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What do Trading Rights and General Exceptions Mean for China?: Some Observations of China-Audiovisual Services
Heng Wang**
I. Introduction
II. The U.S. Complaint in China-Audiovisual Services
A. Trading Rights
B. Distribution Services for Publications, AEPs, and Sound Recordings
C. Distribution of Films for Theatrical Release
D. Distribution of Sound Recordings
III. Comments of China-Audiovisual Services: Trading Rights and General Exceptions
A. Trading Rights
1. Liberalization of Trading Rights as a Principle
2. Exceptions to Trading Rights Grant
3. Non-Discriminatory and Non-Discretionary Requirements of Trading Rights
4. Trading Rights and Distribution Services
5. Application of Other WTO Requirements
B. General Exceptions
1. GATS Article XIV and GATT 1994 Article XX
2. Characterization of Measures under General Exceptions Clauses
(a) Public Morals, Public Order, and Securing Compliance with WTO-Consistent Domestic Rules
(b) Necessity and "for the Protection of" Test
(i) Reach of "Necessary" and "for the Protection of"
(ii) Availability of Alternative WTO-Consistent Measure
(iii) Burden of Proof
3. Chapeau
IV. Conclusion
I. Introduction
China acceded the World Trade Organization (hereinafter referred to as "the WTO") on December 11, 2001, and until now, it has been a member of the WTO for over seven years.[1] Although the trade frictions and disputes involving China continue to rise, the disputes against China in the WTO are new to both China and their trading partners. The China-Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (hereinafter referred to as "China-Audiovisual Services") complaint filed by the United States is one of the most recent disputes against China in the WTO in which a panel was established .[2] It is also the first complaint against China that mainly deals with trade in services, although it involves goods as well.[3] Over the span of seven years, China has promised to become one of the most open services markets.[4] 2008 is also the year by which all liberalization commitments will have been phased in (i.e., seven years after China's WTO accession).[5] How the trade in services rules are applied is a key concern for China and their trading partners. With the fast development of trade in services, the analysis of this dispute would be helpful not only to understand the Chinese legal system in the context of world trading law, but also to analyze the application of the General Agreement on Trade in Services (hereinafter referred to as "GATS") to the developing members.[6] Moreover, it involves not only the ordinary obligations of every WTO member, but also the WTO-extra obligations imposed by the Protocol on the Accession of the People's Republic of China (hereinafter referred to as "Accession Protocol")[7] and the Report of the Working Party on the Accession of China (hereinafter referred to as "Working Party Report").[8] Therefore, this first service dispute against China involves some features unique to China and deserves study. The decision of this dispute will probably affect not only Chinese measures, but also constitute the latest development of the WTO rules, particularly as it relates to the trade in services, which has an impact on all WTO members.
There are certain issues arising from the current dispute: What are the key issues in the dispute? What is the jurisprudence on these major issues? Both are worth highlighting, which is the focus of this article. For the first question, the author believes that trading rights and general exceptions would be two major issues in this dispute. The application of trading rights and general exceptions to China have not been discussed in the WTO dispute settlement system until the initiation of this dispute.[9] Following the review of the United States' complaint in China-Audiovisual Services, this paper will probe into jurisprudence of trading rights and general exceptions.
II. The United States' Complaint in China-Audiovisual Services
On April 10, 2007, the United States requested consultations with China.[10] On April 25, 2007, the European Communities requested to join the consultations, which was subsequently accepted by China.[11] Supplemental consultations were requested by the United States on July 10, 2007, which the European Communities also requested to join on July 20, 2007.[12] Following the renewed request of the United States, a panel was established by the Dispute Settlement Body (hereinafter referred to as "DSB") at its meeting on November 27, 2007.[13] The European Communities and Japan reserved their third-party rights.[14] Australia, Korea and Chinese Taipei subsequently reserved their third-party rights.[15] In its complaint, the United States contends that "China only allows specially authorized state-run companies to import movies, DVDs, music, books, journals, and other publications."[16] The United States also alleges that "Chinese rules unfairly prohibit foreign firms from engaging in distribution activities for these goods and discriminating between foreign and domestic distributors."[17] China told the DSB that it was disappointed the United States was pursuing its complaint "despite the ample market access that China grants to foreign publications, films and audiovisual products and services."[18] "Mainly due to scheduling difficulties, [sic] the Panel [will not be able] to complete its work within six months after its composition and estimates that it will issue its final report to the parties to the dispute in February 2009."[19]
A. Trading Rights
The U.S. complaint consists of two principal allegations. First, China is acting inconsistently with its obligations under its Accession Protocol and under the General Agreement on Tariffs and Trade 1994 (hereinafter referred to as "GATT 1994")[20] "by not allowing all Chinese enterprises and all foreign enterprises and individuals to have the right to import into China the following products (collectively, the "Products"): [imported] films for theatrical release, publications (e.g., books, magazines, newspapers, and electronic publications), audiovisual home entertainment products (e.g., video cassettes and DVDs, hereinafter referred to as "AEPs"), and sound recordings."[21] The United States alleged that "various Chinese measures reserve, to certain Chinese state-designated and wholly or partially state-owned enterprises, the right to import the Products."[22] "According to [the United States], China agreed in its WTO accession protocol to fully open the right to trade in these products within three years after accession, i.e., by December 2004."[23] Second, "foreign individuals and enterprises, including those not invested or registered in China, are accorded treatment less favorable than that accorded to enterprises in China with respect to the right to trade."[24]
More specifically, the claims of the United States are that (a) the questioned measures were asserted to be at odds with China's obligations under the provisions of paragraphs 5.1 and 5.2 of the Accession Protocol, as well as China's obligations under the provisions of paragraph 1.2 of the Accession Protocol (to the extent that it incorporates commitments in paragraphs 83 and 84 of the Working Party Report);[25] and (b) "to the extent that the impugned measures impose prohibitions or restrictions other than duties, taxes or other charges, on the importation into China of the Products, these measures are argued to be incompatible with China's obligations under Article XI:1 of the GATT 1994."[26]
B. Distribution Services for Publications, AEPs, and Sound Recordings
The arguments of the United States involving distribution services for publications, AEPs, and sound recordings were as follows: (a) "China is imposing market access restrictions and discriminatory limitations on foreign service providers seeking to engage in the distribution of publications," AEPs, and digital distribution of sound recordings incompatible with China's obligations under the GATS.[27] The United States charged that the measures at issue prohibit foreign service suppliers[28] from engaging in types of distribution described in these measures as the "master distribution" or "master wholesaling" of publications and AEPs, and from engaging in the distribution of "electronic publications"[29] generally.[30] For the digital distribution of sound recordings, hu lian wang wen hua guan li zan xing gui ding [the Interim Regulations on Internet Culture Administration] (hereinafter referred to as "Interim Regulations")[31] and the other challenged measures are alleged to "prohibit any foreign-owned or foreign-invested entity from obtaining the licenses necessary to engage in ‘internet cultural activities.'"[32] From the U.S. viewpoint, it "prohibit[s] any foreign-owned or foreign-invested entities from digital distribution of ‘internet cultural products,' including sound recordings in digital form."[33]
"[T]o the extent that certain foreign service suppliers are allowed to engage in . . . the distribution of publications, [it is contended that there are] discriminatory requirements concerning such suppliers' registered capital and such suppliers' operating term, as well as discriminatory limitations[34]. . . on the publications that such suppliers may distribute."[35]
[T]o the extent that foreign services suppliers are permitted to engage in any distribution of [AEPs], the measures . . . [are proclaimed] 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 position, or for which there are limitations concerning the participation of foreign capital.[36]
For the distribution of AEPs, the disputed measures are claimed to impose discriminatory limitations on outside service suppliers' operating term in China, which are allegedly inapplicable to Chinese suppliers.[37] The United States contends to "impose restrictions on the market access of foreign service suppliers of audiovisual [(hereinafter referred to as "AV")] distribution services [for AEPs]."[38] The challenged measures are therefore claimed to accord less favorable treatment to foreign suppliers of distribution services for publications and to AV distribution services for AEPs than that accorded to Chinese ones.[39]
For the distribution of sound recordings in the digital form, "even if foreign-invested entities can engage in the distribution . . . the measures . . . [are asserted to grant] foreign suppliers of sound recording distribution services less favorable treatment than that accorded to Chinese suppliers . . . ."[40] The United States seems to claim that imported music[41] is subject to content review before digital distribution which does not apply to music in which such rights are held by Chinese enterprises without foreign investment. It is argued that foreign-owned and foreign-invested sound recording distribution enterprises in China, as well as cross-border sound recording distribution services suppliers, are treated less favorably than similar wholly Chinese-owned enterprises. It is asserted that the measures do not fall within the terms and limitations in Schedule of Specific Commitments on Services of China (hereinafter referred to as "Schedule").[42]
