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Washington and Beijing’s sometimes-fractious trade relationship saw several new developments over the winter holidays. One dispute ended as China pulled back from its ‘famous brands’ subsidies; another came to a close after a WTO Appellate Body upheld a ruling on China’s distribution of copyrighted products; a third - a complaint over China’s export restrictions on raw materials - picked up speed with the establishment of a panel of judges to hear the case; and a fourth, a Chinese complaint over Washington’s new tyre tariffs, loomed on the horizon.
‘Famous brands’ fight ends
The week before Christmas saw the end of a year-old spat over the support that China provides for domestic companies that ship their goods overseas. The office of the US Trade Representative reported on 18 December that Washington and Beijing had signed an agreement to resolve the dispute, which the US, joined by Mexico, had filed 12 months earlier.
In that complaint, Washington and Mexico City accused Beijing of violating world trade rules by offering export subsidies for companies that participated in the government’s ‘Famous Export Brand’ and ‘China World Top Brand’ programmes. Through those initiatives, Beijing offered up state aid to producers of goods ranging from textiles and apparel to chemicals, medicines and food products.
Much of the government support was made contingent on export activity, and it was on this point that Washington raised its principal objection.
“Export subsidies are illegal under WTO rules,” the USTR said in a statement.
Under the deal struck last month, China agreed to either “eliminate the measures of concern” or remove any export contingencies, the USTR statement said.
Appellate Body upholds ruling on book, film, dvd distribution
Drawing the curtain on another Sino-American dispute, the WTO Appellate Body - the organisation’s highest court - upheld an earlier panel ruling that largely supported several US complaints about China’s treatment of copyrighted goods.
Beijing requires copyrighted publications and audiovisual products - things like books, journals, video games, music, DVDs - to be distributed within China by only a handful of state-approved or state-run actors. US producers of music, films and the like have complained that these restrictions have hamstrung their efforts to tap into the world’s fastest-growing major market.
The US filed suit against Beijing’s restrictions in April 2007. More than two years later, a WTO dispute settlement panel concluded that the measures violated the commitments China had made when it joined the WTO in 2001. The panel also found that the policies were at odds with the WTO’s ‘national treatment’ requirements, which forbid countries from privileging domestic goods and services over imported ones. The measure is spelled out in the General Agreement on Trade in Services (GATS).
China appealed that decision in September, but the Appellate Body largely upheld the earlier ruling.
The Motion Picture Association of America predictably hailed the Appellate Body’s ruling as “a landmark victory,” saying that the decisions marked “a major step forward in levelling the playing field for America’s creative industries seeking to do business in China.”
But Beijing can claim victory on one aspect of the judgement: the Appellate Body ruling did not explicitly find fault with China’s invocation of the ‘public morals’ argument in defending its IP restrictions. (Article XX(a) of the General Agreement on Tariffs and Trade allows WTO members to deviate from their normal trade obligations if doing so is “necessary to protect public morals.”)
To the contrary, the Appellate Body concluded that China may rely on a public morals defence to justify the violation of the terms of its accession, as long as the country can demonstrate a “clearly discernable, objective link to the regulation of trade in the goods at issue.”
In this dispute, the Appellate Body concluded that China had failed to prove that its trade restrictions were ‘necessary’ to protect public morals. Nevertheless, the ruling has established the ‘public morals’ argument as a legitimate defence.
Raw materials panel established
Just as the ‘famous brands’ and IP suits came to a close, a raw materials case between the US and China heated up, and a potential dispute on tyre tariffs loomed on the horizon.
On 21 December, the WTO’s Dispute Settlement Body established a panel that will consider a complaint against China’s export duties and quotas on certain raw materials. Washington and Brussels filed the suit jointly over the summer, claiming that Beijing illegally restricts exports of several raw materials that are critical to manufacturers in the US and the EU. Mexico has joined the US and the EU in the complaint, while several other countries have become third parties to the dispute.
The WTO does not generally regulate the use of export taxes, which can act as indirect subsidies to domestic industries. But when China became a WTO member in December 2001, it promised to eliminate “all taxes and charges applied to exports” on all but 84 of its goods. The products targeted in the WTO challenge are not included in that list of exceptions, but China has countered that the export restrictions are necessary on environmental grounds, as the country does not want to over-exploit its natural resources. The panel established on 21 December will now consider the case.
And another dispute looms. At the next meeting of the Dispute Settlement Body, scheduled for 19 January, China is expected to request that a panel be established to hear its complaint against tariffs that the White House slapped onto imports of Chinese tyres earlier this year.
The US blocked the request at the DSB’s last meeting, on 21 December, but WTO rules do not allow it to do so again.
ICTSD reporting; “Beijing preserves limits on movies,” THE WALL STREET JOURNAL, 23 December 2009.
2 responses to “US-China Disputes Round-Up”
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good summary…but the second issues in the article is actually NOT about ‘piracy’ or IP. it is about ‘trading rights’ and it requests China provides national treatment for foreign distributors to import/distribute books, movies, etc.
Hi Wallace,
Thanks for the note. Good catch - the post has been updated accordingly.
Best,
Paige McClanahan
Bridges Weekly Editor