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China and <strong>the</strong> WTO<br />

Let me entertain you<br />

Aug 13th 2009 | BEIJING<br />

From The Economist print edition<br />

A victory for America’s news and entertainment industries<br />

CHINESE trade officials are hardly likely to be quaking in <strong>the</strong>ir boots over <strong>the</strong> ruling announced on August 12th by<br />

a World Trade Organisation (WTO) dispute panel. The ruling upheld American complaints that China breaks its<br />

trade commitments by <strong>the</strong> way in which it regulates <strong>the</strong> import and distribution of foreign publications, films and<br />

music.<br />

The officials may reflect that this is, after all, <strong>the</strong> third time <strong>the</strong> WTO has ruled against China in just over a year<br />

and <strong>the</strong> o<strong>the</strong>r cases—one on imported automotive parts and ano<strong>the</strong>r on counterfeiting—have not yet led to<br />

substantial changes in <strong>the</strong> way business is done. But <strong>the</strong> latest ruling adds pressure in an especially sensitive area.<br />

It may force China to start untangling <strong>the</strong> variety of motives behind its persistent effort to control <strong>the</strong> influx of<br />

foreign cultural and information products.<br />

Although China’s markets have liberalised hugely over <strong>the</strong> years, <strong>the</strong> information-based industries remain<br />

something of a special case. Virtually all print and broadcast media are government-run or supervised, and subject<br />

to censorship by Communist Party propaganda officials. The internet is closely monitored and a great deal of<br />

content is blocked. China’s own film producers are likewise kept on a short leash, as are book publishers.<br />

A common view among foreign executives in <strong>the</strong> news and entertainment fields is that China’s complex and<br />

maddening regulatory restrictions on <strong>the</strong> import of <strong>the</strong>ir products have served a double purpose: both controlling<br />

objectionable content, and protecting local industries. China limits <strong>the</strong> import of foreign films to no more than 20<br />

each year. It also requires that <strong>the</strong>y be distributed through certain government-run companies. Similar restrictions<br />

hamper <strong>the</strong> distribution of foreign books and magazines.<br />

According to James McGregor, an author and former Beijing-based media executive, <strong>the</strong> case means China’s<br />

commercial interests are now bumping up against its propaganda interests. China, he said, was looking at all this<br />

with one eye open and <strong>the</strong> WTO is now telling <strong>the</strong>m <strong>the</strong>y have to look at it with both eyes.<br />

In <strong>the</strong> case of films, foreign offerings certainly do pose a competitive challenge to home-grown Chinese products.<br />

In Chinese cities <strong>the</strong>re is a vast trade, illegal but barely hidden, in pirated DVDs of Hollywood movies selling for<br />

about $1. Nor can <strong>the</strong>re be doubt that Chinese cinema-goers would continue buying <strong>the</strong> ra<strong>the</strong>r pricier tickets to<br />

<strong>the</strong> legal versions of those films, even if <strong>the</strong> yearly limit were lifted.<br />

A more open market for <strong>the</strong>se goods could go a long way towards helping America cut its persistent and politically<br />

troublesome trade deficit with China, which in <strong>the</strong> first half of 2009 ran to $103 billion. But such hopes may have<br />

to wait. Ron Kirk, America’s Trade Representative, praised <strong>the</strong> ruling as a significant victory for America’s creative<br />

industries. But China expressed regret at <strong>the</strong> ruling and rejected its findings. A spokesman for <strong>the</strong> commerce<br />

ministry said that China’s market channels for publications and audiovisual products are extremely open, and that<br />

China may choose to appeal.<br />

The WTO’s dispute-resolution machinery turns slowly. America made this complaint in April 2007. It was later<br />

joined by <strong>the</strong> EU, Japan, Australia and o<strong>the</strong>rs. Having taken so long to reach this point, <strong>the</strong> WTO will take a great<br />

deal longer to force compliance, especially if China does appeal.<br />

Mr McGregor, meanwhile, advises China to open up bit by bit on films and o<strong>the</strong>r entertainment. Foreign hard-news<br />

products, he reckons, can be blocked on o<strong>the</strong>r grounds, but entertainment has become a commodity, like toasters<br />

or anything else. And besides, thanks to <strong>the</strong> black market in pirated versions, most urban Chinese have already<br />

seen “Sex and <strong>the</strong> City”.<br />

Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.<br />

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