Accordingly, the measures are stated to be violative of China's obligations under Articles XVI (market access) and XVII (national treatment) of the GATS.[43] Under Article XVI, each member shall, with respect to market access, grant "services and service suppliers of any other Member treatment no less favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule."[44] GATS Article XVII applies to "the sectors inscribed in its Schedule, [which requires that] subject to any conditions and qualifications set out therein, [every] 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."[45] The United States argues that the Schedule has not stipulated the disputed measures as "terms, limitations, conditions, or qualifications on market access or national treatment."[46]
Under the GATT 1994, some distribution restrictions and limitations on distribution are also contended to be at odds with China's obligations.[47]
[The disputed] measures [are proclaimed] 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 foreign 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 [manner] . . . . [T]he measures at issue [are] also [contended] to be inconsistent with China's obligations under Article III:4 of the GATT 1994 and the provisions of paragraph 5.1 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).[48]
Under GATT Article III:4, the products of one member imported into another member would receive treatment no less favorable than that accorded to domestic products with regard to "laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use."[49] Paragraph 5.1 of the Accession Protocol confirms that China would liberalize the availability and scope of trading rights so that all enterprises in China shall have the right to export and import all goods throughout the customs territory of China, except for those goods subject to state trading.[50] It further stresses that "[a]ll such goods shall enjoy national treatment under Article III of the GATT 1994, [particularly] paragraph 4 thereof, in respect of their internal sale, offering for sale, purchase, transportation, distribution or use, including their direct access to end-users."[51] Read together with GATT III:4, paragraph 5.1 of the Accession Protocol guarantees the national treatment of goods in terms of rules concerning their internal sale, offering for sale, purchase, transportation, distribution or use. The United States seems to argue that the imported books, newspapers and periodicals do not enjoy the above national treatment.[52] Paragraph 1.2 of the Accession Protocol provides that the Protocol, including the commitments contained in paragraph 342 of the Working Party Report, constitutes "an integral part of the WTO Agreement."[53] In turn, China's commitments in paragraph 22 of the Working Party Report have been incorporated into the WTO Agreement in accordance with paragraph 342 thereof.[54] Paragraph 22 of the Working Party Report specifies that China's laws, regulations and administrative requirements would respect "the principle of non-discrimination between domestically produced and imported products . . . unless otherwise provided."[55] Moreover, rules inconsistent with the national treatment would be repealed and cease to apply.[56] China has committed to administer the national treatment, and the United States seemingly proclaims that China has failed to do so in respect of imported books, newspapers and periodicals.[57]
C. Distribution of Films for Theatrical Release
In the view of the United States, imported films for theatrical release are treated less favorably in China than domestically produced ones in terms of the distribution opportunities, and that China fails to comply its obligations under the GATT 1994 and the Accession Protocol. It is asserted that China establishes a dual distribution system for imported and domestically produced films for theatrical release. The United States argues that only two entities operating on a nationwide basis can distribute imported films within China. Domestically produced films could be distributed not only by the above two entities, but also by many other entities, including those operating on a local, provincial or other subnational basis. Therefore, the United States asserts that the above measures do not keep with China's obligations under Article III:4 of the GATT 1994, the provisions of paragraph 5.1 of the Accession Protocol, and paragraph 22 of the Working Party Report that is incorporated in the provisions of paragraph 1.2 of the Accession Protocol.[58]
D. Distribution of Sound Recordings
The positions of the United States are as follows: China acts incompatibly "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 favorable than the distribution opportunities for sound recordings produced in China."[59]
China is claimed 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 [are argued] not to be subject to this requirement, but can instead be digitally distributed immediately. [It is thus charged] that sound recordings imported into China in physical form are treated less favorably than sound recordings produced in China in physical form.[60]
The measures in question therefore are contended to be at variance "with China's obligations under Article III:4 of the GATT 1994 and the provisions of paragraph 5.1 of the Accession Protocol, as well as China's obligations under the provisions of paragraph 1.2 of the Accession Protocol."[61]
III. Comments of China-Audiovisual Services: Trading Rights and General Exceptions
In the China-Audiovisual Services case, the first complaint deals primarily with trading rights,[62] but also concerns general elimination of quantitative restrictions.[63] For the second complaint on services, there are the challenges based on national treatment of trade in goods and services,[64] the right to trade,[65] and market access.[66] The last two complaints of the United States deal with trading rights,[67] and national treatment.[68] This chapter will focus on issues of trading rights and general exceptions under the GATT 1994 and the GATS. In the viewpoint of the author, these issues are probably the most relevant aspects that this dispute involves. Trading rights are invoked in all the four complaints, and yet, China would probably seek defenses under the general exceptions clauses against all four complaints. The decisions on trading rights and general exceptions would have a substantial impact on trade involving China. Therefore, this paper aims to analyze the relevant major rules and jurisprudence on trading rights and general exceptions, which the panel and the Appellate Body members, if any, would mostly likely apply. These studies are not only relevant to the China-Audiovisual Services, but also to other future disputes in related areas in order to prevent conflict.
It is notable that this article does not intend to predict the outcome of the dispute, which would be difficult due to a variety of reasons, including the lack of factual evidence. Although the United States provided a general list of China's measures at issue and touched upon certain facts,[69] there is insufficient and a very limited amount of information about the factual issues. For the sake of conducting legal analysis, this paper in most circumstances presumes that the allegations of the United States are correct, which may not necessarily be the case.
A. Trading Rights
In analyzing trading rights discussed in the first complaint, there are ten measures targeted by the United States against China with regard to trading rights.[70] An important one of these is the Chu ban guan li tiao li [the Administrative Regulation on Publishing], which is in force.[71] This regulation may be a good example for the analysis of trading rights involving publications. Publication activities are governed by the Administrative Regulation on Publishing, which include the importation and fa xing [distribution] of publications.[72] The importation activities of publications shall be conducted by the publication import entities; among them, the newspaper or journal import activities are subject to zhi ding [designation] of administrative departments of press and publication.[73] Without the pi zhun [approval], the unit and individuals shall not conduct the importation businesses of publications, and no entity or individual is allowed to import newspapers and journals without zhi ding [designation].[74] There are a number of requirements for the qualification as publication import entities, including that it must be wholly state-owned enterprise.[75] It seems that foreign enterprises and individuals could not meet the above requirements. Neither do Chinese enterprises, which are not wholly-state-owned and individuals. Such regulations appear to restrict the grant of trading rights involving publications. Besides the Working Party Report and Accession Protocol, the United States invokes Article XI:1 of the GATT 1994 on general elimination of quantitative restrictions.[76] Under this article, "[n]o prohibitions or restrictions other than duties, taxes or other charges" are allowed to be established on the importation of products of other members or on the exportation or sale for export of any product destined for any other member.[77] Therefore, the trading rights rule is to be interpreted and applied. Meanwhile, the Chinese government has to seek and identify the justifications in the WTO agreements as the defense, such as the general exceptions.
1. Liberalization of Trading Rights as a Principle
During China's negotiation on the accession documents, it was determined that China is required to liberalize the right to trade,[78] and has promised to do so. Why did some members demand this commitment? Without trading rights, the international trade transactions could hardly be conducted smoothly. Trading rights are probably one of the most important policies affecting trade. In the case of China, trading rights mean that businesses and individuals are generally able to import and export all goods into and out of China by themselves.[79] Trading rights help to lower the trading costs of foreign businesses and individuals when they trade with China and would effectively expand their businesses in China. The goods could also enjoy the national treatment as stipulated in Article III of the GATT 1994.[80] It ensures that both foreign trade operators and their goods are protected under the national treatment clause.[81] Again, it contributes to the competitiveness of imported goods in China and works to eliminate the trade barriers.
China has committed to complete all necessary legislative procedures to implement trading rights provisions during the transition period. Among Chinese implementations, an important change is the amendment of China's Wai mao fa [Foreign Trade Act] in 2004,[82] which has "abolished this special permit requirement and replaced it with registration procedures." [83]Supporting administrative rules have also been made such as Dui wai mao yi jing ying zhe bei an deng ji ban fa [Measures for Registration for the Record of Foreign Trade Operators]. [84]Chinese implementation has strived to change the trade regime from what it was previously. The Chinese government launched a massive program regarding the enactment, amendment and repeal of laws, regulations, and administrative rules, policies and measures relevant to or affecting trade in goods and services, trade-related intellectual property rights, and assurance of transparency and uniform application of trade regime.
