notes that in the preparation of their GATS schedules, Members generally used
document W/120.
677 This document contains a re-arranged a nd more aggregated version of the five
services sectors covered in the CPC. Document W/120 contains a list of 12 service sectoral headings,
each (except for a heading "Other services not includ ed elsewhere") further divided into subsectors.
To give precision, each of the sectoral and subsector al items is generally linked to the one or more
CPC categories to which they correspond. The cat egories in document W/120, as well as in the CPC,
are exhaustive and mutually exclusive. Statements made by several negotiators at the time of the
issuance of document W/120 suggest that the documen t was not however meant to be a classification
scheme that was binding on WTO Members.
678
7.1224 A second GATT Secretariat document used by negotiators in the preparation of their
Schedules is referred to as the 1993 Scheduling Guidelines.679 These Guidelines set out principles and
techniques to be used to draw up GATS Schedules. As an overarching principle, they stipulate that it
is "vital that schedules be clear, precise and based on a common format and terminology". With
respect to the classification of ser vices sectors, the 1993 Scheduling Gu idelines state that "in general"
the classification "should be based on" document W/ 120. Further, any Member wishing to use its
own subsectoral classification or definitions "should provide concordance with the CPC". If this were
not possible, then the Member "should give a sufficiently detailed definition to avoid any ambiguity
as to the scope of the commitment".

677 MTN.GNS/W/120, dated 10 July 1991.
678 Note on the Meeting of 27 May to 6 June 1991, MTN.GNS/42, para. 19 (24 June 1991). The
relevant part of this document is as follows: "The re presentative of the United States, Poland, Malaysia and
Austria said that the list (W/120) should be illustrative or indicative and not bind parties to any specific
nomenclature."
679 Scheduling of Initial Commitments in Trade in Services: Explanatory Note, MTN.GNS/W/164, 3
September 1993.

7.1225 The Panel views document W/120 and the Sche duling Guidelines as important elements of
the preparatory work leading to the conclusion of the GATS, a position that is supported by the
Appellate Body in US – Gambling.
680 In that case, the Appellate Bo dy stated that document W/120
and the 1993 Scheduling Guidelines "provided a co mmon language and structure which, although not
obligatory, was widely used and relied upon". The Appellate Body further emphasized the
importance of these two documents, in confirmi ng the interpretation of a GATS Schedule reached
under Article 31 of the Vienna Convention , by quoting approvingly the panel's statement that, "unless
otherwise indicated in the Schedule, Members were assumed to have relied on W/120 and the
corresponding CPC references."681
7.1226 We now examine China's Schedule to dete rmine whether document W/120 and the 1993
Scheduling Guidelines confirm our earlier view th at its inscription on "Sound recording distribution
services" covers the service of distributing non-ph ysical products, by technologies such as the
Internet.
7.1227 We observe first that China's Schedule overa ll follows the same structure, naming and
numbering scheme as document W/120, including CP C references. All the first-level sectors that
China has inscribed in its Schedule (apart from Bu siness Services, where it lists sub-sectors without
referring to any first-level sector), as well as the great majority of sub-sectors listed, adopt the same
terminology, numbering scheme and CPC references as document W/120. Even when China has
chosen not to inscribe a W/120 sector in its schedule (as in "8. Health Services" and "10. Recreational,
Cultural and Sporting Services"), China's Schedule re spects the resulting gap, and maintains the same
specific numbering as in document W/120. China' s Schedule is not identical to document W/120 –
China has not, for example, used the same sub-sector wording or CP C codes referred to in document
W/120 for its commitments under Audiovisual Serv ices. Nonetheless, the commonality with
document W/120 in structuring, naming and numbe ring of the great majority of sectors and sub-
sectors indicates that China drew up its Schedule in light of document W/120, a nd that this document
can impart some meaning to those entries. Ind eed, as the Appellate Body stated, "unless otherwise
indicated in the Schedule, Members were assumed to have relied on W/120 and the corresponding
CPC references".
682 We therefore disagree w ith China that only the specific entry under examination
for its consistency with GATS commitments – "Sound recording distribution services" – is relevant
for the interpretation of the sectoral scope of this commitment. 683 It is clear to us that the context and
structure in which these specific entries are found can be relevant in their interpretation. Furthermore,
although the document W/120 and the 1993 Scheduling Guid elines were prepared in light of original
Members' Schedules that entered into force with the WTO Agreement in 1995, there is no evidence
before us that these documents have been any less important in drawing up the GATS Schedules of
Members, such as China, that have since acceded to the WTO.
7.1228 The Panel will now examine the detailed structure of China's Schedule. It contains nine first-
level, sectoral headings that, as stated, correspond la rgely in name and number to those contained in
document W/120. In particular, the heading titled "2. Communications Services" in China's Schedule,
under which Audiovisual Services is classified, is the same in name and numbering as in document
W/120. The first-level listings compare as follows:

680 Appellate Body Report on US – Gambling, para. 196.
681 Appellate Body Report on US – Gambling, para. 204, quoting the Panel Report on US – Gambling,
para. 6.106.
682 Appellate Body Report on US – Gambling, para. 204, quoting the Panel Report on US – Gambling,
para. 6.106.
683 China's response to question No. 239.

 China's Schedule W/120
1. (Sector heading omitted) 1. Business Services
2. Communication Services 2. Communication Services
3. Construction and Relating Engineering
 Services
3. Construction and Relating Engineering
 Services
4. Distribution Services 4. Distribution Services
5. Educational Services 5. Educational Services
6. Environmental Services 6. Environmental Services
7. Financial Services 7. Financial Services
… (sector omitted) 8. Health Services
9. Tourism and Travel Related Services 9. Tourism and Travel Related Services
... (sector omitted) 10. Recreational, cultural and sporting services
11. Transport Services 11. Transport Services
... (sector omitted) 12. Other services not included elsewhere

7.1229 Under "Communication Services", China has lis ted "Audiovisual Services", which we note
also corresponds in name and numbering to the equi valent subsector in document W/120. However,
as regards the sub-sectors within Audiovisual Serv ices, China has chosen not to follow document
W/120, and has not added the CPC reference number s that are found in document W/120. The three
sub-sectors that China has inscribed in Audiovisual Services compare to those contained in document
W/120 as follows:
China's Schedule W/120
2.D. Audiovisual services 2.D. Audiovisual services
- Videos, including entertainment
software and (CPC83202), distribution
services
a. Motion picture and video tape
production and distribution services

9611
 b. Motion picture projection
services
9612
 c. Radio and television services 9613
 d. Radio and television transmission
services

7524
- Sound recording distribution services e. Sound recording n.a.
- Cinema Theatre Services
 Note: emphasis added, vertical spacing of entries is adjusted to aid comparison of similar items.

7.1230 China's entry on "Sound recording distribu tion services" appears to be based on a
modification in the wording and scope of the W/120 subsector on "Sound recording". However, since
there is no CPC number indicated in document W/120 for "Sound recording", the interpretative value
of any correspondence between the W/120 subsector and the entry in China's Schedule is not
immediately evident. Likewise, China's entry on "Videos ... distribution services" would appear to be
related, but only distantly, to the W/120 subsect or on "Motion picture and video tape production and
distribution services". Finally, China's entry on "Cinema Theatre Services" appears to include the

services in the W/120 subsector on "Motion picture projection services", but also appears to cover
other auxiliary cinema services.
684
7.1231 We recall that China's Schedule generally fo llows the structure of document W/120, even
though it does not do so in every case and, as we have seen, not for the subsectoral entries falling
within Audiovisual Services. However, since China uses the same title and numbering for "2.D.
Audiovisual Services" as does document W/120, it seems appropriate to try to confirm our
interpretation of the scope of China's commitmen ts on Audiovisual Services by comparing the scope
of the services included under the same heading in document W/120. These services include the
production and distribution of motion pictures and video tapes (CPC 9611), and the projection of
motion pictures and video tapes (CPC 9612). Also included are "radio and television services", which
refer to the production of radio and television pr ogrammes (CPC 9613) and to radio and television
transmission services" (CPC 7524), which refers to th e broadcasting of television and radio signals.
"Sound recording" is also included, although with no corresponding CPC category.
7.1232 The Panel observes that the type of servi ce referred to under Audiovisual Services in
document W/120 appears to focus on audiovisual content, as opposed to the physical form on which
the content may be stored or transferred. For example, the production and transmission of television
and radio programmes refers to intangible activities, and not to physical products as such, even though
physical products may naturally be used to provi de services (e.g. a television set to receive the
television signals and allow the viewing of the tele vision programming). This is unsurprising, in our
view, since the GATS deals with trade in services. Trade in services, while often involving goods in
some way, essentially cover activities and these are inta ngible. The Audiovisual Services sector in
document W/120 thus appears to focus on the activities of production, distribution, and reproduction
of audiovisual content, and related services, and does not appear to limit its scope by indicating any
particular medium on which that content must be stor ed or transferred. For the reasons stated above,
this interpretation of the meaning of "2.D Audi ovisual Services" in document W/120 sheds additional
light on the meaning of the heading "2.D. Audiovisu al Services", and the entries under it, that are
contained in China's Schedule, unless the particul ar wording and context of China's commitment
would indicate otherwise.
7.1233 In this respect, the Panel notes that the inclus ion of the terms "video tape" under the heading
of Audiovisual Services in document W/120 (" motion picture and video tape production and
distribution services", CPC 9611) might initially suggest that this sector focuses also on physical
goods. Indeed, the terms "video tape" commonly refers not only to content, but also to the physical
medium. However, in our view, this wording does not undermine the focus on content within
Audiovisual Services in document W/120. Indeed, l ooking at the CPC categories cross-referenced in
document W/120, we note that the heading CPC 9611 reads "motion picture and video production and
distribution services" (emphasis added). The s ub-classes 96112 and 96113 then use the term "video
tape" when referring to production and distributio n. Since 96112 and 96113 fall under 9611, we are
not convinced that the intention in the CPC was to refer to something different from services related
to content. In our view, this is confirmed by the fact that CPC 9611 – more specifically 96112 –
refers to video tape production services. Under the CPC classification system, the production of
goods is not an activity that normally appears wi thin the CPC section devoted to services, and
therefore not within the scope of services listed in document W/120. We therefore do not consider
that the reference to "video tape" in the W/120 sh ould alter our observation above that the heading
Audiovisual Services comprises services relating to content.

684 The "Cinema Theatre Services" subsector in China' s Schedule also appears to comprise services
normally classified as construction services, as indicated in paras. 7.1195 to 7.1202 and 7.1345 to 7.1347 of our
analysis.

7.1234 The Panel further notes that when the CPC, on which document W/120 is based, refers to
audiovisual content embedded in a physical product, it uses unambiguous terms referring to the
medium, and not the general term "sound recording" . In the goods section of the CPC, physical
media containing recorded sound are described as "r ecords, tapes and other recorded media for sound
or other similarly recorded phenomena (except ci nematographic film)" (CPC 47520). CPC 47520 is
further referenced in the definition of relevant CPC categories for commission agents' services (CPC
62114), wholesale trade services (CPC 62244) and retail services (CPC 63234), which are all
characterized as sale of merchandise. Likewise, fo r unrecorded physical media, the CPC refers to
"prepared unrecorded media for sound recording or similar recording of other phenomena (except
cinematographic film)" (CPC 47510). This listing of types of physical media further confirms the
view that the term "sound recording" is not li mited to physical media on which sound has been
recorded.
Circumstances of the conclusion of the GATS – "nascent and unfamiliar service"
7.1235 China argues that the electronic distribution of sound recordings as an established business
and the legal framework for such business emerge d only after the negotiation of its GATS Schedule
and its accession to the WTO. According to China, this was part of the circumstances of the
conclusion of its GATS Schedule that have to be taken into account when interpreting its commitment
on "sound recording distribution services".
7.1236 The United States responds that the commercial or legal status of the business at the time of
China's accession is not relevant. Even if it were, according to the United States, the electronic
distribution of sound recordings existed well before China's accession, and China was aware of this
fact at the time of its accession to the WTO.
7.1237 The Panel considers that, in seeking to confirm the "common intention of Members" with
respect to a commitment in a GATS Schedule, ev idence on the technical feasibility or commercial
reality of a service at the time of the service commitment may constitute circumstances relevant to the
interpretation of its scope under Ar ticle 32 of the Vienna Convention.
685 This is particularly true
where, like China's entry on "sound recording distri bution services", the commitment is not explicitly
linked to a well-defined system of services classification, such as the CPC. At the same time, the
significance of any evidence of lack of technical feasibility or absence of commercial reality of the
service at the time of the service commitment would n eed to be carefully evaluated. We consider
therefore that any evidence that sound recordings delivered in non-physical form were not, unlike
today, technically possible or commercially prac ticed at the time China's Schedule was negotiated
might, in principle, be relevant as a supplementary means of interpretation with respect to the scope of
that commitment.
7.1238 A first issue to consider is at what point in time the evidence should be assessed. In answer to
a Panel question, China states: "... the decisive point in time – when having recourse to the
circumstances of the relevant treaty conclusion – is the time span before the Sino-US accession
negotiations were concluded, i.e. by 15 November 1999."
686 China claims that the negotiations of
China's GATS Schedules were concluded at the same time. 687 In examining this issue, we note that,

685 The Appellate Body in EC – Computer Equipment stated: "The purpose of treaty interpretation
under Article 31 of the Vienna Convention is to ascertain the common intention of the parties. These common
intentions cannot be ascertained on the basis of the subjective and unilaterally determined 'expectation' of one of
the parties to a treaty." (Appellate Body Report on EC – Computer Equipment, para. 84). In that case, the
Appellate Body also said: "The fact that Members' Sche dules are an integral part of the GATT 1994 indicates
that, while each Schedule represents the tariff commitm ents made by one Member, they represent a common
agreement among all Members." (Ibid., para. 109)
686 China's response to question No. 231.
687 China's first written submission, para. 478 including original footnote 238.

in accordance with Article XII of the WTO Agreem ent, a State may accede to the WTO "on terms to
be agreed between it and the WTO" – not terms ag reed between it and individual WTO Members.
We note that a Working Party was established on 7 December 1995, pursuant to Article XII of the
WTO Agreement to examine China's accession application.
688 While China undertook certain
bilateral market access negotiations with respect to goods and services at the request of interested
Members of the Working Party, bilateral agreem ents between China and individual WTO Members
could not be considered as agreements with the WTO.
7.1239 We note further that the Working Party on Ch ina's Accession continued to meet regularly
after 15 November 1999, the date of the conclusion of bilateral negotiations claimed to be significant
by China.689 The Working Party's last meeting took place on 17 September 2001 and its Report was
circulated to WTO Members on 1 October 2001. China's draft Services Schedule, which was annexed
to the draft Protocol on China's Accession, was circulated at the same time (document
WT/ACC/CHN749/Add.2). China's Accession Protoc ol, including its GATS commitments, contains
the terms of accession agreed between China and th e WTO, and reflects the common intention of
China and the WTO. This common intention was formed when the final text of the Protocol was
approved by the WTO on 10 November 2001 and w as accepted by China on 11 November 2001.
690
The circumstances which may be examined in orde r to assess this common intention include those
arising up to the moment that approval was given by the WTO and China. We note that this view on
when the evidence of the circumstances should be assessed accords with that of the Appellate Body in
EC – Chicken Cuts when it stated that "the circumstances of the conclusion should be ascertained over
a period of time ending on the date of the conclusion" of the treaty at issue.
7.1240 We now look at the evidence presented by the parties on the technical feasibility and
commercial practice with respect to the electronic di stribution of sound recordings before and at the
time of China's Protocol of Accession. The par ties do not dispute the technical feasibility of the
electronic distribution of sound recordings at this ti me. Indeed, distribution of music on the Internet,
largely unauthorized, had existed for quite some time before legitimate online music services emerged
in the late 1990s. With respect to overall commercial practice, the 2004 Online Music Report by the
International Federation of the Phonographic Industry, submitted to the Panel by China, states that the
commercial origins of electronic downloading of sound recordings go back at least as far as 1998,
when a commercial site began selling music singles and albums on the internet in the United States.
691
Other commercial sites followed, and by the ear ly 2000s record companies were expanding their
licensing agreements across a wide variety of online retailers, beginning to licence the Catalogues of
major international performers, and shorteni ng the gap between off-line and online releases. 692 With
respect to the commercial situation in China, th e United States presents evidence of a joint-venture
agreement, dated 21 February 2000, between an Amer ican firm and a Chinese enterprise, to distribute
music electronically within China. 693 Although China considers that this joint venture had not
resulted in the establishment of any website in Ch ina by mid-2001, it does not present evidence that

688 Following China's accession application pursuant to Article XII of the WTO Agreement, the
existing Working Party on China's Status as a GATT 1947 Contracting Party was transformed into a WTO
Accession Working Party, effective from 7 December 1995.
689 The Working Party on the Accession of China me t on 13 occasions from March 2000 to September
2001.
690 China's Accession Protocol was adopted by a decision of 10 November 2001 at the WTO's
Ministerial Conference. China notif ied its acceptance to the WTO on 11 November 2001. China became a
Member of the WTO on 11 December 2001.
691 The report states that in 1998, eMusic.com began selling singles and albums in mp3 format on the
web in the US. The Report continues to say that by the summer of 2001, OD2 launched its WebAudioNet
platform, enabling retailers to offer legitimate services in Europe. See 2004 Online Music Report , Exhibit
CN-57.
692 2004 Online Music Report, Exhibit CN-57.
693 Exhibits US-85 and US-100.

the parties to this "cooperative agreement" did not have, in 2000, the intent to supply music
electronically within China.
7.1241 We also note that, within the WTO, the background note on Audiovisual Services prepared by
the Secretariat, dated on 15 June 1998, makes th e factual statement that the "distribution [of
audiovisual content] can be through physical media such as CD-ROMs, as well as through the Internet
or the other new networks".694
7.1242 Thus, the evidence presented by the parties suggests that the electronic distribution of music
had become a technical possibility and commercial reality, albeit limited, by 1998, and in any case
before the entry into force of China's GA TS Schedule following its accession to the WTO on
11 December 2001.
7.1243 We note China' argument that, whatever the co mmercial reality with respect to the electronic
distribution of sound recordings, there was no inte rnational consensus on a legal framework for the
protection of intellectual property rights until the entry into force of the WIPO Copyright Treaty in
2002. In answer to a question by the Panel, China acknowledged however that the Copyright Treaty
was adopted in 1996, and that China had participated in the negotiation of this treaty.
695 Whatever the
date, however, we observe that the lack of an in ternational framework of intellectual property rights
with respect to the electronic distribution of sound r ecordings would not, in itself, be an impediment
either to the legal supply of those services within a WTO Member, or that Member's ability to make
full commitments on them in its Schedule.
7.1244 We note that China also raises arguments based on the absence of a domestic legal framework
for the exploitation of music over the internet. Ac cording to China, this domestic legal framework
was only put in place in its 2001 Copyright Law. China's first legally-authorized enterprise
undertaking this activity was authorized in the same year. However, in its answer to a Panel's
question, China states that the first draft of the amendment of the Copyright Law was provided to a
committee of the National People's Congress in Nove mber 1998, but withdrawn in June 1999 because
of the absence of any provision for the protection of copyright in network environments. 696 A n
amended version adopted in December 2000 filled in this gap in coverage.697 This process shows that
China was considering a legal framework for servi ces related to online music business at least since
1999.
7.1245 Even if the electronic distribution of sound recordings had been shown not to be specifically
permitted within China at the relevant time, the Panel takes the view that this would not in itself have
prevented China from making a valid commitment on these services in its Schedule. A Member's
service commitments need not reflect its existing legal framework. A number of Members, including
China itself, have undertaken specific commitment s whereby they have committed to guarantee a
market access level higher than their regulatory regimes at the time the commitments were made.
7.1246 In sum, the record indicates that the electronic distribution of sound recordings had become a
commercial reality in many markets before China's accession to the WTO. Ch ina was aware of this
fact. The domestic legal framework for the electroni c distribution of sound recordings in China, to
the extent that this is relevant for our interpre tation, was under consideration in China from as far
back as 1998, although put in place only in 2001. China had clearly taken note of, and was altering its
domestic law to take into account the commercial reality of electronic distribution of sound recordings
before its accession to the WTO in 2001.

694 WTO document S/C/W/40.
695 China's response to question No. 230.
696 China's response to question No. 229.
697 Ibid.

7.1247 We find therefore that the electronic distributio n of sound recordings was technically feasible
and a commercial reality as early as 1998 and, in any case, before China's accession to the WTO in
December 2001. We are therefore not persuade d that the meaning of the phrase "sound recording
distribution services" cannot extend to the distribution of sound recordings in non-physical form, for
the reason that negotiators of China's GATS Schedul e and, more broadly, WTO Members, had at the
time no conception of the technical or commercial viab ility of this form of distribution. This finding
is consistent with our earlier analysis, under Ar ticle 31 of the Vienna Convention, of China's
commitment on sound recording distribution services.
Other arguments – "technological neutrality" and "relevant factors"

7.1248 The United States invokes the principle of "technological neutrality" to argue that any
practical differences that may ex ist between the supply of sound recordings in physical and non-
physical form are simply differences with respect to the "means of delivery". According to the
principle of technological neutrality, these differences are not relevant to the interpretation of the
scope of a GATS commitment, unless specified in a Member's Schedule. The United States asserts
that the principle of technological neutrality w as espoused by WTO Members in a report adopted by
the General Council for Trade in Services, and supported by a statement by the panel in US –
Gambling.
7.1249 China submits that a principle of technological neutrality cannot be invoked to make
irrelevant, for the purpose of determining the scope of its GATS commitment, the practical
differences between the supply of sound recordings in physical as compared to non-physical form.
According to China, the principle of technological neutrality has never been formally accepted by
Members. Even if the principle had been accepted, China claims that it only applies to different
technologies used in the supply of the same service, which is not the case with respect to the
distribution of sound recordings in non-physical, as compared to physical, form. For China, the
services at issue, which are distributed on a non-physical medium, are different services ("network
music services"), and not "sound recording distribution services".
7.1250 Having dismissed the status and relevance fo r this case of a principle of technological
neutrality, China then argues that it is necessary to examine a numbe r of relevant "factors" with
respect to the two service activities, in order to determine whether they constitute the same or
different services. These factors vary case-by-case, with no single one being decisive. In the present
circumstances, China states that four factors ar e important: "essential operational characteristics",
"perception of the end-users", "international cl assification", and the applicable "international
recognized legal framework".
698 China argues that these factors, ap plied to the services at issue, are
sufficiently divergent to indicate that the distribution of sound recordings on non-physical media is a
different service from the distribution of sound record ings using physical media. Thus, according to
China, the services at issue, wh ich involve the use of non-physical media, do not fall within China's
commitment on sound recording distribution services. The "network music services" are different,
and for that reason the principle of technical neutrality is not applicable.
7.1251 The United States responds that there is no text ual basis whatsoever for distinguishing and
classifying services according to a relevant "factor" approach.
699 Furthermore, for the United States,
there are practical difficulties that arise in attemp ting to apply the factors advanced by China. The
United States notes that the application of the first two factors mentioned by China produce widely
varying results across different services as well as different means of supply. The United States also
points out that the application of certain other fact ors mentioned by China to the services at issue do
not consistently result in differences between s ound recording distribution on physical as opposed to

698 China's response to question No. 97(a).
699 United States' second written submission, paras. 157-161.

non-physical media, and that there are other flaws w ith respect to the application of the remaining
factors.
7.1252 The Panel notes that, in seeking to assess the interpre tative value of the differences that arise
in the supply of the services at issue, compared to the supply of sound recording distribution services
using physical media, the parties have invoked two principles or tests. The United States invokes the
principle of "technological neutrality" to say that any such differences should not be interpreted to
narrow the scope of China's commitment on sound r ecording distribution services. China argues to
the contrary that a series of relevant "factors" must be examined, and that these lead in this case to the
interpretation of its commitment as not including th e distribution of sound recordings on non-physical
media, which is a separate service ("network mu sic services") for which China has not taken GATS
commitments.
7.1253 We recall that in determining the scope of China's commitment on "sound recording
distribution services", we have sought to apply th e customary rules of interpretation of public
international law, as set out in Articles 31 and 32 of the Vienna Convention . In doing so, we have
examined the ordinary meaning of the terms of China's commitment, in the context provided by the
rest of China's Schedule, the provisions of the GATS, and other Members' Schedules. We have
arrived at an interpretation of the words that China, after negotiation with other WTO Members, chose
to inscribe in its Schedule – "sound recording distribution services". These words have not been
further qualified by China with respect to the medium on which the audio content is distributed.
7.1254 We observe that a Member is free, when making a commitment, to add greater precision to its
Schedule by qualifying the terms of the commitment. That greater precision may qualify the scope of
a service with respect to a wide range of attributes. A Member may, for example add descriptive
terms that specifically exclude a service supplied in a certain way, or include that service under a
different heading with different commitments. A Member may also add precision (unlike China in
this case) by referring directly to a product classificat ion system, such as that contained in document
W/120 or the CPC. A reference to an external cl assification system is in fact recommended in the
Scheduling Guidelines.700
7.1255 Further emphasizing the need to specify any desi red qualifications to the scope of inscribed
services, we note the statement by the Appellate Bo dy that a commitment wi th respect to a service
includes a commitment with respect to all of its sub-services. 701 This, to us, is further evidence that
the appropriate interpretation of the scope of a commitment flows primarily from the meaning of the
terms of that commitment. A panel cannot read into a schedule qualifications that do not arise from
an interpretation carried out in accordance with the rules set out in Article 31 of the Vienna
Convention. It is on this foundation that we have interpreted the core meaning of China's
commitment on "sound recording distribution services" to cover the distribution of audio content in
non-physical form.
7.1256 In light of our interpretation of China's co mmitment, we now examine the US argument on
"technological neutrality". This principle, accord ing to the United States, establishes that any
differences between the supply of the sound recording distribution services on physical, as compared
to non-physical, media are merely "technological", and thus should not, unless specified in China's
Schedule, serve to narrow the scope of China's commi tment. The United States derives this principle
from a statement in a Progress Report on a "W ork Programme on Electronic Commerce", dated

700 The 1993 Scheduling Guidelines indicate that wher e it is necessary to refine further a sectoral
classification, this should be done on the basis of the CPC or other internationally recognized classification. See
para. 16 of the Guidelines.
701 Appellate Body Report on US – Gambling para. 180.

19 July 1999, prepared by the Council fo r Trade in Services for the General Council.
702 T h e
statement says:
"It was also the general view that the GA TS is technologically neutral in the sense
that it does not contain any provisions that distinguish between the different
technological means through which a service may be supplied."
703
7.1257 We note that this statement has been referred to by the panel in US – Gambling. That panel,
in examining the range of possible means of deliv ery included in a full market access commitment on
cross-border supply, concluded that such a commit ment includes "all means of delivery, whether by
mail, telephone, Internet etc., unless otherwise specified in a Member's Schedule." 704 The panel in
that case added that this was "in line" with the prin ciple of technological neutrality that "seems to be
largely shared among WTO Members" as evidenced by the statement in the Progress Report.705
7.1258 We note, however, that in interpreting China's commitment on "sound recording distribution
services", we have no need to invoke a principle of technological neutrality. We have already found
that the core meaning of China's commitment on these services includes the distribution of audio
content on non-physical media. The principle of t echnological neutrality might have come into play
had we found that China's commitment covered dist ribution on physical media and that there was
doubt about whether it also covered the distribution of content on non-physical media. But this was
not the case here.
7.1259 We now turn to China's argument that, to determine whether the services at issue – the
distribution of sound recordings on non-physical media – are covered by China's commitments on
"sound recording distribution services", we need to examine four relevant "factors". According to
China, these factors would include in this case: " essential operational characteristics", "perception of
the end-users", the "international classification", an d the applicable "international recognized legal
framework".
706
7.1260 While these four factors might be illuminating in an analysis of policy perspectives, the Panel
finds that they are of limited value in arriving at, or confirming a proper interpretation of, the relevant
commitment in China's Schedule. Importantly, we also observe that China has offered no textual
basis for these four factors.
7.1261 Even when China seeks to apply these factor s to the practical differences between the
distribution of sound recordings on non-physical and physical media, in order to show that these
activities are different services, the resulting analysis is far from clear. The United States puts
forward cogent arguments showing that the analysis of certain elements in China's factor analysis
does not lead to an unambiguous result.
7.1262 We examine, for example, China's analysis of the factor of "international classification".
China points to the draft of the forthcoming CPC version 2, which creates a new category explicitly

702 S/L/74.
703 Work Programme on Electronic Commerce – Progress Report to the General Council , adopted by
the Council for Trade in Services on 19 July 1999, S/L/74, 27 July 1999. para. 4. This view was not, however,
unanimous since the Report adds that "[s]ome delegations expressed a view that these issues were complex and
needed further examination".
704 Panel Report on US – Gambling, para 6.285
705 Ibid. The reference by that panel to the principle of technological neutrality was not referred to by
the Appellate Body in its report on the subsequent appeal in that case.
706 China's response to question No. 97(a).

covering the distribution of sound recordings using non-physical media. 707 At the same time, the
forthcoming CPC maintains an entirely separate cate gory for the distribution of sound recordings in
physical form.708 For China, this is a further indication th at the distribution of sound recording using
non-physical media is a different service from the distribution of sound recordings on physical media,
and that the former is not covered by China's commitment on "sound recording distribution services".
7.1263 We do not, however, find this reference by Ch ina to the forthcoming CPC version 2 to be
relevant in determining the issue before us. The Panel recalls that it has not based its finding that
China's commitment on "sound recording distribu tion services" covers the distribution of non-
physical media on an assumption that this activity is the same service as the distribution of sound
recording using physical media. Further, we note that China's commitment on "sound recording
distribution services" does not refer to the CPC, nor provides any further definition of the covered
service. Finally, we note that the new categorization in the forthcoming CPC was completed well
after agreement was reached on China's Schedule.
7.1264 For all these reasons, we find that China's "f actor" approach sheds little light on the issue
before us, and that the principle of technological ne utrality, whatever its status within the WTO, is
likewise not needed in this case for the proper interpretation of China's commitment on "sound
recording distribution services".
Conclusion

7.1265 Overall, based on the above c onsiderations, we conclude that the inscription of "sound
recording distribution services" under the heading of Audiovisual Services (Sector 2.D) of China's
Services Schedule extends to the distribution of sound recordings in non-physical form, notably
through electronic means.
(b) Whether the measures at issue are inconsistent with China's national treatment commitments
(Article XVII)
7.1266 The Panel will now examine whether the measur es at issue are inconsistent with China's
national treatment commitments under Article XVII of the GATS for the supply, through commercial
presence, of sound recording distribution services.
7.1267 The United States claims that several Chinese measures accord less favourable treatment to
foreign-invested entities, compared to like Chines e ones, that seek to engage in the electronic
distribution of sound recordings, and that this treat ment is inconsistent with China's commitments
under Article XVII. According to the Unite d States, these Chinese measures include: the Internet
Culture Rule, the Circular on Internet Culture, the Network Music Opinions , the Several Opinions,
the Catalogue and the Foreign Investment Regulation.
7.1268 The United States submits that the Circular on Internet Culture, the Network Music Opinions,
and the Several Opinions each explicitly prohibit foreign-inv ested entities from distributing sound
recordings electronically, and that each is incons istent with China's commitments under Article XVII
of the GATS. The United States contends that the Internet Culture Rule, on the other hand, does not
on its own provide for less favourable treatment for foreign-invested enterprises engaging in sound

707 A new group 843 covers "On-line content" with a new class 8432 "On-line music content". This in
turn covers two subclasses: 84321 "Musical audio downloads", and 84322 "Streamed audio content". We note
that the CPC version 2 is now in final form.
708 Subclass 61242 covers "Wholesale trade services on a fee or contract basis, of radio and television
equipment and recorded audio and videodiscs and tapes", which explicitly includes goods of group 476, which
in turn includes subclass 47610 "physical media".

recording distribution services, but sets up an overarching regime that, as implemented, accords less
favourable treatment to foreign-invested suppliers.
7.1269 The United States argues that the Catalogue and the Foreign Investment Regulation are also
part of the regime prohibiting foreign-invested entities from engaging in the electronic distribution of
sound recordings. The United States points to Article X:7 of the Catalogue, under the heading
"Catalogue of Prohibited Foreign Investment Industries" , which provides that foreign investment is
prohibited in enterprises engaging in "news websites, network audiovisual program services, internet
on-line service operation site, and internet culture ope ration". The United States further notes that the
Foreign Investment Regulation provides guidance on the meaning of terms in the Catalogue.
Accordingly, for the United States, the Catalogue and the Foreign Investment Regulation are together
inconsistent with Article XVII of the GATS because they modify the conditions of competition in
favour of like wholly Chinese-owned entities.
7.1270 China does not provide specific responses to the arguments of the United States, relying
instead on its argument that the services at issu e are not within the scope of "sound recording
distribution services" appearing in its Schedule. In its answer to a question from the Panel, China
confirms that foreign-invested entities are prohib ited from engaging in the supply of the services at
issue.
709
(i) Requirements of Article XVII
7.1271 The Panel begins its analysis by recalling the term s of paragraph 1 of Article XVII, which
reads:
"In the sectors inscribed in its Schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and service
suppliers of any other Member, in respect of all measures affecting the supply of
services, treatment no less favourable than that it accords to its own like services and
service suppliers."

7.1272 The wording of Article XVII indicates that we n eed to determine: (a) whether the services at
issue are inscribed in China's Schedule; (b) whethe r the measures at issue a ffect the supply of these
services; (c) the extent of China's national tr eatment commitment, incl uding any conditions or
qualifications, with respect to these services entere d in its Schedule; and (d) whether these measure
accord less favourable treatment to service supp liers of other Members, in comparison to like
domestic suppliers.
Whether the services at issue are within the scope of services listed in China's Schedule
7.1273 With respect to this element, we have alread y made a finding above that the services at issue
are indeed within the scope of "Sound recording di stribution services" inscribed in China's Schedule,
and are therefore subject to any national treatment commitment that China may have indicated.
Whether the measures at issue are "affecting" trade in services
7.1274 With respect to this element, we consider that, since the measures at issue (and which are
examined in detail below) directly govern the supplie rs of the services at issue, they "affect" the
supply of these services in the sense of Article XVII, and the parties have not argued otherwise.

