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"As long as human rights are violated, there can be no foundation for peace. How can peace grow where speaking the truth is itself a crime?"

WTO win could open China's door to US companies

August 15, 2009

By BRADLEY S. KLAPPER, Associated Press Writer
The Associated Press
August 12, 2009

GENEVA - The World Trade Organization backed the
United States Wednesday in a major trade battle
with China, issuing a ruling that could ease
tight controls and open markets for U.S. makers
of everything from DVDs to books and music downloads.

The decision came down decisively against
Beijing's policy of forcing American media
producers to route their business through
state-owned companies. It will not yield
immediate revenues in Hollywood or Silicon
Valley, and it may take sanctions — or the threat
of them — to force China to ease access for U.S.
companies to the world's largest marketplace.

Still, U.S. Trade Representative Ron Kirk said
the decision will help "level the playing field
for American companies working to distribute
high-quality entertainment products in China."

"To me, that is a clear win," he said. "We
believe that this report will help pave the way
toward more open trade between China and America."

The case could have worldwide ramifications as it
sets a precedent for how China is allowed to
manage and control foreign manufacturers and service providers.

The country's rigid restrictions have been a key
gripe of Western powers, who have complained that
China's rapid rise as a trade power has been in
part aided by unfair policies that boost sales of
Chinese goods abroad while limiting the amount of
foreign products entering its own market.

While the ruling was seen as an important first
step, U.S. content companies say it will take a
renewed push to clamp down on piracy to have a meaningful impact.

The WTO decision comes as President Barack Obama
is being pressed to get tough on trade rules with
China, which many Democrats in the U.S. Congress
blame for America's soaring trade deficit and
lost manufacturing jobs. The case is sensitive
for the Chinese government because it asserts the
right to keep out content it finds objectionable
in products including video games to computer software.

The Associated Press reported the main findings
of the then-confidential ruling last month, but
the public release of the 464-page document on
Wednesday revealed dozens of smaller decisions
that support the complaints of trade associations
representing record labels such as EMI and Sony
Music Entertainment; publishers including McGraw
Hill and Simon & Schuster; and, to a lesser
extent, the major Hollywood studios of Warner
Bros., Disney, Paramount, Universal and 20th Century Fox.

These associations say discriminatory Chinese
rules are costing them millions each year in lost business opportunities.

"The Chinese system for distributing U.S. films
to Chinese audiences is among the most
restrictive and burdensome in the world," said
Dan Glickman, chairman of the Motion Picture Association of America.

Up to now, state-owned China Film Corp. decided
which movies could make it into the country
legally. But its tastes can differ from the Chinese public.

Say China Film wants to import "G-Force" when the
public wants to see "The Hangover." Pirates who
steal a "Hangover" copy can sell illegal DVDs at
a huge profit and satisfy consumer demand before
the studios have a chance to compete, said Greg
Frazier, executive vice president for
international policy for the Motion Picture Association of America.

Allowing studios to have more direct access to
the Chinese market can smooth the process of
selling movies in China legitimately although it
does not address the issue of censorship.

"If we can remove some of those hurdles and get
some competition in that market, then we can
compete with the pirates," Frazier said.

The decision also offered hope of greater
business for companies like Apple's iTunes store,
finding that China was breaking trade rules by
preventing companies selling music downloads to
computers and mobile phones from offering their
services directly to Chinese customers.

The restriction is one of the key reasons there
is no iTunes store in China, despite demand
signified by the prevalence of smuggled Apple
Inc. iPods and iPhones, said Neil Turkewitz,
executive vice president international of the
Recording Industry Association of America.

The case is without a true precedent in the WTO's
14-year history, and there has been no indication
that China has been considering relaxing
restrictions on imports despite the looming decision.

However, China has committed itself to the WTO
process and will likely try to come into
compliance in some fashion. The government could
set up new regulations and procedures for vetting
and approving cultural imports that would allow a wider opening of the market.

Or, it could seek to negotiate lower thresholds
for Chinese ownership in joint ventures for
distributing American goods, giving U.S.
companies a greater portion of the profits.

That may not be enough for American recording
companies, film studios and publishers, who could
ask the Office of the U.S. Trade Representative
to pressure China into full compliance by
threatening retaliatory trade sanctions. The WTO
can authorize higher tariffs and other measures
against countries failing to adhere to the rules,
but generally only after years of litigation.

China can appeal the ruling, but officials at the
country's WTO mission in Geneva declined to comment.

When China joined the WTO in 2001, it agreed to
grant equal trading rights to foreign and
domestic companies operating in China.

The panel made no finding that implies it is
illegal for China to review foreign goods for
objectionable content. But it said China's
methods were invariably breaking the rules, with
the WTO backing the U.S. on almost every key point.

The three-member panel rejected, however, a U.S.
argument that burdensome censorship of American
music was hampering sales in China. Washington
also suffered a setback on cinema rights as it
failed to prove that China was illegally
restricting the distribution of films in movie
theaters to two state-owned companies.

Tom Allen, CEO of the Association of American
Publishers, called it a landmark ruling.

"It protects legitimate creators of valuable
content and offers them fair access to this
extremely important market," Allen said. "Both
these long-standing market-access barriers and
widespread piracy and counterfeiting in China
cause serious economic damage to publishers, who
make substantial investments in developing and promoting creative content."

* AP Business Writer Ryan Nakashima in Los Angeles contributed to this report.
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