From the period of 1999 to late 2002, 14 laws have been passed or amended by the National People's Congress (NPC)[85] and its Standing Committee; 37 regulations promulgated or amended and 12 revoked by the State Council; and over 1,000 administrative rules, policies or measures promulgated, amended or rescinded by ministries and other government agencies under the State Council. In 2001, the State Council further requested that the local government review local regulations, administrative rules, policies, and measures under the principles of uniform application, non-discrimination and transparency, resulting in approximately 190,000 amended or revoked local regulations, administrative rules, policies and measures.[86]
In principle, foreign businesses and individuals are entitled to trading rights in China. For most goods, China has committed to progressively liberalizing the availability and scope of the right to trade.[87] It is China's obligation to "progressively liberalize the scope and availability of trading rights for foreign-invested enterprises."[88] Joint-venture enterprises with minority or majority share foreign-investment would be granted full rights to trade beginning the first and second year after accession respectively.[89] Therefore, within three years after accession, all enterprises in China shall have the right to trade (i.e., to import and export) all goods throughout China, except those subject to state trading.[90] These enterprises should include contractual and equity joint-ventures, as well as wholly foreign-owned enterprises in China.
Second, the scope of the recipient of trading rights extends to foreign businesses and individuals. The more clear answer and further liberalization is made by the Working Party Report. Within three years after accession, "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 products listed in Annex 2A to the Accession Protocol reserved for importation and exportation by state trading enterprises)" throughout China.[91] Nearly no one is left out in terms of the trading rights grant. All enterprises in China and all foreign individuals and enterprises, including those not invested or registered in China, are entitled to the right to trade.[92]
Third, the trading rights grant would not be conditional on the form of establishment, separate entity, or new business license encompassing distribution.[93] The Working Party Report has elaborated the commitment in the Accession Protocol with greater details. "Foreign-invested enterprises would not be required to establish themselves in a particular form or as a separate entity to engage in importing and exporting, nor would new business license encompassing distribution be required to engage in importing and exporting."[94]
Fourth, Chinese and foreign-invested enterprises would no longer be subject to "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 and export."[95] Meanwhile, China would "eliminate its system of examination and approval of trading rights."[96] The requirement for trading rights has been substantially lowered.
Fifth, the trading rights liberalization is embodied in national law. In terms of domestic law, the Foreign Trade Act does not require the approval or examination for the foreign trade dealers engaged in import and export of goods or technologies.[97] They may be subject to registration with competent authorities, which is not, by nature, burdensome.[98] It is also consistent with the commitments contained in the Working Party Report. The latter requires that the examination and approval system for wholly Chinese-invested enterprises be eliminated at the end of the phase-in period for trading rights.[99] "‘[F]oreign trade dealers' refer to legal persons, other organizations or individuals, that have fulfilled the industrial and commercial registration with the administration of industry and commerce, or other practicing procedures . . . ."[100] The "other practicing procedures" are not defined in the Foreign Trade Act and may be applied in special circumstances.
2. Exceptions to Trading Rights Grant
There are certain exceptions to the liberalization of trading rights. One "carve-out" for trading rights is the state trading. The goods that continue to be subject to state trading are listed in Annex 2A to the Accession Protocol. However, this exception is not applicable here, since imported films for theatrical release, AEPs, sound recordings and publications are not subject to state trading.
3. Non-Discriminatory and Non-Discretionary Requirements of Trading Rights
National treatment applies to the products, foreign individuals, and enterprises in specified circumstances. Moreover, the granting of trading rights is to be made on a non-discretionary basis. As indicated above, the goods shall enjoy the national treatment under Article III of the GATT 1994.[101] Except as otherwise specified in the Accession Protocol, "all foreign individuals and enterprises, including those not invested or registered in China, are entitled to treatment no less favorable than that accorded to enterprises in China with respect to the right to trade."[102] Trading rights have been extended to Chinese individuals in the 2004 amendment of Foreign Trade Act.[103] Both enterprises and individuals have been granted trading rights for goods.[104] This means that the foreign enterprises and individuals who are outside of China and have not invested or registered in China would be entitled to trading rights.
With respect to the grant of trading rights to foreign enterprises and individuals including sole proprietorships of other WTO members, such rights would be granted in a non-discriminatory and non-discretionary way. Any requirements for obtaining trading rights would be for customs and fiscal purposes only and would not constitute a barrier to trade.[105]
4. Trading Rights and Distribution Services
China's commitment to liberalize trading rights involves rules affecting distribution of goods, but do not automatically entitle the market access for the distribution services. There are some questions relating to trading rights and distribution services that deserve posing. Are the distribution services relevant to trading rights? What is their relationship? Is there any relevant stipulation? Trading rights provided in the Accession Protocol bring benefits to the imported and exported goods. Paragraph 5.1 of the Accession Protocol provides that all goods except for those goods subject to state trading are entitled to "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."[106] The goods in question are not subject to state trading and shall be granted trading rights. Paragraph 4 of Article III of the GATT 1994 further provides that:
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded 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....[107]
Since the current dispute involves the distribution and distribution services of the goods, these issues are the focus here. Under paragraph 5.1 of the Accession Protocol and paragraph 4 of Article III of the GATT 1994, the challenged products from the U.S. that are imported into China must be accorded treatment no less favorable than that accorded to like products of China in respect of all laws, regulations and requirements affecting their distribution.[108] This means that all the Chinese rules affecting the distribution of goods cannot discriminate against imported U.S. products. However, the trading rights stipulation does not govern or deal with the distribution services. It is noteworthy that trading rights provided by the Accession Protocol only relate to trade in goods. The Working Party Report has stressed that trading rights which are available to all enterprises in China and foreign enterprises and to individuals do not permit importers to distribute goods within China, and that providing distribution services must be done in accordance with China's Schedule under the GATS.[109] The Schedule specifies the terms, limitations, conditions, or qualifications on market access or national treatment for the distribution services. It deals with who can supply the distribution services in China and under what conditions they can supply the services. The products of America are entitled to the same treatment in terms of how the goods are distributed. However, whether U.S. companies can distribute products in China is another question that mainly relies on China's commitments of distribution services under the GATS.
5. Application of Other WTO Requirements
There is a precondition of the liberalization of the availability and scope of trading rights: China has the right to "regulate trade in a manner consistent with the WTO Agreement."[110] This means that China could justify the restrictive or prohibitive measures if there are justifications available under the WTO Agreement and the covered WTO agreements. Therefore, it could be a possible defense available to China when a combination of concrete WTO rules are involved.
The liberalization of trading rights does not make other WTO requirements inapplicable to foreign entities. China has given up certain requirements for the foreign enterprises and individuals with trading rights; requirements relating to minimum capital and prior experience would not apply.[111] However, foreign enterprises and individuals with trading rights have to comply with all WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, technical barriers to trade and sanitary and phytosanitary procedures.[112] For the products in dispute, the American enterprises and individuals have to abide by requirements which are in conformity with the WTO rules.
B. General Exceptions
In the present case, China has to seek justifications from the WTO agreements for the measures in question. The most relevant "carve-out" defenses that China may invoke in this dispute are probably the general exceptions specified in the GATT 1994 and the GATS. The most relevant ones are probably the exceptions for measures (a) necessary to "public morals", "public order", or securing compliance with WTO-consistent domestic rules under the GATS,[113] and (b) necessary to "public moral," securing compliance with WTO-consistent domestic rules, or "for the protection of national treasures of artistic, historic or archaeological value" under the GATT 1994.[114] For the former, it may concern the distributions services for publications, AEPs, and sound recordings in this case. The latter may involve trading rights and distribution of films for theoretical release and sound recordings. It is the job of the panel or Appellate Body to strike a proper balance between the rights of China and the United States in this context. There are a number of cases involving the general exceptions.[115] It seems that the Appellate Body does not make substantial differences for the applications of the aforesaid GATS and GATT 1994 exceptions.
1. GATS Article XIV and GATT 1994 Article XX
The measures at issue seem to relate mostly to the commercial presence,[116] and to cross-border supply for sound recording distribution services,[117] modes one and three of the service provision under the GATS. They are all subject to the general exceptions under the GATS.
