WTO dispute panel raps China on audiovisual goods

GENEVA (Reuters) - China's regime for importing and distributing audiovisual material such as books and films breaks international trade rules and should be revised, a World Trade Organization (WTO) dispute panel said on Wednesday.

It was the third time a WTO panel had ruled against China, which is becoming increasingly assertive in pressing its own complaints against other countries at the world trade body.

The panel, ruling in a case brought by the United States, said China's system for importing and distributing the material also breached the terms of China's entry to the WTO in 2001.

The United States immediately welcomed the ruling.

"Today, a WTO panel handed a significant victory to America's creative industries," U.S. Trade Representative Ron Kirk said in a statement.

"These findings are an important step toward ensuring market access for legitimate U.S. products in the Chinese market, as well as ensuring market access for U.S. exporters and distributors of those products," he said.

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.

Washington believes widespread piracy in China of books, records, movies and software robs U.S. companies of the chance to make substantial sales.

As usual, the WTO findings in the complex case were nuanced. The panel did not support Washington in all its claims and declined to rule on others it agreed with China were outside its mandate.

"Overall, we think we've got at the head of the problem even if there's a couple of warts here and there that we didn't manage to lop off," a U.S. trade official told reporters.

Both the United States and China will have to decide within the next 1 to 2 months whether to appeal any part of the ruling, the official said.

A spokesman for China's WTO mission in Geneva had no comment, while U.S. record and movie companies hailed the decision as a major victory.

CALL FOR CHINA TO PARTNER WITH U.S.

"We call upon the Chinese government to use this occasion to adopt measures across the board that will expand opportunities for creators regardless of their nationality and to abandon all practices that hinder legitimate commerce," Neil Turkewitz, vice president of the Recording Industry Association of America, said in a statement.

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

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

The United States had complained China was restricting imports to a limited number of state enterprises and also restricting who could distribute these products.

This not only contravened the fundamental WTO rule requiring equal treatment between local and foreign businesses, but also breached commitments made by China when it joined the WTO in 2001 to open up sales and distribution within three years.

Washington complained this forced U.S. businesses to rely on Chinese middlemen or agents, pushing up costs and hurting marketing and sales.

That in turn also opened up an opportunity for pirates to plug the demand for U.S. products with counterfeit copies.

"This ruling will complement our strategy to fight movie piracy in China," said Dan Glickman, president of the Motion Picture Association of America.

"In spite of all the restrictions we face, there is no shortage of U.S. filmed entertainment in China. Unfortunately, far too much of it is pirated," Glickman added.

Recent statements from China's State Council provide additional reason to be optimistic about the chance for getting more legitimate U.S. films in the Chinese market, he said.

(Editing by Sophie Hares and Vicki Allen)

(Additional reporting by Doug Palmer in Washington)