China "regrets" WTO audio-visual ruling, may appeal

By Chris Buckley

BEIJING (Reuters) – China, defending its controls on imported films and books, said on Thursday it may appeal a World Trade Organization ruling against its restrictions, continuing its sparring with Washington over trade access.

The Ministry of Commerce said China "felt regret" the WTO had upheld a U.S. complaint about its import monopolies, which Washington says hurts publishers, Hollywood and entertainment multinationals.

"China will conscientiously assess the ruling report of the expert panel and does not exclude the possibility of appealing on China's points of concern," the ministry said in a statement.

"The channels for foreign publications, films and audio-visual products entering the Chinese market are extremely open."

China's ruling Communist Party maintains a sprawling apparatus of propaganda and censorship to control television, publishing, entertainment and the Internet. While the country's mass media have become increasingly commercial, the state keeps a wary, if sometimes unsteady, grip.

The WTO disputes panel said China could not use its censorship goals to justify trade barriers that violate WTO rules, U.S. officials said.

"That's not going to go down at all well in these precincts," David Wolf, a Beijing-based business consultant who advises media and communications companies, said of the WTO ruling.

"China has always been adamant that trade in goods with cultural or political significance should be treated differently."

Whatever eventually emerges from the WTO process, Beijing was unlikely to really ease its controls on products it fears could corrode that Party's controls on culture, said Wolf.

"Here there's considerable wiggle room to ostensibly open the market while applying restrictions," he said.

Tire DISPUTE

If China appeals against the ruling, it will add to the trade disputes pitting Beijing against Washington.

President Barack Obama must decide by September 17 whether to restrict imports of car and light truck tires from China in a case that could unleash a flood of requests from other industries if he gives the nod.

The U.S. trade deficit with China totaled $103 billion in the first half of 2009, down 13 percent from last year but still a source of tension between the two.

The WTO panel said on Wednesday that China's import and distribution regime for books and films breaks international trade rules, as well as the terms of China's entry to the WTO in 2001, and should be revised.

The ruling follows one earlier this year that China had not done enough to enforce intellectual property rights, although that decision gave a partial victory to China by rejecting the U.S. contention that Chinese rules make prosecution of piracy near-impossible.

China is also increasingly assertive in pressing trade complaints at the trade body.

The ruling did not reject the import quota of 20 foreign films per year that goes through China Film, a state company, and it accepted China's right to keep out foreign films and publications if it finds them objectionable.

But it said "China Film can no longer be the monopoly importer," which would create other possible film import channels into China, a U.S. official said.

"The United States film industry won a major victory in its years-long battle to open the Chinese movie market today," Dan Glickman, the chairman of the Motion Picture Association of America, said in a statement issued on Wednesday.

REVENGE OF THE FALLEN

Among the Hollywood films recently shown in China are "Transformers: Revenge of the Fallen" and "G.I. Joe: The Rise of Cobra." But many Chinese people watch such films on pirate DVD copies sold for a fraction of the price of a cinema ticket.

The case, dating to 2007, also involved products such as books and newspapers, audio and video products including CDs, DVDs and video games, and music download services.

The panel findings called on China to allow U.S. companies to partner with Chinese enterprises to distribute sound recordings over the Internet.

Either side can appeal the ruling within 60 days and the case would be heard by a higher appellate body, which can uphold or reverse all or part of the ruling.

The WTO ruling could potentially affect how foreign video game companies operate in China.

U.S. video game titans such as Electronic Arts, Activision Blizzard and Take Two Interactive, are not allowed to operate games directly in China, or through joint ventures with local firms. They instead license games to local operators or co-develop games with local firms.

But the WTO ruling was unlikely to overcome China's determination to govern the virtual landscape, said Dick Wei, vice president of equity research with JP Morgan in Hong Kong.

"They really need to understand Chinese culture," Wei said of the foreign companies.