Article XIV of the GATS and Article XX of the GATT 1994 set out the general exceptions from obligations under the respective agreement in the same manner. Both agreements affirm members' rights to pursue objectives identified in the pertinent paragraphs of the exception provisions even if, in doing so, members act inconsistently with obligations set forth in other provisions of the respective agreements, provided that all of the conditions set out therein are satisfied.[118] In both provisions, similar language is used, notably the term "necessary" and the requirements set out in their respective chapeau.[119] Accordingly, the Appellate Body has found previous decisions under Article XX of the GATT 1994 relevant for the analysis under Article XIV of the GATS.[120] In practice, the application of the GATT 1994 general exceptions refers to those of GATS, and vice versa.[121] Therefore, this paper provides an opportunity to analyze the general exceptions under the two agreements together.
2. Characterization of Measures under General Exceptions Clauses
Similar to the GATT 1994 Article XX, the general exceptions clause in the GATS
contemplates a "two-tier analysis" of a measure that a Member seeks to justify under that provision. A panel should first determine whether . . . [the] challenged measure falls within the scope of one of the paragraphs of [the GATS] Article XIV. This requires that the . . . measure address the particular interest . . . [provided] in that paragraph and that there be a sufficient nexus between the measure and the interest protected. The required nexus-or "degree of connection"-between the measure and the interest is specified in the language of the paragraphs themselves, through the use of terms such as "relating to" and "necessary to." [122]
As an initial step, China is required to prove that the measures in question fall within the scope of the general exceptions referenced in the GATS Article XIV and GATT 1994, Article XX. Possible avenues, under GATS Article XIV, may include measures "necessary to protect public morals," maintenance of "public order," or securing compliance with WTO-consistent domestic rules[123] and, under the GATT 1994, "measures necessary to protect public morals," securing compliance with WTO-consistent domestic rules, or "for the protection of national treasures of artistic, historic or archaeological value."[124] General exceptions clauses on securing compliance with WTO-consistent domestic rules provide a non-exhaustive list of rules that are not inconsistent with the GATS/GATT 1994 provisions.[125] Theoretically, China may argue justifications other than those listed to support a measure.
(a) Public Morals, Public Order, and Securing Compliance with WTO-Consistent Domestic Rules
For the scope of general exceptions and the disputed measures, the reviewing panel and Appellate Body, if any, would first address whether certain statutes are "measures that are designed to ‘protect public morals' and/or ‘to maintain public order' within the meaning of Article XIV(a)," and then address whether the challenged statutes are "necessary" to protect public morals and to maintain public order.[126]According to a reviewing panel's analysis under Article XIV(a) in US-Gambling,
the term "public morals" denotes standards of right and wrong conduct maintained by or on behalf of a community or nation [and further] . . . that the definition of the term "order," read in conjunction with GATS footnote 5, . . . suggests that "public order" refers to the preservation of the fundamental interests of a society interests, as reflected in public policy and law.[127]
As explained in the footnote 5 to Article XIV(a), the public order exception can be invoked only when "a genuine and sufficiently serious threat is posed to one of the fundamental interests of society."[128] It suffices if a reviewing panel defines "public order" to include the standard in footnote 5, and then applies that definition to the facts to conclude that the measures "are designed to ‘protect public morals' and/or ‘to maintain public order,'" and a reviewing panel is not required to additionally make a separate, explicit determination that the standard of footnote 5 has been met.[129] Not much guidance is provided by the Appellate Body as to the application of the footnote 5. The application of footnote 5 seems to not be transparent enough.
Here, China would want to prove that the challenged measures are intended to protect public morals and/or to maintain public order. In US-Gambling,
[t]he panel [sic] referred to Congressional reports and testimony establishing that "the government of the United States" consider[s] that the Wire Act, the Travel Act, . . . [and other laws] were adopted to address concerns such as those pertaining to money laundering, organized crime, fraud, underage gambling and pathological gambling. On this basis, the panel found that the three federal statutes are measures that are designed to "protect public morals" and/or "to maintain public order" within Article XIV(a).[130]
It seems that China would need to provide similar kinds of evidence, including legislative reports and other documents (e.g., perhaps the enforcement materials themselves), to the greatest degree possible in order to make the case.
(b) Necessity and "for the Protection of" Test
(i) Reach of "Necessary" and "for the Protection of"
The responding member shall prove that its measures are "necessary" or imposed "for the protection of" interests stipulated in the general exceptions clauses. The term of "necessary" was discussed before in the WTO cases. First, the standard of "necessity" in the general exceptions is an objective one.[131] Although a panel is not bound by these characterizations,
a member's characterization of a measure's objectives and of the effectiveness of its regulatory approach-as evidenced, for example, by texts of statutes, legislative history, and pronouncements of government agencies or officials-[are] relevant in determining whether the [questioned] measure is objectively ‘necessary'. . . . [G]uidance [could also be found] . . . in the structure and operation of the measure and in contrary evidence proffered by the complaining party.[132]
Second, there is strict interpretation as to the meaning of "necessary." Take the example of Article XX(d), whose interpretation should apply to Article XX of the GATT 1994 in its entirety and Article XIV of the GATS. As used in Article XX(d), the term "necessary" refers to a range of degrees of necessity, ranging from "indispensable" to "making a contribution to."[133] A "necessary" measure, placed within continuum, would be considered to be located significantly closer to the pole of "indispensable" than to the opposite one of simply "making a contribution to."[134] While the reach of the word "necessary" is not limited to that which is considered "indispensable" or "of absolute necessity" or "inevitable" to secure compliance of a WTO-consistent law or regulation, measures which are deemed such would certainly fulfill the requirements of Article XX(d).[135] Other measures may also fall within the ambit of this exception. When "assessing a measure claimed to be necessary to secure compliance of a WTO-consistent law or regulation, [one may] in appropriate cases, take into account the relative importance of the common interests or values that the law or regulation to be enforced is intended to protect."[136] The more vital those common interests or values are, the easier it would be to accept as "necessary" a measure designed as an enforcement instrument.[137] Other aspects of the enforcement measure could be considered as well, such as the extent to which the measure contributes to the realization of the end pursued and the securing of compliance with the law or regulation at issue.[138] If the contribution is greater, a measure at issue might be more easily deemed as "necessary."[139] Another aspect to consider
is the extent to which the compliance measure produces restrictive effects on international commerce, that is, in respect of a measure incompatible with Article III:4, restrictive effects on imported goods. A measure with a relatively slight impact on imported products might more easily be considered as "necessary" than a measure with intense or broader restrictive effects.[140]
To sum up, "the determination of whether a measure, which is not ‘indispensable,' may . . . be ‘necessary' within the contemplation of Article XX(d), involves . . . weighing and balancing factors."[141] These factors include "the contribution made by the compliance measure to the enforcement of the [rule] . . . at issue, the importance of the common interests or values protected by that law or regulation, and the accompanying impact of the rule on imports or exports."[142]
In contrast, there are few analyses on how to define the term "for the protection of." In enumerating the categories of governmental acts, laws or regulations which members may carry out or promulgate in pursuit of legitimate state policies or interests outside the realm of trade liberalization, Article XX of the GATT 1994 uses different terms in respect of different categories: "necessary" - in paragraphs (a), (b) and (d); "essential" - in paragraph (j); "relating to" - in paragraphs (c), (e) and (g); "for the protection of" - in paragraph (f); "in pursuance of" - in paragraph (h); and "involving"-in paragraph (i).[143] In respect of each and every category, there is a different kind or degree of connection or relationship between the measure under appraisal and the member interest or policy sought to be promoted or realized.[144] Up until now, no interpretation of "for the protection of" in the Article XX (f) is made by the Appellate Body. However, similar to the interpretation of "relating to" in paragraph (c), it needs to be read in context and in such a manner as to give effect to the purposes and objects of the GATT 1994.[145] The parties may argue for the most favorable definitions.