709 China's response to question No. 81.

Extent of China's national treatment commitment for "sound recording distribution services"
supplied through commercial presence
7.1275 We must now determine the extent of Chin a's national treatment commitment for "Sound
recording distribution services". In the national treatment column of its Schedule corresponding to
the sectoral entry on "Sound recording distribution" , China has inscribed "None ". This means that,
with respect to this mode of supply, China has co mmitted not to introduce or maintain any limitations
with respect to national treatment for "Sound recording distribution services".
7.1276 Despite this initial indication of a full national treatment commitment by China for the
services at issue, we can only have a full pictur e of this commitment by looking as well at the
inscriptions in the market access column for the corresponding sector and mode of supply, and at
China's horizontal commitments.
7.1277 Turning first to the market access column for Audiovisual Services, we note that China has
inscribed, for commercial presence, the following :
"Upon accession, foreign services suppliers w ill be permitted to establish contractual
joint ventures with Chinese partners to engage in the distribution of audiovisual
products, excluding motion pictures, without prejudice to China's right to examine the
content of audio and video products (see footnote 1)."
7.1278 We note that the vertical position of this inscrip tion in the market access column shows that it
applies to the services at issue – "sound recordi ng distribution services". The inscription indicates
that China allows foreign service suppliers to engage in the di stribution of audiovisual products,
including sound recordings, through the establishment of contractual joint ventures. The only
limitation on market access that China is entitle d to maintain for "sound recording distribution
services" under Article XVI of the GATS is therefore a joint venture requirement on foreign
investment, made subject to a content review requi rement. Since this limitation applies to service
suppliers solely of foreign origin, it must also be read, by virtue of Article XX:2 of the GATS, as a
limitation on China's national treatment commitment s on "sound recording distribution services".
China has not, therefore, committed to full na tional treatment for the services at issue supplied
through commercial presence.
7.1279 Turning next to the horizontal section, we recall that the inscriptions here apply, unless
otherwise specified in individual sector commitments, to commitments in all sectors listed in China's
Schedule. Here, with respect to commercial presen ce, China has not indicated any national treatment
limitations. It has, on the other hand, inscribed market access limitations. Only three forms of
foreign-invested enterprises are permitted: fore ign capital enterprises (also referred to as wholly
foreign-owned enterprises), equity joint ventures, a nd contractual joint ventures. Contractual joint
ventures are permitted to be established in Chin a for the purpose of supplying services. Foreign
investment in equity joint ventures must account fo r a minimum of 25 per cent of total registered
capital; no maximum percentage is indicated. Furt her limitations in the horizontal section of China's
Schedule are also applicable to the services we ar e concerned with, but these limitations are not at
issue in this claim.
710
7.1280 Summarizing our analysis, we find that China' s national treatment commitment on "sound
recording distribution services", supplied through co mmercial presence, is limited by requiring that

710 These elements contain limitations to mark et access commitments for commercial presence
concerning branches, representative offices, existing ag reements and licences, as well as land usage periods.
They also contain limitations to national treatment concerning existing subsidies for domestic services suppliers
in three sectors, including audiovisual services.

foreign service suppliers take the form of a contr actual joint venture. China's national treatment
commitment for the services at issue is also lim ited by other types of measures indicated in the
horizontal section of its Schedule but, as stated, these are types of measures that are not at issue in this
dispute.
711
Interpretative issues on the treatment of like service suppliers
7.1281 Finally, we must assess whether each of th e measures at issue is inconsistent with
Article XVII because it results in "treatment less fav ourable than that [China] accords to its own like
services and service suppliers". We will make this final assessment for each measure in
part VII.D.2(b)(ii) below, but need now to clarify three preliminary issues.
Service suppliers "of any other Member"
7.1282 As a first preliminary issue, we note that Article XVII:1 establishes rights and obligations
with respect to "service suppliers of any other Member". The measures at issue, however, and China's
commitments in its Schedule, refer to the supply of services by a "foreign-invested entity". Recalling
the relevant definitions set out in Article XXVIII of the GATS, we observe that any "foreign-invested
entity" supplying the services at issue in China, and th at is owned or controlle d by persons of another
Member, is a service supplier "of any other Member" within the terms of Article XVII. In the absence
of any contrary evidence before us, we find that ther e are, or can be, foreign-invested enterprises that
are foreign-owned or controlled, and thus "service suppliers of any other Member".
Service suppliers that are "like"
7.1283 As a second preliminary issue, we observe that Article XVII:1 requires that treatment be
assessed between domestic and foreign services or serv ice suppliers that are "like". Since the United
States focuses its claim on the treatment of suppliers rather than services, we will likewise centre our
analysis on the likeness of the suppliers of the services at issue.
7.1284 We note that the measures at issue (examined in detail in part VII.D.2(b)(ii) below) are
alleged by the United States to contain prohibitions on the right to establish and supply the services at
issue – thereby according less favourable treatme nt to services suppliers of other Members
exclusively on the basis of origin. When orig in is the only factor on which a measure bases a
difference of treatment between domestic service su ppliers and foreign suppliers, the "like service
suppliers" requirement is met, provided there will, or can, be domestic and foreign suppliers that
under the measure are the same in all material respects except for origin.
7.1285 In examining the specific measures at issue, discussed in more detail below, we have no
reason not to believe, nor have the parties argued, that the measures do not accord different treatment
to foreign suppliers based exclusively on their forei gn origin. We therefore find that, with respect to
these measures, there will, or can, be "like" service suppliers in the sense of Article XVII.
Measures that are discriminatory prohibitions
7.1286 As our third preliminary issue, we recall that the United States alleges that the measures at
issue concern a prohibition with respect to foreign suppliers seeking to supply the services at issue.
The United States further asserts that the prohi bition does not extend to wholly-owned Chinese
entities supplying these services. 712 Since the record does not indicate otherwise, and China does not

711 Except as regards existing subsidies to domestic service suppliers.
712 United States' first written submission, para. 154.

contest this assertion, we accept that wholly Chinese-owned entities are permitted to engage in
Internet cultural activities that involve the services at issue.
7.1287 Recalling our earlier discussion on this point, we find also that, to the extent a discriminatory
prohibition can be identified in the measures at issu e, foreign suppliers of the services at issue are
prevented from competing with like Chinese suppliers , and less favourable treatment in terms of
Article XVII can be inferred. A total absence of competition between the domestic service suppliers
and like service suppliers of other Members resulting from the measure would, if shown, clearly
modify the conditions of competition in favour of wholly Chinese-owned service suppliers.
(ii) Measures at issue
Coverage of electronic distribution other than through the Internet

7.1288 We now examine the six Chinese measures that the United States has invoked, in order to
determine whether the scope of these measures sugg est a wider or narrower meaning be given to
"digital" distribution of sound recordings. The Unit ed States identifies and lists in its panel request
six Chinese measures: the Internet Culture Rule, the Circular on Internet Culture, the Network Music
Opinions, the Several Opinions , the Foreign Investment Regulation and the Catalogue. We will
examine whether the scope of these measures exte nds to the electronic distribution of sound
recordings by means other than the Internet.
7.1289 The parties agree that five of the measures cited by the United States in its panel request
specifically cover activities related to the Internet. The Internet Culture Rule governs "Internet
cultural entities" engaging in "Internet cultural activities" with respect to "Internet cultural
products".713 The Circular on Internet Culture implements the Internet Culture Rule , and retains the
same scope. The Several Opinions states that "[f]oreign investors are prohibited from setting up and
operating ... a business dealing with Internet culture." 714 T h e Foreign Investment Regulation
incorporates by reference the Catalogue, which states that foreign investment is prohibited in
enterprises engaging in "news websites, network audiovisual program services, internet on-line
service operation sites, and internet culture operations."715
7.1290 The parties differ, however, on whether the Network Music Opinions applies to the
transmission of sound recordings through electroma gnetic means other than the Internet. This
measure is drawn up based on, inter alia, the Internet Culture Rule, 716 and consists of three sections
and two attachments. The United States bases its argument on the view that the measure applies to
distribution means other than the Internet by q uoting from Section I of the measure, entitled "Status
Quo and Development Objectives of China's Network Music Market". Article 1 of Section I states:
"In recent years, the network music market in our country has developed swiftly.
Music products transmitted through such wire d or wireless media as the internet and
mobile communications have helped shape the digital music production,
dissemination, and consumer models, thus promoting the network culture industry in
China and enriching the cultural and recreational life of the people."

713 Internet Culture Rule, Articles 1-3 (Exhibit US-32).
714 Several Opinions, Article 4 (Exhibit US-6).
715 Catalogue, Article X.7 of the Catalogue of Prohibited Foreign Investement Industries (Exhibit
US-5).
716 The legal basis of the Network Music Opinions includes the Cultural Development Program of the
National 11 th Five-Year Plan, the State Council's Decision on Establishing Administrative Licensing for
Administrative Examination and Approval Matters Necessary to be Retained and the Internet Culture Rule.

7.1291 Section I contains a narrative describing the de velopment of China's network music market.
The part quoted by the United States describes the recent development of China's network music
market, in which music products are transmitted through wired or wireless media, including the
Internet and mobile communications. The quote from the measure does not, however, prescribe that
the measure applies to the transmission of music through means other than the Internet.
7.1292 Section II, entitled "Supporting the Healthy De velopment of the Netw ork Music Industry",
provides general guidance on the development of ne twork music, including: ensuring correct value
orientation, promoting the integration of tec hnology and content, and enhancing the competitive
ability of network music enterprises on the market . This section does not define the scope of
application of the measure either.
7.1293 Section III, entitled "Regulating the Network Music Order", sets out a number of
requirements that apply specifically to activities rela ted to the Internet. No provision applies to the
transmission of music through means other than the In ternet. Article 8 states that the application for
establishing an Internet cultural entity to engage in network music business shall meet the requirement
of the Internet Culture Rule. Article 9 provides that, "for imported music products which are to be
disseminated through a network and whose content has been reviewed by th e Ministry of Culture,
commercial Internet culture entities shall complete legal formalities (see attachment for relevant
requirements)". Article 11 provides that the dissem ination of illegal content shall be punished in
accordance with Article 24 of the Internet Culture Rule, and that websites ope rated without approval
or dealing in illegal content shall be investigated and punished pursuant to the same measure.
7.1294 The two attachments to the Network Music Opinions similarly refer specifically to activities
related to the Internet. The first is a "Declaration Form to the Ministry of Culture for Importation of
Network Music Works". It refers, inter alia, to the "operational website", the "IP address" and the
"number of licence of the internet culture operation" . Clearly, the form is meant to apply only to
Internet culture entities. The second attachment is entitled "Procedures and Materials for Content
Review of Network Music Products", and it likewise applies only to Internet culture entities.
717
7.1295 We note that the United States points to a news report on the official website of the Chinese
MOC as evidence of an official interpretation of the Network Music Opinions. The news item states
that in the Network Music Opinions:
"[M]usic was defined for the first time, referring to music products as transmitted
through the Internet, mobile communication network as well as other wired and
wireless media... This pattern is mainly co mposed of two parts: one is to provide –
via the Internet – online music to be downloaded or played in the computer terminals;
the other is for wireless network business ope rators to provide – through their value-
added wireless services- wireless music to be played in the terminals of mobile
phones, which is also known as mobile music. For the purpose of network music, the
work "network" not just refers to what we normally call as the Internet. It refers to
information networks, including telecommuni cation network, mobile Internet, cable
television network, satellite communications, microwave communication, optical
fibre communication, as well as other va rious interconnection between intelligent
networks whose interaction is achieved based on the IP protocol."
718
7.1296 The Panel notes that the original source of the news item is not the MOC, but "China Culture
Market Net" (www.ccm.gov.cn), a website on Chin a's culture market, sponsored by the Culture

717 This attachment provides for the content review procedures that only appl y to commercial Internet
culture entities. Network Music Opinions, Appendix 2 (Exhibit US-34).
718 Exhibit US-101.

Development Centre under th e MOC and operated by an Internet culture company. 719 M o r e
important, the news report itself does not suggest that its understanding of the Network Music
Opinions represents the official interpretation by the MO C. We are not convinced that such a news
report, even if published on the Ministry website, can serve as an authoritative interpretation of the
Network Music Opinions by the MOC. Even if the content of this news item were taken into account,
we note that it indicates that for the purpose of netw ork music, the interaction of networks involved is
achieved based on the IP protocol.720 In other words, transmission through the Internet is the essential
element of network music.
7.1297 We also note that the Internet Culture Rule defines "Internet cultural activities" as primarily
consisting of:
"(1) Activities of producing, reproducing, importing, wholesaling, retailing, renting
out or broadcasting Internet cultural products;
(2) Putting cultural products online on the Internet, or sending cultural products
through the Internet to end user's computers, fixed telephones, mobile phones, radios,
TV sets, game players, etc. enabling Intern et users to browse, read, appreciate, watch
on demand, use or download the cultural products; and
(3) Activities such as exhibitions and competitions of Internet cultural products."
7.1298 After examining the structure and content of the Network Music Opinions – as well as its
relationship to the Internet Culture Rule – we find that this measure does not apply to the transmission
or distribution of material, including music, without using the Internet.
7.1299 We conclude therefore that the measures at issue – the Internet Culture Rule, the Circular on
Internet Culture, the Network Music Opinions , the Several Opinions , the Foreign Investment
Regulation and the Catalogue – extend only to services at issue that depend at some stage on
electronic distribution over the Internet. This, how ever, does not imply that the measures at issue do
not cover services that may be initiated or terminated using technology other than the Internet, such as
mobile phone systems.
Specific measures

7.1300 We now examine more closely the measures at i ssue, to determine whether as claimed by the
United States they impose a prohibition on service s uppliers of other Members, with respect to the
supply through commercial presence of "sound recording distribution services".
Internet Culture Rule
7.1301 We note that the United States argues that the Internet Culture Rule sets up an overarching
regime that, as implemented, prohibits forei gn-invested entities from supplying sound recording
distribution services, inconsistently with Article XVII.
7.1302 We first examine the scope of the Internet Culture Rule. It applies to persons engaging within
the territory of China in "Internet culture activities". 721 These are defined in Article 3 as including

719 http://www.ccm.gov.cn
720 Internet is defined as a collection of interconnected networks using the Internet Protocol which
allows them to function as a single, large virtual ne twork. See the office website of the International
Telecommunication Union: www.itu.int
721 Internet Culture Rule, Article 4 (Exhibit US-32).

wholesaling and retailing on the internet (including through mobile telephones) of "internet cultural
products". These are in turn defined in Article 2 as:
"[C]ultural products produced, disseminate d and circulated through the Internet,
primarily consisting of: audiovisual produc ts, game products, performances (drama)
work of art, animated cartoons, and othe r Internet cultural products produced or
reproduced by use of certain technological means to disseminate over the Internet."
7.1303 Since Internet culture activities include whol esaling and retailing Internet cultural products,
which include audiovisual, products and thus sou nd recordings, we infer that sound recordings
disseminated through the Internet are within the scope of application of the Internet Culture Rule.
7.1304 The main provisions of the Internet Culture Rule provide a legal framework for regulating
"Internet culture activities", in particular the entitie s engaging in such activities. Article 4 defines
"Internet culture entities" as "Internet inform ation service providers approved by cultural
administrations and telecommunications administrati ons to engage in Internet cultural activities".
Articles 7 to 11 set out the requirements regarding th e establishment of Internet culture entities. We
observe, however, that no provision in the Internet Culture Rule appears explicitly to prohibit foreign
investment in Internet culture entities, and thus to prohibit service suppliers who are foreign-invested
entities from engaging in the electronic distribution of sound recordings over the Internet.
7.1305 We note that the United States challenges this measure as implemented. However, the United
States has not demonstrated how this individual measure, as implemented, accords less favourable
treatment to foreign-invested suppliers of sound recording distribution services compared to wholly
Chinese-owned suppliers. We therefore consider th at the United States has not made a prima facie
case that the Internet Culture Rule accords less favourable treatment to foreign-invested suppliers of
sound recording distribution services.
Circular on Internet Culture
7.1306 We now examine the Circular on Internet Culture , which serves to implement the Internet
Culture Rule . Article II states that "[p]rovisionally, a pplications submitted by Internet information
service providers with foreign investment for enga ging in Internet cultural activities shall not be
accepted." It is therefore evident that foreign-i nvested information service suppliers are explicitly
prohibited from engaging in Internet cultural activiti es, for an indefinite period of time. Since the
distribution of sound recordings over the Internet is one of the "Internet cultural activities" defined in
the Internet Culture Rule , we find that the Circular on Internet Culture prohibits foreign-invested
entities, including service suppliers of another Member, from supplying the services at issue.
Network Music Opinions
7.1307 Turning to the Network Music Opinions, we recall that it is a measure based in part on the
Internet Culture Rule , which applies to Internet culture entities engaging in the network music
business, including the transmission of music in digita l form over the Internet. Article (8) of the
Network Music Opinions states in clear terms that "it is prohibited to establish network cultural
entities with foreign investment." As in the case of the Circular on Internet Culture , we find
therefore that Article (8) of the Network Music Opinions
 prohibits foreign-invested entities, including
service suppliers of another Member, from supplying the services at issue.
Several Opinions
7.1308 We now examine the Several Opinions. This is a measure issued jointly by several Chinese
government departments, including the MOC. Artic le 4 prohibits foreign investors from "setting up

and operating a business dealing in internet culture". We understand that the reference to "Internet
culture business" in the Several Opinions has the same meaning as "Internet cultural activities"
referred to in the Internet Culture Rule, as the parties do not dispute this and that there is nothing on
the record to suggest the contrary. We therefore find that Article 4 of the Several Opinions contains a
prohibition on foreign-invested entities, including service suppliers of another Member, from
supplying the services at issue.
Catalogue and the Foreign Investment Regulation
7.1309 Finally, we examine the Catalogue and the Foreign Investment Regulation. We note that
Article X:7 of the Catalogue, under the heading " Catalogue of Prohibited Foreign Investment
Industries", provides that foreign investment is pr ohibited in enterprises engaging in "news websites,
network audiovisual program services, internet on- line service operation sites, and Internet culture
operations". We understand that "Internet culture operations" refers to "Internet cultural activities", as
the parties do not dispute this and that there is not hing on the record to suggest the contrary. With
respect to the Foreign Investment Regulation, we observe that on its own it contains no prohibition on
these activities.
7.1310 We recall our observations in paragraph 7.1037 , with respect to the relationship between the
Catalogue and the Foreign Investment Regulation. Based on this analysis, we find that Article X:7 of
the Catalogue, under the heading " Catalogue of Prohibited Foreign Investment Industries", in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , prohibits foreign-invested
entities from engaging in Internet cultural activities which include the services at issue.
(c) Conclusion
7.1311 The Panel finds that the Circular on Internet Culture (Article II), the Network Music Opinions
(Article 8), and the Several Opinions (Article 4), are each inconsistent with China's national treatment
commitments under Article XVII of the GATS as each prohibits foreign-invested enterprises,
including service suppliers of other Members, from engaging in the electronic distribution of sound
recordings, while like domestic service suppliers are not similarly prohibited. For the same reasons,
Article X:7 of the Catalogue, under the heading " Catalogue of Prohibited Foreign Investment
Industries", in conjunction with Articles 3 and 4 of the Foreign Investment Regulation, is also
inconsistent with Article XVII of the GATS.
7.1312 The Panel, however, does not find that the Internet Culture Rule in itself is inconsistent with
Article XVII of the GATS.
3.
Distribution of AVHE products in physical form: claims under Articles XVI and XVII
of the GATS
7.1313 The United States puts forward claims under Articles XVI and XVII of the GATS concerning
the distribution in China of audiovisual home en tertainment (AVHE) products through commercial
presence. It defines these products as including "videocassettes, video compact discs (VCDs) and
digital video discs (DVDs)". Some provisions of the measures on which the US claims are based,
have been determined by the Panel not to be within its terms of reference, and we are therefore unable
to rule on them. 722 For the remaining claims, the Panel will first examine those relating to China's
commitments on market access, and then those relating to national treatment. In each case, the Panel
will examine the commitments on the services at issue that China has inscribed in its GATS Schedule,
and then determine whether the measures raised by the United States are consistent with those
commitments.

722 See Section VII.B.6.

(a) Whether China has undertaken GATS commitments for the distribution of AVHE products in
physical form
7.1314 The United States alleges that China maintains a limita tion on foreign equity participation in
contractual joint ventures engaging in the di stribution of AVHE products through commercial
presence, in violation of Article XVI:2(f) of the GATS. According to the United States, the limitation
on foreign equity is maintained in four measures: the Audiovisual (Sub-)Distribution Rule, the
Catalogue, the Foreign Investment Re gulation, and the Several Opinions . Since China does not
schedule this type of limitation in its market access commitments on mode 3 under "Audiovisual
Services", the United States argues that each of the four measures constitutes a breach of Article XVI
of the GATS. The United States also argues that th ese four measures are inconsistent with China's
national treatment commitments under Article XVII of the GATS.
7.1315 China rejects the US claim, contending that the challenged measures do not provide for a
limitation on foreign equity particip ation in contractual joint ventures engaging in the distribution of
audiovisual products, contrary to Article XVI:2(f). According to China, the measures limit only the
rate of profit and loss allocation between partners of these contractual joint ventures. For China, since
Article XVI does not impose any obligations on Members to insert limitations with respect to the rate
of profit and loss allocation in their GATS schedules, these measures do not violate China's
obligations under this provision.
7.1316 The Panel observes that China's market access commitments under Article XVI and national
treatment commitments under Article XVII only apply to the services at issue if it can be shown that
these services are covered within the sectors inscribed by China in its Schedule. Our first task is
therefore to define the services at issue, and to determine whether these fall within the scope of
sectoral commitments that China has undertaken in its Schedule.
(i) Services at issue
7.1317 The Panel notes that the United States makes it s claim with respect to the wholesale, retail
and rental of AVHE products, which it defines as including "videocassettes, video compact discs
(VCDs) and digital video discs (DVDs)", all of which are physical products. We will refer in this part
to these distribution activities (wholesale, retail a nd rental of AVHE products) as the "services at
issue".
Sectoral scope of China's entry on "Video s, including entertainment software and
(CPC 83202), distribution services"
7.1318 The United States submits that China's inscription unde r Audiovisual Services for "Videos,
including entertainment software and (CPC 83202), dist ribution services" covers the services at issue.
The United States contends that China's inscripti on includes not only the distribution of the basic
AVHE products specified above, but also the distribu tion of "videogames, computer games as well as
the leasing or renting services concerning videocassettes."723
7.1319 China does not contest the US assertion that the distribution of AVHE products in physical
form is covered by its GATS commitments under A udiovisual Services within "Videos, including
entertainment software and (CPC 83202), distri bution services". Although the distribution of
products in physical form is generally covered in China's Schedule under the heading Distribution
Services (Sector 4), China explains that it has chosen to group the distribution of products relating to
the audiovisual sector under Audiovisual Services (Sector 2.D).

723 United States' first written submission, para. 311.

7.1320 The Panel recalls that the services at issue in the US claim are the distribution through
wholesale, retail or rental of audiovisual home ente rtainment (AVHE) products delivered in physical
form, including videocassettes, VCDs, and DVDs. In order to determine whether these services are
covered, as claimed by the United States, by China's commitment on "Videos, including entertainment
software and (CPC 83202), distribution services", we must examine China's Schedule. China's
commitments in its Schedule under Audiovisual Services (including here only the relevant
commitments on mode 3 or commercial presence) read as follows:
Sector or sub-sector Limitations on
Market Access
Limitations on
National
Treatment
Additional
Commitments
2. D. Audiovisual
Services

- Videos, including
entertainment software
and (CPC 83202),
distribution services
- Sound recording
distribution services
(3) Upon accession, foreign
services suppliers will be
permitted to establish contractual
joint ventures with Chinese
partners to engage in the
distribution of audiovisual
products, excluding motion
pictures, without prejudice to
China's right to examine the
content of audio and video
products (see footnote 1)
(3) None

Without prejudice to
compliance with
China's regulation on
the administration of
films, upon accession,
China will allow the
importation of motion
pictures for theatrical
release on a revenue-
sharing bases and the
number of such
imports shall be 20 on
an annual basis.
- Cinema Theatre
Services
(3) Upon accession, foreign
services suppliers will be
permitted to construct and/or
renovate cinema theatres, with
foreign investment no more than
49 per cent.
(3) None
(Footnote 1 that is referenced here is a footnote contained in the Horizontal part of China's Schedule. It states
that the operation, management and equity participation in a contractual joint venture are determined by the
contract establishing it.)

7.1321 We note that the entry on "Videos, including entertainment software and (CPC 83202),
distribution services" appears in the column of China's Schedule titled "Sector or sub-sector",
indicating that China is making commitments for these services. Our task is to determine whether the
services at issue – AVHE products distributed on a ph ysical medium – are within the scope of the
service inscribed by China in its Schedule. Since the description of the services at issue – distribution
of "AVHE" products, and the terms used by the United States to describe further this activity – are not
the same as the terms China uses in its entry, we must engage in an interpretation of China's Schedule.
7.1322 Noting that the claim by the United States con cerns solely the distribution of audiovisual
products in physical form, in particular videocassette s, VCDs and DVDs, the core interpretative issue
before us is whether the entry a pplies to content distributed on these physical media. We note that
China accepts that the entry covers the distribution of audiovisual products in physical form. The
Panel recognizes, however, that a common view of th e parties on the interpretation of an entry to a
GATS schedule cannot be determinative.

Ordinary meaning

7.1323 As always, our interpretation begins with the ordinary meaning of the relevant terms in
China's entry. At the outset, we observe that the sectoral entry that China has inscribed under
Audiovisual Services – "Videos, including entertainment software and (CPC 83202), distribution
services" – is not explicitly defined elsewhere in its Schedule. Nor is the entry as a whole explicitly
defined through reference to an external services classification scheme, such as the CPC. Although
part of the entry – the reference to CPC 83202 – is defined by linking to an external category
definition, this constitutes only one element of a complete sectoral entry.
7.1324 We now turn to the precise wording of China's en try. We will look first at the ordinary
meaning of the categories of product specified, namely "videos", "entertainment software", and "(CPC
83202)". We will then look at the ordinary meaning of the second element of the sectoral entry,
which is "distribution services".
"videos"
7.1325 The United States argues that the term "videos" in China's entry m eans "film recorded on
tape, DVD, etc." Consulting a dictionary, we find that the first-listed definition of the term "video" is
"[t]hat which is displayed or to be displayed on a television screen or other cathode-ray tube; the
signal corresponding to this."
724
7.1326 This definition suggests that video, in itself, re fers primarily to visual content, and not to a
physical product. This interpretation is also s uggested by the frequent combination of "video" with
other terms such as "video on demand", "video transm ission" or "recording of video". In these cases,
the meaning of video also appears not to refer primar ily to physical products as such. As well, in the
goods section of the CPC, to which this entry makes reference, physical products are referred to as
"video records and tapes", which also suggest that "video" refers primarily to content. We note that
the use of the plural form of the term ("videos") in China's commitment does not appear to us to be
determinative one way or the other, since there can be a plurality of different content just as there can
be a plurality of physical products.
7.1327 We note, however, that a dictionary definition of "video" quoted by the United States defines
this term as "film etc. recorded on videotape: colloquial = video cassette. Also, videotape as a
recording medium."725 This definition indicates that the term "v ideo" can also be used to refer to the
video content when embedded in a physical medium. In this colloquial sense, the term "video" refers
to "video tape" or "video cassette" which, with recent technological development, would presumably
include VCDs and DVDs. The dictionary we have consulted confirms this second meaning by stating
that the term "video" can also refer to "videotape as a recording medium". 726 For the reasons
indicated, however, we think that the term "video" can be used equally, if not primarily, to refer to
visual content.
"entertainment software"
7.1328 We now examine the term "entertainment softwa re". Starting with the word "software" we
note that this term is defined in the dictionary as "[t]he programs and procedures required to enable a
computer to perform a specific task, as opposed to the physical components of the system".
727 The

724 Oxford English DictionaryOnline, available at http://dictionary.oed.com/entrance.dtl.
725 Shorter Oxford Dictionary, 5th ed. (Clarendon Press 2002), Vol. II., p. 3534 (Exhibit US-42).
726 Oxford English Dictionary Online, available at http://dictionary.oed.com/entrance.dtl.
727 Shorter Oxford Dictionary, 5th ed. (Clarendon Press 2002), Vol. II., p. 2910.

term "entertainment" is defined in the same dictionary as "the ac tion of occupying a person's attention
agreeably" or "that which affords interest or amusement".728
7.1329 In our view, the term "entertainment soft ware" can therefore be understood as meaning
computer programs or procedures designed to inter est or amuse its users. The Panel observes that
these often take the form of video or computer games produced by the entertainment software
industry. A core element of the software defi nition – "programs and procedures" – would indicate
that the term "entertainment software" refers primar ily to intangible content. Nevertheless, the Panel
recognizes that such content – in the form of computer or video games, for example – is frequently,
but not exclusively, distributed to consumers as a physical product. For that reason, it appears to us
that the term "entertainment software" can refer, as a collective noun, not only to content distributed
on a non-physical medium (such as the internet), but also using a physical medium (such as a DVD).
7.1330 We note that China's entry reads "Videos, including entertainment software ... ". The use of
the term "including" indicates that the term "vid eos" is broad enough to encompass "entertainment
software" which, as we noted, can include video and computer games distributed either on a non-
physical medium, or as a physical product.
"CPC 83202"
7.1331 The inclusion of the phrase "and (CPC 83202)," is a rather terse addition to China's sector
entry, consisting only of a numerical reference. It points to a specific category of the CPC which
reads as follows:
"83202 Leasing or rental services concerning video tapes
Renting or hiring services concerning pre-recorded video cassettes for use in home
entertainment equipment, predominantly for home entertainment."
7.1332 The Panel notes that the CPC definition explic itly refers to "video cassettes", which are
clearly physical products. Since the term "videos" is stated to "include" CPC 83202, "videos" must
include "video cassettes", and hence the physical product. Thus, the reference to CPC 83202 suggests
that China's entry on "video, including entertainment software and (CPC 83202), distribution
services" must cover at least some services related to physical produc ts. Both parties consider that
this is the case. We further observe that the CPC was published in 1991, before VCDs and DVDs
existed. Noting that VCDs and DVDs are video recording media that have replaced video tapes in the
market, it is reasonable to assume that CPC 83202 applies to VCDs and DVDs as well.
7.1333 The Panel reaches the preliminary view, based on an examination of the ordinary meaning
largely as reflected in dictionary and other defin itions, that the terms "videos" and "entertainment
software" refer primarily to intangible content, but can refer also, in a colloqu ial sense, to the content
as embedded in a physical product such as a video cassette, VCD or DVD. Viewed in light of the
reference to "CPC 83202", we would consider that th e terms "videos" and "entertainment software" in
China's Schedule would include services related to th e physical product. To reach a more definitive
view, however, we need to proceed further and look at the context in which these words are used.
"distribution services"
7.1334 With respect to the meaning of "distribution services" in China's entry, we note that the
parties consider that it covers at least the wholesale and retail of physical products. Both parties are
also of the view that rental or leasing of video tapes referred to in CPC 83202 is covered by China's

728 Shorter Oxford Dictionary, 5th ed. (Clarendon Press 2002), Vol. I., p. 936.

sectoral entry.
729 We note that China's entry reads "Videos, including … (CPC 83202), distribution
services". The use of the term "including" would indi cate that the rental of video tapes is part of
video distribution. In our view, this suggests a br oad scope for "distribution services" in the context
of this specific entry.
7.1335 We do not think that the fact that the terms "including (...) CPC 83202" follow the term
"videos" rather than the term "distribution ser vices" should be interpreted to mean that CPC 83202
serves only to qualify the type of "videos" that are distributed. Rather, the inclusion of CPC 83202 in
our view means that the service of renting and leasing forms part of the sectoral entry, and both
parties agree on this. However, unlike China, we think that the use of the term "including" (instead
of, say, "as well as") means that the activity of leasi ng or rental is comprised within the meaning of
"Videos (...) distribution services" in this entry.
730
7.1336 The Panel recalls that the issue before it is whether the activities subject to the claim –
wholesale, retail and rental of hard-copy AVHE products – are covered by the entry under
Audiovisual Services in China's Schedule. While ther e may be different definitions of "distribution
services", a common activity in the distribution of go ods is reselling, and the most common forms of
reselling of goods are wholesale and retail. To the extent that physical products are covered by the
entry under Audiovisual Services in China's Schedule, the term "distribution services" covers at least
wholesale and retail. The reference to CPC 83202 in the entry indicates that the lease or rental of
video tapes is also within the scope of the entr y. This suggests that China's entry on "videos,
including entertainment software and (CPC 83202) , distribution services" does cover the services at
issue.
Preliminary view based on ordinary meaning
7.1337 Based on an analysis of the ordinary meaning of the main terms in China's commitment, we
take the preliminary view that the distribution of AVHE products is within the sectoral coverage listed
by China under "videos, includi ng entertainment software and (CPC 83202), distribution services"
that appears under the sectoral heading of Audiovisu al Services in China's Schedule. We will now
analyse whether the contextual elements alter our reading of the scope of this committed sector.
Context
7.1338 We recall that the principles of treaty interpretation direct us to consider the ordinary meaning
of treaty terms "in their context", and we turn next to consider the context provided by other elements
in China's Schedule.
Market access entries
7.1339 The Panel observes further that, in the mark et access column under Audiovisual Services,
China has inscribed the following:
"Upon accession, foreign services suppliers w ill be permitted to establish contractual
joint ventures with Chinese partners to engage in the distribution of audiovisual

729 However, the parties disagree on whether the rental or leasing of video tapes referred to in CPC
83202 is part of "distribution services" in Sector 2.D, or is a distinct activity. That said, they both agree that the
sectoral entry as a whole covers both rental-leasing as well as reselling. See parties' responses to question
No. 242, as well as the parties' comments on each other's responses to that question.
730 In Canada — Autos , the panel found that a sectoral entry mentioning only "retailing" did not limit
the scope of a CPC reference in the same entry that included "wholesale trade" (Panel Report on Canada –
Autos, para. 10.278-10-282). This, in our view, underscores the significance of entering a CPC category in a
Schedule.

products, excluding motion pictures, without prejudice to China's right to examine the
content of audio and video products (see footnote 1)." (footnote omitted)
7.1340 This limitation introduced by China in its Schedul e refers to the distribution of "audiovisual
products". Examining the dictionary meaning of the term "product", we note that it refers generally to
"a thing produced".731 In a trade sense, it is defined as "an article or substance that is manufactured or
refined for sale (more recently also applied to services)". 732 We deduce that the term "product" can
therefore be a good or a service, depending on the context in which it is used. Part of the context is
the CPC, on the basis of which document W/120 was drawn up, and to which many Members
including China make reference in their schedules, is about "products", and these include both goods
and services. Turning to the term "audiovisual", we note that it is a composite of "audio" and
"visual", meaning that it pertains to sound and vision.
733 The term "audiovisual products" as used by
China to indicate a market access limitation, may therefore refer to goods with audio or video content,
as well as to audiovisual services – that is, activities related to audiovisual content.
Distribution Services (Sector 4 of China's Schedule)
7.1341 The Panel notes that China's commitments unde r Distribution Services in Sector 4 of its
Schedule cover the distribution of all goods (that is , physical products), except salt and tobacco for
wholesale, and tobacco for retail. Accordingly, commitments on the wholesale and retail of
audiovisual products in physical form might at first sight be interpreted as being covered under
Distribution Services in Sector 4, rather than Audiovisual Services in Sector 2.D, of China's Schedule.
As we have discussed earlier, these commitments cannot fall under both sectors at once.
734
7.1342 Accordingly, we find that commitments on th e wholesale and retail of physical audiovisual
products could fall either under Audiovisual Services (Sector 2.D.) or Distribution Services (Sector 4)
in China's Schedule, but not both. In resolving this interpretative issue, we note at the outset that the
commitment at issue – "Videos, including ente rtainment software and (CPC 83202), distribution
services" – is not, as a whole, referenced to a CPC number. Nor does the commitment correspond to
any sub-category under "Audiovisual Services" in document W/120, although the same sector heading
is used.
7.1343 We now examine more closely the nature of China's commitments under Distribution
Services (including explanations referenced in Anne x 2) in Sector 4 of China's Schedule. These
commitments seem to cover, in principle, the distri bution of all goods. The sectoral entries appearing
under Distribution Services (Commission Agents' Services, Wholesale Trade Services, Retailing
Services, Franchising and Wholesale or Retail Tr ade Services Away from a Fixed Location) do not
specify the nature of the goods the distribution of wh ich is subject to a commitment. By contrast, in
document W/120 the nature of the goods that are di stributed is specified by including CPC numbers
of particular physical products. China has not included CPC numbers nor otherwise specified under
the Distribution Services sector of its schedule the nature of the products for which it has made
distribution commitments. That said, China has, in some cases, made specific reference to the
coverage of certain products unde r Distribution Services. Tobacco, for example, is excluded from
China's commitment on retailing services. China al so indicates, in Annex 2 of its Schedule that
"(d)istribution services are generally covered by CP C 61, 62, 63 and 8929". This suggests to us that,
while China's commitments in Distribution Services sector appear to cover generally the distribution
of all goods (except those expressly excluded), at the same time, they do not explicitly indicate
whether the distribution of goods such as audiovisual products are covered under that sector.

731 Oxford English DictionaryOnline, available at http://dictionary.oed.com/entrance.dtl.
732 Ibid.
733 Oxford English DictionaryOnline, available at http://dictionary.oed.com/entrance.dtl.
734 See paragraphs 7.1197, 7.1198 and 7.1205.

