China Fails to Implement WTO Ruling in Audiovisuals Case, or What Did We Expect?

The deadline of 19 March that was set for China’s implementation of the Appellate Body findings in the China-Audiovisuals Case has passed. A quick reminder: in this case, the United States challenged a number of measures that China took to restrict both the trading rights of operators to be active on the Chinese market, investment restrictions, as well as the cross-border flows of both goods and services relating to audiovisual media products, books and a number of other publications. A more detailed summary of the measures at issue and the related findings can be found on SSRN.

On 14 March, China communicated to the WTO that it respects the ruling of the DSB. However, as the dispute “involves a number of Chinese administrative measures on cultural products and is embodied with more complexity and sensitivity than other disputes […] China hopes relevant WTO Members could understand the difficult and complicated situation China is facing during the process of implementation.” Furthermore, China states that “tremendous efforts to implement the DSB’s rulings and recommendations, and so far has completed amendments to most measures at issue.”

However, this is not the case at all. At the time of writing, the State Council had only announced opinion-seeking drafts of the Audiovisual Products Management Regulations, the Audiovisual Product Import Rules and a couple of regulations related to the publishing market. As of yet, there has been no public announcement indicating a revision of the rules prohibiting or limiting foreign investment in the media sector, where the WTO had established violation.

Similarly, the opinion-seeking draft of the Audiovisual Product Regulations does not address in any way the DSB finding that Article 5 and Article 27 of these Regulations, by excluding objective criteria for extending permits for importation of audiovisual products, create government discretion in a process where China had committed to act without discretion. While both articles are slated for an update, this update seems to reflect the two most prominent characteristics of the revision. First, the revision aims to consolidate the present division of labour concerning audiovisual media production and distribution, by removing mention of the Ministry of Culture, whose powers in this area were transferred to the GAPP in 2008. Second, probably for reasons of simplicity, the revision merges wholesale, retail and rental into the single denominator of distribution. Although the language in Article 27 is changed from State-appointed to State-approved entities here is no mention of significantly altering or clarifying the approval process for administrative importation permits.

In a certain way, this reluctance to implement the findings of DS363 does not come as a surprise. Control over production and distribution of content products is considered by the leadership as one of the core pillars of its leadership position. Lessons from the USSR – whose collapse is blamed in China on liberalizing the media, amongst others – seem to have been well taken, and recent evolutions are pointing to stricter control over media. Implementing the DSB recommendations would completely go against the current policy direction in China. Furthermore, China has embarked on an ambitious project to build up its own audiovisual industries to compete against the US at the world level, and bear out a more positive image of the People’s Republic abroad.

From the legal point of view, China still has some leeway to delay sanctions. Before the United States could impose retaliation measures against China, the complexity of the case would mean that calculating these would be very hard indeed – giving China a possibility to delay these matters in front of an implementation panel. And even if a certain figure could be determined, the question for the US would then still be how and in which sector to exactly implement this, and to balance it against other policy considerations where it needs active Chinese cooperation.

China has until now made great – and sometimes painful – efforts to implement WTO obligations and unfavourable WTO rulings. While it is too early to conclude that this means a Chinese turn towards unilateralism, it could be argued that this illustrates the limits of what the WTO can do when central political interests come under scrutiny.

 

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