Since China’s accession to the WTO, the country has limited foreign film import and distribution rights first to one and, starting in 2003, to two state-owned companies. It has also barred or restricted foreign invested enterprises (FIEs) from participation in the import of books, periodicals and newspapers, and, in addition to films, audiovisual home entertainment products and sound recordings.
The Chinese government has also mandated review of the content of films or any other cultural goods imported into China, reserving the right under Article XX(a) of the General Agreement on Tariffs and Trade (GATT) to stop them being imported if it is “necessary to protect public morals.” The same two companies that have a lock on importing films, China Film Group and Huaxia, are also responsible for reviewing them to ascertain whether they contain any content that violates “public morals.”
Meanwhile, Beijing continues to maintain a strict quota, currently set at 20, on the number of foreign films that can be imported into China in any given year. The U.S. initially invoked the WTO dispute settlement process to address the first two issues in 2007, arguing that the exclusion of FIEs violated China’s obligation to treat foreign enterprises the same as Chinese enterprises and that the content review process was overly strict. Under WTO procedures, after Sino-American consultations failed, a panel composed of three experts chosen by the two parties was formed to hear the dispute, much like a court of first instance.