7.1344 We next look at China's commitments under the heading of Audiovisual Services in China's
Schedule. In view of the reference to the CPC wh ich brings in video cassettes, China's commitments
under Audiovisual Services might be viewed as provi ding a more particular and specific treatment of
commitments with respect to the distribution of audiovi sual goods. For this reason, it is possible that
the commitments under Audiovisual Services are inte nded to cover the distribution of the physical
audiovisual products at issue. We note that both pa rties agree on this interpretation. However, as we
observed above, the coverage of the entry "Video s, including entertainment software and (CPC
83202), distribution services" may be wider in scope than the distribution of audiovisual products in
physical form.
Other sub-sectors within Sector 2.D.
7.1345 In order to provide further context for the meaning of China's entry on "Videos, including
entertainment software and (CPC 83202), distributio n services", we now examine the two other sub-
sectors that China has inscribed under Audiovisual Services – "Sound recording distribution services"
and "Cinema Theatre Services". We have found in paragraph 7.1265 that the scope of "Sound
recording distribution services" extends to the distribution of non-physical products, and did not
exclude that the distribution of physical products was also covered, although this last aspect was not
the subject of the claim. With respect to "Cin ema Theatre Services", we note that the term is
undefined in China's Schedule. It would logically in clude the core activity of cinemas, which is the
projection of motion pictures mentioned in document W/120, but would seem broader than that. The
wording of China's limitations on market access under mode 3 for this sector indicates that "Cinema
Theatre Services" include also certain construction/renovation activities:
"Upon accession, foreign services suppliers will be permitted to construct and/or
renovate cinema theatres, with foreign investment no more than 49 per cent."
(emphasis added)
7.1346 The construction/renovation services mentioned in this limitation are however classified in
document W/120 under Construction Services (Sector 3), not under Audiovisual Services (2,D.). This
entry shows that China has chosen, with reference to the classification system generally utilized by
Members in document W/120), to extend the sc ope of services activities coming within the
audiovisual sector. It has done for "Cinema Theatre Services" what it has done for "Videos, including
entertainment software and (CPC 83202), distribu tion services". In both cases, China has broadened
the range of audiovisual services beyond those core services related to "content", to include related
activities that would normally fall in other sectors in document W/120.
7.1347 The entry for "Cinema Theatre Services" shows that, like in the case of "Videos, including
entertainment software and (CPC 83202), distribu tion services", China's Schedule contains services
commitments that at first sight appear to overl ap. As noted in paragraph 7.1196, the service of
constructing cinemas is found, in the CPC, in category 51250. We already pointed out that China's
commitments on construction services (Sector 3 in it s Schedule) contain a specific reference to CPC
512, which itself contains CPC 51250. At the same time, in light of the specific reference in the
market access column, the commit ment on "Cinema Theatre Services" could also be understood to
cover the construction of cinemas. In these cases, a panel needs to determine which entry represents a
the actual commitment on the relevant services. This suggests that China intended in its Schedule to
group everything to do with audiovisual activities under one heading, supporting the view that
"Videos (...) distribution services" is intended to cover the distribution of physical products.
Object and purpose

7.1348 As we have done previously with respect to China's commitment on "Sound recording
distribution services", we now verify whether our interpretation of China's commitment on "Videos

(...) distributions services" is consistent with the object and purpose of the GATS. As before, we note
that the Preamble of the GATS indicates that the Agreement is aimed, inter alia, at establishing "a
multilateral framework of principles and rules for tr ade in services with a view to the expansion of
such trade under conditions of transparency and pr ogressive liberalization". In the light of this
general object and purpose, the Preamble also provides that commitments negotiated under the
Agreement should aim at "securing an overall ba lance of rights and obligations" between the
Members. We find that our interpretation of China's commitment on "Videos (...) distribution
services" is consistent with this object and purpose.
(ii) Conclusion
7.1349 We have examined the meaning of China's co mmitment on "Videos, including entertainment
software and (CPC 83202), distribution services" inscr ibed under Audiovisual Services in China's
Schedule, based on its ordinary mean ing, in its context, and in light of the object and purpose of the
GATS. Based on this analysis, we conclude that China's commitment covers the services at issue –
the wholesale, retail and rental of physical AVHE pr oducts. Noting that the parties agree with this
interpretation, and have not referre d to other means of interpretation to support this view, we do not
consider there is a need to turn to a separate examination of supplementary means of interpretation
under Article 32 of the Vienna Convention.
(b) Whether the measures at issue are inconsiste nt with China's market access commitments
(Article XVI)
7.1350 The United States challenges four measures under this claim. According to the United
States, each contains a limitation on the participati on of foreign capital in contractual joint ventures
engaging in the distribution of AVHE products, inc onsistent with Article XVI:2(f) of the GATS.
More specifically, the United States points to Article 8 of the Audiovisual (Sub-)Distribution Rule ,
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment in the Catalogue,
Article 8 of the Foreign Investment Regulation, and Article 1 of the Several Opinions.
7.1351 China rejects the US allegation, contending that the US translation and interpretation of the
relevant provisions in the measures at issue are in correct. According to China, these provisions refer
to the rate of profit and loss allocation between Chinese and foreign partners in contractual joint
ventures, and not to the participation of foreign cap ital. China argues that since a requirement on the
rate of profit and loss allocation is not am ong the six types of market access measures under
Article XVI of the GATS, the measures at issue are not inconsistent with Article XVI.
(i) Requirements of Article XVI:2(f)
7.1352 The Panel observes that the market access commitments by China with respect to the services
at issue are governed by Article XVI of the GATS, which states in relevant part:
"1. With respect to mark et access through the modes of supply identified in
Article I, each Member shall accord se rvices and service suppliers of any other
Member treatment no less favourable than that provided for under the terms,
limitations and conditions agreed and specified in its Schedule.
2. In sectors where market-access comm itments are undertaken, the measures
which a Member shall not maintain or adopt either on the basis of a regional
subdivision or on the basis of its entire te rritory, unless otherwise specified in its
Schedule, are defined as:

 (f) limitations on the participation of foreign capital in terms of maximum
percentage limit on foreign share holding or the total value of individual or aggregate
foreign investment." (original footnotes omitted)
7.1353 Paragraph 1 of Article XVI sets out the general principle that a Member must accord to
services and service suppliers of other Members treatment no less favourable than that specified under
the "terms, limitations and conditions " contained in its schedule. Para graph 2 is more specific. It
defines, in six sub-paragraphs, the measures th at a Member, having inscribed a specific sectoral
commitment, must not adopt or maintain "unless othe rwise specified in its Schedule". The six types
of measures form a closed or exhaustive list, as indicated by the wording of the chapeau to
paragraph 2 ("the measures … are defined as"). Under Article XVI, a Member undertakes a minimum
standard of treatment, and is thus free to maintain a market access regime less restrictive than set out
in its schedule, as confirmed in paragraph 1 whic h refers to a standard of "no less favourable"
treatment. Of the six types of measures listed in Article XVI:2, only sub-paragraph (f), on limitations
on the participation of foreign capital, has been inv oked by the United States and is relevant to this
claim.
7.1354 The wording of Article XVI indicates that we mu st next examine the precise terms of China's
Schedule to determine whether, with respect to the services at issue, there is a market access
commitment and, if so, what are the "terms, limita tions and conditions" entere d with respect to those
commitments. We proceed to do so.
Extent of China's commitments on market access for the services at issue

7.1355 The Panel notes that in the market access colu mn under Audiovisual Services (Sector 2.D),
China has inscribed this limitation:
"Upon accession, foreign services suppliers w ill be permitted to establish contractual
joint ventures with Chinese partners to engage in the distribution of audiovisual
products, excluding motion pictures, without prejudice to China's right to examine the
content of audio and video products (see footnote 1)."
7.1356 This inscription states that foreign service supplie rs are allowed to engage in the distribution
of audiovisual products, limited however to the est ablishment of contractual joint ventures. In the
Panel's view, this limitation falls unde r Article XVI:2(e), which refers to "measures which restrict or
require specific types of legal entity or joint venture through which a service supplier may supply a
service". A footnote to China's market access limit ation refers to yet another footnote in the
horizontal section of China's Schedule. The horizonta l section, together with the referenced footnote,
describe further characteristics of permissible joint ventures, which we now examine.
7.1357 China's horizontal market acc ess commitment under mode 3 describes three permissible
forms of foreign-invested enterprise – foreign capita l enterprises (also referred to as wholly foreign-
owned enterprises), equity joint ventures and contractual joint ventures. For contractual joint ventures
– the relevant form under this claim – footnote 1 of China's horizontal commitments states:
"The terms of the contract, concluded in accordance with China's laws, regulations
and other measures, establishing a "contractual joint venture" govern matters such as
the manner of operation and management of the joint venture as well as the
investment or other contributions of the joint venture parties. Equity participation by
all parties to the contractual joint venture is not required, but is determined pursuant
to the joint venture contract." (emphasis added)

7.1358 Footnote 1 of China's horizontal commitments states unequivocally that "[e]quity
participation by all parties to the contractual joint venture is not required, but is determined pursuant
to the joint venture contract." It is evident that China's entry neither requires nor sets any particular
limit on foreign equity participation in a contractual joint venture, leaving that issue to be negotiated
by the parties to the joint venture contract.
7.1359 We note that China has made other horizont al market access and national treatment
commitments for commercial presence. These refe r to branches, representative offices, existing
agreements and licences, land usage, and existing subs idies. The parties have not referred to these
other horizontal limitations, and we do not consider them relevant to this claim.
7.1360 We observe that the wording of China's commi tments, with respect to market access through
commercial presence in Audiovisual Services, including applicable horizontal commitments, indicates
no explicit "limitation on th e participation of foreign equity" in the sense of Article XVI:2(f). We
recall that Article XVI:2(f) stipulates that any such limitations must be "in terms of maximum
percentage limit on foreign share-holding or the to tal value of individual or aggregate foreign
investment". Thus, limitations within the meaning of Article XVI:2(f) would need to take one of two
forms: (1) a maximum percentage of capital that can be held by foreign investors; or (2) a total value
of foreign investment, either by an individual inv estor or foreign investors as a whole. Thus, China
has committed to allow foreign service suppliers to establish contractual joint ventures to distribute
AVHE products, but in doing so has not inscribed in its Schedule, either under Audiovisual Services
or in the horizontal section, any form of limitation on the level of foreign equity participation in these
contractual joint ventures.
(ii) The measures at issue
7.1361 The Panel will now examine each of the four measures at issue to determine whether they
constitute "limitations on the partic ipation of foreign capital", within the meaning of Article XVI:2(f)
of the GATS, in contractual joint ventures engaging, through commercial presence, in the distribution
of AVHE products.
Audiovisual (Sub-)Distribution Rule (Article 8.4)
7.1362 The United States claims that Article 8.4 of the Audiovisual (Sub-)Distribution Rule is
inconsistent with China's mark et access obligations under Artic le XVI:2(f) of the GATS because it
contains a limitation on foreign equi ty participation that is not set out in China's Schedule. The
United States translates this provision as:
"The Chinese co-operator shall hold no less than 51 % equity in the contractual joint
venture." (emphasis added)
7.1363 China contends that the US translation is incorr ect and that the proper translation of this
provision should be:
"The Chinese co-operator shall hold no less than 51 % rights and interests in the
contractual joint venture." (emphasis added)
7.1364 China submits that, in accordance with the 2000 Chinese-Foreign Contractual Joint Venture
Law, the distribution of profit and allocation of loss in a contractual joint vent ure is not dependent on
the ratio of equity participation, but is determined by the parties in the joint venture contract.
Referring to footnote 1 of China's Services Schedule, China indicates that equity is not a required
term in contractual joint venture. According to Chin a, when the reference to "rights and interests" is
made for contractual joint ventures, it does not mean equity participation but share of the profits and

losses. China therefore maintains that Article 8.4 of the Audiovisual (Sub-)Distribution Rule refers to
a limitation on the allocation of profits and losses, wh ich is not inconsistent with Article XVI of the
GATS.
7.1365 The United States responds that Article 8.4 of the Audiovisual (Sub-)Distribution Rule does
not contain any textual basis for "profit a nd loss". Regarding China's reliance on the 2000 Chinese-
Foreign Contractual Joint Venture Law , the United States contends that this law does not negate the
existence of those other measures identified by the United States, which explicitly provide for a
limitation on the participation of foreign capita l in contractual joint ventures engaging in the
distribution of AVHE products. As to China's re liance on footnote 1 of its Services Schedule, the
United States points out that it is not alleging a requirement of equity participation, but the limitation
on the foreign partner's equity par ticipation when it chooses to invest equity in a contractual joint
venture. The United States submits that the term "r ights and interests" is so broad that a limitation
cast in these terms would appear to be a limitation on every aspect of a foreign firm's participation in
the contractual joint venture, including equity, shareholding, and total investment, not just profit. The
United States maintains that China's alternative translation does not support its contention that
participants in contractual joint ventures are lim ited only in the percentage of profits and losses
attributed to them.
7.1366 The Panel notes at the outset that the parties disagr ee on the proper translation of the original
Chinese term Quan Yi appearing in Article 8.4 of the Audiovisual (Sub-)Distribution Rule. While the
United States submits that it should be translat ed as "equity", China contends that the proper
translation of the term should be "rights and interests". We observe however that the parties do not
dispute the literal translation of the term Quan Yi as such. They agree that Quan Yi could be
translated as "rights and interests", since Quan could mean "rights" and Yi could mean "interests".
735
This literal translation is confirmed by the Panel's independent translator. 736 What the parties
fundamentally disagree on is the proper interpretation of this term in the context of Article 8.4 of
Audiovisual( Sub-)Distribution Rule, which would determine the cons istency of the provision with
Article XVI of the GATS.
7.1367 With respect to the burden of proof in this ma tter, we consider that a party that advances a
particular legal interpretation of a measure of a Member bears the burden of demonstrating that its
interpretation is correct. 737 This is consistent with the genera l principle whereby the burden of proof
rests upon the party, whether complaining or defendi ng, which asserts the affirmative of a particular
claim or defence.
7.1368 In interpreting the wording of Article 8.4 of the Audiovisual( Sub-)Distribution Rule , both
parties refer to the terms of the 2000 Chinese-Foreign Contractual Joint Venture s Law. The
Audiovisual (Sub-)Distribution Rule was issued in part based on the 2000 Chinese-Foreign
Contractual Joint Ventures Law,738 and applies to Chinese-foreign contractual joint ventures engaging
in the distribution of audiovisual products established in China.739
7.1369 We recall that a contractual joint venture is one of two permissible forms of joint venture in
China, the other being equity joint venture. We note that an equity joint venture is required to take the
form of a limited liability company where the pa rties shall share the profits, risks and losses in

735 See the United States' and China's comments on translation issues.
736 According to the Panel's independent translator, while noting that the term "Quanyi" is given both
"equity" and "rights and interests" in certain Chinese dic tionaries, there is no compelling reason to depart from
the more liberal rendering which is "rights and interests".
737 Appellate Body Report on US – Carbon Steel, para. 157.
738 Audiovisual (Sub-)Distribution Rule, Article 1 (Exhibit US-18).
739 Audiovisual (Sub-)Distribution Rule, Article 2 (Exhibit US-18).

proportion to their respective contribution to the registered capital. 740 There are no such legal
requirements on a contractual joint venture. We note that a contractual joint venture need not have
the status of a juridical person under Chinese law.
741 Article 2 of the 2000 Chinese-Foreign
Contractual Joint Venture Law states:
"In establishing a contractual joint venture, the Chinese and foreign parties shall
prescribe in their contractual joint venture c ontract such matters as the investment or
conditions for cooperation, the distribution of earnings or products, the sharing of
risks and losses, the manners of operation and management and the ownership of the
property at the time of the termination of the contractual joint venture".
7.1370 This is consistent with footnote 1 of China's Schedule, which states:
"The terms of the contract, concluded in accordance with China's laws, regulations
and other measures, establishing a "contractual joint venture" govern matters such as
the manner of operation and management of the joint venture as well as the
investment or other contributions of the join t venture parties. Equity participation by
all parties to the contractual joint venture is not required, but is determined pursuant
to the joint venture contract.".
7.1371 Based on this evidence, we understand that the parties to a contractual joint venture set out the
investment and other conditions on cooperation, including those on the distribution of profits, in their
contract establishing the joint venture. In its answ er to a question from the Panel, China states that,
according to Article 2 of the 2000 Chinese-Foreign Contractual Joint Venture Law , the share of the
profits, risks and losses is not required to be in proportion to each party's contribution to the registered
capital, but can be negotiated and prescribed in the contractual joint venture contract.
742 T h i s
statement appears to us to be straightforward. However, China then argues that Article 2 of the 2000
Chinese-Foreign Contractual Joint Venture Law and footnote 1 of China's Schedule shows that the
"rights and interests" in Article 8.4 of the Audiovisual (Sub-)Distribution Rule refer to profits. We
have asked China how, based on its own translation, Article 8.4 can be understood as referring to the
allocation of profits and losses in contractual joint ventures. China explained as follows:
"[E]quity participation in a contractual join t venture is not required. When reference
is made to rights and interests in the contractual joint venture, it does not mean equity
participation but share of the profits, risks and losses as provided in Article 2 of the
2000 Chinese-Foreign Contractual Joint Venture Law."
743
7.1372 We note that China appears to argue as follows. As a general matter, a limitation on "rights
and interests" could be with respect to equity pa rticipation or share of profits. But since equity
participation is not legally require d in a contractual joint venture, the "rights and interests" in a
contractual joint venture must refer to the share of profits. We are not persuaded by this line of
argument.
7.1373 In our view, the meaning of "rights and interests" is broad enough to refer to investors' equity,
shareholding, total investment, profits, and other right s and interests in an enterprise. As indicated in
Article 2 of the 2000 Chinese-Foreign Contractual Joint Venture Law and footnote 1 of China's
Schedule, the parties to a contractual joint vent ure prescribe in the joint venture contract the
investment and other conditions on cooperation, in cluding those on the distribution of profits. In

740 Chinese-Foreign Equity Joint Venture Law, Article 4 (Exhibit CN-48).
741 2000 Chinese-Foreign Contractual Joint Venture Law, Article 2 (Exhibit CN-49).
742 China's response to question No. 227.
743 China's response to question No. 228.

other words, the parties to a contractual joint ventur e determine their various "rights and interests" in
the contract. We understand the statement in China's Schedule that "equity participation by all parties
to the contractual joint venture is not required" as m eaning that equity participation by all parties is
not mandatory, and not that the joint venture contract cannot prescribe equity participation by all
parties. We therefore do not see how China has arri ved at the conclusion that for a contractual joint
venture, a limitation on "rights and interests" cannot refer to equity participation but only to the
distribution of profits.
7.1374 We note that in asserting that Article 8.4 of the Audiovisual (Sub-)Distribution Rule cannot be
understood as a limitation on equity participation, China refers to the 2000 Chinese-Foreign
Contractual Joint Venture Law . China appears to argue that the 2000 Chinese-Foreign Contractual
Joint Venture Law would preclude other measures from pl acing limitations on equity participation
because it provides that equity participation is determ ined by the joint venture contract. We are not
convinced by this argument, which appears to lack a textual basis. We note that the distribution of
profits in a contractual joint venture, like equity par ticipation, is also determined by the joint venture
contract in accordance with the 2000 Chinese-Foreign Contractual Joint Venture Law . China does
not explain how Article 8.4 of the Audiovisual (Sub-)Distribution Rule can place a limitation on the
distribution of profits but not on equity participation. We also note that Article 8.1 of the Audiovisual
(Sub–)Distribution Rule provides that a Chinese-foreign contractual joint venture engaging in the
distribution of audiovisual products must have the st atus of a juridical person. However, as observed
above, the 2000 Chinese-Foreign Contractual Joint Venture Law does not require that a contractual
joint venture be a juridical person. The parties to a contractual joint venture may choose to establish a
juridical person, or not, as they wish. If the requirement for having the status of juridical person is not
in contradiction with the 2000 Chinese-Foreign Contractual Joint Venture Law , we see no reason
why in the same measure, Article 8.4 of the Audiovisual (Sub-)Distribution Rule cannot limit equity
participation.
744
7.1375 We further take the view that "rights and inter ests" are abstract and unquantifiable, and that it
is therefore counterintuitive to relate a limitation of 51 per cent to this particular concept. Further, the
term Quan Yi used in Article 8.4 of the Audiovisual(Sub-)Distribution Rule can be translated in some
senses as "equity", as confirmed by the Panel's indepe ndent translator. As indicated by the United
States, Quan Yi is a compound term used in China's a ccounting system to mean "equity". For
example, Article 79 of the Accounting System provides that "owners' Quan Yi is the economic interest
in the assets of an enterprise attributable to the ow ners. The amount is the balance of assets after
deducting all liabilities." Article 26 of the Accounting Standards provides that "owners' Quan Yi is
the residential interest in the assets of an enterprise after deducting all its liabilities".
7.1376 Based on the preceding analysis, we find that Ch ina has failed to rebut the interpretation of
Article 8.4 of the Audiovisual (Sub-)Distribution Rule advanced by the United States – namely, that
the Chinese joint venture partner should hold no less than 51% of any equity in a contractual joint
venture engaging in the distribution of audiovisual products. Given this interpretation of the Chinese
measure, we find that the United States has demonstrated that Article 8.4 of the Audiovisual
(Sub-)Distribution Rule contains a "limitation on the foreign equity participation in terms of
maximum percentage limit on foreign share holding" under Article XVI:2(f) of the GATS, contrary to
China's commitments in its Schedule for the services at issue.

744 The contractual joint venture contract submitted by China as an example shows that the joint
venture is a limited liability company (Exhibit CN – 107). We note that Article 35 of China's 2005 Company
Law provides that in the limited liability company, "the shareholders shall distribute dividends in light of the
percentages of capital contributions actually made by them, unless all shareholders agree that the dividends are
not distributed on the percentages of capital contributions".

Catalogue (Article VI:3) and Foreign Investment Regulation (Article 8)
7.1377 The United States claims also that Article VI:3 of the Catalogue of Industries with Restricted
Foreign Investment in the Catalogue, and Article 8 of the Foreign Investment Regulation are
inconsistent with Article XVI of the GATS. According to the United States, these two measures place
a limit on foreign equity participation, within the meaning of Article XVI:2(f), on service suppliers of
other Members, contrary to China's commitments in its Schedule. The United States points out that
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment in the Catalogue reads:
"Sub-distribution of audiovisual products (excluding motion pictures) limited to
contractual joint ventures where the Chinese partner holds majority share." (emphasis
added)
7.1378 According to the United States, this pr ovision is defined by Article 8 of the Foreign
Investment Regulation, which states that the reference in the Catalogue
"'have the Chinese party hold majority share' means the total proportion of investment
of the Chinese investor in the foreign-invested project is 51% and above " (emphasis
added)
7.1379 China contends that the US translation of the a bove provisions is incorrect. According to
China, Article VI:3 of the Catalogue should be translated as:
 "Distribution of audiovisual products (excluding motion pictures) (limited to
contractual joint ventures where the Chinese partner holds controlling interest )."
(emphasis added)
7.1380 China submits further that Article 8 of the Foreign Investment Regulation should be translated
as:
"Have the Chinese party hold majority share/interest means the total proportion of
investment of the Chinese investor in the foreign-invested projects is 51% and
above." (emphasis added)
7.1381 Repeating its reference to Article 2 of the 2000 Chinese-Foreign Contractual Joint Venture
Law and footnote 1 of its Schedule, China maintains:
"When the term of 'majority of the shares' is used for equity joint ventures, it refers to
majority of equity interest, i.e. contributi on to the registered capital. When the term
of 'majority of the shares' is used for contr actual joint ventures, it refers to majority of
ratio in the share of the profits, risks and losses."
745
7.1382 The United States rejects China's argument, contending that Article 8 of the Foreign
Investment Regulation governs the translation of Article VI:3 of the Catalogue and supports the US
translation. The United States notes that Article 8 of the Foreign Investment Regulation indicates that
the total proportion of investment of the Chinese i nvestor in the foreign-invested projects is 51 per
cent and above.
7.1383 The Panel notes that the parties differ on the correct translation and interpretation of the
Chinese term Kong Gu contained in Article VI:3 of the Catalogue. The United States submits that it
should be translated as "hold majority share", while China contends that the accurate translation is

745 China's response to question No. 227.

"hold controlling interest". The Panel's independent translator, on the other hand, states that the
Chinese term "Kong Gu" literally refers to "hold a c ontrolling number of shares" and that there is no
indication that control necessarily requires a majority According to China, sh ares are used in a joint
stock company whose equity is divided into certain number of shares. China argues that the concept
of "shares" is not applicable to contractual join t ventures because equity is not a requirement in a
contractual joint venture.
7.1384 We note that the United States argues that Article VI:3 of the Catalogue imposes a limitation
on foreign equity participation in the contractual joint venture, while China contends that this
provision refers to a limitation on the allocation of prof its and losses. China refers again to Article 2
of the 2000 Chinese-Foreign Contractual Joint Venture Law and footnote 1 of its Schedule to support
its position.
7.1385 We are not however convinced by China's argu ment. China fails to show how, based on its
translation of Article VI:3 of the Catalogue, the provision refers to a limitation on the allocation of
profits and losses. As noted above in our discu ssion on "rights and interests", the meaning of
"interest" is very broad, and may encompass invest ment, shareholding, profits and other interests.
Moreover, as also explained, we do not consider that the 2000 Chinese-Foreign Contractual Joint
Venture Law precludes other measures from imposing a lim itation on equity participation in the
contractual joint venture. Further, we are not pe rsuaded by China's contention that "shares" can be
used only in a joint stock company.
7.1386 We recall our previous observation that the Foreign Investment Regulation incorporates the
Catalogue by reference and gives legal effect to it. The interpretation of Article VI:3 of the
Catalogue should therefore be consistent w ith the relevant provisions in the Foreign Investment
Regulation, which is Article 8. We note that the pa rties do not differ fundamentally on the proper
translation of Article 8, which states:
"The Catalogue of Industries for Guiding Foreign Investment may provide that
foreign-invested projects 'are restricted to Chinese-foreign equity joint ventures and
contractual joint ventures', 'have the Chinese party hold majority share', or 'have the
Chinese party hold relative majority share'.
'Restricted to Chinese-foreign equity joint ventures and contractual joint ventures'
means these are the only forms allowed. 'have the Chinese party hold majority share'
means the total proportion of investment of the Chinese investor in the foreign-
invested projects is 51% and above . 'have the Chinese party hold relative majority
share' means the total proportion of investme nt of the Chinese investor in the foreign-
invested projects is larger than the proportion of any one foreign investor."
746
(emphasis added)
7.1387 We note that, according to this provision, "h ave the Chinese party ho ld majority share"
(China's translation: "have the Chinese party hold majority share/interest") means that the total
proportion of investment of the Chinese investor in the foreign-invested projects is 51% and above.
Since this definition is not textually limited, it a pplies to both equity joint ventures and contractual
joint ventures. We note that China does not contest the US argument that Article 8 of the Foreign
Investment Regulation provides guidance on the interpretation of Article VI:3 of the Catalogue.
7.1388 Reading Article VI:3 of the Catalogue in light of Article 8 of the Foreign Investment
Regulation, we consider that Article VI:3 is prope rly understood as limiting the distribution of

746 This is the text submitted by the United States. China does not submit a text of this measure, only
the translation of the part of Article 8 cited above.

audiovisual products (excluding motion pictures) to contractual joint ventures in which the Chinese
party holds a "majority share", meaning that the Chinese party must hold a minimum of 51% of the
investment. We find therefore that Article VI:3 of the Catalogue, in conjunction with Article 8 of the
Foreign Investment Regulation, is inconsistent with China's co mmitments under Article XVI:2(f) of
the GATS since these provisions together constitute a "limitation on the foreign equity participation in
terms of maximum percentage limit on foreign share holding" within the meaning of that provision.
Several Opinions (Article 1)
7.1389 The United States claims that Article 1 of the Several Opinions is inconsistent with
Article XVI of the GATS because it only permits fore ign-invested enterprises to engage in the sub-
distribution of audiovisual pr oducts (excluding motion pict ures) through a Chinese-foreign
contractual joint venture if the Chinese party holds a majority of the shares. The United States points
to Article 1 of the Several Opinions which provides, according to the US translation:
"Under the condition where the right of ou r country to examine the content of
audiovisual products is not harmed, fore ign investors are permitted to set up
enterprises for the sub-distribution of audiovisual products, with the exception of
motion pictures, in the form of Chinese-foreign contractual joint ventures where the
Chinese partner holds the dominant position". (emphasis added)
7.1390 China does not provide any specific response to th is US argument. At the request of the
Panel, China provided its translation of Article 1 of the Several Opinions as follows:
"Under the condition where the right of ou r country to examine the content of
audiovisual products is not harmed, fore ign investors are permitted to set up
enterprises for the distribution of audiovis ual products, excluding motion pictures, in
the form of Chinese-foreign contractual joint ventures where the Chinese partner
holds a dominant position". (emphasis added)
7.1391 The Panel, for the purposes of this claim, sees no significant difference between the
translations of the two parties. The United States argues that Article 1 of the Several Opinions
confirms the meaning of Article VI:3 of the Catalogue and Article 8 of the Foreign Investment
Regulation, namely that the Chinese party to a contractual joint venture engaging in the sub-
distribution of audiovisual products must hold a majority of shares. The United States appears to
suggest that holding "the dominant position" in a co mpany means holding a majority of the shares of
the company. In resolving this interpretative issue, we note that that the United States bears the
burden of demonstrating that its in terpretation of Article 1 of the Several Opinions is correct. As the
Appellate Body in US – Carbon Steel stated:
"[A] responding Member's law will be tr eated as WTO-consistent until proven
otherwise. The party asserting that anot her party's municipal law, as such, is
inconsistent with relevant treaty obligati ons bears the burden of introducing evidence
as to the scope and meaning of such law to substantiate that assertion."
747
7.1392 In assessing this interpretative issue, we note th at "holding a dominant position" suggests that
one has a "controlling" position in an entity, while "holding a majority of shares" means simply that
one must hold over 50% of the shares. These notions are not the same. In an entity in which shares
are owned by a number of different persons, a single shareholder may, due to the dispersal of
ownership interests, have a "dominant position" while holding far fewer than 50 per cent of the

747 Appellate Body Report on US – Carbon Steel, para. 157.

shares. Thus "holding a dominant position" does not necessarily imply "holding a majority of shares"
in an entity.
7.1393 We note in this respect that the GATS, in its origin rules for service suppliers of another
Member, makes a similar distinction between owners hip and control of an entity. According to
Article XXVIII(n), a juridical person is "owned" by persons of a Member if more than 50 per cent of
the equity interest in it is beneficially owned by persons of that Member, while a juridical person is
"controlled" by persons of a Member if such pers ons have the power to name a majority of its
directors or otherwise to legally direct its actions.
7.1394 We consider therefore that the United States h as not advanced sufficient evidence to establish
that "holding a dominant position" in Article 1 of the Several Opinions refers to "holding a majority of
shares". It has not been able to show that this provision constitutes a "limitation on foreign equity
participation" in the form either of "the maximum percentage of capital that can be held by foreign
investors" or "the total value of foreign investme nt either by an individual investor or foreign
investors as a whole", as required under Article XVI: 2(f) of the GATS. The United States has failed
to meet its burden of establishing that Article 1 of the Several Opinions imposes a limitation in the
form specified in Article XVI:2(f), inconsistently with China's commitments on the services at issue.
(iii) Conclusion
7.1395 We recall that we have found that the distribu tion of AVHE products is covered by China's
commitments under the heading "Videos, incl uding entertainment software and (CPC 83202),
distribution services" in Sector 2.D. of China's Se rvices Schedule. We have further found that China
has not inscribed in its Services Schedule any limits on the level of foreign equity participation in
contractual joint ventures engaging in the distribu tion of AVHE products. Since we have found that
Article 8.4 of the Audiovisual (Sub-)Distribution Rule contains a limitation on the participation of
foreign capital in contractual joint ventures enga ging in the distribution of AVHE products, which
falls within the scope of Article XVI:2(f) of the GATS, we have concluded that this provision is
inconsistent with China's market access commitments under Article XVI of the GATS.
7.1396 We have also found that Article VI:3 of the Catalogue of Industries with Restricted Foreign
Investment in the Catalogue, in conjunction with Article 8 of the Foreign Investment Regulation,
contains a limitation on the participation of foreig n capital in contractual joint ventures engaging in
the distribution of AVHE products, which also fall s within the scope of Article XVI:2(f) of the
GATS. Therefore, we arrive at the conclusion that Article VI:3 of the Catalogue of Industries with
Restricted Foreign Investment in the Catalogue, in conjunction with Article 8 of the Foreign
Investment Regulation , also falls within the scope of Article XVI:2(f) of the GATS, and that these
provisions together are inconsistent with China' s market access commitments under Article XVI of
the GATS.
7.1397 We do not, however, find that Article 1 of the Several Opinions constitutes a breach of
Article XVI of the GATS, because the United States has not established that it imposes a limitation
that falls within the scope of Article XVI:2(f) as claimed by the United States.
(c) Whether the measures at issue are inconsistent with China's national treatment commitments
(Article XVII)
7.1398 The United States claims that five discriminatory requirements, with respect to foreign equity
participation, operating terms, pre-establishment legal compliance, examination and approval process,
and decision-making criteria, are inconsistent with Article XVII of the GATS. According to the
United States, these discriminatory requirements are imposed through four measures: the Audiovisual
(Sub-)Distribution Rule, the Catalogue, the Foreign Investment Regulation and the Several Opinions.

7.1399 China requests the Panel not to consider the requirements concerning "pre-establishment
legal compliance", "approval process requirements" a nd "decision-making criteria" to be within its
terms of reference, because they are not specifically mentioned in the panel request. China also
contends that the United States fails to make a prima facie case that the requirements regarding
foreign equity participation, operating terms and approval process violate Article XVII of the GATS.
7.1400 The Panel recalls its finding above that, with resp ect to this US claim, the requirements
concerning pre-establishment legal compliance, examination and approval process, and decision-
making criteria are not within its terms of refere nce. We will therefore examine only whether the
alleged discriminatory requirements with respect to foreign equity particip ation and operating term
are inconsistent with Article XVII of the GATS.
7.1401 The Panel notes that it has previously examined the scope of China's commitments with
respect to "Videos, including entertainment soft ware and (CPC 83202), distribution services" under
the heading of Audiovisual Services in its Schedule, and concluded that the distribution of physical
AVHE products is covered by this entry.
(i) Requirements of Article XVII
7.1402 The Panel recalls its discussion above on the requirements in Article XVII of the GATS.
Paragraph 1 thereof reads:
"In the sectors inscribed in its Schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and service
suppliers of any other Member, in respect of all measures affecting the supply of
services, treatment no less favourable than that it accords to its own like services and
service suppliers."

