China downplays effect of WTO decision

BEIJING — Here on the streets, where pirate DVD sellers congregate to peddle copies of the latest Hollywood movies, the reaction was muted, even indifferent, to a landmark ruling by the World Trade Organization saying China’s system of importing and distributing books and movies breaks international trade rules and should be revised.

“I didn’t know about the news. I will continue selling my DVDs, I think. Even though China has many more legal DVDs, our price is cheap, with good quality. I am not worried about this ruling,” said one seller from Henan province, who gave his surname as Jiang.

The Chinese government says it finds the WTO ruling against its regulations on the import and distribution of books and audiovisual products “regrettable.”

“China has always fulfilled its obligations on market access for publications, and the channels for foreign publications, films and audiovisual products to enter the Chinese market are extremely open,” insists Ministry of Commerce spokesperson Yao Jian. The ruling on the case, which dates back to 2007, involves products including CDs, DVDs and videogames, as well as music download services.

“China will seriously evaluate the panel’s report, and does not rule out the possibility of appealing the ruling,” he said.

A key aspect of this extremely detailed and complicated ruling is the spirit of the finding — that China has been found to contravene the fundamental WTO rule requiring equal treatment between local and foreign businesses, and also has breached commitments it made when it joined the WTO in 2001 to open up sales and distribution within three years.

While China can appeal on the details, the broader sweep of the ruling seems to be against it, and this should eventually translate into changes in how China treats foreign firms seeking to distribute movies here, and lead to more level playing fields.

“In my view, this ruling will probably impact China Film Group and Huaxia Film more, since they are mainly handling the introduction and distribution of imported films in China,” says Shi Lin, spokesperson for distrib PolyBona, who adds that PolyBona will continue investing in domestic and Hong Kong films, and cooperating with Hong Kong film companies.

Tang Jingting of China’s Huayi Brothers said his company would focus just on films. Other shingles contacted declined to comment on the ruling or said it didn’t really affect their work.

Significantly, the panel did not take up the issue of China’s quota on foreign films — normally, the majors are given approval for films that qualify under the quota system, which permits 20 foreign films per year to be released on a revenue-sharing basis. A further 40 films per year can be imported on a flat-fee basis.

And companies must negotiate for inclusion on the quota with China Film Group, the state-run distributor, and the powerful State Administration of Radio, Film and Television, effectively cutting them off from other Chinese distribs.

The question remains whether the ruling will change the status quo, as China is prone to resort to political arguments when it comes to decisions on whether a movie is released or how it is distributed.

The political dimension can be seen in another aspect of the ruling, which envisages the sale of foreign newspapers in China — an extremely knotty political point here, where the media is tightly controlled by the Communist Party. One would think a similar attitude would prevail if the majors started trying to distribute a pic with strong political content.

Currently U.S. distribs have little say over a movie’s run in China, and are given only a loose release date. Regular blackouts, either for political reasons or to help boost local movies, means that movies regularly have their runs cut short.

The U.S. complained China was restricting imports to a limited number of government-related firms and also restricting who could distribute these products.

The ruling is sure to cause extra resentment in China because this has been such a boffo year here for Hollywood. Paramount’s “Transformers: Revenge of the Fallen” grossed $65 million in China, the largest haul outside the U.S. and the biggest movie in China since “Titanic.” “Harry Potter and the Half-Blood Prince,” “Ice Age: Dawn of the Dinosaurs” and “G.I. Joe: The Rise of the Cobra” have also all had great runs.

Driving the strong performance by Hollywood films, and also by increasingly powerful domestic product, is the booming theatrical market. While piracy remains rampant, particularly in the illegal download sector, the growing popularity of the idea of going to the movies as a social event is translating into B.O. here increasing quickly or exponentially. The country’s 1.3 billion population offers tremendous opportunities for foreign and domestic companies.

The ruling has been warmly welcomed in Hollywood. The Independent Film and Television Alliance said the ruing was important progress in efforts by indie producers and distribs to gain better access to the Chinese marketplace.

IFTA prexy Jean M. Prewitt says the findings and anticipated changes to Chinese law and practices will create new distribution opportunities for indie films and television programming.

“We also firmly believe that China will benefit from increased investment in its distribution infrastructure and enjoy a wider range of entertainment programming resulting from a more competitive and open marketplace,” Prewitt says.

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