(ii) Availability of Alternative WTO-Consistent Measure
To determine whether a measure is "necessary," it should go through "a process of weighing and balancing a series of factors."[146] "[T]he weighing and balancing process . . . is comprehended in the determination of whether a WTO-consistent alternative measure which the member concerned could ‘reasonably be expected to employ' is available, or whether a less WTO-inconsistent measure is ‘reasonably available.'"[147]
In the assessment of whether a proposed alternative to the impugned measure is reasonably available, factors such as (a) the (relative) importance of the interests protected by the measure, which would be considered first in the weighing and balancing process; (b) the trade impact of the measure; or (c) the contribution of the measure to the realization of the end pursued, should be taken into account in the analysis.[148] The factors pointed out by the Appellate Body are not necessarily exhaustive of factors that might be considered.[149] "The weighing and balancing process of these three factors also informs the determination whether a WTO-consistent alternative measure which the member concerned could reasonably be expected to adopt is available, or whether a less WTO-inconsistent measure is reasonably available."[150] For example, it should be found whether "there is an alternative measure that would achieve the same end and that is less restrictive of trade than a prohibition."[151]
A comparison between the challenged measure and possible alternatives is to be undertaken, and the comparison results 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, taking into account the interests or values at stake, that a panel determines whether a measure is "necessary" or whether another WTO-consistent measure is "reasonably available."[152]
"The requirement under the GATS Article XIV (a) that a measure be ‘necessary'-namely, there is no ‘reasonably available,' WTO-consistent alternative-reflects the understanding that substantive GATS obligations should not be deviated from lightly."[153] A "reasonably available" alternative should not be "merely theoretical in nature, for instance, where the responding member is not capable of taking it, or where it imposes an undue burden on that member, such as prohibitive costs or substantial technical difficulties."[154] Moreover, "it must be a measure that would preserve for the responding member its right to achieve its desired level of protection with respect to the objective pursued under" Article XIV (a).[155]
Engaging in consultations with [a complaining member], with a view to arriving at a negotiated settlement that achieves the same objectives as the challenged measures, is not an appropriate alternative to consider because consultations are by definition a process, the results of which are uncertain and therefore not capable of comparison with the measures at issue in this case.[156]
"Members . . . have the right to determine for themselves the level of enforcement of their WTO-consistent laws and regulations."[157] Paired with the burden of proof, these rules would probably apply to the current case. The process of weighing and balancing a series of factors is the key here.
(iii) Burden of Proof
If China invokes an affirmative defense, "it bears the burden of demonstrating that its measure, found to be WTO-inconsistent, satisfies the requirements of the invoked defense."[158] In terms of the GATS Article XIV(a), China must prove that its measure is "necessary" to fulfill objectives pertaining to public morals or public order. However China does not have to prove, in the first instance, that no reasonably available alternatives exist in order to realize its objectives.[159] China must
make a prima facie case that its measure is "necessary" by putting forward evidence and arguments that enable a panel to assess the challenged measure in the light of the relevant factors to be "weighed and balanced" in a given case . . . . 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 "indispensable" than to the opposite pole of simply ‘"making a contribution to"-then a panel should find that challenged measure "necessary" within the terms of GATS Article XIV(a).[160] A panel determines whether this case is made through the identification, and weighing and balancing, of relevant factors with respect to the measure challenged.[161]
If the United States raises a WTO-consistent alternative measure that, in its view, China should have taken, China will then be required to demonstrate why its challenged measure nevertheless remains "necessary" in light of that alternative, or in other words, why the proposed alternative is not "reasonably available." If China demonstrates that the alternative is not "reasonably available," or fails to preserve for China its right to achieve its desired level of protection with respect to the objective pursued under paragraph (a) of Article XIV, it follows that the challenged measure must be "necessary" within the terms of Article XIV(a) of the GATS.[162]
Finally, it is noteworthy that the analysis of general exceptions is two-tiered under the GATT 1994: "first, provisional justification by reason of characterization of the measure under [Article XX, which is discussed above;] second, further appraisal of the same measure under the introductory clauses of Article XX."[163] "This sequence of steps . . . reflects . . . the fundamental structure and logic of Article XX."[164] It is the same as the GATS.
3. Chapeau
Provided that the measures fall within the scope of the general exceptions stipulations, there would be further discussion about their compliance with the chapeau requirements. For instance, "where the measure at issue is found to fall within . . . one of the paragraphs of [the GATS] Article XIV . . . a panel should then consider whether that measure satisfies the requirements of the chapeau of Article XIV."[165] The chapeau of the GATT 1994 Article XX and the GATS Article XIV are nearly the same except for one point.[166] Under both of them, the questioned measures may be applied in a manner which could constitute a means of the arbitrary or unjustifiable discrimination between members. For the chapeau of GATS Article XIV, it requires that the measures shall not be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between members where "like" conditions prevail.[167] In contrast, the chapeau of the GATT 1994 Article XX stipulates that the measures cannot be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between members where the "same" conditions prevail.[168] If the application of the measures results in discrimination between members with similar conditions, such measures would violate the chapeau of the GATS Article XIV, but not the chapeau of the GATT Article XX.[169] The subtle change indicates that there are higher requirements for measures affecting the trade in services than those for measures affecting trade in goods. In essence, the chapeau serves to ensure that the rights provided by the exceptions are exercised reasonably. First, every exception in paragraphs (a) to (j) of Article XX is a "limited and conditional" exception from the obligations embodied in the other articles of the GATT 1994. Similarly in the GATS, the ultimate availability of the exception is conditional upon the compliance by the invoking member with the requisites of the introductory clauses,[170] "so as not to frustrate the rights accorded other [m]embers by the substantive rules of the GATS."[171] It is important to highlight that the "purpose and object" of the introductory clauses of Article XX is generally the prevention of "abuse or illegitimate use of the exceptions."[172] The chapeau essentially involves
locating and marking out a line of equilibrium between [a member's right] to invoke an exception under Article XX and [the other members' rights] under the GATT 1994 substantive provisions . . . . The location of the line of equilibrium is not fixed and unchanging, [but] moves as the kind and the shape of the measures at stake vary and as the facts making up specific cases differ.[173]
In other words, a balance is to be struck between a member's right to cite an exception under Article XX and the duty of that same member to respect other members' rights.[174] "[T]he measures falling within the particular exceptions shall be applied reasonably, with due regard both to the legal duties of the party claiming the exception and the legal rights of the other parties concerned."[175]
Second, the chapeau of Article XX contains three tests for the application of measures for which justification under Article XX could be sought: no "arbitrary" discrimination between members where the same conditions prevail, no "unjustifiable" discrimination between members where the same conditions prevail, and no "disguised restriction on international trade."[176] The application of a measure may be deemed as an abuse or misuse of an exception of Article XX not only when the measure's detailed operating provisions specify the arbitrary or unjustifiable activity, but also where it is implemented in an arbitrary or unjustifiable way although "otherwise fair and just on its face."[177]
Three elements must exist before a measure is deemed to have been applied in a manner constituting "arbitrary or unjustifiable discrimination between countries where the same conditions prevail."[178] (a) "[T]he application of the measure must result in discrimination."[179] The nature and quality of this discrimination differs from the discrimination in the treatment of products which was already found to conflict with one of the substantive obligations of the GATT 1994, such as Articles I, III or XI.[180] (b) "[T]he discrimination must be arbitrary or unjustifiable in character."[181] (c) This discrimination must occur between members where the same conditions prevail.[182] "[T]he assumption of the participants in that appeal [is accepted] that such discrimination could occur not only between different exporting Members, but also between exporting Members and the importing Member concerned."[183] Unfortunately the Appellate Body has not given a ruling on this point. The non-discrimination requirement in the chapeau differs from the national treatment or most-favoured-nation treatment (hereinafter referred to as "MFN treatment"). For instance, it involves both the treatment among other members (which resembles the MFN treatment),[184] and the treatment between the exporting and importing member (which resembles the national treatment).[185] Moreover, the chapeau also refers to the discrimination between members where the same or like conditions prevail, but the MFN treatment and national treatment do not contain such a "same" or "like" conditions requirement. Other differences include that the chapeau focuses on the measures, but the MFN treatment and national treatment are not the same. The MFN treatment involves the customs duties and charges, rules and regulations, among others.[186] National treatment deals with, inter alia, internal taxation and regulation affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products.[187]
Third, "arbitrary discrimination," "unjustifiable discrimination," and "disguised restriction" on international trade appear in the general exceptions of both the GATS and the GATT 1994.[188] These three terms may "be read side-by-side; they impart meaning to one another."[189] "‘Disguised restriction' includes disguised discrimination in international trade, and concealed or unannounced restriction or discrimination in international trade does not exhaust the meaning of ‘disguised restriction.'"[190] Discrimination would also result "when the application of the measure at issue does not allow for any inquiry into the appropriateness of the regulatory program for the conditions prevailing in those exporting members."[191]
Fourth, in certain circumstances, to avoid "arbitrary or unjustifiable discrimination," the member has to provide all exporting members similar opportunities to negotiate an international agreement and make good faith efforts to reach international agreements that are comparable from one forum of negotiation to the other.[192] However, it does not require the conclusion of a multilateral agreement;[193] otherwise, it means that other exporting members are granted the veto over whether that member could fulfill its WTO obligations.[194] An importing member could "condition market access on exporting members putting in place regulatory programmes comparable in effectiveness to that of the importing Member."[195]
Fifth, the standards of the chapeau contain requirements that are both procedural and substantive.[196] "The chapeau by its express terms addresses, not so much the questioned measure or its specific contents as such, but rather the manner in which that measure is applied."[197] A small number of cases could be insufficient for a panel to determine that there was discrimination in the law enforcement.[198] More evidence shall be provided to allow enforcement instances to be placed in their proper context, such as "evidence on the overall number of suppliers, and on patterns of enforcement, and on the reasons for particular instances of non-enforcement."[199] One example is that "enforcement agencies may refrain from prosecution in various instances for reasons unrelated to discriminatory intent and without discriminatory effect."[200] "Faced with the limited evidence the parties put before it with respect to enforcement, the Panel should rather have focused, as a matter of law, on the wording of the measures at issue."[201] It aims to see whether the measures, on their face, discriminate between domestic and foreign service suppliers.[202] Sometimes the party shall provide evidence sufficiently persuasive to prove the relationship between certain domestic rules and the measures at issue.[203] Therefore, there may be burden of proof on the part of the responding member. All these issues may arise in the present case, and they may impose another requirement for China.