7.1403 As previously noted, the wording of Article XVII indicates that we need to determine:
(a) whether the services at issue are inscribed in China's Schedule, (b) whether the measures at issue
affect the supply of these services, (c) the extent of China's national treatment commitment, including
any conditions or qualifications, with respect to these services entered in its Schedule, and (d) whether
these measure accord less favourable treatment to service suppliers of other Members, in comparison
to like domestic suppliers.
Whether the services at issue are within the scope of services listed in China's Schedule
7.1404 We have already made a finding above that the services at issue – the distribution of AVHE
products in physical form – are within the scope of "Videos, including entertainment software and
(CPC 83202), distribution services" inscribed in Chin a's Schedule, and are therefore subject to any
national treatment commitment that China may have undertaken.
Whether the measures at issue are "affecting" trade in services
7.1405 Similarly to what we have found in our exam ination of China's measures with respect to
sound recording distribution services, we consider that, since the measures at issue (which are
examined in detail below) directly govern the supplie rs of the services at issue, they "affect" the
supply of these services in the sense of Article XVII, and the parties have not argued otherwise.
Extent of China's commitments on national treatment for the services at issue
7.1406 In order to determine the extent of China's national treatment commitments with respect to the
services at issue, we need now to examine China' s Schedule to see whether there are any limitations

inscribed, in the national treatment column for services supplied through commercial presence, for the
entry "Videos, including entertainment software and (CPC 83202), distribution services". We need
also to examine the horizontal section of China's sc hedule. Finally, we need to examine the market
access column, including any horizontal entries, to th e extent that a limitation there might also be
discriminatory.
7.1407 The Panel notes that for the entry "Videos, including entertainment software and
(CPC 83202), distribution services" under the heading Audiovisual Services of its Schedule, China
has inscribed "None" in the national treatment column, for services supplied through commercial
presence. This is an initial indication that there are "no limitations" on national treatment. In the
market access column, with respect to the same service and mode of supply, the inscription reads, as
for sound recording distribution services, as follows:
"Upon accession, foreign services suppliers w ill be permitted to establish contractual
joint ventures with Chinese partners to engage in the distribution of audiovisual
products, excluding motion pictures, without prejudice to China's right to examine the
content of audio and video products (see footnote 1)."
7.1408 This inscription indicates that China has comm itted to allow foreign service suppliers to
engage in the distribution of audiovisual products through the establishment of contractual joint
ventures. Since this is a limitation that only applies to foreign service suppliers, it is also, by virtue of
Article XX:2 of the GATS, a limitation on national treatment.
7.1409 We have previously examined China's horizontal commitments with respect to mode 3. The
entry in the national treatment column indicat es that China has made no national treatment
commitments with respect to existing subsidies in sectors including audiovisual services. As noted
above, the entries in the market ac cess column: (a) limit the forms of foreign-invested enterprises in
China; (b) specify that no commitment is made on the right of foreign enterprises to establish
branches, unless specifically mentioned in a service sector entry in a China's schedule; (c) limit the
activities of representative offices; (d) commit that existing foreign service suppliers will not have
their conditions of ownership, oper ation and scope of activities made more restrictive; and (e) limit
maximum duration on the use of land by enterpris es and individuals. The first three limitations
constitute limitations on national treatment as well, because they accord formally different treatment
to foreign service suppliers.
7.1410 To summarize China's national treatment commit ment with respect to the services at issue
supplied through commercial presence, we note that China has undertaken a full national treatment
commitment, subject to the condition that foreign service suppliers can only engage in the distribution
of AVHE products through the establishment of c ontractual joint ventures, as well as further
limitations in its horizontal section that have not been raised in this dispute.
(ii) Measures at issue
7.1411 Having determined the level of China's commitme nts with respect to the services at issue, we
now examine the individual measures to determine wh ether, as claimed by the United States, they are
inconsistent with China's commitments with resp ect to the supply thro ugh commercial presence of
"Videos, including entertainment software and (CPC 83202), distribution services".
Measures limiting foreign equity participation

7.1412 At the outset, the Panel notes that it has already found certain measures containing a foreign
equity participation limitation inconsistent with Article XVI of the GATS. These measures are
Article 8.4 of the Audiovisual (Sub-)Distribution Rule, and Article VI:3 of the Catalogue of Industries

with Restricted Foreign Investment in the Catalogue (in conjunction with Article 8 of the Foreign
Investment Regulation). Based on the principle of judicial economy, we consider that we do not need
to examine whether these measures are also inc onsistent with Article XVII of the GATS.
Accordingly, we refrain from offering any findings under Article XVII in respect of these measures.
7.1413 Since we have found, however, that the United St ates has not established that Article 1 of the
Several Opinions is inconsistent with Article XVI of the GATS, we now need to examine whether, as
claimed by the United States, Article 1 is inconsistent with Article XVII.
7.1414 The United States claims that Article 1 of the Several Opinions is inconsistent with
Article XVII of the GATS as it directly prohibits fo reigners from holding the dominant position in a
joint venture engaging in the distribution of AVHE products in China. The United States submits that
this measure treats foreign-invested distributors who are services suppliers of other Members less
favourably than their like, wholly Chinese-owned competitors. The United States further submits that
the measure at issue does not fall within the term s, limitations, conditions, or qualifications on
national treatment that China has specified in its Schedule with respect to the supply through
commercial presence of the services at issue.
7.1415 China rejects the US claim, contending that the measure at issue refers to the rate of
distribution of profit and allocation of loss in the contractual joint venture, and does not negatively
impact the actual conditions of competition of the contractual joint ventures.
7.1416 The Panel recalls that Article 1 of the Several Opinions provides:
"Under the condition where the right of ou r country to examine the content of
audiovisual products is not harmed, fore ign investors are permitted to set up
enterprises for the distribution of audiovis ual products, excluding motion pictures, in
the form of Chinese-foreign contractual joint ventures where the Chinese partner
holds the dominant position."
7.1417 We note that this provision explicitly prohib its foreigners from holding the dominant position
in a contractual joint venture engaging in AVHE product distribution. The United States claims that
this provision as such is inconsistent with Ar ticle XVII of the GATS. As noted above, under
Article XVII, we need to determine whether: (a) China has made national treatment commitments
with respect to the services at issu e; (b) the measure at issue affect s the supply of these services; and
(c) this measure accords less favourable treatment to service suppliers of other Members, in
comparison to like domestic suppliers.
7.1418 Since we have previously determined that China has made national treatment commitments
with respect to the distribution of AVHE products, and that Article 1 of the Several Opinions affects
the supply of these services, we next examine wh ether this provision accords treatment to service
suppliers of other Members less favourable than that accorded to like domestic suppliers.
7.1419
We note that the measure at issue concerns a contractual joint venture, which is the only
permissible form that a foreign-invested enterprise ma y take if it wishes to engage in the distribution
of AVHE products in China. We recall our previous observation that foreign-invested enterprises in
China qualify as "service suppliers of another Me mber" under the GATS where the entity is owned or
controlled by natural persons or ju ridical persons of another Member. As noted above, we also
understand that, under the measure at issue, " holding a dominant position" means holding a
controlling position. However, those contractua l joint ventures in which the Chinese partner holds
the dominant position do not qualify as "service suppliers of another Member", since they are not
controlled by persons of another Member. In cont rast, we consider that those contractual joint
ventures where the foreign partner holds the dominant position qualify as "service suppliers of another

Member" under Article XVII. We note in this respec t that in its answer to a Panel question, China
agrees that a Chinese-foreign contractual joint ve nture qualifies as a "service supplier of another
Member" only where it is controlled by persons of another Member.
748
7.1420 As noted above, Article 1 of the Several Opinions prohibits those contractual joint ventures
where the foreign partner holds the dominant position from engaging in the distribution of AVHE
products. According to the United States, wholly Chinese-owned enterprises are permitted to supply
these services. We note that there is nothing on the r ecord to suggest that those suppliers are subject
to any restrictions, and China never contested the US contention. There is, as a result, a difference of
treatment as between, on the one hand, contractual jo int ventures in which the foreign partner holds
the dominant position, and, on the other hand, wh olly Chinese-owned enterprises and contractual
joint-ventures in which the Chinese partner holds the dominant position. We observe that this
difference of treatment is based exclusively on the na tional origin of the service supplier. As we have
observed earlier, there therefore will, or can, be domestic and foreign suppliers that under the
measures at issue are "like". We thus consider that the "like" service suppliers requirement in
Article XVII is met.
7.1421 Under the measure at issue, the contractual jo int ventures where the foreign partner holds the
dominant position – the foreign service suppliers – ar e prevented from engaging in the distribution of
AVHE products, while like domestic service suppliers (wholly Chinese-owned enterprises) are
permitted to supply these services. The measure at issue thus imposes a discriminatory prohibition on
foreign service suppliers, which clearly modifies conditions of competition in favour of domestic
suppliers. We therefore consider that the measure at issue – Article 1 of the Several Opinions –
accords to foreign service suppliers treatment less favourable than that acco rded to like domestic
suppliers.
7.1422 We note that China's national treatment commit ments for Audiovisual Services under Sector
2.D. of its Schedule are not subject to a limitati on that only the Chinese partner can hold the dominant
position in contractual joint ventures. We therefore find that Article 1 of the Several Opinions is
inconsistent with Article XVII of the GATS.
Measures requiring an operating term

7.1423 The United States alleges that the operating term require ment contained in Article 8.5 of the
Audovisual (Sub-)Distribution Rule is inconsistent with Article XVII of the GATS. The United States
notes that in accordance with this provision, the ope rating term of a Chinese-foreign contractual joint
venture for the distribution of audiovisual products is limited to 15 years. The United States also
notes that no such limitation is imposed on whol ly Chinese-owned distributors. The United States
submits that foreign-invested distributors thus face greater uncertainty and cost in the continuity of
their operations in China than w holly Chinese owned distributors. According to the United States,
maintaining current business and generating new business becomes more diffi cult when the foreign-
invested distributor cannot guarantee that it will con tinue to be in business after the expiry of its
operating term. The United States therefore submits that the operating term requirement has thus
modified conditions of competition in favour of wholly Chinese-owned distributors.
7.1424 China rejects the US allegation, contending that the 15-year operating term requirement has
no impact on actual conditions of competition. Chin a argues that an expiring operating term can be
extended pursuant to a non-discretionary, auto matic and simplified procedure and that de facto ,
neither the wholly-Chinese nor the foreign-invested distributor is subject to any actual time-limitation
for their activity. China further argues that denying China the right to introduce the requirement on

748 China's response to question No. 111.

operating terms would undermine Chin a's sovereign right to regulate market access in the field of
services consistently with its GATS commitments.
7.1425 The Panel notes that this claim raises the same issues that were discussed with respect to the
operating term requirement in the wholesaling of reading materials (see Section X). The parties have
presented similar arguments and counterarguments . Though this claim involves China's GATS
commitments for Audiovisual Services under Sector 2.D. of its Schedule, we note that China's
national treatment commitments in this sector, like t hose for Distribution Services in Sector 4, are not
subject to a limitation with respect to the oper ating term. We recall the reasoning presented in
paragraphs 7.1127-7.1141. We also note that co mpared to the 30-year operating term requirement
with respect to the distribution of reading material s, the 15-year operating term requirement is likely
to bring even greater uncertainty to business opera tions, further altering the conditions of competition
against the foreign-invested service supplier. We therefore arrive at the conclusion that the operating
term requirement provided fo r by Article 8.5 of the Audiovisual (Sub-)Distribution Rule is
inconsistent with Article XVII of the GATS.
(iii) Conclusion
7.1426 The Panel finds that Article 1 of the Several Opinions and the operating term requirement
provided for by Article 8.5 of the Audiovisual (Sub-)Distribution Rule are inconsistent with
Article XVII of the GATS.
7.1427 Since the Panel has found that Article 8.4 of the Audiovisual (Sub-)Distribution Rule, and
Article VI:3 of the Catalogue of Industri es with Restricted Foreign Investment in the Catalogue in
conjunction with the Foreign Investment Regulation , are inconsistent with Article XVI of the GATS,
the Panel exercises judicial economy with resp ect to the US claim on the same measures under
Article XVII of the GATS.
4. Summary of conclusions
(a) Distribution of reading materials
7.1428 Article 4 of the Imported Publications Subscription Rule and Article 42 of the Publications
Regulation are together inconsistent with China's na tional treatment commitments under Article XVII
of the GATS as they prohibit foreign-invested enterprises, including service suppliers of other
Members, from engaging in the wholesale of imported reading materials subject to subscription, while
like domestic service suppliers are not similarly prohibited.
7.1429 Article 2 of the Publications (Sub-)Distribution Rule , in conjunction with Article 16 of the
Publications Market Rule , is inconsistent with China's national treatment commitments under
Article XVII of the GATS as it prohibits foreign-inv ested enterprises, including service suppliers of
other Members, from engaging in the wholesale of imported reading materials subject to sales through
the market, while like domestic service suppliers are not similarly prohibited.
7.1430 In the cases where master distribution involves wholesale or retail services, Article X:2 of the
Catalogue of Prohibited Foreign Investment Industries of the
Catalogue, in conjunction with
Articles 3 and 4 of the Foreign Investment Regulation, is inconsistent with China's national treatment
commitments under Article XVII of the GATS as it prohi bits foreign-invested enterprises, including
service suppliers of other Members, from engaging in the master distribution of reading materials
while like domestic service suppliers are not similarly prohibited. Article 4 of the Several Opinions is
inconsistent with Article XVII for the same reasons.

7.1431 Article 62 of the 1997 Electronic Publications Regulation is inconsistent with China's
national treatment commitments under Article XVII of the GATS as it prohibits foreign-invested
enterprises, including service suppliers of other Members, from engaging in the master wholesale or
wholesale of electronic publications while like domestic service suppliers are not similarly prohibited.
7.1432 To the extent that it is applied to the wholesale of electronic publications, the Publications
(Sub-)Distribution Rule , together with the Publications Market Rule , is inconsistent with China's
national treatment commitments under Article XVII of the GATS as the Publications
(Sub-)Distribution Rule , together with the Publications Market Rule , has the effect of prohibiting
foreign-invested enterprises, including service s uppliers of other Members, from engaging in the
wholesale of imported electronic publications while like domestic service suppliers are not similarly
prohibited.
7.1433 The Panel does not conclude that the Publications (Sub-)Distribution Rule is inconsistent with
Article XVII of the GATS in respect of the master wholesale of electronic publications, as the United
States has not established that this measure prohibi ts foreign-invested enterprises, including service
suppliers of other Members, from engaging in the m aster wholesale of any electronic publications as
claimed.
7.1434 The requirements concerning registered capita l and operating term for foreign-invested
wholesalers, including service suppliers of other Members, respectively contained in paragraphs 4 and
5 of Article 7 of the Publications Sub-Distribution Rule are inconsistent with China's national
treatment commitments under Article XVII of the GA TS as they accord to service suppliers of other
Members treatment less favourable than that accorded to like domestic suppliers.
(b) Electronic distribution of sound recordings
7.1435 The Circular on Internet Culture (Article II), the Network Music Opinions (Article 8), and the
Several Opinions (Article 4), are each inconsistent with China's national treatment commitments
under Article XVII of the GATS as each prohibits foreign-invested enterprises, including service
suppliers of other Members, from engaging in the electronic distribution of sound recordings, while
like domestic service suppliers are not similarly prohibited. For the same reasons, Article X:7 of the
Catalogue of Prohibited Fore ign Investment Industries of the Catalogue , in conjunction with
Articles 3 and 4 of the Foreign Investment Regulation, is also inconsistent with Article XVII of the
GATS.
7.1436 The Panel does not conclude that the Internet Culture Rule is inconsistent with Article XVII
of the GATS, as the United States has not established that this measure, as implemented, imposes the
alleged prohibition on the electronic distribution of sound recordings by service suppliers of other
Members.
(c) Distribution of AVHE products
7.1437 Article 8.4. of the Audiovisual (Sub-)Distribution Rule
 is inconsistent with China's market
access commitments under Article XVI of the GATS as it contains a limitation on the participation of
foreign capital in contractual joint ventures enga ging in the distribution of AVHE products, which
falls within the scope of Article XVI:2 (f). For the same reasons, Article VI:3 of the Catalogue of
Industries with Restricted Foreign Investment in the Catalogue, in conjunction with Article 8 of the
Foreign Investment Regulation , is inconsistent with China's market access commitments under
Article XVI.

7.1438 The Panel concludes that Article 1 of the Several Opinions is not inconsistent with
Article XVI of the GATS, as the United States has not established that this measure imposes a
limitation that falls within the scope of Article XVI:2(f), as claimed by the United States.
7.1439 Article 1 of the Several Opinions and the operating term requirement provided for by
Article 8.5 of the Audiovisual (Sub-)Distribution Rule each is inconsistent with China's national
treatment commitments under Article XVII of the GA TS as each accords to service suppliers of other
Members treatment less favourable than that accorded to like domestic suppliers.
7.1440 Since the Panel has found that Article 8.4 of the Audiovisual (Sub-)Distribution Rule, and
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment of the Catalogue in
conjunction with the Foreign Investment Regulation , are inconsistent with Article XVI of the GATS,
the Panel exercises judicial economy with resp ect to the US claim on the same measures under
Article XVII of the GATS.
E. US
 CLAIMS UNDER ARTICLE III:4 OF THE GATT 1994
1. Article III:4 of the GATT 1994
7.1441 Article III:4 of the GATT 1994 reads as follows:
"The products of the territory of any contr acting party imported into the territory of
any other contracting party shall be accord ed treatment no less favourable than that
accorded to like products of national origin in respect of all laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. (...)"
7.1442 The Appellate Body has clarified that three elements must be satisfied to establish a violation
of Article III:4: (i) the imported and domestic products at issue are "like products"; (ii) the measure
at issue is a "law, regulation, or requirement aff ecting their internal sale, offering for sale, purchase,
transportation, distribution, or use"; and (iii) the imported products are accorded "less favourable"
treatment than that accorded to like domestic products. 749 For Article III:4 to apply two things are
first required. First the domestic and imported products must be "like" . Second, the law, regulation,
or requirement must "affect" the internal sale, offe ring for sale, purchase, transportation, distribution,
or use of the like products. Only once those two elements are established does the obligation to afford
no less favourable treatment apply.750
7.1443 Therefore, for each of the three sets of meas ures challenged by the United States as violating
Article III:4 of the GATT 1994 with respect to r eading materials, sound recordings intended for
electronic distribution and films for theatrical rele ase we will first examine whether the United States
has demonstrated that the products are like and whether the measures are laws, regulations, and
requirements that affect one or all of the enumerated transactions, i.e., internal sale, offering for sale,
purchase, transportation, distribution or use of the identified products before we analyse whether the
measures provide for less favourable treatment.

749 Appellate Body Report on Korea – Various Measures on Beef, para. 133.
750 Panel Report on China – Autos, para. 7.231 citing the Appellate Body's reasoning US – FSC
(Article 21.5 EC) that:
"it is, therefore, not any 'laws, regulations and requirements' which are covered by
Article III:4, but only those which ' affect' the specific transactions, activities, and uses
mentioned in that provision. Thus the word 'affecting' assists in defining the types of
measures that must conform to the obligation not to accord 'less favou rable treatment' to like
imported products, which is set out in Article III:4." (Appellate Body Report on US – FSC
(Article 21.5 – EC), para. 208.)

(a) Like products
7.1444 The Appellate Body has confirmed that the analysis of whether imported and domestic
products are "like" should be done on a case-by-case basis.
751
7.1445 The approach for determining "likeness" has, in the main, consisted of employing four
general criteria: 752 "(i) the properties, nature and quality of the products; (ii) the end-uses of the
products; (iii) consumers' tastes and habits – more comprehensively termed consumers' perceptions
and behaviour – in respect of the products; and (iv) the tariff classification of the products." 753 A
determination of "likeness" under Article III:4 of the GATT 1994 is "fundamentally, a determination
about the nature and extent of a competitive relationship between and among products."754
7.1446 We recall relevant WTO jurisprudence which s upports the view that where a difference in
treatment between domestic and imported products is based exclusively on the products' origin, the
complaining party need not necessarily identify specific domestic and imported products and establish
their likeness in terms of the traditional criteria in order to make a prima facie case of "likeness".
Instead, when origin is the sole criterion distingui shing the products, it is sufficient for purposes of
satisfying the "like product" requirement for a complain ing party to demonstrate that there can or will
be domestic and imported products that are "like".755
7.1447 Therefore, the United States may establish that the imported and domestic products are like
either by demonstrating that they are "like" by applying the traditional criteria or by demonstrating
that the measures at issue distinguish between im ported and domestic products solely based on origin
and that there can or will be imported products that are "like" domestic products.

751 Appellate Body Report on EC – Asbestos, para. 102.
752 Appellate Body Report on Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 97, at 113 and, in
particular, fn. 46; Panel Report on US – Gasoline , para. 6.8 (where the approach set forth in the Border Tax
Adjustment case was adopted in a dispute concerning Article III:4 of the GATT 1994).
753 The fourth criterion, tariff classification, was not mentioned by the Working Party on Border Tax
Adjustments, but was included by subsequent panels ( e.g., Panel Reports on EEC – Animal Proteins, para. 4.2;
Japan – Alcoholic Beverages I , para. 5.6; US – Gasoline; Appellate Body Report on Japan – Alcoholic
Beverages II, pp. 21-22, DSR 1996:I, 97, AT 114.
754 Appellate Body Report on EC – Asbestos , para. 99; Panel Report on India - Autos , para. 7.174-
7.176; Panel Report on China – Autos, para. 7.216.
755 Panel Report on Indonesia – Autos, para. 14.113; Panel Report on Argentina – Hides and Leather ,
paras. 11.168 -11.170; Panel Report on Canada – Autos , para. 10.74; Panel Report on India – Autos ,
paras. 7.174-7.176. In these cases, the panels found that the "like products" requirement could be established if
the measures distinguished between imported and domestic products solely based on origin. The Panel on
Canada – Wheat Exports and Grain Imports , relying on the ruling by the panel in Argentina – Hides and
Leather applied the same reasoning to "likeness" under Article III:4:
In Argentina – Hides and Leather , in dealing with a claim under Article III:2 of the GATT
1994, the panel found that where a Member draw s an origin-based distinction in respect of
internal taxes, a comparison of specific products is not required and, consequently, it is not
necessary to examine the various likeness criteria. ...While this finding pertained to
Article III:2, we consider that the sa me reasoning is applicable in this case mutatis mutandis."
(Panel Report on Canada – Wheat Exports and Grain Imports, fn. 246 to para. 6.164)
We also recall the Panel Report on China – Auto Parts , paras. 7.234-7.235 where the panel reasoned
that as the scope of "likeness" in Article III:4 is broader than that of Article III:2, if products are "like" under
Article III:2 they are also "like" within the meaning of Article III:4. We also note that other panels have found
that foreign origin cannot serve as a basis for a determination that imported products are "unlike" domestic ones.
Panel Report on US – FSC (Article 21.5 – EC II), para. 8.133.

(b) "[L]aws, regulations, or requirements affecting ... distribution"
(i) Laws, regulations, or requirements
7.1448 Panels have found that the term "regula tions" includes "mandatory rules applying
across-the-board".756 However, a measure need not be mandatory and apply across-the-board to be
subject to the obligations contained in Article III:4. 757 Article III:4 also applies to "requirements", a
term which has been interpreted by previous pa nels to encompass commitments entered into on a
voluntary basis by individual firms as a condition to obtaining an advantage 758 or a government action
involving a demand, request or the imposition of a condition.759
(ii) "[A]ffecting"
7.1449 In US – FSC (Article 21.5 – EC) , the Appellate Body explained that the meaning of the word
"affecting" is crucial because it assists in defining the scope of application of Article III:4. 760
Additionally, the word "affecting" "serves as a link between the identified forms of government action
which are covered by the obligation, i.e. laws , regulations or requirements, and the specific
transactions, activities and uses relating to products in the marketplace ('internal sale, offering for sale,
purchase, transportation, distribution or use')".761
7.1450 The term "affecting" in Article III:4 of the GA TT 1994 has been interpreted to have a "broad
scope of application," 762 which is wider in scope than such terms as "regulating" or "governing". 763
The word "affecting" covers not only measures which directly regulate or govern the sale of domestic
and imported like products, but also measures which cr eate incentives or disincentives with respect to
the sale, offering for sale, purchase, and use of an imported product "affect" those activities. 764
(iii) Distribution
7.1451 The US claims under Article III:4 all raise the issue of whether China' s measures affect the
distribution of the imported products. The partie s disagree about what constitutes "distribution"
within the meaning of Article III:4 of the GATT 1994.
7.1452 The United States cites a dictionary definition of distribution as "the action of dealing out in
portions or shares among a number of recipients; apportionment; allotment; or the dispersal of
commodities among consumers effected by commerce." 765 Based on this definition the United States

756 GATT Panel Report on Canada – FIRA, para. 5.5, which was followed by Panel Report on India—
Autos, para. 7.181.
757 GATT Panel Report on Canada – FIRA, para. 5.5.
758 GATT Panel Report on Canada – FIRA, para. 5.4; Panel Report on India - Autos, para. 7.174.
759 Panel Report on Canada – Autos, para. 10.107.
760 Appellate Body Report on US – FSC (Article 21.5 – EC), para. 208.
761 Ibid.
762 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 210; Panel Report on Canada –
763 Appellate Body Report on EC – Bananas III , footnote 47, para. 220. Appellate Body Report on
Canada – Autos, footnote 56, para. 150 (interpreting the word "affecting" in Article I:1 of the GATS). Although
the provision at issue in EC – Bananas III was Article I:1 of the GATS, we note that the Appellate Body itself
found the jurisprudence on the identical language in the GATT to be of relevance to its interpretation of the
GATS and we see no reason why the inverse would not also be true.
764 Panel Report on EC – Bananas III , para. 7.175; Panel Report on India – Autos, paras. 7.196-7.197;
Panel Report on Canada – Wheat Exports and Grain Imports, para. 6.267.
765 United States' response to question No. 250 citing New Shorter Oxford English Dictionary, p. 709
(Exhibit US-68).

concludes that "the concept of 'distribution' enco mpasses the range of activities undertaken to move a
product through the stream of commerce."
766
7.1453 The United States goes on to argue that distribu tion should not be considered as an entirely
discrete concept from the other transactions, activities, and uses identified in Article III:4. The United
States maintains that these concepts often overlap and should be c onstrued in recognition of this
overlap. Specifically, the United States then posits that:
"[D]istribution of a product may involve both purchase of that product and offering
for sale of that product. A distributor may purchase the product from an upstream
entity and offer it for sale to a downstream entity. Thus, distribution overlaps with
purchase and offering for sale. Distribution of a product may also involve managing
the logistics necessary to ensure that a pr oduct gets downstream. This particular
distribution activity does not necessarily i nvolve sale or purchase of the product, but
it could overlap with transportation or use of the product."
767
7.1454 China, for its part, cites to the panel report on Canada – Wheat Exports and Grain Imports
which noted that:
"The New Shorter Oxford English Dictionary defines 'distribution' to mean, inter alia,
‘the dispersal of commodities among consumers effected by commerce'. We take this
to mean that 'distribution' entails, inter alia, the supply of goods to consumers or to
on-sellers."768
7.1455 China argues that this definition confirms that distribution within the context of Article III:4
of the GATT 1994 refers to the supply of goods to consumers or to on-sellers.769
7.1456 The Panel notes that the task before us is to dete rmine the ordinary meaning of the term
"distribution" pursuant to the Vienna Convention. Dictionaries are useful aids for determining the
range of possible ordinary meanings of a word or phrase. We note that pursuant to the Vienna
Convention, the relevant ordinary meaning is to be established in light of the context of the term and
taking into account the object and purpose of the provision and the treaty as a whole. 770
7.1457 We note that Article III:4 of the GATT 1994 d eals with laws, regulations, or requirements
affecting the distribution of products in the market place, therefore, the dictionary definitions which
we think are relevant for our purposes are those which de fine "distribution" as that term is used in the
marketplace. We note that the de finition utilized by the panel in Canada – Wheat Exports and Grain
Imports from the New Shorter Oxford English Dicti onary, does define "distribution" in the
commercial sense. That panel's understanding is confirmed by the American Heritage Dictionary
which defines distribution as "the process of ma rketing and supplying goods, especially to
retailers."771 And the Random House Dictionary which lists as the "economics" definition of the term
"the system of dispersing goods throughout a community." 772 Additionally, the Oxford English
Dictionary defines distribution as "the dispersal among consumers of commodities produced: this

766 United States' response to question No. 250.
767 United States' response to question No. 247(a).
768 Panel Report on Canada – Wheat Exports and Grain Imports , para.6.171.
769 China's response to question No. 138.
770 Article 31, Vienna Convention.
771 American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000) available at
http://www.bartleby.com/61.
772 Random House Unabridged Dictionary , (Random House 1997) available at
http://dictionary.infoplease.com/distribution.

being, as opposed to producti on, the business of commerce" 773 Finally, Webster's New Encyclopedic
Dictionary defines distribution as "marketing or merchandising of commodities."774
7.1458 We also note that the New Shorter Oxford Eng lish Dictionary defines a "distributor" as "a
person who distributes something; spec. an agent who markets goods esp. a wholesaler." 775
Additionally, BNET Business Network defines a 'distribution channel' as
"[T]he route by which a product or service is moved from a producer or supplier to
customers. A distribution channel usually consists of a chain of intermediaries,
including wholesalers, retailers, and distribut ors, that is designed to transport goods
from the point of production to the point of consumption in the most efficient
way."
776
7.1459 Based on the above dictionary definitions, we consider that the term "distribution" in
Article III:4 can be understood as meaning a process or series of transactions necessary to market and
supply goods, either directly or through intermediaries, from the producer to the consumer.777
7.1460 This understanding of "distribution" is confir med by the context of Article III:4 of the
GATT 1994 which deals with laws, regul ations, or requirements which a ffect specific transactions or
activities relating to products in the marketplace, name ly, the internal sale, offering for sale, purchase,
transportation, distribution or use.778
7.1461 We are also mindful that the Appellate Body has stated that "there must be consonance
between the objective pursued by Article III, as enuncia ted in the "general principle" articulated in
Article III:1, and the interpretation of the specifi c expression of this principle in the text of
Article III:4."779 Therefore, we find that the "general prin ciple" set forth in Article III:1 is relevant
context for our interpretation of the ordinary mean ing of the term "distribution" as it is used in
Article III:4. As the Appellate Body has explained, the "general principle" in Article III "seeks to
prevent Members from applying internal taxes a nd regulations in a manner which affects the
competitive relationship, in the marketplace, between the domestic and imported products involved,
'so as to afford protection to domestic production.'" 780 The focus of Article III:1 on the competitive
relationship between domestic and imported products in the marketplace confirms to us that the
relevant ordinary meaning of "distribution" in Ar ticle III:4 is one which takes into account the use of
the term in the marketplace.
7.1462 The object and purpose of Article III also demonstrates that the focus on competitive
conditions in the marketplace is appropriate. The Appellate Body has explained that:
"The broad and fundamental purpose of Article III is to avoid protectionism in the
application of internal tax and regulatory measures. More specifically, the purpose of
Article III 'is to ensure that internal meas ures "not be applied to imported or domestic

773 Oxford English Dictionary Online, available at http://dictionary.oed.com/entrance.dtl.
774 Webster's New Encyclopedic Dictionary, (Black Dog & Leventhal 1993), p. 293.
775 New Shorter Oxford English Dictionary, L. Brown (ed.) (Clarendon Press 1993), Vol. I., p. 709.
776 BNET Business Dictionary available at
http://dictionary.bnet.com/definition/Distribution+Channel.html
777 We note that the New Shorter Oxford English Dictionary defines a "consumer" as "a user of an
article or commodity, a buyer of goods or services" ( New Shorter Oxford English Dictionary, L. Brown (ed.)
(Clarendon Press 1993) Vol. I, p. 490). Webster's New Encyclopedic defines a "consumer" as "one that buys
and uses economic goods", (Webster's New Encyclopedic Dictionary, (Black Dog & Leventhal 1993), p. 215).
778 Appellate Body Report on US – FSC (Article 21.5 – EC), paras. 208, 215, 221.
779 Appellate Body Report on EC – Asbestos, para. 98.
780 Ibid. (emphasis added); Appellate Body Report on US – FSC (Article 21.5 – EC), para. 208.

products so as to afford protection to domestic production'''.
781 Toward this end,
Article III obliges Members of the WTO to provide equality of competitive
conditions for imported products in relation to domestic products.
782 '[T]he intention
of the drafters of the Agreement was clearly to treat the imported products in the
same way as the like domestic products once th ey had been cleared through customs.
Otherwise indirect protection could be given'.
783"784
7.1463 The assurance of equal competitive opportunities is not solely the purpose of Article III but of
the international trade regime in general. As the panel in Korea – Alcoholic Beverages explained
"Trade law generally, and Article III in particular, focuses on the promotion of
economic opportunities for importers thr ough the elimination of discriminatory
governmental measures which impair fair international trade. Thus, trade law
addresses the issue of the potentiality to compete."785
7.1464 Therefore, given that the context and object and purpose of Article III:4 of the GATT 1994 is
to govern the manner in which Members' laws, re gulations or requirements affect the competitive
relationship between imported a nd domestic like products and this competition takes place in the
marketplace786, we find that the context and object and purpose of Article III:4 confirm our
understanding that the relevant ordinary meaning of the term "distribution" as it is used in Article III:4
is one with respect to activities in the marketplace.
7.1465 We note that Article III:4 of the GATT 1994 only governs laws, regulations, or requirements
affecting the internal distribution of a product within the importing Member. As the Appellate Body
noted in China – Auto Parts, for purposes of Article III, "internal" means something taking place
inside the customs territory of the importing Member after importation. 787 We also note that
"importation" has been understood, in the past, to mean "the act of bringing or causing any goods to
be brought into a customs territory". 788 Therefore, for the purposes of Article III:4 of the GATT 1994
internal "distribution" is the portion of that process or series of transactions from the point of
importation (i.e., the time when the goods enter the customs territory of the importing Member) until
the good is received by the consumer.
(c) Less favourable treatment
7.1466 The Appellate Body in Korea – Various Measures on Beef stated:
"Whether or not imported products are treat ed 'less favourably' than like domestic
products should be assessed instead by examining whether a measure modifies the

781 (footnote original) Panel Report on US – Section 337, para. 5.10.
782 (footnote original) Panel Reports on US – Superfund, para. 5.1.9; and Japan – Alcoholic
Beverages II, para. 5.5(b).
783 (footnote original) GATT Panel Report on Italy – Agricultural Machinery, para. 11.
784 Appellate Body Report on Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97 at 109.
785 Panel Report on Korea – Alcoholic Beverages, para. 10.81 (we note that this statement was made in
the course of a discussion of the overlap between trade and competition (antitrust) law.).
786 Appellate Body Report on EC – Asbestos, para. 98.
787 Appellate Body Report on China – Auto Parts, paras. 161-163.
788 Panel Report on China – Auto Parts , para. 7.155 citing WCO, Glossary of International Customs
Terms, 2006, page 16; Black's Law Dictionary , 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 759 ("the
bringing of goods into a country from another country"); and The Shorter Oxford English Dictionary , 5th ed.
(Clarendon Press 2002), Vol. I, p. 1331 ("action of importing or bringing in something, spec. goods from
another country").

conditions of competition in the relevant market to the detriment of imported
products."789 (emphasis original)
7.1467 The Appellate Body has explained that the ex amination of whether a measure involves "less
favourable treatment" of imported products within the meaning of Article III:4 of the GATT 1994
"[M]ust be grounded in close scrutiny of th e 'fundamental thrust and effect of the
measure itself'. This examination cannot be rest on simple assertion, but must be
founded on a careful analysis of the contested measure and of its implications in the
marketplace. At the same time, however, the examination need not be based on the
actual effects of the contested measure in the marketplace.790"791
7.1468 Essentially, therefore, Article III:4 calls for "effective equality of opportunities for imported
products in respect of laws, regula tions and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products."792
7.1469 Not every form of differential treatment has an impact on competitive opportunities. 793
Therefore, the burden is on the United States to de monstrate, through supporting evidence, that a
measure adversely affects the competitive opportun ities of imported products in relation to their
distribution. Mere assertion is not enough. At the same time it is necessary to note that although the
United States must establish a dverse impact on competitive opportun ities, it is not required to
demonstrate an existing adverse trade effect. The panel in Canada – Autos explained:
"The idea that a measure which distinguishes between imported and domestic
products can be considered to affect the internal sale or use of imported products only
if such a measure is shown to have an impact under current circumstances on
decisions of private firms with respect to the sourcing of products is difficult to
reconcile with the concept of the 'no less favourable treatment' obligation in
Article III:4 as an obligation addressed to gove rnments to ensure effective equality of
competitive opportunities between domestic and imported products, and with the
principle that a showing of trade effects is not necessary to establish a violation of
this obligation."
 794
7.1470 Additionally, the Appellate Body in US – FSC (Article 21.5 – EC) concluded that a measure
could be inconsistent with Article III:4 even if unfavourable treatment did not arise in every
instance.795
7.1471 Thus, the burden is on the United States to demonstrate that the challenged measures may
reasonably be expected to adversely modify the co nditions of competition, not necessarily that those
measures have actually had an adverse effect or would have one in every instance.

789 Appellate Body Report on Korea –Various Measures on Beef, para. 137.
790 (footnote original) Appellate Body Report on Japan – Alcoholic Beverages II, supra, footnote 116,
at 110.
791 Appellate Body Report on US – FSC (Article 21.5 – EC), paras. 215 and 221.
792 Panel Report on US – Gasoline, para. 6.10 citing Panel Report on US – Section 337, para. 5.11.
793 Appellate Body Report on Korea – Various Measures on Beef , paras. 135-137 citing Panel Report
on US – Section 337, para. 5.11.
794 Panel Report on Canada – Autos, para. 10.84; see also Appellate Body Report on Japan – Alcoholic
Beverages II , " [Article III] protects expectations not of any particular trade volume but rather of the equal
competitive relationship between imported and domesti c products.") (Appellate Body Report on Japan –
Alcoholic Beverages II, p. 16, DSR 1996:I, 97 at 109.)
795 Appellate Body Report on US – FSC (Article 21.5 - EC), para. 221.

