Law & Disorder / Civilization & Discontents

China’s new media rules slammed by WTO as trade violations

The WTO has handed down a decision against Chinese laws that restrict the …

Today, the World Trade Organization handed down a ruling on a complaint lodged against Chinese media laws by the US and most of the developed world. The laws require that various forms of imported media, from books to movies, be distributed by a single, state-owned company. It also limits foreign ownership of Chinese media companies and allows content produced by domestic companies to skip the trip to the state censors. A lot of that, according to the WTO, runs afoul of the agreements that China signed when it entered the body. The ruling opens the door for China's trading partners to impose punitive tariffs on its exports, meaning that China may face a choice between exports and control.

To understand the consequences of this ruling, you need to understand a bit about how the WTO works. It's a voluntary group, and its members sign up by agreeing to reduce tariffs and open their domestic markets to foreign competitors. Any actions that go against the documents specifying the details of this agreement allow the other members to request mediation and file formal complaints. If the complaints are upheld, the complainant gains the right to impose trade sanctions on the offender that would normally otherwise be prohibited by WTO rules. In theory, those punitive actions are supposed to be proportional and focused on the markets where the trade violations took place.

The original complaint was filed by the US in 2007 (the WTO has a brief history of it available), or you can go straight to the 469 page monster that details the entire proceedings). Over time, the EU, Japan, Korea, and Taiwan joined as interested parties. The gist of the complaint is that Chinese law discriminates against non-domestic media companies in fields like books and other publications, music, and movies, despite promising to level the playing field in its WTO Accession Protocol.

Basically, China has different rules for domestic companies, domestic companies backed by foreign investors, and foreign companies. So, for example, if a movie is burned to disk and packaged overseas, the only entity allowed to import it is the state-owned CNPIEC. If, in contrast, the movie is brought in digital form and then burned to disk and packaged within China, the process can be handled by a variety of companies, but all of them are also state-owned. Similar rules apply to print and music.

Part of this is old-fashioned protectionism, but China's emphasis on social control is also considered a trade barrier, as this section on the country's content review policies makes clear:

China requires all sound recordings, including sound recordings intended for electronic distribution, to undergo content review. The nature of that review, however, varies substantially depending on whether the sound recording is imported or domestic. China's measures require imported sound recordings to undergo content review and approval by the Chinese Government prior to their electronic distribution. In contrast, domestic sound recordings do not have to receive prior approval from the Chinese Government. Instead, they undergo internal company content review, and they simply are registered with the Ministry of Culture.

It's not so much that the review happens, it's just that domestic companies are presumably more sensitive to the consequences of releasing content that the government disapproves of, so they're trusted to run the review process on their own.

China's response to the complaint, for the most part, is that it's a mix of cultural imperialism and an attempt to undercut the morals of Chinese citizens. "Cultural goods and services have in common the fact of being vectors of cultural identity and values and, as such, of justifying the implementation of specific, yet WTO compliant, regulatory measures," states its formal response, which noted elsewhere that, "It is of vital interest for China to impose a high level of protection of public morals through an appropriate content review mechanism that prohibits any cultural goods with a content that could have a negative impact on public morals."

The actual decision portion of the document is entirely incomprehensible without field guides to Chinese law and its WTO Accession Protocol. (There are nine pages of statements like "The United States has not established that Article 8 of the 1997 Electronic Publications Regulation results in China acting inconsistently with paragraph 5.2 or paragraph 84(b).") Although it's clear that the US failed to make its case on a variety of points, it appears to have succeeded in quite a few of them. The final words on page 469 are "We recommend that the Dispute Settlement Body request China to bring the relevant measures into conformity with its obligations under those agreements."

Although it's clearly a victory for the US, there's obviously little chance that China will ease up on its political censorship or anti-porn crusades. China can appeal the decision and, even if it loses, other nations may struggle to find punitive measures that are proportionate and strike at the equivalent markets. There's also the very real problem that China's written laws and the facts on the ground are often two very different things. Still, trade negotiations are an ongoing affair, and being able to bring a WTO decision to the table will undoubtedly be a useful tool.

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