Besides the above defenses, other relevant international conventions such as United Nations Educational, Scientific and Cultural Organization, Convention on the Protection and Promotion of the Diversity of Cultural Expressions,[204] the Schedule of Commitments, and other negotiation documents may also be invoked by China. In practice, other international documents may be relevant for the general exceptions applications. Principle 12 of the Rio Declaration on Environment and Development was referred to in the U.S.-Shrimp.[205] China believes that its measures "‘actually contribute to the protection' of intellectual property rights ‘by ensuring dependable market channels for duly-authorized cultural products.'"[206] The practice and jurisprudence of China's WTO-extra obligations and GATS are very limited, and there are ambiguities regarding the general exceptions. Many arguments and debates beyond the discussion of this article may arise in this dispute, which would, to certain degree, affect the formation of WTO case law. The panel may exercise judicial economy, thus not having to go through all the above legal issues in certain circumstances (e.g., if the prima facie case failed to be made by the party).
IV. Conclusion
The China-Audiovisual Services is the first dispute involving China that primarily addresses the services in trade, a new area of the WTO law. The rules and applications of trading rights and general exceptions under the GATT 1994 and the GATS are two major issues in the dispute. In the panel report and the Appellate Body Report, if any, the trading rights rule need to be further elaborated on for clarity. One issue to be answered is how far the trade rights rule goes to liberalize the trade in goods that involves China. The balance between a member's right to invoke an exception and others' treaty rights must be carefully stricken. The implications of the trading rights and general exceptions for China have yet to be seen. In any event, China-Audiovisual Services will enrich the WTO laws and provide guidance for the rest of the membership. China retains the authority to regulate the services in trade, but the case also imposes serious challenges for China to justify the measures at issue. The case decision is likely to have an effect on China's future measures.
In the first several years in the WTO, China has faced an increasing number of disputes filed against it, and the subject matter of the disputes has developed from traditionally goods to intellectual property rights[207] and services.[208] Because it is a difficult task for China to fulfill the WTO-plus obligations, it is worthwhile to seek a way of preventing trade frictions and changing trade disputes for China, and the choice of maneuvers is crucial from the legal and political perspective. Thus, it is advisable that China and its trading partners think "outside the box" for a better approach in the future, as both legal and political inputs are vital to this developmental process of international trade.
** Deputy Director, Center of Law for International Investment and Finance; Research Fellow, Institute of EU Law; Associate Professor, Economic and Trade Law School, Southwest University of Political Science and Law (SWUPL), Yubei District, Chongqing 401120, P.R. China. PhD, LLM, LLB, BA. Email: stonewh6@gmail.com. The early version of this paper was presented at Gonzaga Journal of International Law Spring Symposium of "International Trade: Law or Politics?", Gonzaga University School of Law, in Spokane, Washington, on February 28, 2008. The author would like to thank Professor Upendra Acharya who organized the symposium for the invitation, and all of the many faculty and staff members and students of Gonzaga Law School who helped make the conference possible. The author is also grateful to the insightful comments from Profs. Zhao Xueqing, Tony Vanduzer, David Aronofsky, Ichiro Araki, Kevin Kennedy, James Nafziger, and other commentators at the symposium. He thanks Ji Mingzhu and Wang Guoliang for their assistance.
This paper receives funding support from Jiao yu bu ren wen she hui ke xue yan jiu 2005 nian du qing nian ji jin xiang mu zi zhu [Humanities and Social Sciences Research 2005 Youth Foundation Project of China's Ministry of Education] "WTO bei jing xia de zhongguo fu wu yuan chan di gui ze chuang xin"[Innovation of China's Origin Rules for Services in the Context of the WTO] whose pi zhun hao [Project Num.] is 05JC820050. It is the outcome of the 2007 nian xi nan zheng fa da xue qing nian ke yan xiang mu [2007 SWUPL youth research project] "WTO yu wo guo fu wu ye cu jin zheng ce fa lv chuang xin"[WTO and Innovation of China's Industrial Development Policy and Laws for Services] whose pi zhun hao [Project Num. ] is 07XZ-QN-23. It is also part of the 2007 nian xi nan zheng fa da xue xiao ji jiao yu jiao xue yan jiu xiang mu [2007 SWUPL University Education and Teaching Research Project] "Shi jie mao yi zu zhi fa ke cheng hu dong shi shuang yu an li jiao xue yan jiu"[Bilingual, Interactive and Case Teaching of WTO Law].
[1] The WTO's Ministerial Conference approved the text of the agreement for China's entry into the WTO on November 10, 2001. World Trade Organization, WTO Ministerial Conference Approves China's Accession, (Nov. 10, 2001), available at http://www.wto.org/english/news_e/pres01_e/pr252_e.htm (last visited August 29, 2008). China became a member of the WTO on December 11, 2001. World Trade Organization, Protocols of accession for new members since 1995, including commitments in goods and services, (July 23, 2008), available at http://www.wto.org/english/thewto_e/acc_e/completeacc_e.htm#chn (last visited August 29, 2008).
[2] See World Trade Organization, Dispute Settlement: Dispute DS363, available at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm (last visited October 1, 2008) [hereinafter WTO Dispute DS363].
[3] Id.
[4] Aaditya Mattoo, China's Accession to the WTO: The Services Dimension, 6 J. Int'l Econ. L. 299, 299 (2003).
[5] Id. at 305.
[6] General Agreement on Trade in Services, available at http://www.wto.org/english/docs_e/legal_e/legal_e.htm. [hereinafter GATS].
[7] The Protocol on the Accession of the People's Republic of China, WT/L/432, November 23, 2001 [hereinafter Accession Protocol]. The Accession Protocol forms part of the terms of accession agreed between China and the WTO and is an integral part of the Marrakesh Agreement Establishing the World Trade Organization. See Accession Protocol, at ¶ 1.2.
[8] Report of the Working Party on the Accession of China, WT/ACC/CHN/49, October 1, 2001 [hereinafter Working Party Report].
[9] See World Trade Organization, Index of Dispute Resolutions, available at http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm.
[10] WTO Dispute DS363, supra note 2.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] WTO Dispute DS363, supra note 2.
[16] Daniel Pruzin, U.S. to Renew Request for WTO Panel on Chinese Restrictions in Audiovisual, WTO Reporter (BNA), November 13, 2007 [hereinafter Pruzin].
[17] Id.
[18] Daniel Pruzin, WTO Sets Up Dispute Panel to Rule on Chinese Audiovisual Restrictions, WTO Reporter (BNA), November 28, 2007 [hereinafter Daniel].
[19] China - Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products - Communication from the Chairman of the Panel, WT/DS363/7, September 23, 2008.
[20] General Agreement on Tariffs and Trade 1994, available at http://www.wto.org/english/docs_e/legal_e/legal_e.htm, at art. XI:1 [hereinafter GATT 1994].
[21] China - Measures Affecting Trading Rights and Distribution Services for certain Publications and Audiovisual Entertainment Products: Request for the Establishment of a Panel by the United States, WT/DS363/5, October 11, 2007, at 2-3 [hereinafter Panel Establishment Request].
[22] WTO Dispute DS363, supra note 2.
[23] Pruzin, supra note 16.
[24] WTO Dispute DS363, supra note 2; Panel Establishment Request, supra note 21, at 2.
[25] WTO Dispute DS363, supra note 2.
[26] Id.
[27] Panel Establishment Request, supra note 21, at 3, 6.
[28] These suppliers include wholly or partially foreign-owned or foreign-invested enterprises. Id. at 5.
