"U.S. companies and workers are at the cutting edge of these industries,… (Saul Loeb / AFP/Getty Images )
The World Trade Organization issued an expected but nonetheless important ruling Monday that takes the U.S. a step closer to opening up China's potentially lucrative market for its movies, music and books.
In a ruling hailed by Hollywood in particular, the WTO appellate body upheld an August panel decision that China broke international rules in restricting market access to foreign films, DVDs and other cultural products.
That decision determined that the Chinese illegally had restricted foreigners from importing such goods, required media suppliers to go through the costly process of distributing goods through Chinese state-owned entities, and prohibited companies such as Apple Inc. from selling downloaded music.
"U.S. companies and workers are at the cutting edge of these industries, and they deserve a full chance to compete under agreed WTO rules," U.S. Trade Representative Ron Kirk said in a statement. "We expect China to respond promptly to these findings and bring its measures into compliance."
With the appellate ruling, the U.S. and China are expected soon to begin negotiations on establishing a timetable for the Chinese to resolve the complaint. If a settlement can't be reached, the case would be arbitrated. If Beijing does not comply, the U.S. could impose trade sanctions against Chinese goods.
Separately, the WTO said Monday that it would open an investigation on claims filed by the U.S., Mexico and the European Union that China illegally set export quotas and duties for raw materials such as coke, bauxite and magnesium. The U.S. and others contend that the quotas have made those materials cheaper for Chinese producers while inflating global prices by limiting their supplies, making it harder for foreign companies to compete.
China said Monday that its trade delegation was disappointed in the WTO's decision on the raw-materials case, saying it would defend its "rights and interests before the panel," according to the New China News Agency. There was no equivalent official response or comment posted regarding the WTO's appellate ruling on entertainment products.
In its appeal, China had argued that it was exercising its right to apply certain restrictions on foreign media products to protect public morals -- a claim that was rejected by the WTO body.
The U.S. has brought eight disputes against China to the WTO. American trade officials said the Chinese had complied with five of those cases that had been successfully concluded.
Even so, U.S. officials and representatives of Hollywood couldn't say when the WTO ruling would result in a payoff for American companies, whether movie studios, record labels or book publishers.
China has long maintained a quota of allowing just 20 foreign movies a year to be shown in its theaters. What's more, Chinese censors routinely reject or delay approval of theater films and DVDs. The WTO did not rule against China's right to restrict foreign cultural products that it deems objectionable for political or other reasons.
Hollywood studios collect only about 13% of the box-office receipts in China. Meanwhile, rampant pirating of movies and music on DVDs and online has cost U.S. companies countless sales over the years.
"We've never been under the illusion of overnight, instantaneous effect" of the WTO ruling, said Greg Frazier, executive vice president of the Motion Picture Assn. of America. "The whole point is to get leverage to open that market."
China's movie theater business has grown to $509 million annually from $181 million over the last five years, making it the 14th largest in the world, according to the MPAA and entertainment research firm Screen Digest.