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WTO ruling pushes Beijing to open trade

By Richard Blackwell, Globe and Mail
August 12, 2009

China is under mounting pressure to open its domestic market further and comply more closely to the conventions of international trade after a landmark ruling struck down restrictions on imports of American popular culture.

The World Trade Organization released a ruling Wednesday that says China should not be forcing U.S. movie, music and book producers to use state-owned companies to distribute their products. It also said U.S companies should be able to offer music download services directly to Chinese customers, through Chinese partners.

In a complex, 491-page ruling the WTO disallowed many discriminatory Chinese policies that try to control foreign media and cultural products – a sensitive issue for a country that likes to keep a tight rein on which foreign media its citizens can gain access to. The United States lost on one issue: China will still be able to force U.S. films to use one of two designated distributors.

Overall, the ruling handed a “significant victory to America's creative industries,” declared U.S. Trade Representative Ron Kirk. “These findings are an important step toward ensuring market access for legitimate U.S. products in the Chinese market.”

But the ruling could also spur China to become a more compliant player on the world trading stage.

While the decision is a boon for American record labels, book publishers, Hollywood studios, and Apple's iTunes music store, it has significant implications beyond the U.S. border, said Lawrence Herman, international trade counsel at Toronto law firm Cassels Brock & Blackwell.

First, it will benefit media businesses in other countries – including Canada – that want to get into China, he said, because “the Chinese will have to apply their rules on a non-discriminatory basis for intellectual property from all countries.”

But the ruling goes further, Mr. Herman said. “It shows that when you become a member of the WTO, whether you are a communist country or a liberal democracy, you have to follow the rules. The Chinese are slowly, inexorably being forced to open up their market in accordance with WTO rules.”

The Chinese have benefited greatly from its membership in the WTO, by getting unrestricted access to foreign markets, he said. “They have to understand it is a two-way street. That's the way the WTO agreement works.”

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, said the Chinese have complied with WTO rulings in the past, and there is no reason why that will not be the case this time.

“Since they're a big user of WTO rights and processes against other countries, and aren't shy in bringing their own cases, I think they have a vested interest now in seeing this system thrive and not being scofflaws,” Mr. Hufbauer said.

However, he said he expects the Chinese government to exercise its rights to appeal the WTO decision, and this could delay implementation for a considerable amount of time.

The slow process of reviewing new laws in China to see whether they comply with the WTO ruling could also slow the opening up of the market for foreign media.

However, Mr. Herman said, the Chinese are keen to augment their influence on many international bodies such as the WTO, “and you don't gain influence if you're seen to be a prevaricator, or a country that ignores WTO rulings.”

Ultimately, he said, “they'll just have to bring their laws into line, notwithstanding the constraints that puts on their internal political and social policies.”

In a speech Wednesday in Geneva, China's Foreign Minister Yang Jiechi pledged that his country would adhere to international trade rules. “We support efforts to improve the international trade and financial systems, and resolve frictions and differences through consultation and collaboration,” he said. “China will never seek to advance its interests at the expense of others.”

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