[29] The United States believes that it is a term that refers to a subset of publications. Id.
[30] Id.
[31] Promulgated in Order No. 27 of the Ministry of Culture (May 10, 2003), amended by Order No. 32 of the Ministry of Culture (July 1, 2004). Id. at 4.
[32] The Interim Regulations on Internet Culture Administration [hereinafter Interim Regulations] define "internet cultural activities" as including activities such as wholesaling and retailing of "internet cultural products" on the internet (including to mobile telephones). The Interim Regulations further define "internet cultural products" as including various kinds of "network audiovisual products," including both audiovisual products that have been produced specifically for transmission over the internet and products that are the result of the transformation of an audiovisual product existing in physical form into a format that can be transmitted over the internet. It appears 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. Panel Establishment Request, supra note 21, at 6.
[33] Panel Establishment Request, supra note 21, at 6.
[34] The United States think that they, for instance, are "limitations by type, content, or origin of publication." Panel Establishment Request, supra note 21, at 5.
[35] Id.
[36] Id. at 5-6.
[37] Id. at 6.
[38] Id.
[39] Panel Establishment Request, supra note 21, at 5-6.
[40] Id. at 6.
[41] In the viewpoint of the United States, it includes "music in which certain rights, such as the rights described in the first sentence of Article 41 of the Copyright Law of the People's Republic of China are held by a foreign-owned or foreign-invested enterprise. . . ." Id. at 6.
[42] Id. at 6-7.
[43] For the distribution of publications and sound recording, the United States argues that China violates article XVII of GATS. As to the distribution of AEPs, article XVI and XVII of GATS are referred to. Id. at 5-7.
[44] GATS, supra note 6, art. XVI:1.
[45] Id. art. XVII:1.
[46] Panel Establishment Request, supra note 21, at 7.
[47] Id. at 3.
[48] Id. at 5.
[49] GATT 1994, supra note 20, art. III:4.
[50] Accession Protocol, supra note 7, ¶ 5.1.
[51] Id.
[52] Panel Establishment Request, supra note 21, at 5.
[53] Accession Protocol, supra note 7, ¶ 1.2.
[54] Working Party Report, supra note 8, ¶ 342.
[55] Id. ¶ 22.
[56] Id.
[57] Panel Establishment Request, supra note 21, at 5.
[58] Id. at 7.
[59] Id.
[60] Panel Establishment Request, supra note 21, at 7-8.
[61] Id. at 8.
[62] See Accession Protocol, supra note 7, ¶¶ 5.1-5.2; Working Party Report, supra note 8, ¶¶ 83-84.
[63] See GATT 1994, supra note 20, art. XI:1.
[64] See GATS, supra note 6, art. XVII; see also GATT 1994, supra note 20, art. III:4.
[65] See Accession Protocol, supra note 7, ¶ 5.1.
[66] See GATS, supra note 8, art. XVI.
[67] See Accession Protocol, supra note 7, ¶ 5.1.
[68] See GATT 1994, supra note 20, art. III:4.
[69] See Panel Establishment Request, supra note 21, at 1-8.
[70] Id. at 2-3.
[71] See The Administrative Regulation on Publishing, State Council Order No. 343, adopted at the 50th executive meeting of the State Council on December 12, 2001, promulgated on December 25, 2001, available at http://english.hebiic.gov.cn/Policy/PolicyDetail.aspx?id=441 [hereinafter Administrative Regulation on Publishing]. See also Panel Establishment Request, supra note 21, at 2.
[72] Administrative Regulation on Publishing, supra note 71, art. 2.
[73] Id. art. 41.
[74] Id.
[75] Id. art. 42.
[76] Panel Establishment Request, supra note 21, at 3.
[77] GATT 1994, supra note 20, art. XI:1.
[78] See Working Party Report, supra note 8, ¶¶ 80-82.
[79] Accession Protocol, supra note 7, ¶ 5.1.
[80] See GATT 1994, supra note 20, art. III.
[81] Id.
[82] Duiwai maoyi fa 2004 [Foreign Trade Act 2004] (adopted at the Eighth Sess. of the Tenth Nat'l People's Cong. Standing Comm., April 6, 2004, effective July 1, 2004), translation available at http://english.mofcom.gov.cn/aarticle/policyrelease/domesticpolicy/200406/20040600229060.html [hereinafter FTA]. The English term for this statute is usually the Foreign Trade Law. However, in this Article I refer to it as the Foreign Trade Act so as to distinguish it from the overall area of foreign trade law. Heng Wang, Chinese Views of the Modern Marco Polos: New Foreign Trade Amendments After WTO Accession, 39 Cornell Int'l L.J. 329, 331 (2006) [hereinafter Wang].
[83] Wang, supra note 82, at 336.
[84] Duiwai maoyi jingyingzhe beian dengji banfa [Measures for Registration for the Record of Foreign Trade Operators] (promulgated by the Ministry of Commerce, June 19, 2004), available at http://www.mofcom.gov.cn/aarticle/a/200406/20040600239262.html [hereinafter MRRFTO]. For a brief introduction to the MRRFTO, see China: Registration of Foreign Trade Operators, available at http://www.hg.org/articles/article_451.html (last visited Nov, 21, 2008).
[85] See China.org.cn, "Major Functions and Rights of the NPC", GOV.cn, available at http://english.gov.cn/2005-09/02/content_28450.htm (last visited August 28, 2008). The Constitution of China empowers the NPC with the total and highest position and the functions and rights, inter alia, to formulate and revise the Constitution and supervise its implementation and to enact and revise basic laws and other laws of the state.
[86] World Trade Organization, "General Council -Transitional Review under Article 18 of the Protocol of Accession of the People's Republic of China, Information Required in Sections I and III of Annex 1A of the Protocol-Communication from the People's Republic of China," WT/GC/68, November 25, 2002, at 5.
[87] Accession Protocol, supra note 7, ¶ 5; Working Party Report, supra note 8, ¶ 83.
[88] Working Party Report, supra note 8, ¶ 83 (c).
[89] Id.
[90] Accession Protocol, supra note 7, ¶ 5.1. The goods which continue to be subject to state trading are listed in Annex 2A to the Accession Protocol. They include products subject to state trading (import) and products subject to state trading (export). For instance, certain types of grain would be imported by China National Cereals, Oil & Foodstuff Import and Export Co., and some categories of tea would be exported by China National Native Products and Animal By‑Products Import & Export Co. See Accession Protocol, supra note 7, at Annex 2A.
"China would ensure that import purchasing procedures of state trading enterprises are fully transparent, and in compliance with the WTO Agreement, and refrain from taking any measure to influence or direct state trading enterprises as to the quantity, value, or country of origin of goods purchased or sold, except in accordance with the WTO Agreement . . . China shall also provide full information on the pricing mechanisms of its state trading enterprises for exported goods." Id. ¶ 6.
[91] Working Party Report, supra note 8, ¶ 84 (a).
[92] Accession Protocol, supra note 7, ¶¶ 5.1, 5.2.
[93] Working Party Report, supra note 8, ¶ 83(d).
[94] Id.
[95] Working Party Report, supra note 8, ¶ 83(a).
[96] Id. ¶ 84(a).
[97] FTA, supra note 82, art. 9.
[98] Id.
[99] Working Party Report, supra note 8, ¶ 83 (b).
[100] FTA, supra note 82, art. 8.
[101] GATT 1994, supra note 20, art. III.
[102] Accession Protocol, supra note 7, ¶ 5.2.
[103] Wang, supra note 82, at 337.
[104] FTA, supra note 82, arts. 8-9.
[105] Working Party Report, supra note 8, ¶ 84 (b).
[106] Accession Protocol, supra note 7, ¶ 5.1.
[107] GATT 1994, supra note 20, art. III(4) (emphasis added).
[108] GATT 1994, supra note 20, art. III(4); Accession Protocol, supra note 7, ¶ 5.1.
[109] Working Party Report, supra note 8, ¶ 84(a).
[110] Accession Protocol, supra note 7, ¶ 5.1.
[111] Working Party Report, supra note 8, ¶ 84(b).
[112] Id.
[113] GATS, supra note 6, arts. XIV(a), XIV(c).
[114] GATT 1994, supra note 20, arts. XX(a), XX(d), XX(f).
