U.S. prevails in WTO case against China

MPAA chief sees 'major victory' for film industry

Hollywood seems to get a chance to broaden and ease access to the big Chinese market.

The World Trade Organization released a report Wednesday that in key points agreed with a U.S. complaint that China is forcing U.S. companies to sell copyright-protected products, such as films, music and books, through state-run or -approved businesses.

Chinese restrictions on the sale of such U.S. products violate global commerce rules, the WTO report said.

The WTO ruling came in June, and its result leaked, but the official report came out only Wednesday.

"The United States film industry won a major victory in its years-long battle to open the Chinese movie market today," MPAA chairman and CEO Dan Glickman said. "The decision points a way forward that will begin to even the playing field in this important market."

As key wins, he cited the WTO's decisions

-- to strike down China's film import monopoly and the barriers that keep U.S. firms from importing and distributing DVDs in China

-- that the monopoly China has over the distribution of U.S. movies shown in Chinese theaters could change as China's stated laws do not prevent opening the market to competition.

"The Chinese system for distributing U.S. films to Chinese audiences is among the most restrictive and burdensome in the world," Glickman summarized. "This decision, coupled with the recent announcement from the State Council that the Chinese government intends to lower market access thresholds for the cultural industry, may be an opening we have been seeking."

He also argued that the ruling will complement the industry's fight against piracy in China.

U.S. Trade Representative Ron Kirk also lauded the WTO ruling as "a significant victory" for the U.S. creative industries and a key step toward more open trade between the U.S. and China.

"We will work tirelessly so that American companies and workers can fully realize the market opening benefits that this decision signals," he said. "This decision promises to level the playing field for American companies working to distribute high-quality entertainment products in China, so that legitimate American products can get to market and beat out the pirates."

As with previous panel rulings, not everything went the way of the U.S., and China will be able to grab some satisfaction. Notably, the panel ruled that several parts of the U.S. case fell outside its review, including U.S. charges of red tape in the distribution sector.

The report will be put up for adoption by WTO members 20-60 days after Wednesday's publication. Both sides can appeal the decision before the formal adoption.

But, taken together with a separate WTO ruling in March that called on China to improve its intellectual property rights protection, the new ruling on market access might allow the U.S. entertainment firms further room to wage a war on piracy.

The MPAA has long pointed to China as a haven for intellectual property pirates who have almost entirely usurped the place of a legitimate home entertainment sector in the country, and act as manufacturers of pirate goods destined for regional export markets. The International Intellectual Property Alliance has estimated U.S. copyright losses at more than $3.5 billion a year.

China sets a quota on the number of foreign films that can be imported each year, and it requires that the 20 movies that obtain the more lucrative "revenue-sharing" terms must be distributed by one of two state-owned enterprises: China Film Group or Huaxia. Officials at the USTR said in a conference call Wednesday that China stated during the proceedings of the case that it does not restrict distribution of foreign films to these two enterprises. This will give studios the opportunity to potentially boost the number of films they bring to China by striking deals with others of the, according to the USTR, about 50 distribution firms in China, some of which are regionally or locally focused.

But whether the ruling will tempt any Hollywood studio to try team up with another distributor remains unclear. CFG is by far the most muscular and successful releasing platform in the country. Most Hollywood studios have distribution offices in China -- Paramount opened one in June -- but these are effectively representative outposts rather than active marketing and distribution offices.

Meanwhile, the Independent Film and Television Alliance also lauded the WTO report. "The panel's findings and the anticipated changes to Chinese law and practices will create new distribution opportunities for independent films and television programming," IFTA president and CEO Jean Prewitt said. "We also firmly believe that China will benefit from increased investment in its distribution infrastructure and enjoy a wider range of entertainment programming resulting from a more competitive and open marketplace."

Georg Szalai reported from New York; Patrick Frater reported from Locarno, Switzerland.
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