7.1472 Demonstrating "less favourable treatment" and thus a breach of Article III:4 implies a
comparative analysis. To establish a violation a party must establish the treatment for both imported
and domestic products. Less favourable treatment of imported like products may arise from laws,
regulations, or requirements wh ich provide domestic products more favourable treatment than
imported products or from laws, regulations, or requirements which place additional burdens on
imported products that are not placed on domestic products.
7.1473 Whichever the basis for the allegation, a compla inant must specify the difference in treatment
between imported and like domestic products and indicate why and how there is less favourable
treatment of imported products.
796
2. Reading materials
7.1474 The United States argues that two of China's measures, specifically, the Imported
Publications Subscription Rule and the Publications (Sub-)Distribution Rule are inconsistent with
Article III:4 of the GATT 1994, because they afford less favourable treatment than that accorded to
like domestic products by significantly restricting the distributors, distribution channels, and the
consumers that are available to imported reading materials.797
7.1475 China contends that the United States' claim with respect to the subscription system applying
to the "restricted category" of reading materials and the subscription system applying to the non-
restricted category of newspapers and periodicals should be rejected because the systems do not result
in less favourable treatment for foreign products.
(a) Like products
7.1476 The United States argues that the imported and domestic products share the same physical
characteristics and commercial uses. The United States goes on to argue, however, that because the
measures at issue discriminate against imported reading materials on the basis of national origin it is
correct to treat imported and domestic reading materials as like within the meaning of Article III:4.
7.1477 China provides no argumentation with respect to whether the imported and domestic
products are "like" within the meaning of Article III:4.
798
7.1478 The Panel recalls its explanation in pa ragraphs 7.1445-7.1447 above, that there are two ways
in which a complaining party can demonstrate th at the imported and domestic products are "like"
within the meaning of Article III:4. First, they can establish that the products are like through the
traditional analysis as explained by the Appellate Body in EC – Asbestos or they can demonstrate that
the challenged measures differentiate between im ported and domestic products exclusively based on
origin and that there can or will be domestic and imported products that are like.
(i) Traditional analysis

796 Despite the requirement to demonstrate the differential treatment between domestic and imported
products, we agree with the finding of the panel in India—Autos , that "the fact that th e measure applies only to
imported products need not [be], in itself, an obstacle to its falling within the purview of Article III." (Panel
797 We note that in its consultations and panel reque sts the United States refers to China's measures
governing "publications," and in its submissions the United States refers to China's measures governing "reading
materials". Based on the substantive explanation provided by the United States of what "publications" and
"reading materials" are (i.e., newspapers, periodicals, books, and electronic publications) we understand that the
two phrases have substantively the same content.
798 We note that China maintains that there are no domestic publications which contain prohibited
content as they cannot be published in China (China's response to question No. 130(c)).

7.1479 The United States argues that the imported and domestic products share the same physical
characteristics and commercial uses. The United States provides no further elaboration on whether
imported and domestic reading materials are "like" based on the four traditional criteria in its first
written submission or in its subsequent submissions to the Panel.
7.1480 China provides no argumentation with respect to whether the imported and domestic
products are "like" within the meaning of Article III:4.
7.1481 The Panel notes that other than its mere assertion in its first written submission that the
imported and domestic products share the same ph ysical characteristics and commercial uses the
United States has not provided any argumentation or evidence to demonstrate that imported reading
materials are "like" domestic reading materials. The United States has not established what the
physical characteristics and commercial uses of read ing materials are, nor has it addressed the other
criteria. Therefore, we conclude that the United States has not established that imported reading
materials are "like" domestic reading materials based on the traditional "like products" criteria.
7.1482 We note that the United States has also argued that the impor ted and domestic products are
"like" because the challenged measures distinguish be tween them based on origin. Therefore, we will
go on to determine whether the United States has estab lished via this alternative route that the "like
products" requirement is met.
(ii) The Imported Publications Subscription Rule
7.1483 According to the United States foreign origin is the sole criterion used by China in the
decision to subject imported reading materials, but not domestically produced reading materials, to an
onerous subscription-based regime for distribution. As such, imported and domestic publications
satisfy the "like products" requirement of Article III:4.
7.1484 The United States points to Article 1 of the Imported Publications Subscription Rule as
evidence that "on its face" the measu re only applies to imported reading materials. The United States
also cites Article 3 of the same rule as th e provision which imposes the mandatory subscription
regime for all imported newspapers and periodical s as well as for books and electronic publications in
the "limited" category as the sole mechanism for their distribution within China.
7.1485 China provides no argumentation on this point.
7.1486 Article 1 of the Imported Publications Subscription Rule reads:
"These Rules have been drawn up, on the basis of the Regulations on the
Management of Publications and relevant la ws and regulations, in order to satisfy the
reading needs of domestic units and indi viduals, foreign organizations in China,
foreign nationals of enterprises with fore ign investment, and personages from Hong
Kong, Macao and Taiwan for imported publica tions and reinforce the management of
imported publications."
7.1487 The Panel notes, based on Article 1, that the Imported Publications Subscription Rule only
applies to imported reading materials. However, Article 1 on its own does not set forth any rules or
requirements that could be said to "distinguish" be tween imported and domestic products. Rather, it
merely defines the scope of application of th e subsequent provisions. Article 3 of the Imported
Publications Subscription Rule contains the requirements which the United States argues apply
different standards to imported reading material s based solely on their non-Chinese origin.
Specifically, Article 3 explains that:

"The state manages the distribution of imported publications by categories. In regard
to imported newspapers and periodi cals, and imported books and electronic
publications in the limited distribution category, they shall be distributed under
subscription to subscribers, and supplie d by categories. Imported books and
electronic publications in the non-limited distribution category shall be distributed by
sales through the market.
Imported newspapers and periodicals are divi ded into the two categories of limited
distribution and non-limited distribution.
Types of imported newspapers, periodicals, books and electronic publications in the
limited distribution category shall be dete rmined by the General Administration of
Press and Publications."
7.1488 According to China, this mean s that there are two different subscription systems for imported
reading materials (i.e., the one applicable to th e limited category of reading materials and the one
applicable to the non-limited category of newspapers and periodicals).
7.1489 The United States also asserts that China imposes no such regime on domestic publications.
799
In that regard, we take note of China 's statement in its first written submission that its subscription
rules for newspapers and periodicals as well as books in the limited category are "different from the
rules applicable to domestic like products."800
7.1490 The Panel understands, as set forth in Article 3 of the Imported Publications Subscription
Rule, that there are two categories of publications in China: the limited and non-limited. Newspapers
and periodicals in the non-limited category are required , by virtue of Article 3, to be sold through
subscriptions to subscribers. Additionally, newspapers, periodicals, and books in the limited category
are also required to be sold th rough subscriptions to subscriber s. Therefore, the subscription
requirements set forth in Article 3 of the Imported Publications Subscription Rule apply to all
imported newspapers and periodicals, whether in the "limited" or "non-limited" categories, whereas
the subscription requirements only apply to books whic h are in the "limited" category. We also recall
that China does not dispute that domestic newspapers and periodicals are not likewise regulated.
7.1491 The Imported Publications Subscription Rule , specifically Article 3 thus makes a distinction
in treatment between imported and domestic newspa pers and periodicals that is exclusively based on
their origin. Thus, as a result of the origin-based distinction contained in Article 3, even domestic
newspapers and periodicals that are identical to im ported ones in all respects except for origin would
not be subject to the requirements contained in Ar ticle 3. We note that China does not dispute that
there will, or can, be domestic and imported newspa pers and periodicals that are the same except for
origin. Therefore, we consider that with rega rd to newspapers and pe riodicals the like products
requirement in Article III:4 of the GATT 1994 is satisfied.
7.1492 For books, the situation is somewhat different, however. We note that Article 3 does not
require that all imported books be subject to a subscription requirement, but rather only those books in
the "limited" category are required to be sold th rough subscription. Books in the "non-limited"
category are sold through the market sales system, which is the distribution system applicable to
domestic books.
7.1493 China argues that the "limited" category is made up of reading materials with prohibited
content. According to China, because of the nature of the content of reading materials within the

799 See e.g. United States' response to question No. 122(b).
800 China's first written submission, para. 539.

"limited" category, subscription to such reading ma terials is limited to cer tain government agencies
and institutions for research purposes. China argues that they are th erefore not "distributed" within
China.801 China informs the Panel that there are appr oximately 1,000 titles of imported publications
in the "limited" category. 802 China also informs us that ther e are no domestic publications in the
"limited" category because "no domestic publication with prohibited content can be published in
China and made available for distribution."803
7.1494 The United States argues that it cannot be correct that the "limited" category contains reading
materials with prohibited content, as distribu tion of prohibited content is illegal in China. 804 T h e
United States also notes that it is unclear what titles are in the "limited" category and whether titles
can be released from this category.
7.1495 The Panel takes note that both parties agree that th ere is a difference in treatment between
imported and domestic books. All domestic books may be distributed through the market sales
system. Imported books, however, are divided into two categories, a "limited" category that is subject
to the subscription requirements set forth in Article 3 of the Imported Publications Subscription Rule
and a "non-limited" category which may be sold thro ugh the market sales system in the same manner
as domestic books. This indicates to us that so me imported books are treated differently from
domestic books while others are not. Therefore, there is a factor other than the foreign origin of the
books which is the basis of the differential treatment in the measure.
7.1496 We note the disagreement between the parties as to why a book might be designated by the
GAPP to fall within the "limited" category and whet her the provision of such a book to a limited
group of subscribers approved by the GAPP constitut es "distribution" within China. China has
explained, that the limited category contains pub lications with prohibite d content and we see no
reason to question China's explanation. The Unite d States has not demonstrated any other basis for
the distinction between limited and non-limited publi cations in Chinese law. Additionally, the US
argument regarding the fact that distribution of proh ibited content is illegal in China would appear to
bolster, rather than detract from, China's explanati on of the "limited" category. As China explains, it
is precisely because of the general ban on the distribu tion of publications with prohibited content that
the Chinese Government created an exception, via Article 3 of the Imported Publications Subscription
Rule, so that certain entities – approved by GAPP – could have access to those publications.
7.1497 The United States, therefore, has identified in Article 3 of the Imported Publications
Subscription Rule a difference in treatment between domes tic and imported books with no prohibited
content, on the one hand, and imported books w ith prohibited content on the other hand. For
example, China has told the Panel that one title in the "limited" category is a book published in Hong
Kong titled "World Sexual Customs" which China h as concluded contains obscene material. This

801 China's first written submission, paras. 538-545; China's response to question No. 130(c).
802 China, in response to question No. 130(b), explained that the EPOCH TIMES, a Falun Gong
publication is the type of publication that is in the limited category. In response to question No. 264, China
further explained:
GAPP determines whether a publication falls within th e restricted distribution category on the basis of
criteria set forth in Arts. 26 and 27 of [ Publications Regulation]. For example, a book under the name "World
Sexual Customs" published in Hong Kong was categorized into restri cted category because it contains obscene
content and only sexual cultural research institutions can be allowed to subscribe it. Another example is a book
named "China: Friend or Foe" published by Icon Books in 2006 in Britain. It was categorized into restricted
category because it contains contents related to Tibet wh ich is considered to jeopardize the solidarity of the
nationalities and territorial integrity of the nation.
803 China's response to question No. 130(d).
804 We note that both China and the United States agr ee that the same content requirements apply to
both domestic and imported reading materials (see United States' response to question No. 139; China's
response to question No. 139).

book is subjected to the subscription requirements in Article 3 of the Imported Publications
Subscription Rule. By contrast, both an imported book with no obscene content – perhaps a children's
book or cookbook – and domestic books whic h cannot contain prohibited content
805 would not be
subject to the subscription requirement. As impor ted books without prohibited content are treated in
the same way as domestic books, the difference in treatment between imported books in the "limited"
category and domestic books in Article 3 of the Imported Publications Subscription Rule is not
exclusively based on the foreign origin of the imported books, but rather is based on whether the
imported book contains prohibited content.
7.1498 As the United States has not demonstrated that the challenged measure creates a distinction in
treatment between imported and domestic books exclus ively based on origin, we do not think that it
would be appropriate, in the case of books, to u se the above-mentioned simplified "likeness" analysis
as an alternative to the traditional likeness analysis. We recall, our conclusion above that the United
States has likewise not established through an analys is of the traditional criteria that imported and
domestic books are "like." Therefore, the United States has not established that imported books are
"like" domestic books. As such, the United States has not demonstrated that China's obligations under
Article III:4 are engaged with respect to the regulation of books under the Imported Publications
Subscription Rule.
(iii) Publications (Sub-)Distribution Rule
7.1499 The United States also argues that only imported reading materials find themselves blocked
from distribution channels in China available throug h foreign-invested enterprises. According to the
United States, Chinese reading materials can use both Chinese and foreign-invested enterprises for
distribution within China. The United States contends that this distinction satisfies the requirement to
demonstrate that the imported and domestic reading materials are "like" within the meaning of
Article III:4.
7.1500 The United States argues that pursuant to Article 2 of the Publications (Sub-)Distribution
Rule, the measure applies only to books, newspapers and periodicals published in China, providing
that only these products may be sub-distributed by foreign-invested enterprises. Imported books,
newspapers and periodicals, howev er, may not be sub-distributed by foreign-invested enterprises,
whether pursuant to this or any other Chinese legal in strument. Foreign origin is therefore the sole
criterion used by China to restrict foreign books , newspapers and periodicals, but not domestic books,
newspapers and periodicals, to the more limited set of Chinese distributors.
806
7.1501 The Panel notes that Article 2 of the Publications (Sub-)Distribution Rule states:
"These Rules are applicable to FIE inside China engaged in the sub-distribution of
books, newspapers and periodicals.
Books, newspapers and periodicals as me ntioned in these Rules refer to books,
newspapers and periodica ls published by a publishing unit approved by the
publishing administration under the State Council.
Sub-distribution as mentioned in these rul es refers to the wholesale and retail of
books, newspapers and periodicals.

805 We note that under China's measures governing publications books with prohibited content are not
permitted to be published within China.
806 United States' response to question No. 122(h).

FIE for the sub-distribution of books, news papers and periodicals as mentioned in
these Rules refer to foreign enterprises, ot her economic organizations, or individuals
(hereinafter referred to foreign investor for short) which, after being approved by
relevant Chinese government departments acco rding to law, together with Chinese
enterprises or other economic organizations (hereinafter referred to as Chinese
investor for short) set up inside China a Chinese-foreign equity or contractual joint
venture for the sub-distribution of books, newspapers and periodicals on the basis of
equality and mutual benefit, as well as book, newspaper and periodical sub-
distribution enterprises set up by the forei gn investor wholly with foreign capital
inside China.
Participation of a foreign investor by shar e holding or by merger and acquisition of a
book, newspaper and periodical sub-dist ribution enterprise funded by Chinese
investment is one way of setting up a foreign-invested enterprise for sub-distribution
of books, newspapers and periodicals. When a foreign investor engages in share
holding or merger and acquisition of a Chinese invested book, newspaper and
periodical sub-distribution enterprise, the enterprise concerned shall process
necessary procedures as contained in these Ru les to change into a foreign-invested
enterprise."
7.1502 We note that Article 2 of the Publications (Sub-)Distribution Rule sets forth that the Rule
applies to foreign-invested enterp rises in China engaged in the sub-distribution of books, newspapers
and periodicals and that any references to books, ne wspapers and periodicals in subsequent provisions
of that Rule refer to domestically published books , newspapers, and periodi cals. Therefore, like
Article 1 of the Imported Publications Subscription Rule , Article 2 simply sets forth the scope of the
application of the rest of the provisions in the Publications (Sub-)Distribution Rule.
7.1503 The United States explains that reading this provision in the context of the other measures
governing distribution of reading materials in China demonstrates that China only grants permission
to foreign-invested enterprises to sub-distri bute books, domestically publ ished newspapers and
periodicals.
7.1504 Specifically, the United States notes that the Imported Publications Subscription Rule only
permits imported newspapers a nd periodicals as well as books and electronic publications in the
limited category to be distributed via subscription. The United States also notes that the same rule
explains that only enterprises designated by the GA PP to import reading materials – i.e., Chinese
wholly state-owned enterprises pursuant to Article 42 of the Publications Regulation – can engage in
the distribution, including both wholesale and retail, of these products.
807
7.1505 The United States also cites to Article 16 of the Publications Market Rule which specifies that
the Publications (Sub-)Distribution Rule governs foreign-invested enterprises seeking to engage in the
sub-distribution – i.e., wholesale and retail – of books, newspape rs and periodicals. 808 According to
the United States, as China has promulgated no additional measures granting foreign-invested
enterprises the right to engage in the distri bution of reading materials in China, the Publications
(Sub-)Distribution Rule represents the complete set of rights granted to foreign-invested enterprises.
7.1506 The Panel, reading the Publications (Sub-)Distribution Rule in the context of the other
Chinese measures governing the distribution of publi cations, concludes that any foreign-invested
enterprise ("FIE") which wishes to sub-distribute books, newspapers, and periodicals must comply
with the Publications (Sub-)Distribution Rule . We note our finding above that Article 2 limits the

807 United States' response to question No. 61.
808 Ibid.

scope of the Publications (Sub-)Distribution Rule to domestically publishe d books, newspapers and
periodicals. Therefore, we find that the Publications (Sub-)Distribution Rule creates a difference in
treatment between domestic and imported books, newspapers and periodicals in the sense of the types
of enterprises that may distribute them, exclus ively on the basis of the origin of the books,
newspapers, and periodicals. Thus, as a resu lt of the origin-specific nature of the Publications
(Sub-)Distribution Rule , which is set forth in Article 2, even imported books, newspapers and
periodicals that are identical to domestic ones in all respects except for origin could not be sub-
distributed by foreign-invested enterprises. We al so note that China does not dispute that there will,
or can, be domestic and importe d books, newspapers and periodicals that are the same, except for
origin. Therefore, we consider that with regard to the US claim in respect of the inconsistency of the
Publications (Sub-)Distribution Rule with Article III:4 of the GATT 1994, the "like products"
requirement is satisfied.
(b) Laws, regulations, or requirements affecting ... distribution
(i) Laws, regulations, or requirements
7.1507 The United States maintains that both the Imported Publications Subscription Rule and the
Publications (Sub-)Distribution Rule are "laws, regulations, or requirements" within the meaning of
Article III:4 of the GATT 1994.
7.1508 In its first written submission, the United States argues that the Imported Publications
Subscription Rule regulates and governs the internal sale, offering for sale, purchase, distribution or
use of imported reading materials in Ch ina. The United States avers that the Publications
(Sub-)Distribution Rule clarifies that only books newspapers and periodicals published in China may
be sub-distributed by foreign-invested enterprises.
7.1509 The United States explains that within Ch ina's legal system the two measures are
"departmental rules" which were promulgated by order signed by the head of the issuing agency.
809
The United States explains that "departmental rule s are legally binding legal instruments issued by
government agencies to enforce the laws, administrati ve regulations, decisions and orders of the State
Council."810
7.1510 The United States argues that all the challenged measures constitute "regulations" as that term
is used in Article III:4 of the GATT 1994. The United States also argues, relying on the panel report
in Canada – Autos, that if the Panel were to find that they were not "regulations" they are nevertheless
"requirements" because the challenged measures involve a demand, request or the imposition of a
condition on imported products.
811
7.1511 China provides no argumentation on this point.
7.1512 The Panel recalls that, the phrase "laws, regulations, or requirements" encompasses a variety
of government measures, from mandatory rules wh ich apply across the board to government action
that creates voluntary incentives or disincentives.
7.1513 The Imported Publications Subscription Rule contains provisions which require that all
imported newspapers and periodicals to be distri buted through only one particular distribution

809 United States' response to question No. 121 citing China's Legislation Law, Article 76 (Exhibit US-
72); See also Working Party Report, para. 66 (Exhibit US-3); and Trade Policy Review of the People's Republic
of China, Report by the Secretariat, WT/TPR/S/161, circulated 28 February 2006, paras. 18-22 (Exhibit US-4).
810 Ibid citing China's Legislation Law, Article 71 (Exhibit US-72).
811 United States' response to question No. 121 citing Panel Report, Canada – Autos, para. 10.107; also
United States' response to question No. 122(h).

channel. In this sense the provisions are mandatory and apply across the board to all importers and
distributors of these reading materials. Therefore, regardless of its legal form within China, the
Imported Publications Subscription Rule , fits squarely within the defi nition of the term "regulation"
as used in Article III:4 of the GATT 1994.
7.1514 The Publications (Sub-)Distribution Rule sets forth mandatory rules applicable to foreign-
invested enterprises that wish to sub-distribute domes tically published reading materials. Therefore,
for the same reasons as those we have mentioned in respect of the Imported Publications Subscription
Rule above, the Publications (Sub-)Distribution Rule is a "regulation" within the meaning of
Article III:4 of the GATT 1994.
(ii) Affecting ... distribution
7.1515 The United States argues that Articles 3-8 of the Imported Publications Subscription Rule
have a direct impact on how these products are distributed. Specifically, the United States contends
that Article 3 requires all imported publications, w ith the exception of imported books and electronic
publications on the non-limited distribution list, to be distributed on a restrictive subscription basis;
Article 4 establishes the limited set of entities pe rmitted to engage in the distribution of these
publications; and Articles 5 through 8 address who may subscribe to these publications.
7.1516 The Panel notes that with respect to books and electronic publications in the limited category,
it has determined that the United States did not est ablish that books in the li mited category are "like"
domestic books (see paragraph 7.1497) . Additionally, we also reca ll our finding in paragraph 7.147,
that electronic publications are outside our term s of reference with respect to the claim under
Article III:4 of the GATT 1994.
7.1517 With respect to the Publications (Sub-)Distribution Rule the United States argues that it fulfils
the "affecting" requirement as it regulates and govern s the distribution of domestic books, newspapers
and periodicals by foreign-invested enterprises. Specifically, the United States alleges that, by
imposing discriminatory limits on how imported books, newspapers a nd periodicals may be obtained,
i.e., from only a sub-set of all those entities permitted to distribute domestic reading materials, the
Publications (Sub-)Distribution Rule affects reading materials by implementing the regime that limits
the channels through which the imported products may be acquired.
7.1518 China objects to the inclusion of the requirements on subscribers set forth in Articles 5
through 8 of the Imported Publications Subscription Rule in the Panel's terms of reference. The Panel
dealt with this objection in Section VII.B.4(c) supra.
7.1519 China provides no argumentation about whethe r the two challenged measures "affect" the
distribution of reading materials within the meaning of Article III:4 of the GATT 1994.
7.1520 The Panel recalls its determination in paragraph 7.1513, above that Article 3 of the
Imported
Publications Subscription Rule imposes mandatory subscription requirements on all imported
newspapers and periodicals.
7.1521 Article 4 of the Imported Publications Subscription Rule requires that subscriptions placed by
subscribers for imported newspapers and periodical s "shall be handled by publication import business
units designated by the General Administration of Press and Publication." We note that for the
definition of "publication import business units" Article 2 of the Imported Publications Subscription
Rule refers to the Publications Regulation. In that regard, Article 41 of the Publications Regulation
states that publication import entities established in compliance with those regulations and designated
by the publication administration under the State C ouncil (i.e. GAPP) may engage in the business of
importing newspapers or periodi cals. Article 42(2) of the Publications Regulation requires that to

establish a publication import entity the applicant be a wholly state-owned enterprise. Therefore,
Article 4 of the Imported Publications Subscription Rule limits those who may handle subscriptions
for imported newspapers and periodicals to wholly state-owned enterprises.
7.1522 As Articles 3 and 4 of the Imported Publications Subscription Rule directly govern the
manner in which imported newspapers and periodicals may be distributed (i.e., subscription channel)
and who may distribute them (i.e., wholly state-ow ned enterprises) they "affect" the distribution of
imported newspapers and periodicals within the meaning of Article III:4 of the GATT 1994.
7.1523 With respect to the Publications (Sub-)Distribution Rule , we recall our conclusion that any
FIE which wishes to sub-distribute books, newspape rs, and periodicals within China must comply
with the Publications (Sub-)Distribution Rule . Therefore, the Publications (Sub-)Distribution Rule
directly governs who may distribute books, newspapers and periodicals within China. We also note
that Article 2 of the Publications (Sub-)Distribution Rule limits the scope of the provisions in the
Rule, including those with respect to foreign-inv ested enterprises receiving approval to sub-distribute
reading materials, to domestically publishe d books, newspapers and periodicals. As the Publications
(Sub-)Distribution Rule sets forth rules which determine which enterprises may be available to sub-
distribute imported books, newspapers, and periodicals, it "affects" the distribution of imported books,
newspapers and periodicals within the meaning of Article III:4 of the GATT 1994.
7.1524 As we have concluded that there will, or can, be imported and domestic products that are like
(newspapers and periodicals with resp ect to the US claim regarding the Imported Publications
Subscription Rule and books, newspapers and periodicals w ith respect to the US claim regarding the
Publications (Sub-)Distribution Rule ) within the meaning of Article III:4 and that the challenged
measures are "laws, regulations, or requirements" which affect the internal distribution of the like
products China is obligated, pursuant to Article III:4 of the GATT 1994 to afford the imported
products no less favourable treatment than that afford ed to the domestic like products. Therefore, we
will now turn our analysis to whether China has complied with this obligation.
(c) Less favourable treatment
7.1525 Article III:4 of the GATT 1994 requires China to provide "effective equality of opportunities
for imported products in respect of laws, regulati ons and requirements affecting the internal sale,
offering for sale, purchase, transportation, distribution or use of products."
812
7.1526 The United States argues that imported reading mate rials cannot compete with domestic
reading materials on an equal footing, because they face significantly reduced opportunities for
distribution and for sale in the Chinese market.
7.1527 The United States maintains that the two m easures confine most categories of imported
reading materials to a single distribution cha nnel and limit which enterprises are permitted to
distribute imported reading materials. The United States points out that, domestic reading materials
do not face these restrictions. According to the Un ited States, these measures severely disadvantage
imported reading materials vis-à-vis domestic like products and are thus inconsistent with Article III:4
of the GATT 1994.
7.1528 The United States also maintains that the two measures provide less favourable treatment by
denying imported reading materials access to the wi de array of distributors that are available to
domestic reading materials. Specifically, the United States argues that the Imported Publications
Subscription Rule restricts all imported newspapers and periodicals as well as books in the limited
category to distribution by Chinese wholly state-owned distributors, while the Publications

812 Panel Report on US – Gasoline, para. 6.10 citing Panel Report on US – Section 337, para. 5.11.

(Sub-)Distribution Rule restricts all imported books in the non-limited category to wholly Chinese-
owned distributors.
7.1529 China maintains that its measures do not provide for less favourable treatment of imported
reading materials. Specifically, China argues that subscription for non-limited newspapers and
periodicals subscription is granted more or less automatically and that:
"[T]he potential restrictions that such a subscription system could entail would not
significantly alter the number of readers that would be likely to buy foreign
newspapers, and thus do not actually aff ect the conditions of competition between
foreign and domestic product.
It follows that the subscription system a pplied for [non-limited] foreign newspapers
and periodicals does not result in a less favourable treatment for foreign products."
813
7.1530 China admits that, in China, there are two distribution systems for imported publications
whereby imported newspapers and periodicals (whether in the limited category or in the non-limited
category) and books and electronic publications in th e limited category are subject to the subscription
system and imported books and electronic publications in the non-limited category are subject to the
market sales system.
7.1531 China does not deny that contra ry to the systems for imported reading materials, domestic
newspapers and periodicals are available through both the market sales and subscription systems.
China also does not dispute that the choice of distri butors for imported reading materials is limited by
the measures. China's only argument seems to be th at the formally different distribution channel for
newspapers and periodicals ( i.e., subscription vs. any channel) does not significantly alter the
competitive opportunities of imported reading materials.
7.1532 The Panel is mindful that the Appellate Body in Korea – Various Measures on Beef found
that a "formal difference in treatment between im ported and like domestic products is thus neither
necessary, nor sufficient, to show a violation of Article III:4." 814 The focus of the analysis must
remain on the substantive question of wh ether a challenged measure modifies the conditions of
competition in the relevant market to the detriment of imported products.815
7.1533 Following the Appellate Body's guidance, we will examine whether, in respect of the
distribution of reading materials in China, the m easures at issue modify th e conditions of competition
in China's market to the detriment of imported reading materials.
(i) Imported Publications Subscription Rule
7.1534 With respect to whether the restrictions in Articles 3 and 4 of the Imported Publications
Subscription Rule result in China affording less favourable treatment to imported newspapers and
periodicals we recall that it is undisputed that domestic newspapers and periodicals may be distributed
through multiple channels to consumers, where as their imported counterparts are limited to one
channel – i.e., subscription. Moreover, importe d newspapers and periodicals can only be moved
along that single channel by Chinese wholly state- owned enterprises. Domestic newspapers and
periodicals, however, reach consumers through a variety of distributors, including foreign-invested
enterprises, Chinese privately-held enterprises and Chinese wholly state-owned enterprises. Thus,

813 China's first written submission, paras. 547-548; also China's responses to question
Nos. 130(e), 131.
814 Appellate Body Report on Korea – Various Measures on Beef, para. 137.
815 Ibid.

Articles 3 and 4 of the Imported Publications Subscription Rule place restrictions on who may
distribute imported newspapers and periodicals and th e method in which they may be distributed that
are not faced by like domestic products.
7.1535 With respect to the mandatory subscription requirements in Article 3 of the Imported
Publications Subscription Rule, we note that this means that a distributor of domestic newspapers and
periodicals can distribute individual issues to cons umers via newsstands, bookstores, and other shops,
as well as via subscription, while a distributor of imported newspapers and periodicals may only
distribute its products through a subscription to every issue of that publication. Although both
domestic and imported newspapers and periodicals ma y be subscribed to, distributors of domestic
newspapers and periodicals also have the opportunity to distribute their products through other
channels which enable them to reach a greater numb er of consumers. Additionally, distributors of
imported newspapers and periodical s cannot distribute their products through channels that would
place them in front of consumers in direct comp etition with domestic publications, for example an
enterprise distributing imported newspapers and peri odicals cannot distribute them to a newsstand or
bookstore where they would be displayed alongside domestic newspapers and periodicals.
7.1536 In view of the preceding analysis, this limitation in the manner in which imported newspapers
and periodicals may be distributed in our view not only constitutes formally different treatment, but
also treatment which can reasonably be concluded to modify the conditions of competition to the
detriment of imported newspapers and periodicals.
7.1537 We note China's argument that because cons umers can easily buy non-limited newspapers
and periodicals by subscription, the United States ca nnot establish that China affords less favourable
treatment to imported newspapers a nd periodicals. However, we cannot agree with China that a lack
of "significant" alteration in the conditions of co mpetition would mean that China has fulfilled its
obligation to treat the imported products no less fa vourably than the like domestic products. We note
that the phrase "treatment no less favourable" is not qualified by a de minimis standard. Accordingly,
any less favourable treatment of imported products via laws, regulations, or requirements which affect
their internal sale, offer for sale, purchase, transportation, distribution or use is contrary to the
obligation in Article III:4, provi ded such treatment modifies the conditions of competition to the
detriment of imported products.
816
7.1538 Additionally, Article 4 of the Imported Publications Subscription Rule , read in light of the
definition of an import business unit provided in Ar ticle 2 of the same measure, limits who may
handle subscriptions for imported newspapers and periodicals to w holly state-owned enterprises.
Through this provision China has created a lim itation on who may distribut e imported newspapers
and periodicals which does not exist for the domestic like products. This means that those wishing to
distribute their newspapers and periodicals within Ch ina have different distributors available to them
depending on the origin of their products. An ente rprise wishing to distribute an imported newspaper
or periodical must distribute its product through a wholly state-owned company regardless of whether
a private enterprise might have been a more compet itive distributor in terms of undertaking more or
better efforts at marketing the newspaper or periodical. By contrast, an enterprise wishing to distribute
a domestically published newspaper or periodical may select from any distributor it wishes, based on
which distributor will provide the best competitive advantage for its products.
7.1539 Therefore, the restrictions on the distribution ch annels available set forth in Article 3 and the
limitations on the type of distributors av ailable set forth in Article 4 of the Imported Publications
Subscription Rule may reasonably be expected to adversel y modify the conditions of competition in
the marketplace between imported and domestic like pr oducts. In our view, Articles 3 and 4 are thus

816 In this respect, we find the reasoning of the Appellate Body in Japan – Alcoholic Beverages II
instructive.

inconsistent with China's obliga tion in Article III:4 of the GATT 1994 to afford no less favourable
treatment to the like imported products.
(ii) Publications (Sub-)Distribution Rule
7.1540 The United States has also identified the Publications (Sub-)Distribution Rule as a measure
which gives rise to an inconsistency with Article III:4 of the GATT 1994. Although the United States
refers to the measure as a whole in its submissions , the only provision specifically identified by the
United States as giving rise to an inconsiste ncy with Article III:4 is Article 2 of the Publications
(Sub-)Distribution Rule.
7.1541 As noted above, Article 2 of the Publications (Sub-)Distribution Rule does not itself prohibit
foreign-invested enterprises from engaging in wholesaling of any importe d books, newspapers and
periodicals. Rather, Article 2 establishes the scope of the Publications (Sub-)Distribution Rule. It
makes clear that the Rule applies to foreign-invested enterprises engaged in the distribution of books,
newspapers and periodicals published in China. It says nothing about whether foreign-invested
enterprises may engage in distribu ting imported books, newspapers a nd periodicals. Therefore, we
consider that Article 2 cannot, by itself, give rise to an inconsistency with WTO obligations.
7.1542 We also note that the United States has argued that the import of the provisions of the
Publications (Sub-) Distribution Rule must be determined in light of the Publications Regulation and
the Publications Market Rule which are China's other measures governing the distribution of books,
newspapers and periodicals.
7.1543 In response to questions from the Panel, the Un ited States specifically refers to Article 16 of
the Publications Market Rule 817, which was drawn up on the basis of the Publications Regulation .
Article 16 provides:
"To set up a book, newspaper and periodical sub-distribution enterprise, a Chinese-
foreign equity joint venture, contractual jo int venture, or a foreign capital enterprise
shall follow the [Publication (Sub-) Distribu tion Rule] jointly drawn up by the GAPP
and the Ministry of Foreign Trade and Economic Cooperation".
7.1544 We note in this connection the US statem ent that no Chinese measures other than the
Publications (Sub-)Distribution Rule authorize foreign-invested enterprises to engage in the
distribution of reading materials. China does not contest the US statement. Therefore, the
Publications (Sub-)Distribution Rule appears to be the sole regulation governing the establishment of
foreign-invested enterprises engaging in the dist ribution of books, newspa pers and periodicals.
Reading the limitation of the scope of the Publications (Sub-)Distribution Rule to domestically
published books, newspapers and periodicals which is set forth in Article 2 in conjunction with the
requirement in Article 16 of the Publications Market Rule for foreign-invested enterprises seeking to
distribute any books, newspapers or periodicals to follow the Publications (Sub-)Distribution Rule
leads to the conclusion that foreign-invested enterprises are excluded from engaging in the
distribution of any imported books, newspapers and periodicals. We also note that China confirms
that, by virtue of Article 2 of the Publications (Sub-)Distribution Rule , foreign-invested enterprises
are prevented from wholesaling imported reading materials.818
7.1545 Consequently, Article 2 of the Publications (Sub-)Distribution Rule , read in conjunction with
Article 16 of the Publications Market Rule, limits the type of sub-distributors available to imported
books, newspapers, and periodicals by excluding fore ign-invested enterprises from the potential pool