[115] Article XX of GATT 1994 has been discussed in the WTO cases. The examples include: the Appellate Body Report of Dominican Republic - Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, April 25, 2005, at ¶¶ 57-74 [hereinafter Appellate Body Report, Dominican Republic - Import and Sale of Cigarettes], the Appellate Body Report of European Communities - Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, March 12, 2001, ¶¶ 155-181 [hereinafter Appellate Body Report, EC - Asbestos], and the Appellate Body Report of Korea- Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, December 11, 2000, ¶¶ 152-185 [hereinafter Appellate Body Report, Korea - Various Measures on Beef]. The general exceptions under GATS have also been analyzed in the WTO dispute. The examples include the Appellate Body Report of the United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, April 7, 2005, at ¶¶ 266-372 [hereinafter Appellate Body Report, US - Gambling].
[116] The United States contends that "the measures at issue do not appear to fall within the terms, limitations, 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"(emphasis added). See Panel Establishment Request, supra note 21, at 5.
Similar ones could be found in "[I]n Sectors 4A-4E of its Schedule, China 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," and "[I]n Sector 2D of its Schedule, China undertook market access and national treatment commitments with respect to the supply through commercial presence in China by service suppliers of other Members of distribution services for a range of products including, inter alia, audiovisual home entertainment products, such as video cassettes and DVDs" (emphasis added). Id.
[117] The United States considers that "[I]n Sector 2D of its Schedule, China undertook market access and national treatment commitments with respect to the supply of sound recording distribution services through cross-border supply and through commercial presence in China by service suppliers of other Members" (emphasis added). See Id. at 6.
[118] GATS, supra note 6, art. XIV; GATT 1994, supra note 20, art. XX.
[119] Id.
[120] Appellate Body Report, US - Gambling, supra note 115,¶ 291.
[121] When dealing with the general exceptions of GATT1994, the Appellate Body refers to the GATS general exceptions analysis in US - Gambling. See, e.g., Appellate Body Report, Dominican Republic - Import and Sale of Cigarettes, supra note 115, ¶¶ 69-70.
Meanwhile, Appellate Body Report, EC - Asbestos and Appellate Body Report, Korea - Various Measures on Beef are each quoted when the Appellate Body analyzes the GATS Article XIV. See, e.g., Appellate Body Report, US - Gambling, supra note 115, ¶ 308.
[122] Appellate Body Report, US - Gambling, supra note 115, ¶ 292 (quoting Appellate Body Report of United States - Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, October 12, 1998, ¶ 147 [hereinafter Appellate Body Report, US - Shrimp] and Appellate Body Report of United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, April 29, 1996, at 17-18, 22 [hereinafter Appellate Body Report, US - Gasoline]).
[123] GATS, supra note 6, arts. XIV(a) and XIV(c).
[124] GATT 1994, supra note 20, arts. XX(a), XX(d), XX(f).
[125] Id. at art. XX(d); GATS supra note 6, art. XIV(c).
[126] Appellate Body Report, US - Gambling, supra note 115, ¶¶ 294-295.
[127] Id. ¶ 296 (quoting Panel Report, United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/R, 10 November 2004 [hereinafter The Panel Report], ¶¶ 6.465, 6.467).
[128] GATS, supra note 6, art. XIV(a), fn. 5.
[129] Appellate Body Report, US - Gambling, supra note 115, ¶ 298.
[130] Id , ¶ 296.
[131] Appellate Body Report, US - Gambling, supra note 115, ¶ 304.
[132] Id.
[133] Appellate Body Report, Korea - Various Measures on Beef, supra note 115, ¶ 161.
[134] Id.
[135] Id. ¶¶ 161-63.
[136] Id. ¶ 162.
[137] Id.
[138] Appellate Body Report, Korea - Various Measures on Beef, supra note 115, ¶ 163.
[139] Id.
[140] Id.
[141] Id. ¶ 164.
[142] Id.
[143] Appellate Body Report, US - Gasoline, supra note 122, at 17-18.
[144] Id.
[145] Id. at 18.
[146] Appellate Body Report, Korea - Various Measures on Beef, supra note 115, ¶ 164.
[147] Id. ¶ 166.
[148] Appellate Body Report, US - Gambling, supra note 115, ¶ 306.
[149] Id.
[150] Appellate Body Report, Dominican Republic - Import and Sale of Cigarettes, supra note 115, ¶ 70.
[151] Appellate Body Report, EC - Asbestos, supra note 115, ¶ 172.
[152] Appellate Body Report, US- Gambling, supra note 115, ¶ 307.
[153] Id. ¶ 308.
[154] Id.
[155] Id.
[156] Id. ¶ 317.
[157] Appellate Body Report, Korea - Various Measures on Beef, supra note 115, ¶ 176.
[158] Appellate Body Report, US - Gambling, supra note 115, ¶ 309 (quoting Appellate Body Report, US - Gasoline, supra note 123, at 22-23; Appellate Body Report, US - Wool Shirts and Blouses, at 15-16; Appellate Body Report, United States - Tax Treatment for "Foreign Sales Corporations", Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, January 14, 2002, ¶ 133).
[159] See Appellate Body Report, US - Gambling, supra note 115, ¶ 309.
[160] Id. ¶ 310.
[161] Id. ¶ 323.
[162] Id. ¶ 308.
[163] Appellate Body Report, US - Gasoline, supra note 122, at 22.
[164] Appellate Body Report, US - Shrimp, supra note 122, ¶ 119..
[165] Appellate Body Report, US - Gambling, supra note 115, ¶ 292.
[166] Id. ¶ 291.
[167] GATS, supra note 6, art. XIV.
[168] GATT 1994, supra note 20, art. XX.
[169] Compare id. with GATS, supra note 6, art. XIV.
[170] Appellate Body Report, US - Shrimp, supra note 122, ¶ 157.
[171] Appellate Body Report, US - Gambling, supra note 115, ¶ 339.
[172] Appellate Body Report, US - Gasoline, supra note 122, at 25.
[173] Appellate Body Report, US-Shrimp, supra note 122, ¶ 159.
[174] Id. at 156.
[175] Appellate Body Report, US - Gasoline, supra note 122, at 22.
[176] Appellate Body Report of U.S., Import Prohibition of Certain Shrimp and Shrimp Products, Article 21.5-Malaysia, WT/DS58/AB/RW, October 22, 2001,¶ 118 (2001) [hereinafter Appellate Body Report, US - Shrimp (Article 21.5 - Malaysia)].
[177] Appellate Body Report, US - Shrimp, supra note 122, ¶ 160.
[178] Id. ¶ 150.
[179] Id.
[180] Id.
[181] Appellate Body Report, US - Shrimp, supra note 122, ¶ 150.
[182] Id.
[183] Id.
[184] GATT 1994, supra note 20, art. I.
[185] Id. art. III.
[186] See, e.g. GATT 1994, supra note 20, art. I:1.
[187] See, e.g., id. art. III:3.
[188] Appellate Body Report, US - Gasoline, supra note 122, at 25.
[189] Id.
[190] Id.
[191] Appellate Body Report, US - Shrimp, supra note 122, ¶ 165.
[192] Appellate Body Report, US - Shrimp (Article 21.5 - Malaysia), supra note 176, ¶ 122.
[193] Id. ¶ 124.
[194] Id. ¶ 123.
[195] Id. ¶ 144.
[196] Appellate Body Report, US - Shrimp, supra note 122, ¶ 160.
[197] Appellate Body Report, US - Gasoline, supra note 122, at 22.
[198] Appellate Body Report, U.S. - Gambling, supra note 115, ¶ 355 (One case of prosecution against a foreign service supplier; one case of "pending" prosecution against a domestic service supplier; and three cases with no evidence of prosecution against domestic service suppliers).
[199] Appellate Body Report, US - Gambling, supra note 115, ¶ 356 (emphasis in original).
[200] Id.
[201] Id. ¶ 357.
[202] Id.
[203] See id. ¶ 364.
[204] See Henry Gao, The Mighty Pen, the Almighty Dollar, and the Holy Hammer and Sickle: An Examination of the Conflict between Trade Liberalization and Domestic Cultural Policy with Special Regard to the Recent Dispute between the United States and China on Restrictions on Certain Cultural Products, 2 Asian J. WTO & Int'l Health L. & Pol'y 313, 332-338 passim (2007).
[205] Appellate Body Report, US - Shrimp (Article 21.5 - Malaysia), supra note 176, ¶ 124.
[206] Daniel, supra note 18, ¶ 9.
[207] World Trade Organization delegation for the U.S., China - Measures Affecting the Protection and Enforcement of Intellectual Property Rights, DS362/1 passim (2007).
[208] World Trade Organization delegation for the European Communities, China - Measures Affecting Financial Information Services and Foreign Financial Information Suppliers, DS372/1, DS373, DS378 and China-Audiovisual Services Dispute DS363 passim (2008).
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