817 United States' responses to question Nos. 61, 74 and 122(h).
818 China's response to question No. 78.

of sub-distributors. This means that domestic publications have a wide r range of possible sub-
distributors than their imported counterparts. An enterprise wishing to sub-distribute an imported
book, newspaper or periodical may not distribute its product through a foreign-invested enterprise,
regardless of whether the foreign-invested ente rprise might have been a more competitive sub-
distributor for the book, newspaper or periodi cal in question than th e wholly Chinese-owned
enterprise which is available. By contrast, an enterprise wishing to sub-distribute a domestically
published book, newspaper or periodical may select from any sub-distributor it wishes based on which
sub-distributor will provide the best competitive a dvantage for its products. Therefore the limitations
set forth in Article 2 of the Publications (Sub-)Distribution Rule regarding the type of enterprises that
may sub-distribute imported books, newspapers, and periodicals, together with the provisions of
Article 16 of the Publications Market Rule , may reasonably be expected to adversely modify the
conditions of competition in the marketplace betw een imported and like domestic products and are
thus inconsistent with China's obligation in Article III:4 of the GATT 1994 to provide no less
favourable treatment to the like imported products.
3. Sound recordings
7.1546 The United States also claims that China's measures wh ich provide for a content review of
imported hard-copy sound recordings before they can be digitalized and distributed electronically are
inconsistent with China's obligations under Ar ticle III:4 of the GATT 1994. The United States
maintains that these measures affect the distribu tion and use of the hard-copy sound recording in
China and that the additional delays and burdens associated with the content review regime, which are
not applicable to domestic products, provide less favourable treatment to the imports.
7.1547 The United States argues that contrary to the obligation set forth in Article III:4 of the
GATT 1994 China's measures (both the Network Music Opinions and the 2001 Audiovisual Products
Regulation) impose a more onerous content-review regime on imported sound recordings intended for
electronic distribution than for like domestic record ings. The United States also argues that the only
criterion for determining whether a sound recordin g intended for electronic distribution must go
through these more onerous content review process is the national origin of the product. According,
to the United States, this means that China accords less favourable treatment to imports of these
products than to domestic like products.
7.1548 China argues that contrary to what the United States is alleging, the distribution of sound
recordings imported in hard copy, but intended fo r so-called "electronic distribution", cannot be
scrutinized under the rules governing trade in goods. China maintains that so-called "electronic
distribution" does not refer to distribution in the sense of Article III:4 of the GATT 1994 insofar as it
does not involve the distribution of physical goods.
7.1549 China also argues that the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule are outside the Panel's terms of reference. In the alternative, China
contends that the measures do not affect the so -called "electronic distribution" of the sound
recordings. China maintains that the two measures govern the import of sound recordings in physical
form and not their internal distribution.
7.1550 The United States, in its first oral statemen t and second written submission, argues that China
misunderstands the US cl aim which only applies to measures affecting imported hard-copy media
containing sound recordings that are intended for electronic distribution and does not include a
challenge to any measure's treatment of services or service suppliers involved in the electronic
distribution of sound recordings.
7.1551 China however, responds in its second written submission and second oral statement that a
close reading of the US panel request and first written submission will demonstrate that what the

United States is actually targeting is electronic di stribution. China maintains that the challenged
measures provide for a content review to be applie d to digitalized content (i.e., the digital data
extracted from the hard copy and subsequently tran sformed into a format suitable for transmission
over the Internet). Therefore, according to China, the measures identified by the United States do not
affect the distribution of hard copies.
7.1552 Additionally, China argues that the formally different treatment identified by the United
States does not affect the "distribution" of hard copies and can therefore not be scrutinized under
Article III:4 of the GATT 1994. According to Chin a, what the United States suggests should be
compared is the allegedly different treatment app lied to digitalized products. China believes that
following the United States' logic would entail majo r systemic implications, insofar as it would
amount to applying rules on trade in goods to services provided over the Internet. China also argues
that by redefining the target of its claim as bei ng the imported hard-copy sound recording, the United
States is in fact arguing that the Chinese measures affecting the content of imported hard-copy sound
recordings should also be considered as measures affecting "the internal sale, offering for sale,
purchase, distribution or use of" hard-copy sound re cordings and thus fall under Article III:4 of the
GATT 1994. China contends that following this er roneous logic of the United States, would mean
that GATT rules would apply to any measure regula ting services related to – intangible – content as
long as there exists a physical carrier capable of being traded, since such a measure would always
have the alleged effect on its carrier.
(a) Like products
7.1553 The United States argues that all sound recordings, whether domestic or imported, are
fundamentally the same in all relevant aspects: they can contain the same kinds of music, can appeal
to the same audiences or target markets, and can be equally suitable for distribution digitally. The
United States maintains that China's regulatory regi me for sound recordings intended for electronic
distribution uses purely nationality and origin-based criteria to determine which of the two sets of
content review rules will apply.
7.1554 With respect to the Internet Culture Rule, the United States avers that while Article 16 of the
Internet Culture Rule provides that imported internet cultu ral products "shall be reported to the
Ministry of Culture for examination of their contents", the same provi sion only requires that
companies circulating domestically produced Internet cultural products "shall file with the Ministry of
Culture within 60 day of officially beginning circul ation and shall display the Ministry of Culture
filing number in a prominent place on the products." The United States also notes that Article 26 of
the Internet Culture Rule which sets forth penalties for failure to comply with content review
requirements maintains this distinction between imported products which are "approved" by and
domestic products which are "filed" with the MOC.
7.1555 Specifically, the United States contends that the Network Music Opinions subjects imports of
these products to a much more onerous content re view regime than domestic products, which only
need to be registered with MOC. Like wise, the United States contends that the 2001 Audiovisual
Products Regulation makes clear that imported products mu st be submitted to MOC for approval
while domestic sound recordings are subject to their publisher's own editorial responsibility system.
7.1556
China does not present any argumentation on wh ether imported and domestic hard-copy
sound recordings intended for electronic distribution ar e "like" within the meaning of Article III:4 of
the GATT 1994.
7.1557 The Panel notes its finding, in para.7.82, that the 2001 Audiovisual Products Regulation and
Audiovisual Products Importation Rule are outside our terms of reference with respect to the US
claim on whether China's treatment of hard copy so und recordings intended for electronic distribution

is consistent with Article III:4 of the GATT 1994. Therefore, we will make no finding as to whether
these measures distinguish between domestic and impor ted products solely based on origin, or indeed
whether they are laws, regulations, or requirements affecting the distribution of the products in a
manner that affords the imported products less favourab le treatment. Therefore, our analysis will be
limited to the Internet Culture Rule and the Network Music Opinions which were properly identified
in the US panel request.
(i) Traditional analysis
7.1558 The United States argues that all sound recordings, whether domestic or imported, are
fundamentally the same in all relevant aspects: they can contain the same kinds of music, can appeal
to the same audiences or target markets, and can be equally suitable for distribution digitally. The
United States provides no further elaboration on whether imported and domestic sound recordings
intended for electronic distribution are "like" based on the four traditional criteria in its first written
submission or in its subsequent submissions to the Panel.
7.1559 China provides no argumentation with respect to whether the imported and domestic
products are "like" within the meaning of Article III:4.
7.1560 The Panel notes that other than its assertion in its first written submission that the imported
and domestic products are fundamental ly the same in all relevant aspects the United States has not
addressed through argumentation and evidence the proper ties, nature and quality of the products, the
end-uses of the products, consumers' tastes and hab its in respect of the products, and the tariff
classification of the products. Therefore, we conc lude that the United States has not established that
imported hard-copy sound recordi ngs intended for electronic distribution are "like" domestic hard-
copy sound recordings intended for electronic dist ribution based on the traditional "like products"
criteria.
7.1561 We note that the United States has also argued that the impor ted and domestic products are
"like" because the challenged measures distinguish be tween them based on origin. Therefore, we will
go on to determine whether the United States has estab lished that the products are "like" via this
route.
(ii) Internet Culture Rule
7.1562 With respect to the Internet Culture Rule , the United States has identified Article 16 as the
provision which distinguishes between imported an d domestic hard-copy sound recordings intended
for electronic distribution exclusively based on origin.
819
7.1563 Article 16 provides:
"Importing of Internet cultural products sh all be carried out by commercial Internet
cultural units that have obtained a Ne twork Cultural Business Licence, and the
products shall be reported to the Ministry of Culture for examination of their
contents.
The Ministry of Culture shall, within 20 business days (not including the time
required for specialist evaluation) of receipt of an application for examination of
contents, make a decision on whether or not to approve the application. If the
application is approved, an approval document shall be issued: if the application is
not approved, the reasons shall be clearly stated.

819 United States' response to question No. 252.

Units that obtain approval for the import of Internet Culture products shall display the
Ministry of Culture approval number in a prominent place on the products, and shall
not alter program names or add to or dele te program contents on their own. If a
product is not put into circulation within one year of approval, the importing unit
shall file with the Ministry of Commerce to f ile this fact and clearly state the reasons.
When it is decided to end import of the pr oduct, the Ministry of Culture will cancel
the approval number.
Internet cultural units that circulate domes tically produced Internet cultural products
that need to be filed as required by relevant provisions shall file with the Ministry of
Culture within 60 days of officially beginning circulation and shall display the
Ministry of Culture filing number in a prominent place on the products."
7.1564 The United States contrasts the treatment of im ported Internet cultural products in Article 16
with domestic ones in Article 19 of the Internet Culture Rule . Specifically, the United States notes
that pursuant to Article 19 domestic Internet cultura l products are to be reviewed by their domestic
distributor's internal content examination system.
7.1565 The Panel notes that on its face, Article 16 sets fo rth a content review process for imported
Internet cultural products which must be approved by the MOC. By contrast, Article 19 refers to a
requirement for domestically produced Internet cultu ral products to be "filed" with the MOC which
can happen after circulation of the product has alre ady begun. The only distinction contained in the
measure for determining which requirement must be fo llowed, content review or filing, is the origin
of the Internet cultural product. Therefore, the Internet Culture Rule establishes a difference in
treatment between domestic and imported Internet cultural products. Thus, as a result of this
difference in treatment, even imported Internet cu ltural products that are identical to domestic ones
(except for origin) would be subject to government content review while th eir domestic counterpart
would only need to be filed with the Ministry. In our view, it is clear that there will, or can, be
domestic and imported Internet cultural products that are the same, except for origin.
820
7.1566 However, we note that Article 16 does not refer to hard-copy sound recordings intended for
electronic distribution, rather it refers to "Interne t cultural products". Therefore, before we can
determine whether Article 16 creates a difference in treatment between th e imported and domestic
products which are the subject of this dispute based exclusively on their origin we must determine
whether Article 16 applies to the imported product identified by the United States, i.e., hard-copy
sound recordings intended for electronic distribution.
7.1567 We note that Article 2 of the Internet Culture Rule states that the "Internet cultural products"
as used in the Rule.
"refer to the cultural products produced, disseminated, and circulated through the
Internet, primarily consisting of:
 (1) Internet cultural products produced sp ecially for dissemination over the Internet
such as network audiovisual products (including VOD, DV), network games, network
performances (drama), network works of ar, and animated cartoons (including
FLASH); and

820 For instance it is possible that both an imported and domestically produced Internet cultural product
could contain the same recording of a song sung by a particular artist.

(2) Audiovisual products, game products , performances (drama), works of art,
animated cartoons, and other Internet cultural products produced or reproduced by the
use of certain technological means to disseminate over the Internet."
821
7.1568 The United States contends that Article 2(2) means that the Internet Culture Rule covers, inter
alia, all audiovisual products including those in hard-c opy format intended for electronic distribution.
China, on the other hand, maintain s that the challenged measures provi de for a content review to be
applied to digitalized content (i.e. the digital da ta extracted from the hard copy and subsequently
transformed into a format suitable for transmissi on over the Internet) before its transmission over
Internet.
7.1569 The United States is correct that Article 2(2) Internet Culture Rule refers to "audiovisual
products" which, as defined in Article 2 of the Audiovisual Products Importation Rule would include
audio and video CDs which have recorded c ontents. However, Article 2(2) of the Internet Culture
Rule refers to audiovisual products "produced or reproduced by the use of certain technological means
to disseminate over the Internet". It is not cl ear to us that these two groups of products are
synonymous and the United States has provided no argum entation with respect to the meaning of this
qualifying phrase. Likewise, China has not sp ecifically addressed the US interpretation of
Article 2(2), nor has it explained why subparagraph 1 of Article 2 refers to "network audiovisual
products" and subparagraph 2 of Artic le 2 refers to audiovisual products "produced or reproduced by
the use of certain technological means to disseminate over the Internet".
7.1570 Therefore, it is less than clear what types of products are governed by the Internet Culture
Rule. Because the United States is arguing that the imported and domestic products are "like" because
the Internet Culture Rule makes distinctions between the two groups of products exclusively based on
origin, understanding whether Article 16 applies to hard-copy sound recordings intended for
electronic distribution is essential to a determinati on of whether the imported product (i.e., the hard-
copy sound recording intended for electronic distribution) is "like" the domestic product. If the Panel
cannot determine whether the measure treats importe d and domestic products differently exclusively
based on origin, we cannot determine whether the imported and domestic pr oducts are "like" on the
basis asserted by the United States.
7.1571 We note, however, that the "like products" requi rement is only one of the elements which
must be proven to establish an Article III:4 claim. A definitive determination on likeness is only
necessary if the United States establishes that the measures affect the distribution of the imported
products in a manner which affords less favourable tr eatment. Therefore, we will defer our analysis
of the "like products" element and proceed with our analysis on the assumption that Article 16 applies
to imported hard-copy sound recordings intended for electronic distribution. If we find that the
United States has demonstrated that the measures affect the distribution of the imported hard-copy
sound recordings intended for electronic distributi on in a manner which affords less favourable
treatment to the imported products then we will retu rn to the question of whether the "like products"
requirement is met because the measures establish different treatment for imported and domestic
products exclusively based on their origin.
(iii) Network Music Opinions
7.1572 According to the United States, the Network Music Opinions implements and reinforces the
same discriminatory content review regime set up by the Internet Culture Rule . According to the
United States, the Network Music Opinions simply provides more detail regarding the content review
regime set forth in the
Internet Culture Rule.

821 Article 2, Internet Culture Rule (Exhibit – US 32).

7.1573 The United States identifies Article 9 as the provision which distinguishes between imported
and domestic hard-copy sound record ings intended for electronic distribution exclusively based on
origin.
7.1574 Article 9 provides:
"(9) Instituting a system for examining the content of network music products.
Network music products transmitted inside the People's Republic of China must be
approved by the Ministry of Culture for im portation or filed with the Ministry of
Culture. Imported network music products can only be used after the Ministry of
Culture examines their content. Impor ted music products transmitted over the
network, even if the Ministry of Culture has already examined their content, should
be processed according to law by internet cultural units (see appendices for related
requirements). The business of importing network music can only be handled by
internet cultural units approved by the Mi nistry of Culture. Anyone who transmits
imported network music on its own will be investigated and punished accordingly by
the Ministry of Culture according to law, while at the same time, it will be requested
that telecommunications management de partments deal with related websites
according to law. Domestically produced music products that are to be exclusively
transmitted over the network shall be filed with the Ministry of Culture."
7.1575 The Panel notes that, just as with the Internet Culture Rule, Article 9 sets up a content review
process for imported network music products whereas domestically produced network music products
are not subjected to the same procedures, but ra ther must be "filed" with the MOC. The only
distinction contained in the measure for determin ing which requirement must be followed, content
review or filing, is the origin of the network music product. Therefore, the Network Music Opinions
establishes a difference in treatment between dom estic and imported network music products, which
include hard-copy sound recordings intended for electronic distribution. As a result of this difference,
even an imported network music product which was id entical in all respects to a domestic one would
be subject to Government content review while its domestic counterpart would only need to be filed
with the Ministry. In our view, it is clear that there will, or can, be dom estic and imported network
music products that are the same, except for origin.
7.1576 However, we note that the Network Music Opinions , which is based on the Internet Culture
Rule, does not define "network music products". Therefore, before we can determine whether
Article 9 creates a difference in treatment between the imported and domestic products which are the
subject of this dispute based exclusively on their or igin we must determine whether Article 9 applies
to the imported product identified by the United Stat es, i.e., hard-copy sound recordings intended for
electronic distribution.
7.1577 The United States points out that the Network Music Opinions implements and is based on the
Internet Culture Rule. The United States, therefore, concludes that the product coverage in both
measures is the same. Essentially, the United States contends that the definition of "network music
product" in the Network Music Opinions is the same as that of "audiovisual products" in the Internet
Culture Rule , which it believes includes hard-copy sound recordings imported in physical form
intended to be distributed in China for eventual tr ansmission over a network, e.g., the Internet or a
mobile telecommunications network.
7.1578 China, for its part, maintains that the content review provided for in the Network Music
Opinions applies to the digitalized version of th e music previously embedded on the imported
hardcopy. According to China this content review is primarily aimed at verifying whether the content
of the digitalized version remains the same as the hard-copy, therefore, it is the digitalized version

(that is ready to be put on-line) that is subject to content review, not the hard-copy format in which the
sound recording is embedded.
822
7.1579 China relies on Article I of Appendix 2 of the Network Music Opinions which sets forth the
type of materials that should accompany the co ntent examination application for "imported
audiovisual products (including those officially published and distributed) whose content has already
been examined by the Ministry of Culture and are to be transmitted over the information network."
These materials are
 "1. Form for the Examination of Imported Network Music Products; 2. Duplicate or
copy of letter of authorization to transm it over the Information network and a draft
product circulation agency agreement (in Chinese and foreign language versions), and
certificate of original copyright; 3. Ministry of Culture Letter of Approval for Import
of Audiovisual Products; 4. Copies of the Network Culture Business Licence and
Business Licence of the applying unit; 5. Applying unit's website, IP address, music
product registration and recording account num ber and corresponding codes; and 6.
Other documents as needed for content examination."
7.1580 The Article also notes that after receiving the application the MOC will make an approval
decision within 20 business days.
7.1581 However, China does not refer to Article II of Appendix 2, which is cited by the United States
as setting forth content review procedures applicab le to imported hard-copy sound recordings
intended for electronic distribution.
823 That article provides that:
"[A]part from Article I of this attachment , commercial internet culture units which
wish to import network music products for transmission through the information
network shall apply to the Ministry of Culture and submit the following documents
and materials:
1. Form for the Examination of Imported Ne twork Music Products; 2. Drafts of the
copyright trading agreement including transmission right or circulation agency
agreement (Chinese and foreign language vers ions); original certificate of copyright;
copy or duplicate of the Letter of Authorization to Transmit Over the Information
Network; 3. CD of the program (including Chinese and English lyrics); 4. Copies of
the Network Cultural Business Licence and Business Licence of the applying unit; 5.
Applying unit's website, music product re gistration and recording account number
and corresponding codes; and 6. Othe r documents as needed for content
examination."
7.1582 The Article also notes that after receiving the application, the Examination Committee of the
MOC shall examine the contents and draw up an opinion, and that the MOC, based on that opinion
shall within 20 business days (not including the time for special evaluations) make an approval
decision.
7.1583 The Panel notes that the United States relies on the Internet Culture Rule for its
understanding that "network music products" referred to in the Network Music Opinions is equivalent
to the definition of "audiovisual products" set forth in Article 2(2) of the Internet Culture Rule.
However, we recall our finding in paragraph 7.1570, above that it is unclear whether the audiovisual

822 China's response to question No. 274(a).
823 United States' response to question No. 245, citing United States' first written submission,
paras. 190-195.

products described in that Article are synonymous with hard-copy sound reco rdings. We also note
once again that, the United States' and China's explan ations with respect to what is submitted to the
MOC for content review have not left us with a sufficiently clear understanding of the factual
situation.824
7.1584 Specifically, it is unclear from the argumenta tion presented by the United States and China
what exactly the MOC reviews pursuant to the procedures in Article 9 and Appendix 2. China asserts
that a digital copy is reviewed, but does not address the ambiguity raised by the terms in Article II of
Appendix 2. The United States tells the Panel th at it "understands" that the MOC reviews the
imported hard-copy sound recording but provides no substantiation for this assertion. Because the
United States is arguing that the imported and domestic products are "like" because the Network
Music Opinions make distinctions between the two groups of products exclusively based on origin,
understanding whether Article 9 a nd Appendix 2 apply to hard-copy sound recordings intended for
electronic distribution is essential to a determinati on of whether the imported product (i.e., the hard-
copy sound recording intended for electronic distribution) is "like" the domestic product. If the Panel
cannot determine whether the measure treats importe d and domestic products differently exclusively
based on origin, we cannot determine whether the imported and domestic pr oducts are "like" on the
basis asserted by the United States.
7.1585 We recall, that the "like products" requirement is only one element which must be proven to
establish an Article III:4 claim. A definitive dete rmination on likeness is only necessary if the United
States establishes that the measures affect the dist ribution of the imported products in a manner which
affords less favourable treatment. Therefore, we will defer our analysis of the "like products" element
and proceed with our analysis on the assumption that the Network Music Opinions applies to imported
hard-copy sound recordings intended for electronic distribution. If we find that the United States has
demonstrated that the measures affect the distribut ion of the imported hard-copy sound recordings
intended for electronic distribution in a manner wh ich affords less favourab le treatment to the
imported products then we will return to the ques tion of whether the impor ted and domestic products
are "like products" requirement is met because th e measure establishes different treatment for
imported and domestic products exclusively based on their origin.
(b) Laws, regulations, or requirements affecting ... distribution
(i) Laws, regulations or requirements
7.1586 The United States argues that the Network Music Opinions governs the conditions that must
be met in order to distribute sound recordings intended for electronic distribution by making content
review and approval by MOC a prerequisite fo r the electronic distribution of imported sound
recordings.
7.1587 With respect to the Internet Culture Rule , the United States contends that Article 2(2)
provides that audiovisual products in hard copy that have been transformed in order to be
disseminated over the Internet are within the purview of the Rule, while Article 3(1) lists the Internet
cultural activities governed by the rule as including the wholesaling, retailing and renting of Internet
cultural products.
7.1588 The United States goes on to argue that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule s regulate and govern the distribution of all audiovisual
products in China, including sound recordings.

824 United States' responses to question Nos. 262(d) and 274(a) and (b); China's response to question
No. 274(a) and (b).

7.1589 In response to question No. 121 the United States identifies the 2001 Audiovisual Products
Regulation as an "administrative regulation", the Internet Culture Rule and the Audiovisual Products
Importation Rule as "departmental rules", and the Network Music Opinions as "other regulatory
documents".
7.1590 The United States maintains that each of th ese measures falls within the definition of
"regulations" as that term is used in Article III:4 and that the departmental rules and other regulatory
documents also fit within the scope of the term "requirements" in Article III:4 of the GATT 1994.
7.1591 China does not present argumentation on whether the Internet Culture Rule and the Network
Music Opinions are "laws, regulations, or requirements".
7.1592 The Panel recalls that the phrase "laws, regulations, or requirements" encompasses a variety
of government measures, from mandatory rules wh ich apply across the board to government action
that creates voluntary incentives or disincentives.
7.1593 With respect to the Internet Culture Rule, Article 16 of the Internet Culture Rule requires that
the importing of internet cultural products shall be carried out by Internet cultural units which have
obtained a Network Cultural Business Licence and that the products shall be reported to the MOC for
examination of their contents. Article 16 also pr ovides that the MOC will conduct an examination of
the contents of the products and provides that Inte rnet cultural units must display their MOC approval
number in a prominent place on the products, and shall not alter the program names or add to or delete
program contents on their own. We also note that Article 26 provides for monetary fines for non-
compliance with the requirement to display the MOC approval or filing number, whichever is
required.
7.1594 The Network Music Opinions states that it is "based" on the Internet Culture Rule and
provides more detailed procedures for obtaining MO C content approval for imported internet cultural
products. First, Article 9 reiterates that "[i]mported network music products can only be used after the
Ministry of Culture examines their content." Addition ally, Appendix 2 lists the materials that need to
be provided to the MOC as part of the application for approval for such imported products.
825
7.1595 The Internet Culture Rule and the Network Music Opinions together create the process by
which imported sound recordings intended for electr onic distribution are subjected to content review
by the MOC. These procedures must be complied w ith if an Internet Culture Provider ("ICP") or
/Mobile Content Provider ("MCP") wants to tran smit the content on the imported hard-copy sound
recording in digital format over a network or the Internet. If the procedures set forth are not followed,
penalties can be imposed by the Government of Chin a. We therefore, find that they are mandatory
rules applying across the board and as such are "regulations" within the meaning of Article III:4 of the
GATT 1994 regardless of their legal form within China.

(ii) Affecting ...
7.1596 China argues that in its answers to the Panel's questions and its second written submission the
United States has impermissibly enlarged its cl aim under Article III:4 of GATT 1994. Specifically,
China maintains that in the pane l request the United States only iden tified an alleged inconsistency
with respect to China's laws, regula tions, or requirements affecting the distribution of imported sound

825 Preamble, Article 9, Appendix 2:I and II, Network Music Opinions (Exhibit US-34).

recordings intended for electronic distribution. China, therefore, contends that any subsequent claims
with respect to China's laws, regula tions, or requirements affecting the use of those products are
outside the Panel's terms of reference.
7.1597 The United States in its second oral statement and in response to a specific question from the
Panel, maintains that it made a cl aim with respect to Article III:4 in toto and that any argumentation
that the relevant measures affect the use of the im ported products is covered by the US claim with
respect to Article III:4.
7.1598 Part IV of the US panel request is entitle d "Sound Recordings Distribution". The United
States then provides a narrative description of its complaint:
"The United States considers that China is acting inconsistently with its obligations
under the GATT 1994 and the Accession Protocol by providing distribution
opportunities for sound recordings imported in to China in physical form that are less
favourable than the distribution opportun ities for sound recordings produced in
China.
China appears to require that sound recordings imported into China in physical form
but intended for digital distribution must undergo content review by the Chinese
Government prior to such distribution within China. However, domestically
produced sound recordings appear not to be subject to this requirement, but can
instead be digitally distributed immediately. It thus appears that sound recordings
imported into China in physical form are treated less favourably than sound
recordings produced in China in physical form." (emphasis added)
7.1599 The United States then identifies the specific measures it is concerned with and concludes that
"the measures at issue therefore appear to be inconsistent with China's obligations under Article III:4
of the GATT 1994."
826
7.1600 The United States' only arguments in its fi rst written submission with respect to the
consistency of China's measures governing sound reco rdings intended for electronic distribution with
Article III:4 of the GATT are contained in a sec tion entitled "China's Meas ures Regarding Product
Distribution Are Inconsistent With China's Oblig ations Under Article III:4 of the GATT 1994". The
title of the section indicates that the only inconsiste ncy the United States is concerned with is in
respect of China's measures regarding the distribution of hard-copy sound recordings intended for
electronic distribution.
7.1601 In its first written submission, the United States does refer to the measures as laws,
regulations or requirements "affecting the internal sa le, offering for sale, purchase, distribution or use
of sound recordings intended for electronic dist ribution within the meaning of Article III:4." 827
However, in its description of the measures the Un ited States refers to the Network Music Opinion as
governing "the conditions that must be met in or der to distribute sound recordings intended for
electronic distribution." 828 Likewise, with respect to the Internet Culture Rule , the United States
asserts that it "regulates and governs the distribut ion of sound recordings intended for electronic
distribution in China." 829 The United States, in its first written submission does not present any
argumentation on any of the other various activities described in Article III:4 of the GATT 1994, such
as sale, offer for sale, purchase, transportation or use.

826 United States' panel request, WT/DS363/5.
827 United States' first written submission, paras. 379 - 380.
828 Ibid., para. 379.
829 Ibid., para. 380.

7.1602 In response to a question from the Panel ask ing the United States to explain how the
challenged measures affect the "distribution" within China of sound recordings imported in physical
form (as opposed to the distributio n of the content subsequently transmitted in digital form via the
Internet),
830 the United States restates Article III:4 of the GATT 1994 and then maintains that
"distribution is only one of the elements that a measure can "affect" in order to fall within the scope of
Article III:4 of the GATT 1994."831 The United States then argues:
"The Panel's question appears to be focused on whether the distribution of the
physical copy of the sound recording is 'affected' by the relevant Chinese measures
because the sound recording is ultimately tr ansformed into a form that can be
distributed electronically. However, for the reasons set forth above, the United States
considers that this is not the situation pr esented by this dispute because the relevant
measures affect the 'use' of the hard-cop y sound recordings intended for electronic
distribution."832
7.1603 We agree with China that in its response to the aforementioned question from the Panel, and
through its subsequent submissions 833, the United States altered its focus from whether the measures
affected the distribution of imported hard-copy so und recordings intended for electronic distribution
to whether the measures affected their use. The issue then beco mes whether this shift in focus
amounts to the United States raising a new claim that is not within our terms of reference.
Is "use" within the Panel's terms of reference?
7.1604 The United States maintains in its response to the second set of Panel questions
"[t]he claim is that the relevant measures accord less favourable treatment to imported
products in contravention of Article III:4. Whether the relevant measures affect the
use or distribution of the imported product – or both – are arguments in support of the
claim, not separate claims. Thus the US claim itself has not changed." (emphasis
original)
834
7.1605 The Appellate Body has clarified that a "claim " in the context of WTO dispute settlement is
"a claim that the respondent party has violated, or nullified or impaired the benefits arising from, an
identified provision of a particular agreement," wh ich is to "be distinguished from arguments adduced
by a complaining party to demonstrate that the responding party's measure does indeed infringe upon
the identified treaty provision."835 Arguments in support of a claim may be set out and progressively
clarified in the first written submissions, the rebuttal submissions and the first and second panel
meetings with the parties.836 However, a party may not use its submissions to "cure" a deficient panel
request.837

830 question No. 126.
831 United States' response to question No. 126.
832 United States' response to question No. 126.
833 United States' response to question No. 126; Un ited States' second written submission, para. 195;
United States' second oral statement, para. 61; United States' response to question No. 246; United States'
response to question No. 247(a); United States' response to question No. 257.
834 United States' response to question No. 246.
835 Appellate Body Report on Korea – Dairy, para. 139. (emphasis original; internal citations omitted)
836 Appellate Body Report on EC – Bananas III, para. 141.
837 Ibid., para. 143; see also Appellate Body Report on United States – Carbon Steel, para. 127.

7.1606 Claims made in WTO dispute settlement must be explicit. Only in this way will a panel,
other parties, and third parties understand that a specific claim has been made, be aware of its
dimensions, and have an adequate opportunity to address and respond to it.838
7.1607 As noted above, Article III:4 of the GATT 1994 requires Members to provide no less
favourable treatment to imported like products in respect of measures affecting a variety of specific
transactions, activities, and uses relating to products in the marketplace.839
7.1608 The reference to this variety of transactions, activities, and uses in Article III:4 was not an
accident. We recognize that there could be overl ap between the various transactions governed by
Article III:4 of the GATT 1994, in the sense that a regulation affecting sale might in some
circumstances also affect purchase. We note, howev er, that the information necessary to prove that a
law, regulation, or requirement affects transporta tion might very well be different from that necessary
to prove that the same measure also affected use. Therefore, a complainant, in its panel request, when
making a claim of inconsistency with Article III: 4 of the GATT 1994 must allege that a measure
affects the identified transactions, activities, and us es and also provides less favourable treatment to
the imported like products with respect to that tr ansaction, activity, or use. A complainant could
accomplish this task in three ways: first a complain ant could simply reference Article III:4, second, a
complainant could list all the various transactions, activities, and uses subject to the obligation in
Article III:4, or a complainant could identify the specific one(s) which it is claiming the respondent
Member's measures affect.
7.1609 The United States in its panel request did not make an allegation with respect to several of the
various transactions, activities, and uses nor did it bri ng an allegation with respect to all of them. The
United States, in its panel request, specifically mentioned distribution and distribution alone. To
recall, the US panel request states in relevant part that "China is acting inconsistently with its
obligations under the GATT 1994 and the Accession Protocol by providing distribution opportunities
for sound recordings imported into China in phy sical form that are less favourable than the
distribution opportunities for sound recordings produced in China". We find that this is a statement of
a claim. As we see it, the United States claims that certain action taken by China – the provision of
allegedly less favourable distribution opportunities – is inconsistent with the GATT 1994, and, more
specifically, Article III:4. We do not find convi ncing the US contention that the reference to
"distribution" is an argument in support of a claim. Indeed, if the reference to "distribution" were
considered a mere argument, it would then be uncl ear from the panel request what measure, i.e. the
action attributable to China is the subject of th e US claim. Therefore, we cannot accept the United
States' contention that its references to distribution in the panel request are not part of its claim. At
any rate, even accepting, arguendo, that the reference to "distribu tion" constitutes an argument, we
note that there is no indication in the text of the panel request that any other argument might possibly
be pursued. For example, the panel request does not say that China is acting inconsistently with its
WTO obligations "inter alia by providing distribution opportunities". Thus, in view of how the panel
request is drafted, we think that China would reas onably infer in good faith that the United States was
providing additional clarification and delimiting the scope of the case China would have to answer
and, more particularly, that the United States would present a case before the Panel that relates
exclusively to distribution.
7.1610 Therefore, we find that the United States, in its panel request, did not make a claim with
respect to whether China's laws, regulations or requirements affecting the internal use of hard-copy
sound recordings intended for electronic distribution afforded less favourable treatment to imported
like products in a manner inconsistent with Article III:4 of the GATT 1994. Consequently, we will
not consider the US claim with respect to the "use" of hard-copy sound recordings intended for

838 Appellate Body Report on Chile – Price Bands, para. 164.
839 Appellate Body Report on US – FSC (Article 21.5-EC), para. 208.

electronic distribution in determining whether Chin a has acted inconsistently with its obligations
under Article III:4 of the GATT 1994.
7.1611 However, even though the United States shifte d its argumentation to support a claim with
respect to "use" we note that it did not drop the claim with respect to "distribu tion" and this is still
before us. A claim with respect to whether Chin a's challenged "laws, regul ations, or requirements"
affect the distribution of imported hard-copy sound recordings intended for electronic distribution
within China is before us and, as we understand it, still being pursued by the United States.
Therefore, we will proceed to determine whether the United States has established that the challenged
measures affect the internal distribution of imported hard-copy sound recordings intended for
electronic distribution.
Distribution

7.1612 The United States argues that "distribution" covers a wide variety of transactions,
encompassing the broad range of activities involved in moving a product through the chain from
production to consumption. According to the United States, this includes the transfer of hard-copy
sound recordings from the importer to the ICP or MCP, submission of the sound recording for content
review by the ICP or MCP, and conversion of the sound recording into a format suitable for electronic
submission. According to the United States, distri bution of a product may involve both purchase of
that product and offering for sale of that product.
7.1613 The United States argues that the content review procedures in China's measures affect the
internal distribution of hard-copy sound recordings intended for electronic distribution and provide for
less favourable treatment of the imported products vis-à-vis their domestic competitors.
7.1614 Specifically, with respect to the Internet Culture Rule , the United States maintains that
Article 2(2) and Article 3(1) demonstrate that it ap plies to the wholesaling, retailing, and renting of
audiovisual products in hard-copy to be disseminated over the internet. The United States argues that
the content review requirements, set forth in Article 16 of the Internet Culture Rule affect the
distribution of the hard-copy sound recording and wh en read together with Article 19, which provides
that domestic hard-copy sound recordings may be examined "in house" by an Internet Culture unit
without waiting for MOC approval, provide less favourable treatment to imported hard-copy sound
recordings.
7.1615 The United States, likewise argues that the Network Music Opinions only requires that
domestic sound recordings be registered with th e MOC and does not require any official content
review and approval by MOC prior to any distributi on. By contrast, pursuant to Article 9 of the
Network Music Opinions , imported sound recordings must satisfy the burdensome requirements
created by the MOC content review and approval pro cess. The United States asserts that this content
review process is set forth in Appendix 2, Articles I and II of the Network Music Opinions.
7.1616 The United States also argues that the 2001 Audiovisual Products Regulation and Audiovisual
Products Importation Rule "echo" this discriminatory content review requirement. Specifically, the
United States notes that Article 16 of the 2001 Audiovisual Products Regulation provides that a
domestic sound recording is subject to its publisher's own internal editorial responsibility system;
whereas Article 28 requires that both finished a nd unfinished imported sound recordings must be
submitted to MOC for content review and approval. The United States contends that Article 16 of the
Audiovisual Products Importation Rule confirms that that imported sound recordings intended for
distribution over networks are subject to the same content review requirements as hard copy sound
recordings.

7.1617 China argues that its measures do not affect the distribution of imported hard-copy sound
recordings intended for electronic distribution. First, China contends that Article 28 of the 2001
Audiovisual Products Regulation as well as Articles 14 and 16 of the Audiovisual Products
Importation Rule establish a content review requirement at the importation stage and can therefore in
no way be considered as affecting the distribution of products that have already been imported. China
then goes on to argue that the distribution allegedl y affected by the content review requirement does
not relate to the hard-copy, which is the good actuall y being imported, but to the digitalized contents
and can therefore not be scrutinized under Article III:4 of the GATT 1994.
7.1618 Finally, China contends that even should the broad definition of distribution provided by the
United States be accepted, the product that the IC P's activities aim at moving downstream is not the
hard copy, but the digitalized content.
7.1619 The Panel recalls that before any analysis of Ch ina's compliance with Article III:4 can be
conducted, we must determine whether Article III:4 is applicable to the ch allenged measures. The
Appellate Body has explained that the "fundamental structure and logic" of a covered agreement may
require panels to determine whether a measure falls within the scope of a particular provision or
covered agreement before proceeding to assess the consistency of the measure with the substantive
obligations imposed under that provision or covered agreement. 840 We also agree with the panel in
China – Auto Parts that such an analysis is consistent w ith our duty under Article 11 of the DSU to
determine the applicability of the provisions invoke d by the complaining party as the basis for its
claims with respect to the measures at issue.841
7.1620 As noted above, for Article III:4 to be applicable there must be (i) like imported and domestic
products and (ii) laws, regulations, or requirement s affecting one of the listed transactions in the
"internal" market. Therefore, if the challenged la ws, regulations, or requirements are not "internal"
measures they are not subject to the obligation to provide national treatment contained in Article III:4
of the GATT 1994.
7.1621 As the United States has satisfied its burden with respect to whether the domestic and
imported products are like, what remains for the United States to prove in order to satisfy its burden of
proof that Article III:4 is applicable is that China's measures operate in such a way that they affect the
internal distribution of the hard-copy sound recording intended for electronic distribution, which is the
imported product that is the subject of the US claim. We believe the United States must, therefore,
demonstrate that the challenged measures are "inter nal" measures within the meaning of Article III
and that the measures in fact operate in a manner which affects the distribution of the imported hard-
copy sound recordings within China. If the United States cannot so demonstrate, then it cannot show
that the measures are subject to the national treatment obligation in Article III:4 of the GATT 1994.
Whether the measures are "internal" measures
7.1622 In response to the United States' claim that its measures requiring government content review
of hard-copy electronic sound recordings prior to distribution in China are inconsistent with
Article III:4 of the GATT 1994, China argues that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule apply prior to importation and therefore do not affect the
imported hard-copy sound recordings or their distributi on within China. China itself, however, notes
that the Internet Culture Rule and the Network Music Opinions , which it contends review the digital
content extracted from the hard-copies, apply after importation.

840 Appellate Body Report on China – Auto Parts, para. 139; also Appellate Body Report on Canada –
Autos, para. 151 (quoting Appellate Body Report on US – Shrimp, para. 119); and Appellate Body Report on
US – Gasoline, p. 22, DSR 1996:I, 3, at 20.
841 Panel Report on China – Auto Parts, footnote 270 to para. 7.105.

7.1623 The United States argues that, given the ad Note to Article III of the GATT 1994 the fact that
the measures apply upon importation does not remove them from the ambit of Article III:4 of the
GATT 1994 so long as they affect the internal distribution of the imported product. Specifically, the
United States argues that the m easures at issue impose content review-related legal requirements on
both imported and domestic hard copy CDs that they must fulfil before distribution inside China.
According to the United States the fact that the legal hurdles facing the imported hard-copy CDs are
administered at the Chinese border, while domestic goods must meet their obligations prior to internal
distribution does not transform the measure into a border measure.
7.1624 The Panel agrees with the United States that the Ad Note clarifies that merely because a
measure is applied at the border does not mean that it is outside the scope of Article III of the
GATT 1994. The Ad Note to Article III states that Article III shall apply to any law, regulation, or
requirement affecting the internal sale, offer for sale, purchase, transportation, distribution, or use
even if such law is enforced with respect to the imported product at the time or point of importation.
We, therefore, concur with the ruling of the panel in India – Autos that "the fact that a requirement is
imposed as a condition on importation is not necessar ily in itself an obstacle to its falling within the
scope of Article III:4."
842 However, we note that China's argu ments with respect to the contested
measures being "border measures" relate to the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule , which are not within our terms of reference with respect to
this claim.
7.1625 Therefore, the task before us is to determine whether the Internet Culture Rule and the
Network Music Opinions are "internal measures" such that th ey are subject to the obligations in
Article III of the GATT 1994. To that end, we note the Appellate Body's decision in China – Auto
Parts that in determining whether a charge was "int ernal" and subject to Article III:2 or a border
measure "a panel must thoroughly scrutinize the me asure before it, both in its design and in its
operation, and identify its principal characteristics. Having done so, the panel must then seek to
identify the leading or core features of the measure at issue, those that define its 'centre of gravity' for
purposes of characterizing the charge that it imposes as an ordinary customs duty or an internal
charge."843 We see no reason why such an analytical ex ercise would not also be appropriate in
determining whether a law, regulation or requirement affects "internal" factors and is therefore subject
to Article III:4. We also note the Appellate Body 's reasoning that a charge is "internal" if the
obligation to pay it accrues because of some in ternal factor that occurs after importation. 844 We find
this instructive for purposes of an analysis of whether a "law, regulation, or requirement" relates to the
internal distribution of a good. Th erefore, we will analyse whether the Internet Culture Rule and the
Network Music Opinions apply internally based on this guidance from the Appellate Body.
7.1626 Therefore, we now turn to identify the principal characteristics of the Internet Culture Rule
and the Network Music Opinions to determine whether the obligation to comply with the content
review requirements is triggered by some internal factor after the hard-copy sound recording intended
for electronic distribution is imported into China.
7.1627 We note that Article 16 of the Internet Culture Rule refers to "the importing" of Internet
cultural products, which suggests that the measure a pplies as part of the process of importation.
However, unlike other measures which govern importation, such as the 2001 Audiovisual Products
Regulation, there is no reference in the Internet Culture Rule to a subsequent completion of customs
procedures.845 Additionally, Article 9 of the Network Music Opinions states that "[i]mported network

842 Panel Report on India – Autos, para. 7.306 (internal citation omitted).
843 Appellate Body Report on China – Auto Parts, para. 171.
844 Ibid.
845 For example, Article 28 of the 2001 Audiovisual Products Regulation provides: "[a]n entity which
imports audiovisual products for publishing and a business entity which imports finished audiovisual products

music products can only be used after the Ministry of Culture examines their content." (emphasis
added). This indicates that the Network Music Opinions is interested in the use of the product once it
is inside China rather than the process of appr oving the product for importation. Article 9 and
Article I of Appendix 2 also explain that the cont ent review requirement applies to imported music
products "even if the Ministry of Culture has alrea dy examined their content". Indeed, Article I of
Appendix 2 lists as one of the materials that should be submitted as part of the application for content
examination the "Ministry of Culture Letter of Approval for Import of Audiovisual Products".
7.1628 The United States explains to the Panel that the general operation of the measures is that an:
"[Internet Culture Provider] or [Mobile Content Provider] must submit the imported
hard-copy sound recording for content review prior to converting the sound recording
into a format that can be transmitted elect ronically. Accordingly, the United States
understands that the imported hard-copy so und recording is submitted for content
review after importation but before it is converted into a digitally transmittable
format."846
7.1629 We note that China itself contends that the Internet Culture Rule and the Network Music
Opinions apply after importation and are thus internal. 847 China maintains that the content review
requirements in these two measures apply to the digi talized versions of the sound recordings and not
to the imported hard-copies which have alread y undergone content review pursuant to the 2001
Audiovisual Products Regulation and the Audiovisual Products Importation Rule .848 Indeed, China
argues that the United States cannot prove that Chin a's measures affect the process "from importation
to consumption" of the hard-cop y sound recordings because that pr ocess ends prior to the stage at
which the measures apply.849
7.1630 In our assessment the principal characteristics of the measures are to require content review
prior to transmission over the information network which is not specifically linked to the process of
bringing the hard-copy sound recording into the custom s territory of China. Indeed, what triggers the
application of the Internet Culture Rule and the Network Music Opinions is the desire to distribute a
digital version of an imported sound recording thro ugh transmission over the information network.
The content review requirements in the measures apply even if the product has already been imported.
Therefore, it seems that the application of these meas ures is triggered by an internal factor separate
from importation.
7.1631 We, therefore, conclude that the United States has established that these measures apply
internally. The burden of establishing the applicab ility of Article III:4 is not yet satisfied, as the
United States must still establish precisely how the measures affect the internal distribution of the
imported products.

shall bring approval documents issued by the cultural administration under the State Council to process import
procedures at Customs" (Exhibit US-17)
846 United States' response to question No. 274(a).
847 China's responses to question Nos. 274(a) and (b); China's comments on the United States' response
to question Nos. 247(c), 262(a) and 274(b) ("What is ch allenged in this dispute (and targeted by the United
States in its answer to this question) is the content re view that takes place "after importation", i.e. the content
review imposed by the Network Music Opinions.").
848 China's response to question No. 274(a).
849 China's comment on the United States' response to question No. 247(a).

Whether the Internet Culture Rule and the Network Music Opinions affect the
distribution, within China, of the imported hard-copy sound recording
7.1632 The United States relies on the reasoning of the panel in Mexico – Taxes on Soft Drinks that
the term "affecting" "covers not onl y laws or regulations which dir ectly govern the conditions of sale
or purchase but also any laws or regulations wh ich might adversely modify the conditions of
competition between domestic and imported products."
850 According to the United States, the
relevant Chinese measures adversely modify the conditions of competition in favour of domestic
sound recordings intended for electronic distribu tion by exempting them from the content review
requirement that is applicable to imported sound reco rdings intended for electronic distribution. The
United States argues that a finding that a measure that accords less favourable treatment to imports
does not "affect" the distribution of the importe d like product merely because there is further
processing of the product downstream would undermine the discipline of Article III:4 by allowing a
loophole in the national treatment obligation.
7.1633 China argues that despite the broad interpretation of the term "affect" in previous WTO
jurisprudence, the United States' a ttempt in this case to expand the meaning of the word "affect" so
that measures regulating the digitalized product, i.e., content control applied prior to the uploading of
the music on the Internet, "affect" the internal distri bution of the hard-copy carrying the content to be
uploaded on the Internet, is not acceptable and would lead to absurd implications.851
7.1634 The Panel does not disagree that measures might aff ect the distribution of an imported like
product without directly governing it. We recall the finding of the panel in India – Autos, that "[t]he
fact that a provision is not necessarily primarily aime d at regulating the offering for sale or use of the
product on the domestic market is ... not an obstacle to its "affecting" them." 852 H o w e v e r , a
complaining party would still have to demonstrate th at the measure affected the internal distribution
of the imported like product, e.g. by affecting who may distribute the imported like product or how it
may be distributed.
7.1635 We recall that the ordinary meaning of "distrib ution" in the context of Article III:4 of the
GATT 1994 and in light of its object and purpose includes a process or series of transactions, whose
ultimate end is the marketing or supply of a good fro m producers to consumers, either directly or
through intermediaries. Also, since Article III:4 appli es to "internal" distribution, the "distribution" at
issue in Article III:4 is the portion of that chain of transactions which occur from the time or point of
importation to the receipt of the good by the consumer , i.e., all relevant transactions that take place
within the customs territory of the importing Member.
7.1636 The United States confirms that its claim applies only to measures affecting imports of hard-
copy sound recordings that are intended for electronic distribution after importation. The United
States made clear that its claim is not challenging the measures at issue on the grounds that they affect
the transmission of content over the Internet.
853

850 Panel Report on Mexico – Taxes on Soft Drinks, paras. 8.107-8.113.
851 China's response to question No. 270.
852 Panel Report on India – Autos , para. 7.305; also Appellate Body Report on China – Auto Parts ,
para. 194.
853 United States' responses to questions Nos. 247(b) and 262(a); United States' first oral statement,
para. 78 ("the US claim applies only to measures affecting imports of hard-copy media containing sound
recordings that are intended for el ectronic distribution after importation. The claim does not deal with the
provision of electronic distribution services."); United States' second written submission, para. 188 ("China
misunderstands the US claim, which only applies to measures affecting imported hard-copy media containing
sound recordings that are intended for electronic distribution."); United States' second oral statement, para. 55.

7.1637 The United States maintains that "distribution" is a broad term and can encompass the broad
range of activities involved in a moving a product th rough the chain from production to consumption.
As noted above, we do not disagree that "distribut ion" can generally cover the range of transactions
from production to consumption and in the contex t of Article III:4 of the GATT 1994 cover those
transactions from the time or point of importation to consumption. Therefore, the United States must
establish that the challenged measure s affect the process or series of transactions through which the
hard-copy sound recording intended for electronic distribution is moved from the time or point of
importation to the consumer.
7.1638 The United States explains the process or series of transactions from importation to
consumption, with respect to imported hard-copy sound recordings as follows:
"[O]nce the hard-copy sound recording is im ported, it is provided to the ICP or MCP,
submits the hard-copy sound recording to the Ministry of Culture for content review,
makes an additional copy of the hard-copy sound recording, and engages in a series
of activities necessary to move the importe d product downstream. After receiving
content review approval, the ICP/MCP th en uses the hard-copy sound recording to
create a version of the sound recording that can be distributed electronically. Thus,
the hard-copy sound recording moves downs tream. The ultimate retail consumer
may receive the sound recording distributed electronically. However, the hard-copy
sound recording moves downstream in earlier stages of the stream of commerce."
854
7.1639 The United States, in response to a specific qu estion from the Panel about where the imported
hard-copy sound recording intended for electronic distribution is "consumed", explained that:
"[i]n the case of hard copy sound recordings in tended for electronic distribution, when the
Internet Culture Provider ("ICP") or Mobile Content Provider ("MCP") is supplied with the
hard copy sound recording intended for electroni c distribution, the ICP/MCP is acting as the
consumer of that product. The ICP/MCP uses (i.e ., consumes) the hard-copy sound recording
as part of its process for moving the product dow nstream. The ICP/MCP may also be said to
be acting as a distributor in moving the product further downstream."855
7.1640 The United States goes on to argue that the steps involved in moving the product from
importation to the next stage (i.e., from importation to the ICP or MCP, then to the MOC for content
review, and then back to the ICP or MCP) are part of the distribution of the product. According to the
United States:
"[T]he transfer of the sound recording from the importer to the ICP or MCP is one of
the activities involved in the distribution of the product. Similarly, the ICP or MCP
engages in certain activities – including submitting the sound recording for content
review, and converting it into a format suitable for electronic transmission – to be

854 United States' response to question No. 262(c).
855 United States' response to Panel question No. 247(c) . We note that in its response to question No.
247(c) the United States refers, on the one hand, to the hard-copy sound recording being "consumed" and, on the
other hand, to that hard-copy sound recording being used as part of a process to move the "product" further
downstream. We recall that the only "product" which is the subject of the United St ates' claim is the imported
hard-copy sound recording. We also recall the United States' explanation in response to question No. 126 that
"the hard-copy sound recording is often provided to an Internet Culture Provider ('ICP') or Mobile Content
Provider ('MCP') who makes an additional copy in hard-copy format of the sound recording, transforms the
sound recording into a format that can be transmitted electronically, and then transmits the reformatted sound
recording electronically." Reading these two responses together, we understand that the hard-copy sound
recording is "consumed" in the process of making the electronic sound re cording which according to the United
States is what is subsequently moved downstream by the ICP/MCP.

able to move the product further downstream. These activities are also part of the
distribution process. Accordingly, by impos ing an administrative hurdle on only the
imported products before the ICP or MCP can move the product further downstream,
the relevant Chinese measures adversely aff ect the conditions of competition for the
imported product."
856
7.1641 We cannot agree with the United States assessment of what is included in the distribution of
the imported product. As noted above, the United St ates confirms that the hard-copy sound recording
is consumed by the ICP or MCP. Thus, we consid er that the distribution of the imported product at
issue, i.e., the hard-copy sound recording intended for electronic distribution, ends when the ICP or
MCP receives it. The United States, therefore, is required to demonstrate that the Internet Culture
Rule and the Network Music Opinions affect the process or series of transactions from the time or
point of importation to receipt by the "consumer", which the United States has confirmed is the ICP or
MCP.
7.1642 The argumentation the United States presents to support its claim that the Internet Culture
Rule and the Network Music Opinions affect the internal distribution of the imported like product,
which is the subject of its claim, has not been focused on the distribution of the imported hard-copy
sound recording from the time or point of importation to the ICP or MCP (i.e., the consumer). When
the United States describes the "effects" of the me asures, the United States does not clearly link these
effects to the internal distribution of the importe d hard-copy sound recording intended for electronic
distribution. We note that, in its submissions, the United States seems to use the term "the product"
interchangeably to refer both to the imported like pr oduct as defined in its claim as well as to what it
refers to as the "downstream" or "further proces sed" product which is the electronic content. This
lack of precision blurs the distinction between the hard-copy sound recording, which the United States
argues is the subject of its claim, and electronic s ound recordings. In response to a question from the
Panel, the United States argues that the delay and ad ministrative burden that the ICP or MCP must go
through before distributing a sound recording electro nically affects the movement of "these imports"
through the process from importation to consumption. 857 In response to another question from the
Panel the United States refers to the product being consumed by the ICP/MCP and then suggests that
the same product is subsequently move d further downstream by the ICP/MCP. 858 The United States
continues in the same vein when it states that the ICP/MCP engages in activities to move the imported
hard-copy sound recording further downstream and that "China's discriminatory content review
regime affects these activities, and therefore the product's distribution."859
7.1643 This creates some confusion as to why and how the United States believes the measures affect
the internal distribution of the imported product, which we recall the United States has confirmed is
the imported hard-copy sound recording intended for electronic distribution. To recall, it is only if the
challenged measures affect the internal distributi on of the imported hard-copy sound recordings at
issue that they trigger the obligation in Article III:4 to provide no less favourable treatment to that
product vis-à-vis the like domestic product.860
7.1644 The United States has argued that the requireme nt of mandatory government content review
prior to electronic distribution "affects" the importe d product. However, the effects described by the
United States relate to the delay or administ rative burden in distributing the electronic sound
recording.

856 United States' second oral statement, para. 59.
857 United States' responses to question No.126.
858 United States' response to question No. 247(c).
859 United States' response to question No. 250.
860 Panel Report on China – Autos, para. 7.231 citing Appellate Body Report on US – FSC (Article 21.5
– EC), para. 208.

7.1645 For example, in its first written submis sion, the United States argues that the Network Music
Opinions affects the internal sale, offeri ng for sale, purchase, distribution or use of sound recordings
intended for electronic distribution because it "m akes content review and approval by MOC a
prerequisite for the electronic distribution of impor ted sound recordings" while not requiring the same
mandatory pre-condition for distribution for domestic sound recordings. 861
7.1646 Furthermore, when specifically asked to explain how the challenged measures affect the
"distribution", within China, of sound recordi ngs imported in physical form (as opposed to the
distribution of the content subsequently transmitted in digital form via the Internet), the United States
argued that the challenged measures affect the dist ribution of the imported product because, "before
distributing a sound recording electronically , the ICP or MCP must go through the delay and
administrative burden of a content review process be fore electronic distribution that the ICP or MCP
need not go through for domestic like products." 862 (emphasis added). This type of argumentation
was repeated in various US submissions. 863 We note that in the immediately following sentence in its
answer to the Panel's question, the United States stated that:
"The Panel's question appears to be focused on whether the distribution of the
physical copy of the sound recording is 'affected' by the relevant Chinese measures
because the sound recording is ultimately tr ansformed into a form that can be
distributed electronically. However, for the reasons set forth above, the United States
considers that this is not the situation pr esented by this dispute because the relevant
measures affect the 'use' of the hard-cop y sound recordings intended for electronic
distribution".864
7.1647 We have already discussed whether the United States had properly raised a claim with respect
to the "use" of the imported hard-copy sound recordi ngs intended for electronic distribution in
paragraphs 7.1604-7.1611, above and do not intend to repeat that analysis here. We only cite this
response here to emphasize that the United States di d not relate the effects the challenged measures
have on the electronic distribution of sound recordin gs (such as delay and administrative burdens) to
the "distribution" of the imported hard-copy sound re cording. For instance, the United States has not
demonstrated that these delays and administrative bu rdens with respect to the electronic distribution
of sound recordings have an effect on how the im ported hard-copies can be distributed or who can
distribute them. Instead, when asked specifically to explain the relationship between the challenged
measures and the "distribution" of the imported ha rd-copy sound recordings, the United States shifts
its argumentation to another of the elements set forth in Article III:4.

861 United States' first written submission, para. 379.
862 United States' response to question No. 126. Th is impression is reinforced by the US in its
second oral statement when it argues that:
"In the case of hard-copy sound recordings intended for electronic distribution, the relevant
measures affect the imported products within the meaning of Article III:4. Specifically,
before the Internet Culture Provider (ICP) or Mobile Content Provider (MCP) can distribute
an imported product electronically, it must submit the sound recording for content review, a
requirement not faced by domestic sound recordings intended for electronic distribution. This
requirement creates an extra administrative hurdle and delay for imported products before they
may be distributed. These obstacles can be es pecially disadvantageous to imports in a hit-
driven industry – such as th e recording industry where speed to the market is critical.
Accordingly, the relevant measures affect the sa le, offering for sale, purchase, transportation,
distribution, or use of the imported product." (United States' second oral statement, para. 58;
This is also consistent with the United States' second written submission, paras. 186-187.
863 United States' first written submission, paras. 379, 390-391; United States' response to question No.
123(e); United States' second written submission, paras. 187, 195; United States' second oral statement, para. 58;
United States' response to question No. 247(a).
864 Ibid.

7.1648 The United States does argue that:
"[A]n imported hard copy sound recording th at is not submitted for content review
and approved by the Ministry of Culture has no distribution opportunities in China,
nor does such a product have opportunities fo r sale or use in China. Instead, an
imported product that has not been through th e required content review procedures
cannot move anywhere in the chain from im portation to consumption, is effectively
stuck in some early stage of the chain of distribution, and has no real commercial
opportunities in China's market."
865
7.1649 However, as the United States has itself stated that it is the ICP or MCP that submits the
imported hard-copy sound recording to MOC for cont ent review, the limitations on the distribution of
an imported product that has not been through the re quired content review process referred to by the
United States relate to distribution after the ICP or MCP has received the product, not the distribution
of the product from the time or point of importation to the ICP or MCP. Given that the ICP or MCP is
the consumer of the hard-copy sound recording inte nded for electronic distribution and the end of the
distribution chain, we infer that the restriction on distribution opportunities the United States is
referring in the above-quoted statement are those concerning the electronic sound recording rather
than the imported hard-copy sound recording intended for electronic distribution.
7.1650 Consistent with the findings of the panels in India – Autos and Mexico – Taxes on Soft
Drinks, the fact that the Chinese measur es at issue directly affect the distribution of electronic sound
recordings does not preclude that they could also affect the distribution of the imported hard-copy
sound recording. However, this is for the Unite d States to establish. The United States has not
argued, let alone demonstrated, that the measures ha ve an effect on whether and how an importer can
provide the hard-copy sound recording to the ICP or MCP.
7.1651 As noted above, the United States has focused its argumentation on the delay and
administrative burden that the ICP or MCP might experience from the time it receives the hard-copy
sound recording until it may electronically distribute a sound recording derived from the content that
was embedded in the hard-copy. The United Stat es has not offered an adequate and convincing
explanation as to how this alleged delay impact s upon the "distribution" of the hard-copy sound
recording intended for electronic distribution. We consider, therefore, that the United States has not
satisfied its burden to establish, through evidence and argumentation, the elements of its claim.
7.1652 As the United States has not established that the Internet Culture Rule and the Network Music
Opinions affect the distribution of the imported hard-copy sound recording intended for electronic
distribution, it has likewise not established that Article III:4 is applicable to those measures. As the
United States has not established that Article III:4 is applicable to the measures, it cannot establish
that these measures are inconsistent with Article III:4.
7.1653 Finally, we recall our decision in paragr aphs 7.1571 and 7.1585 above to defer a
determination on whether the "like pr oducts" requirement is satisfied in the case of this claim because
the Internet Culture Rule and the Network Music Opinions distinguish between imported and
domestic products hard-copy sound recordings intended for electronic distribution exclusively on
origin until we had determined that the other two constituent elements of a claim under Article III:4 of
the GATT 1994 had been established. Given that we have found that the United States has not
demonstrated that the Internet Culture Rule and the Network Music Opinions affect the distribution of
imported hard-copy sound recordings intended for electronic distribution we see no reason to return to
the analysis of whether the imported and domest ic products are "like" within the meaning of
Article III:4 of the GATT 1994.

865 United States response to question No. 247(a).

7.1654 Based on the above considerations, we therefore conclude that the United States has not
established that the Internet Culture Rule and the Network Music Opinions are inconsistent with
Article III:4 of the GATT 1994.
4. Films for theatrical release
7.1655 The United States argues that the Film Regulation , the Film Enterprise Rule and the Film
Distribution and Exhibition Rule together are laws, regulations or requirements affecting the
distribution of films for theatrical release which provide less favourable treatment of imported films in
a manner inconsistent with Article III:4 of the GATT 1994. Article III of the Film Distribution and
Exhibition Rule provides that imported films may only be distributed by two state-controlled
enterprises. Articles 5 and 30 of the Film Regulation and Article 16 of the Film Enterprise Rule
provide the legal framework that underpins China's dual distribution regime for films for theatrical
release.
7.1656 China argues that the United States' claims lack any legal basis, since yet again they are
based on the false assumption that motion pictures fo r theatrical release are goods. China goes on to
say that, in the event the United States' claim we re to be addressed under Article III:4 of the GATT
1994, the United States fails to establish the existence of a less favourable treatment of foreign motion
pictures.
7.1657 Additionally, China presents an argument, wh ich it describes as demonstrating that the
measures do not provide less favourable treatment, which we believe goes more to the heart of
whether the measures themselves are what "affects" the distribution of imported hard-copy
cinematographic films. Specifically, China argu es that the measures do not operate the way the
United States believes and that they do not create the "duopoly" which the United States contends
"affects" the distribution of the measures and provide s for less favourable treatment to imported hard-
copy cinematographic films.
7.1658 The Panel believes the points raised by Chin a raise the question of whether the "duopoly"
which the United States contends is adversely modifying the conditions of competition between
imported and domestic films is attributable to China, such that it is a measure which can be brought
before the panel under Article 3.3 of the DSU. As noted above in paragraph 7.170, whether what is
before the Panel is a "measure" goes to the heart of our mandate and must be addressed regardless of
whether the parties specifically raise the issue. Therefore, we will first analyse whether the "measure"
identified by the United States is one within the meaning of Article 3.3 of the DSU.
(a) What creates the "duopoly" for the distribution of imported films for theatrical release?
7.1659 The United States argues that there is a film distributi on "duopoly" in China which results in
discriminatory treatment of imported films for theatrical release. Specifically, the United States
maintains that the Film Regulation, the Film Enterprise Rule and the Film Distribution and Exhibition
Rule
 permit only two state-owned enterprises China Film Distribution Company and Huaxia Film
Distribution Company to distribute imported films for theatrical release. In contrast, the United States
contends that domestic films may be distributed by these two distributors as well as all other film
distributors in China, including a film's domestic producer. In addition, the United States argues that
the Domestic Film Distribution and Exhibition Rule , which post-dates the Film Regulation, the Film
Enterprise Rule and the Film Distribution and Exhibition Rule , confirms that China Film Group and
Huaxia are the only two distributors of imported films in China.866

866 United States' second written submission, para. 202 and United States' response to question No. 248
citing Articles III.1 and IV.II.1 of the Domestic Film Distribution and Exhibition Rule.

7.1660 China admits that the distribution of foreign motion pictures in Chinese movie theatres is
carried out by companies approved by SARFT an d that there are currently only two approved
distributors, China Film Distribution Company and Huaxia Film Distribution Company. However, it
maintains that "contrary to what the United St ates pretends, Chinese regulations do not establish a
'duopoly' and they do not in any way limit the number of companies that can be approved by
SARFT."
7.1661 China contends that the small number of di stributors of imported films is due to the
limitation, set forth in its GATS schedule, that only 20 motion pictures may be imported on a revenue
sharing basis. China argues that nothing in the me asures identified by the United States creates this
"duopoly".
7.1662 According to China, the Film Regulation s establish a licensing system for the activity of
distribution of motion pictures for theatrical release, but do not provide any quantitative restriction on
the companies that may be approved. In this resp ect, the number of distributors of imported films is
not limited to two, neither by the Chinese laws and re gulations nor by SARFT. China argues that the
"the Domestic Film Distribution and Exhibition Rule" (Exhibit US-40), quoted by the United States to
support its arguments, only reflects the fact that at the present time, only two companies have applied
and been approved to become distributors of imported motion pictures. China maintains that nothing
in the Chinese measures provides that only these two companies may be approved.
7.1663 In response to a specific question from the Pane l on the process to become approved to be a
distributor of imported films for theatrical release, China informs us that foreign-invested enterprises
are prohibited from distributing films in China, but that "private wholly Chinese-owned companies
and other state-owned companies can apply to be distributors of imported films and SARFT shall
examine their application and make approval decisions based on Regulations on Film
867"868.
7.1664 China responded to the Panel's questioning that so far there have been no applications to
become a distributor of imported films. China pos its that the attendant costs and risks may deter
distributors from attempting to enter the market of distributing imported films.869
7.1665 The United States argues that China's contention that there is no mandatory duopoly does not
withstand scrutiny. According to the United States, the Film Distribution and Exhibition Rule
expressly provides for such a duopoly. 870 The United States also argu es that in reality, because only
two entities are currently designated to distribute su ch films, regardless of whether this duopoly is
mandatory, it is discriminatory nonetheless.
7.1666 Additionally, in response to a question from th e Panel, the United States, argues that China's
contention that any wholly Chinese-owned or st ate-owned companies may apply to distribute
imported films and have simply been uninterested in doing so, is based on a flawed premise. The

867 (footnote original) Arts. 36 and 37 of the Film Regulation (Exhibit CN-11).
868 China's response to question No, 273.
869 In response to question No. 136, China stated:
"China is not aware of any interest on the part of Chinese motion picture distributors in
becoming distributors of foreign motion pictures. However, we note that distribution of
foreign motion pictures also involves significant financial input and market risks. Up to date,
no Chinese distributors, other than the two currently approved ones, have ever applied for
approval to become distributor of foreign motion pictures." (China's response to question
No. 136).
870 The United States relies upon Article III of the Film Distribution and Exhibition Rule (Exhibit
US-21) which states that its purpose is to, "[o]pen up major channels owned by the State and establish two
imported film distribution companies. Maintain the original China Film Group Imported Film Distribution
Company while establishing another imported film distribution company based on the shareholding system."

United States argues that no other firms have applied to distribute imported films because they
cannot.871
7.1667 In its comment on the US reply to that question, China maintains that the Film Regulation,
which is higher in hierarchy than the Film Distribution and Exhibition Rule and the Film Enterprise
Rule provide for the application requirements and procedures to establish a film distribution enterprise
and these provisions do not limit to domestic produced motion pictures.
7.1668 The "measure" challenged by the United States in its Article III:4 claim with respect to films
for theatrical release is the distribution "duopoly " which it claims provides for discriminatory and
therefore less favourable treatment to imported films for theatrical rel ease. The United States alleges
that this duopoly is created through the operation of the three Chinese administrative acts it identified
in its panel request, the Film Regulation , the Film Enterprise Rule , and the Film Distribution and
Exhibition Rule . China however, argues that this "duopoly" is not created by the operation of its
administrative acts but by the simple fact that no one other than the two currently approved companies
has expressed an interest in becoming an approved distributor of imported films for theatrical release.
7.1669 The United States in response to the Panel's ques tions, maintains that regardless of whether
the duopoly is "mandatory" it is nevertheless discri minatory. Specifically, the United States contends
that even if the Panel were to find that there is no de jure duopoly, the United States has
demonstrated, and China has verified, that a de facto duopoly exists which accords imported films less
favourable treatment than that accord ed to domestic films. Therefore, as they are applied, China's
measures likewise would be inconsistent with Article III:4 of the GATT 1994.
7.1670 Therefore, the question before the Panel is whether the alleged "duo poly" is attributable to
China, either on its face or through its applicati on of those measures, such that it engages China's
obligations in Article III:4 of the GATT 1994.
7.1671 As noted above in paragraph 7.166, Members may only challenges "measures" of another
Member before the WTO dispute settlement system . A "measure" of another Member has been
defined as an act or omission that is attributable to the government of a Member872 that sets forth rules
or norms that have general and prospective application. 873 Such acts or omissions are, "in the usual
case, the acts or omissions of the organs of the state, including those of the executive branch.874"875
7.1672 In this case, the United States has alleged that an administrative regulation promulgated by
the State Council as well as a "departmental rule " and an "other regulatory document" operate
together to create a de jure distribution duopoly. In the altern ative, the United St ates argues that
China's measures create a de facto distribution duopoly. Given China's objections to the implication
that its legal acts have created the alleged discrim inatory distribution duopoly, we must first satisfy
ourselves that what the United States seeks findings on is, in fact, a measure within the meaning of
Article 3.3 of the DSU such that it is properly befo re this Panel. We believe the United States has
presented two alternative understandings of how China' s distribution duopoly is a measure. First, that
China's regulation, departmental rule, and other regulatory document, governing the distribution of
films for theatrical release create a de jure duopoly. Second, if the regulation, departmental rule, and

871 United States' response to question No. 258.
872 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review, para. 81.
873 Appellate Body Report on US – Corrosion Resistant Sunset Review, para. 82 and footnote 87.
874 ( footnote original ) Both specific determinations made by a Member's executive agencies and
regulations issued by its executive branch can constitute ac ts attributable to that Member. See, for example, the
Panel Report in US – DRAMS, where the measures referred to the panel included a USDOC determination in an
administrative review as well as a regulatory provision issued by USDOC.
875 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review, para. 81.

other regulatory document do not create a de jure duopoly, that nevertheless China has created a de
facto duopoly which is attributable to it. We address each contention in turn.
(i) Do China's rules and regulations create a de jure distribution duopoly?
7.1673 The original thrust of the US claim is that the Film Regulation, the Film Enterprise Rule and
the Film Distribution and Exhibition Rule together establish a distribution duopoly, whereby only two
companies are permitted to distribute imported films for theatrical release. China, on the other hand,
argues that there is no de jure limitation on how many companies may be approved to distribute
imported films. We therefore, must determine whether the three measures operating together limit the
number of imported film distributors in China to two, namely China Film Group and Huaxia.
7.1674 The Film Regulation, which was promulgated in Decemb er 2001 by the State Council of the
People's Republic of China and apply to "the produc tion, import, export, distribution and screening of
films within the territory of the People's Republic of China, including feature films, documentary
films, science and educational films, animation films, and special topic films."
876
7.1675 Chapter V of the Film Regulation deals with distribution and screening of films. Article 36 of
the Film Regulation requires that companies which wish to establish a film distribution entity or film
screening entity have: (i) a name and articles of as sociation for the film distribution entity or film
screening entity; (ii) a well-defined scope of busin ess; (iii) an organization and specialized personnel
suited to the needs of its scope of business; (iv) funding, sites, and equipment suited to the needs of its
scope of business; and (v) other conditions stipulated in laws and administrative regulations.
7.1676 Article 37 of the same regulation provides that:
"Applications to establish a film distribution entity shall be submitted to the film
administration under the people's government in the province, autonomous region, or
municipality directly under the Central Gove rnment where the applicant is located.
The application for the establishment of a film distribution entity covering different
provinces, autonomous regions or muni cipalities directly under the Central
Government shall be submitted to the radio, film, and television administration. The
film administration under the people's government in the province, autonomous
region or municipality directly under the Central Government where the applicant is
located, or the radio, film, and television administration under the State Council shall,
within 60 days of receiving an application, make a decision on approval or rejection
of the application and shall notify the appli cant. If the application is approved, a
Permit to Distribute Films shall be issued to the applicant, which shall register the
Permit to Distribute Films with the admi nistrative department for industry and
commerce and obtain a business licence in compliance with the law. If the
application is rejected, the reason for rejection shall be clearly stated."
7.1677 The provision refers to a Permit to Distribute Films being issued pursuant to approval of the
application. There is no indication that the permit is limited to a particular type of film, i.e. domestic
versus imported.
7.1678 The Film Distribution and Exhibition Rule was also issued in December 2001
877, this time
jointly by the SARFT and the MOC. The purpose of the rule is to accomplish the reform of film
distribution and projection mechanisms. As both Ch ina and the United States have explained to us,

876 Article 2, Film Regulation (Exhibit US-20).
877 The version of the rule supplied by the United States does not contain the exact date of issuance,
instead listing just 2001, but the Chinese translation lists the date as 18 December 2001.

according to China's Legislation Law , both the Film Distribution and Exhibition Rule and the Film
Enterprise Rule implement and are secondary to the Film Regulation.878
7.1679 Article III of the Film Distribution and Exhibition Rule states that the major state-owned
channels be opened up and that two imported film distribution co mpanies be established. The
Article goes on to state that the latter goal will be accomplished by the maintenance of the original
China Film Group Imported Film Distribution Company while the State establishes another imported
film distribution company based on the shareholdi ng system. Article III then describes how the
imported film distribution companies will operate.
"For the first year, the two imported film distribution companies shall separately
distribute imported films they have acquired through a combination of allocation and
competition (in principle each should comprise 50%). For subsequent years, the
number of imported films distributed will be determined based on the previous year's
achievements in distribution and projec tion of domestically produced films,
especially that of domestically produced films recommended by the State. The
regulations on distribution ratios between imported films and domestically produced
films shall be conscientiously followed, and the production, distribution, and
projection of domestically produced films shall be actively supported."
879
7.1680 In 2004, the SARFT and the Ministry of Commerce (MOFCOM) issued the Film Enterprise
Rule. As China has explained, as the rule issued later in time, the Film Enterprise Rule, to the extent
that there is any conflict with the earlier Film Distribution and Exhibition Rule , would prevail. 880
Article 1 of the Film Enterprise Rule indicates that it was issu ed in accordance with the Film
Regulation. Chapter III of the Film Enterprise Rule is entitled Film Distribution and Projection.
Article 10 encourages companies, enterprises an d other economic organizations inside China
(excluding FIE) to establish companies exclusivel y for the distribution of domestically produced
films. The Article also sets forth the following qualifications and procedures for applying:
"(A) The registered capital shall be no less than ¥500,000;
(B) The applicant has been authorized by a film production unit to distribute two
films or has been authorized by a tele vision show production unit to distribute two
television dramas;.
(C) The application, copy of the busin ess licence issued by the industrial and
commercial administration, notification of pre-approval of the company's name, and
proof of being authorized to represent the distribution of films or television shows
shall be submitted.
(D) If an applicant meets the requirements in Items A, B, and C and applies to
SARFT for establishing a company exclusively for distribution of domestically
produced films, the SARFT shall, within 20 business days, i ssue the 'Licence to
Distribute Films' which permits the dist ribution of domestically produced films
throughout the country. When an applicant applies to the local film administration at
the provincial level to establish a company exclusively for distribution of
domestically-produced films, the local film administration shall, within 20 business
days, issue the 'Licence to Distribute Films' in the province (autonomous region or
municipality) which permits exclusive distri bution of domestically produced films.
The applicant shall take the approval docume nt issued by the film administration to
the local industrial and commercial ad ministration and go through relevant

878 United States' response to question No. 13, China's response to question No. 135.
879 Article III, Film Distribution and Projection Rule (Exhibit US-21).
880 China's response to question No. 135.

procedures. If approval is not granted, a written reply shall be made to explain the
reasons."

7.1681 Meanwhile, Chapter IV of the Film Enterprise Rule is entitled "Film Import and Export" and
contains Article 16 which states that "the distri bution of imported films nationwide shall be carried
out by distribution companies that are approved by SARFT and have the right to distribute imported
films nationwide."
881 (emphasis added)
7.1682 Article 19 of the Film Enterprise Rule , in the Chapter entitled "Supplementary Provisions"
provides that "[m]atters that are not covered by these Provisions shall be handled according to the
"Regulations on the Management of Films" and relevant provisions."
882
7.1683 We understand that the Film Distribution and Exhibition Rule establishes two enterprises to
distribute imported films for theatrical release and im plies that they will each be responsible for the
total market of imported films. However, we also understand that to the extent that there is any
inconsistency between it and the Film Enterprise Rule , which was issued three years later, the Film
Enterprise Rule prevails. The Panel notes that the United States asserts that the Domestic Film
Distribution and Exhibition Rule confirms the existence of the duopoly. The United States has,
however, provided no specific submission as to how the Domestic Film Distribution and Exhibition
Rule confirms the alleged duopoly. Instead the argumentation of the United States with respect to this
measure has been focused on confirming the alleged discriminatory treatment given to imported films
for theatrical release.
7.1684 We note that the Domestic Film Distribution and Exhibition Rule deals with the promotion of
the distribution and exhibition of domestic movies and the evaluation and reward system SARFT had
instituted to further that goal. The United States, without elaboration, cites to Articles III.1 and
IV.II.1 of the Domestic Film Distribution and Exhibition Rule as those that "confirm" the alleged
duopoly. These articles set forth the basis for the evaluation of China Film Group and Huaxia,
specifically the number of domestic films and recommended titles the entities should distribute as
well as the rewards to be granted for achieving cer tain levels of box office receipts for domestic
films.883 We also note that Article V.1 of the Domestic Film Distribution and Exhibition Rule lists as
a penalty for either China Film Group and "the ot her entity" failing the evaluation the deduction of
one import revenue-sharing film from their respective quotas.
7.1685 These three articles reflect the fact that Ch ina uses incentives and penalties to encourage
China Film Group and Huaxia to distribute domestic films and that China can control the number of
films China Film Group and Huaxia distribute. However, the United States has not demonstrated how
this measure "confirms" that China would not permit any other entity to obtain a licence to distribute
imported films Also we see nothing that prevents China from amending the Domestic Film
Distribution and Exhibition Rule if and when additional entities were approved by SARFT to
distribute imported films for theatrical release. As noted below in paragraph 7.1689 while this
regulatory structure may be different from other syst ems, this is not sufficient to demonstrate that
China has, through its actions, created an imported film distribution duopoly.
7.1686 The United States points out that the Film Enterprise Rule , in Article 10, provides for
procedures to apply to become a distributor of domestic films. The United States reasons that the lack
of any such specific procedures for distributors of imported films means that the companies approved
by SARFT that have the right to distribute importe d films nationwide referred to in Article 16 of the
Film Enterprise Rule can only mean China Film Group and Huax ia. However, the Panel notes that,

881 Article 16, Provisional Film Rule (Exhibit US-22).
882 Article 19, Provisional Film Rule (Exhibit US-22).
883 Domestic Film Distribution and Exhibition Rule, Articles III.1 and IV.II.1.

the United States neglects Article 19 of the Film Enterprise Rule which states that any matter not
covered by these Provisions shall be handled according to the Film Regulation.
7.1687 Article 37 of the Film Regulation sets forth application procedures to become a distributor of
films which makes no distinction between imported a nd domestic films. According to Article 19 of
the Film Enterprise Rule this provision is still operative and woul d therefore permit applications from
enterprises wishing to include within their scope of business the distribution of imported films.
Therefore, contrary to the United States' argume nts, China's measures do not "as such" establish a
distribution duopoly that would prevent enterprises other than China Film Group and Huaxia from
applying for and receiving a licence to distribute films which would include the right to distribute
imported films.
7.1688 We note that the United States also argues that even if the duopoly is not mandatory it is
nevertheless discriminatory and that "that a de facto duopoly exists which accords imported films less
favourable treatment than that accorded to domestic films."
884 We therefore, turn to the question of
whether through the operation of the Film Regulation , Film Distribution and Exhibition Rule , and
Film Enterprise Rule , China has created a de facto distribution duopoly for imported films for
theatrical release.
(ii) Do China's rules and regulations create a de facto distribution duopoly?
7.1689 We begin our analysis by recalling that for a measure to be subject to dispute settlement
review it need not be in written form. Acts of a government whether pursuant to specific legislation
or other authorization are nevertheless "measures" so long as they are attributable to the Member and
set forth rules or norms of general and prospective application.
7.1690 We recall that the United States' claim is not with respect to a licensing regime, or about the
prohibition on foreign investment in film distributorsh ips in China, but rather that China's regulations
and rules prevent any company other than those two designated in the Film Distribution and
Exhibition Rule . Therefore, to sustain its claim the United States must demonstrate that China
through the operation of its regulations and rules creates a de facto distribution duopoly by preventing
distributors other than China Film Group and Huaxia from participating in the market.
7.1691 The United States asserts that China's explanati on of how its regulations and rules work does
not make sense. The United States poses some questi ons it believes demonstrate the inconsistency in
China's argument that any wholly-owned Chinese entity (whether private or state-owned) can apply to
be an distributor of imported films. First the United States wonders, why China has not designated
every one of the distributors that is available for domestic films. Second, the United States asks why
permission to distribute domestic films does not automatically entail permission to distribute imported
ones. The United States asserts that China has no good answers to these questions. Additionally, the
United States posits that the reason domestic dist ributors other than China Film Group and Huaxia
have not applied to distribute the lucr ative imported films, as China suggests, ( see China's answers to
the first set of Panel questions, question No. 136), is because they all recognize China Film Group and
Huaxia are the exclusive distributors of imported films.
7.1692 Although China's regulatory structure may not seem logical to the United States and the
United States' questions may point out inefficienci es in China's methods, the United States has not
demonstrated that these rise to the level of China applying its regulations and rules in such a way as to
prevent distributors other than China Film Group an d Huaxia from entering the market of distributing
imported films. The United States has submitted no evidence that China has a practice of rejecting
requests for licences to distribute from businesses that in tend to distribute imported films. Indeed the

884 United States' response to question No. 258.

United States has not demonstrated that any enterpri se has even attempted to apply for such a licence.
Therefore, we find that the United States has not put forth a prima facie case that via the operation of
the Film Regulation, Film Distribution and Exhibition Rule, and the Film Enterprise Rule, China has
created the "de facto" discriminatory duopoly its claim is concerned with.
7.1693 The United States has not been able to demonstr ate that China's regulation and rules either de
jure or de facto create the distribution duopoly. In other words, the United Stat es has not established
that the distribution duopoly is attributable to China. As the duopoly is not attributable to China it is
not a "measure" of another Member that can be challenged before the WTO dispute settlement
system.
7.1694 As we have no jurisdiction to rule on a challe nge to anything other than a measure taken by
another Member, we decline to make any findings with respect to the US claim on whether the
alleged discriminatory distributio n duopoly in China is inconsiste nt with Article III:4 of the
GATT 1994.
5. Summary of conclusions
(a) Reading materials
7.1695 Articles 3 and 4 of the Imported Publications Subscription Rule as they are applied to
newspapers and periodicals are in consistent with China's obligati ons under Article III:4 of the
GATT 1994 in that they apply to like products, affect the internal distribution of newspapers and
periodicals, and provide less favourable treatment to imported newspapers and periodicals than to like
domestic products.
7.1696 The United States has not established that Articles 3 and 4 of the Imported Publications
Subscription Rule as they are applied to books in the lim ited category are inconsistent with China's
obligations under Article III:4 of the GATT 1994 as it has not established that the domestic and
imported products are "like".
7.1697 Article 2 of the Publications (Sub-)Distribution Rule , read in conjunction with Article 16 of
the Publications Market Rule , affords less favourable treatment to imported books, newspapers, and
periodicals than their domestic counterparts because it limits the type of enterprises that they can be
sub-distributed through.
(b) Sound recordings
7.1698 The United States has not established that China h as acted inconsistently with Article III:4 of
the GATT 1994 as it has not demonstrated that the Internet Culture Rule and the Network Music
Opinions affect the distribution, within China, of the hard-copy sound recording intended for
electronic distribution.
(c)
 Films for theatrical release
7.1699 The United States has not established that the alleged discriminatory "duopoly" for film
distribution within China is attributable to China. As such the United States has not demonstrated that
the "duopoly" is a measure taken by another Memb er which could be subject to challenge under the
Dispute Settlement Understanding.

F. THE US CLAIM ON PARAGRAPHS 5.1 AND 1.2 OF THE ACCESSION PROTOCOL
1. Whether China's measures are inconsistent with paragraphs 5.1 and 1.2 of the
Accession Protocol
7.1700 The United States argues that in light of its demonstration that the Imported Publications
Subscription Rule, the Publications (Sub-)Distribution Rule, the Network Music Opinions, the Internet
Culture Rule, the 2001 Audiovisual Products Regulation , the Audiovisual Products Importation Rule ,
the Films Regulation, the Film Distribution and Exhibition Rule , and the Film Enterprise Rule are
inconsistent with Article III:4 of the GATT 1994 and that the three-year transition period in
paragraph 5.1 has passed, they are also inconsistent with paragraph 5.1 of China's Accession Protocol.
7.1701 Additionally, the United States argues that an inconsistency with Article III:4 of the
GATT 1994 of the above-referenc ed measures would also rende r them inconsistent with
paragraph 1.2 of Part I of China's Accession Protocol to the extent that paragraph 1.2 incorporates
commitments in paragraph 22 of the Working Party Report.
7.1702 China did not present argumentation on the consistency of the Imported Publications
Subscription Rule or the Publications (Sub-)Distribution Rule with the Accession Protocol. With
respect to the Network Music Opinions , the Internet Culture Rule , the 2001 Audiovisual Products
Regulation, the Audiovisual Products Importation Rule , the Films Regulation, the Film Distribution
and Exhibition Rule, and the Film Enterprise Rule China reiterates its arguments that electronic sound
recordings and films for theatrical release are not goods and are therefore not subject to China's
commitments relating to trade in goods, including paragraphs 5.1 and 1.2 of the Accession Protocol.
7.1703 Paragraph 5.1 of the Accession Protocol reads in relevant part:
"[W]ithin three years after accession, all ente rprises in China shall have the right to
trade in all goods throughout the customs te rritory of China, except for those goods
listed in Annex 2A which continue to be subject to state trading in accordance with
this Protocol. Such right to trade shall be the right to import and export goods. All
such goods shall be accorded national trea tment under Article III of the GATT 1994,
especially paragraph 4 thereof, in respect to their internal sale, offering for sale,
purchase, transportation, distribution or u se, including of their direct access to end-
users. For those good listed in Annex 2B, China shall phase out limitation on the
grant of trading rights pursuant to the sche dule in that Annex. China shall complete
all necessary legislative procedures to implement these provisions during the
transition period." (emphasis added)
7.1704 Paragraph 1.2 of the Accession Protocol provides:
"The WTO Agreement to which China acced es shall be the WTO Agreement as
rectified, amended or otherwise modified by such legal instruments as may have
entered into force before the date of 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."
7.1705 Paragraph 342 of the Working Party Report includes the commitments contained in
paragraph 22 of the Working Party Report. Paragraph 22 states:
"The representative of China confirmed that the full respect of all laws, regulations
and administrative requirements with the principle of non-discrimination between
domestically produced and imported products would be ensured and enforced by the

date of China's accession unless otherwise provided in the Draft Protocol or Report.
The representative of China declared that , by accession, China would repeal and
cease to apply all such existing laws, regul ations and other measures whose effect
was inconsistent with WTO rules on national treatment. This commitment was made
in relation to final or interim laws, administrative measures, rules and notices, or any
other form of stipulation or guideline.
The Working Party took note of these commitments."
7.1706 The Panel notes that paragraphs 5.1 and 1.2 merely reiterate China's obligation to comply
with the "no less favourable treatment" oblig ation it undertook when it became bound by the
provisions of the GATT 1994 upon accession to the WTO. Therefore, a finding of inconsistency with
Article III:4 is a necessary pre-requisite to a finding of inconsistency with either paragraph 5.1 or
paragraph 1.2.
7.1707 To the extent that we have made findings in Section VII.E above that China's measures are
inconsistent with its obligations in Article III:4 of GATT 1994, we consider that additional findings
on paragraph 5.1 or paragraph 1.2 of the Accessi on Protocol are unnecessary for the resolution of the
dispute raised by the United States. In particular , we note that bringing the measures into conformity
with China's obligations pursuant to our findings under Article III:4 of the GATT 1994 also would
remove any inconsistency of those measures with either paragraph 5.1 or paragraph 1.2 of the
Accession Protocol. Therefore, with respect to the Imported Publications Subscription Rule and the
Publications (Sub-)Distribution Rule , we exercise judicial economy with regard to the US claim that
those measures are also inconsistent with paragraphs 5.1 and 1.2 of the Accession Protocol.
7.1708 To the extent that in Section VII.E above we have found that the United States has not
established that China has acted inconsistently with the obligations in Article III:4 of the GATT 1994,
the necessary pre-requisite for an inconsistency with either paragraph 5.1 or paragraph 1.2, namely
that China had acted inconsistently with Article III:4, has not been satisfied. Therefore, we find that
the United States has not established that the Network Music Opinions, the Internet Culture Rule, the
2001 Audiovisual Products Regulation , the Audiovisual Products Importation Rule
885, the Films
Regulation, the Film Distribution and Exhibition Rule , and the Film Enterprise Rule are inconsistent
with paragraphs 5.1 and 1.2 of China's Accession Protocol.
2. Summary of conclusions
7.1709 We exercise judicial economy with respect to the US claim that the Imported Publications
Subscription Rule and the Publications (Sub-)Distribution Rule are inconsistent with paragraphs 5.1
and 1.2 of China's Accession Protocol.
7.1710 We find that the United States has not established that the Network Music Opinions , the
Internet Culture Rule , the 2001 Audiovisual Products Regulation , the Audiovisual Products
Importation Rule , the Films Regulation, the Film Distribution and Exhibition Rule , and the Film
Enterprise Rule are inconsistent with paragraphs 5.1 and 1.2 of China's Accession Protocol.

885 We note our finding in Section VII.B.2(b), that the 2001 Audiovisual Products Regulation and the
Audiovisual Products Importation Rule are outside the Panel's terms of refe rence with respect to the US claim
under Article III:4 of the GATT 1994. Therefore, just as with the measures discussed in Section VII.E above,
the US cannot establish an inconsistency with paragraphs 5.1 and 1.2 of the Accession Protocol with respect to
these measures.

VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 For the reasons set forth in this Report, the Panel concludes as follows:
1. China's terms of reference objections
(a) Measures China alleges are outside the Panel's terms of reference
(i) The Film Distribution and Exhibition Rule is outside the Panel's terms of
reference with respect to the US claim that it is inconsistent with China's
trading rights commitments in its Accession Protocol, because China did not
receive adequate notice that it was a specif ic measure at issue, with respect to
this claim, as required by Article 6.2 of the DSU.
(ii) The 2001 Audiovisual Products Regulation and the Audiovisual Products
Importation Rule are outside the Panel's terms of reference with respect to the
US claim that China's m easures are inconsistent with Article III:4 of the
GATT 1994 because the panel request did not adequately notify China that
these were specific measures at issue, with respect to this claim, as required
by Article 6.2 of the DSU.
(b) Certain requirements China alleges are outside the Panel's terms of reference
(i) The so-called "pre-establishment legal compliance" requirement, the approval
process to engage in distribution of reading materials and audiovisual
products and the "decision making criteria" that the MOC would apply in the
approval of Chinese-foreign contractual joint ventures for the distribution of
reading materials and audiovisual products are not within the Panel's terms of
reference. When read as a whole, including the listing of the specific
requirements that are the subject of its complaint, the US panel request did
not notify China that these requirements were "specific measures at issue"
within the meaning of Article 6.2 of the DSU.
(c) The US claim with respect to reading materials under Article III:4 of the GATT 1994
(i) The US claim that China's measures on reading materials are inconsistent
with Article III:4 of the GATT 1994 is w ithin the Panel's terms of reference,
despite the lack of consultations.
(ii) The United States, through its description of its claim in the panel request,
excluded electronic publications from its claim under Article III:4 of the
GATT 1994. Therefore, the Panel's findings as to whether China's measures
are inconsistent with Article III:4 of the GATT 1994 will relate only to
whether books, newspapers, and peri odicals are treated no less favourably
than like domestic products.
(iii) The requirements set forth in Articles 3 and 4 of the Imported Publications
Subscription Rule , that newspapers and periodicals, as well as books in the
limited category may only be sold through subscription, are within the Panel's
terms of reference as they are adequately identified in the US panel request.
(iv) The requirements on purchasers of imported newspapers and periodicals, as
well as books in the limited category, embodied in Articles 5 through 8 of the

Imported Publications Subscription Rule , are not within the Panel's terms of
reference as they were not adequately identified as specific measures at issue
within the meaning of Article 6.2 of the DSU.
(d) 'Measures' China argues the Panel should not examine
(i) The Several Opinions is attributable to China a nd establishes rules or norms
intended to have general and prospective application. It is therefore a
"measure" within the meaning of Artic le 3.3 of the DSU and is a proper
subject of these dispute settlement proceedings.
(ii) The Importation Procedure and the Sub-Distribution Procedure are
attributable to China, but they do not establish rules or norms intended to
have general and prospective application. Therefore, they are not "measures"
within the meaning of Article 3.3 of the DSU. As such, they are not a proper
subject of these dispute settlement proceedings.
2. China's commitments on trading rights in its Accession Protocol
(a) Measures relating to all the products
(i) Article X.2 of the Catalogue of Prohibited Foreign Investment Industries , in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ,
result in China acting inconsistently wi th paragraph 5.1 as well as paragraphs
83(d) and 84(a) and, hence, paragraph 1.2.
(ii) Article X.3 of the Catalogue of Prohibited Foreign Investment Industries , in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ,
result in China acting inconsistently wi th paragraph 5.1 as well as paragraphs
83(d) and 84(a) and, hence, paragraph 1.2.
(iii) The Panel has exercised judicial economy in respect of the US claims that
Articles X.2 and X.3 of the Catalogue of Prohibited Foreign Investment
Industries, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation, are inconsistent with paragraphs 5.2 and 84(b) to the extent they
relate to foreign-invested enterprises.
(iv) In respect of foreign individuals and foreign enterprises not registered in
China, the United States has not established that Articles X.2 and X.3, of the
Catalogue of Prohibited Foreign Investment Industries , in conjunction with
Articles 3 and 4 of the Foreign Investment Regulation, result in China acting
inconsistently with either paragraph 5.2 or 84(b).
(v) Article 4 of the Several Opinions results in China acting inconsistently with
paragraph 5.1 as well as paragraphs 83(d) and 84(a) and, hence,
paragraph 1.2.
(vi) The Panel has exercised judicial economy in respect of the US claims that the
Several Opinions is inconsistent with paragraphs 5.2 and 84(b) to the extent
they relate to foreign-invested enterprises.
(vii) In respect of foreign individuals and foreign enterprises not registered in
China, the United States has not established that Article 4 of the Several

Opinions results in China acting inconsisten tly with either paragraph 5.2 or
84(b). Consequently, no inconsiste ncy with paragraph 1.2 has been
established either.
(b) Reading materials
(i) The United States has not established that Article 43 of the Publications
Regulation results in China acting inconsistently with its trading rights
commitments under the Accession Protocol.
(ii) In respect of three requirements contained in Article 42 of the Publications
Regulation, Article 42, in conjunction with Ar ticle 41, results in China acting
inconsistently with paragr aph 5.1 as well as paragrap hs 83(d) and 84(a) and,
hence, paragraph 1.2, except for audiovisual products.
(iii) In relation to five other requireme nts contained in Article 42 of the
Publications Regulation, the United States has not established that Article 42
results in China acting inconsistently w ith paragraph 5.1, or paragraphs 83(d)
or 84(a). Consequently, no inconsis tency with paragraph 1.2 has been
established either.
(iv) The United States has not established that Article 42 of the Publications
Regulation results in China acting inconsiste ntly with paragraph 5.2 as well
as paragraph 84(b) (discrimination) in respect of foreign individuals and
foreign enterprises not registered in China. Consequently, no inconsistency
with paragraph 1.2 has been established either.
(v) To the extent that Article 42 of the Publications Regulation affects foreign-
invested enterprises, the Panel has exer cised judicial economy in respect of
one US claim based on paragraph 5.2 or paragraph 84(b) (discrimination).
(vi) In respect of an another US claim ba sed on paragraph 5.2 or paragraph 84(b)
(discrimination), the United States has not established that Article 42 of the
Publications Regulation results in China acting inconsistently with the
aforementioned paragraphs. Conse quently, no inconsistency with
paragraph 1.2 has been established either.
(vii) The United States has not established that Article 42 of the Publications
Regulation results in China acting incons istently with paragraph 84(b)
(discretion). Consequently, no incons istency with paragraph 1.2 has been
established either.
(viii) Article 41 of the Publications Regulation results in China acting
inconsistently with paragraph 84(b) (discretion) and, hence, paragraph 1.2.
(ix) The Panel did not rule on the US claims in respect of the Importation
Procedure.
(x)
The United States has not established that Article 8 of the 1997 Electronic
Publications Regulation results in China acting inconsistently with
paragraph 5.1 as well as paragraphs 83(d) and 84(a). Consequently, no
inconsistency with paragraph 1.2 has been established either.

(xi) The United States has not established that Article 8 of the 1997 Electronic
Publications Regulation results in China acting inconsistently with
paragraph 5.2 or paragraph 84(b) (d iscrimination). Consequently, no
inconsistency with paragraph 1.2 has been established either.
(xii) The United States has not established that Article 8 of the 1997 Electronic
Publications Regulation results in China acting inconsistently with
paragraph 84(b) (discretion). Con sequently, no inconsistency with
paragraph 1.2 has been established either.
(xiii) The United States has not established that Articles 50 and 51 of the 1997
Electronic Publications Regulation result in China acting inconsistently with
paragraph 84(b) (discretion). Con sequently, no inconsistency with
paragraph 1.2 has been established either.
(xiv) The United States has not established that Articles 50 and 51 of the 1997
Electronic Publications Regulation result in China acting inconsistently with
paragraphs 5.2 or 84(b) (discriminati on). Consequently, no inconsistency
with paragraph 1.2 has been established either.
(xv) The United States has not established that Articles 50 and 51 of the 1997
Electronic Publications Regulation result in China acting inconsistently with
the second sentence of paragraph 84(b) (requirements for obtaining trading
rights). Consequently, no inconsistency with paragraph 1.2 has been
established either.
(xvi) The United States has not established that Articles 52 to 55 of the 1997
Electronic Publications Regulation result in China acting inconsistently with
paragraphs 5.2 or 84(b) (discriminati on). Consequently, no inconsistency
with paragraph 1.2 has been established either.
(xvii) The United States has not established that Articles 52 to 55 of the 1997
Electronic Publications Regulation result in China acting inconsistently with
paragraph 84(b) (discretion). Con sequently, no inconsistency with
paragraph 1.2 has been established either.
(c) Films for theatrical release
(i) The United States has not established that Article 5 of the Film Regulation
results in China acting inconsistently with its trading rights commitments
under the Accession Protocol.
(ii) Article 30 of the Film Regulation results in China acting inconsistently with
paragraph 84(b) (discretion) and, hence, paragraph 1.2.
(iii) Article 30 of the Film Regulation results in China acting inconsistently with
paragraph 5.1 as well as paragraphs 83(d) and 84(a) and, hence,
paragraph 1.2.
(iv) The United States has not established any inconsistency of the Film
Regulation with paragraph 5.2.

(v) The United States has not established that Article 3 of the Film Enterprise
Rule results in China acting inconsistently with its trading rights
commitments under the Accession Protocol.
(vi) Article 16 of the Film Enterprise Rule results in China acting inconsistently
with paragraph 84(b) (discretion) and, hence, paragraph 1.2.
(vii) Article 16 of the Film Enterprise Rule results in China acting inconsistently
with paragraph 5.1 as well as paragra phs 83(d) and 84(a) and, hence,
paragraph 1.2.
(viii) The United States has not established any inconsistency of the Film
Enterprise Rule with paragraph 5.2.
(ix) The Panel did not rule on the US claims in respect of the Film Distribution
and Exhibition Rule.
(d) Audiovisual products
(i) Article 5 of the 2001 Audiovisual Products Regulation results in China acting
inconsistently with paragraph 84(b) (discretion) and, hence, paragraph 1.2.
(ii) Article 27 of the 2001 Audiovisual Products Regulation results in China
acting inconsistently with paragra ph 84(b) (discretion) and, hence,
paragraph 1.2.
(iii) The United States has not established that Article 28 of the 2001 Audiovisual
Products Regulation results in China acting inconsistently with its trading
rights commitments under the Accession Protocol.
(iv) The United States has not established any inconsistency of the 2001
Audiovisual Products Regulation with paragraph 5.1, 83(d), 84(a) or 5.2.
Consequently, no inconsistency with paragraph 1.2 has been established
either.
(v) Article 7 of the Audiovisual Products Importation Rule results in China
acting inconsistently with paragra ph 84(b) (discretion) and, hence,
paragraph 1.2.
(vi) Article 8 of the Audiovisual Products Importation Rule results in China
acting inconsistently with paragra ph 84(b) (discretion) and, hence,
paragraph 1.2.
(vii) The United States has not established that Article 9 of the Audiovisual
Products Importation Rule results in China acting inconsistently with its
trading rights commitments under the Accession Protocol.
(viii) The United States has not established that Article 10 of the Audiovisual
Products Importation Rule results in China acting inconsistently with its
trading rights commitments under the Accession Protocol.
(ix) The United States has not established any inconsistency of the Audiovisual
Products Importation Rule with paragraph 5.1, 83(d), 84(a) or 5.2.

Consequently, no inconsistency with paragraph 1.2 has been established
either.
(x) Article 21 of the Audiovisual (Sub-) Distribution Rule results in China acting
inconsistently with paragr aph 5.1 as well as paragrap hs 83(d) and 84(a) and,
hence paragraph 1.2.
(xi) The United States has not established any inconsistency of the Audiovisual
(Sub-) Distribution Rule with paragraph 5.2 or 84(b). Consequently, no
inconsistency with paragraph 1.2 has been established either.
8.2 The Panel's findings of inconsistency in respect of the Catalogue of Prohibited Foreign
Investment Industries , the Foreign Investment Regulation , the Several Opinions , the Publications
Regulation, the 2001 Audiovisual Products Regulation and the Audiovisual Products Importation
Rule, insofar as the latter two measures concer n finished audiovisual products, and the Audiovisual
(Sub-) Distribution Rule are subject to the Panel's findings on China's Article XX(a) defence. The
Panel's findings with respect to China's defence are detailed below.
(a) China's Article XX(a) defence with r espect to the measures identified in
paragraph 8.2 and concerning reading mate rials (including electronic publications)
and finished audiovisual products
(i) China has not demonstrated that any of the relevant measures are "necessary"
to protect public morals, within the m eaning of Article XX(a). As a result,
China has not established that these measures are justified under
Article XX(a).
(ii) Because China has in any event not est ablished that the measures at issue
satisfy the requirements of Article XX(a), the Panel did not determine
whether Article XX(a) is available as a direct defence for breaches of China's
trading rights commitments as set out in the Accession Protocol.
3. China's national treatment and market access commitments under the GATS
(a) Distribution of reading materials
(i) Article 4 of the Imported Publications Subscription Rule and Article 42 of
the Publications Regulation are together inconsistent with China's national
treatment commitments under Article XV II of the GATS with respect to the
wholesale of imported reading materials subject to subscription.
(ii) Article 2 of the Publications (Sub-)Distribution Rule , in conjunction with
Article 16 of the Publications Market Rule , is inconsistent with China's
national treatment commitments under Article XVII of the GATS with
respect to the wholesale of imported reading materials subject to sales
through the market.
(iii)
 Where master distribution involves wholesale or retail services, Article X:2
of the Catalogue of Prohibited Fore ign Investment Industries of the
Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation, is inconsistent with China's national treatment commitments
under Article XVII of the GATS. Article 4 of the Several Opinions is also
inconsistent with Article XVII.

(iv) Article 62 of the 1997 Electronic Publications Regulation is inconsistent with
China's national treatment commitmen ts under Article XVII of the GATS
with respect to the master wholesale or wholesale of electronic publications.
(v) To the extent that it is applied to the wholesale of electronic publications, the
Publications (Sub-)Distribution Rule , together with the Publications Market
Rule, is inconsistent with China's na tional treatment commitments under
Article XVII of the GATS.
(vi) The Panel did not find that the Publications (Sub-)Distribution Rule is
inconsistent with Article XVII of the GATS in respect of the master
wholesale of electronic publications, as the United States has not established
that this measure prohibits foreign- invested enterprises, including service
suppliers of other Members, from enga ging in the master wholesale of any
electronic publications as claimed.
(vii) The requirements concerning register ed capital and operating term for
foreign-invested wholesalers, including service suppliers of other Members,
respectively contained in paragraphs 4 and 5 of Article 7 of the Publications
Sub-Distribution Rule are inconsistent with China's national treatment
commitments under Article XVII of the GATS.
(b) Electronic Distribution of Sound Recordings
(i) The Circular on Internet Culture (Article II), the Network Music Opinions
(Article 8), and the Several Opinions (Article 4), each is inconsistent with
China's national treatment commitments under Article XVII of the GATS.
Article X:7 of the Catalogue of Prohi bited Foreign Investment Industries of
the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation, is also inconsistent with Article XVII of the GATS.
(ii) The Panel did not find that the Internet Culture Rule is inconsistent with
Article XVII of the GATS, as the United States has not established that this
measure, as implemented, imposes the alleged prohibition on the electronic
distribution of sound recordings by service suppliers of other Members.
(c) Distribution of AVHE products
(i) Article 8.4. of the Audiovisual (Sub-)Distribution Rule is inconsistent with
China's market access commitments under Article XVI of the GATS as it
contains a limitation on the participation of foreign capital in contractual joint
ventures engaging in the distribution of AVHE products, which falls within
the scope of Article XVI:2(f). For the same reasons, Article VI:3 of the
Catalogue of Industries with Restri cted Foreign Investment in the Catalogue,
in conjunction with
Article 8 of the Foreign Investment Regulation , is
inconsistent with China's market access commitments under Article XVI.
(ii) The Panel did not find that Article 1 of the Several Opinions is inconsistent
with Article XVI of the GATS, as the United States has not established that
this measure imposes a limitation that falls within the scope of
Article XVI:2(f), as claimed by the United States.

(iii) Article 1 of the Several Opinions and the operating term requirement
provided for by Article 8.5 of the Audiovisual (Sub-)Distribution Rule each is
inconsistent with China's national treatment commitments under Article XVII
of the GATS.
(iv) The Panel has exercised judicial economy with respect to the US claim under
Article XVII of the GATS regarding Article 8.4 of the Audiovisual
(Sub-)Distribution Rule, and Article VI:3 of the Catalogue of Industries with
Restricted Foreign Investment of the Catalogue in conjunction with the
Foreign Investment Regulation , because the Panel found the same measures
to be inconsistent with Article XVI of the GATS.
4. China's national treatment obligations under Article III:4 of the GATT 1994
(a) Reading materials
(i) Articles 3 and 4 of the Imported Publications Subscription Rule , as they are
applied to newspapers and periodica ls, are inconsistent with China's
obligations under Article III:4 of the GATT 1994.
(ii) The United States has not established that Articles 3 and 4 of the Imported
Publications Subscription Rule , as they are applied to books in the limited
category, are inconsistent with China' s obligations under Article III:4 of the
GATT 1994.
(iii) Article 2 of the Publications (Sub-)Distribution Rule , read in conjunction
with Article 16 of the Publications Market Rule , is inconsistent with China's
obligations under Article III:4 of the GATT 1994.
(b) Sound recordings intended for electronic distribution
(i) The United States has not established that Article 16 of the Internet Culture
Rule is inconsistent with China's oblig ations under Article III:4 of the
GATT 1994.
(ii) The United States has not established that Article 9 and Appendix 2 of the
Network Music Opinions are inconsistent with Article III:4 of the
GATT 1994.
(c) Films for theatrical release
(i) The United States has not established that the alleged discriminatory
"duopoly" for film distribution within China is a measure taken by another
Member which could be subject to challenge under the Dispute Settlement
Understanding. Therefore, the United States has not established that the Film
Regulation, Film Distribution and Exhibition Rule, and Film Enterprise Rule ,
taken together, are inconsistent with Article III:4 of the GATT 1994.

5. China's national treatment commitments under paragraphs 5.1 and 1.2 of the Accession
Protocol
(a) Reading materials
(i) The Panel exercised judicial economy in respect of, the United States' claims
that the Imported Publications Subscription Rule and the Publications
(Sub-)Distribution Rule are inconsistent with China's obligations under
Paragraphs 5.1 and 1.2 of its Accession Protocol.
(b) Sound recordings intended for electronic distribution and films for theatrical release
(i) The Panel found that the US has not established the necessary pre-requisite
for an inconsistency with paragraphs 5.1 and 1.2 with respect to the 2001
Audiovisual Products Regulation , the Audiovisual Products Importation
Rule, the Internet Culture Rule , the Network Music Opinions , the Film
Regulation, the Film Distribution and Exhibition Rule , and the Film
Enterprise Rule.
6. Nullification and impairment
8.3 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to cons titute a case of nullification or
impairment of benefits under that ag reement. Accordingly, we conclude that to the extent that China
has acted inconsistently with certain provisions of its Accession Protocol, the GATS, and the
GATT 1994, it has nullified or impaired benef its accruing to the United States under those
agreements.
7. Recommendations
8.4 Pursuant to Article 19.1 of the DSU, having fo und that China has acted inconsistently with
provisions of its Accession Protocol, the GATS, and the GATT 1994 set out above, we recommend
that the Dispute Settlement Body request China to bring the relevant measure s into conformity with
its obligations under those agreements.