World Trade Victory

A blow to Chinese protectionism, and a lesson for the U.S.

Wednesday's World Trade Organization decision against Chinese media protectionism is good news for U.S. exporters, but even better news for Chinese consumers and industry. The case, involving U.S. entertainment and media exports, illustrates the benefits of a rules-based global trading system, particularly at a time of rising protectionism.

A WTO dispute resolution panel ruled against several of China's key regulations on the distribution of media such as films, music and DVDs, long the bane of Hollywood. Among the most onerous is the requirement that many products pass through state-controlled middlemen. This cuts into the companies' ability to profit from their work since the monopolist middlemen can command outsize fees. It also contributes to copyright infringement because pirates happily fill the void when legitimate content can't be widely distributed.

These distribution constraints have been in place for a decade or more. What's changed now is that China's 2001 entry into the WTO gives governments and industries an opportunity to deal with the issue without resorting to a trade war. The increasing amount of WTO litigation involving Beijing (on either side of a dispute) is a sign of success in integrating China into the global economy.

Beijing has said it will appeal at least some parts of the ruling. But if it loses, China will have to decide whether to bring itself into line with the WTO judgment. The alternative would be to maintain the illegal policies and simply bear the cost of any retaliatory measures the U.S. might one day impose.

Limits on the distribution of media content lie at the heart of the Communist Party's attempts to regulate what ideas can reach Chinese eyes and ears. That may partly explain why, unlike in earlier WTO cases, including one over distribution of financial news, Beijing wasn't able or willing to negotiate a settlement before this complaint went to a dispute panel.

WTO rules explicitly allow censorship in China as elsewhere, and China negotiated other media controls into its accession agreement—including a cap on the number of foreign films allowed to be released each year, at 20. But China's leaders know as well as anyone that controlling the distribution of content makes it easier to control the content itself.

Beijing would best serve its own interests by abiding by the WTO ruling, not least because China itself is increasingly turning to the WTO for protection from other countries unfairly blocking Chinese goods from their markets. For China to maintain its own credibility as a complainant in trade cases, Beijing needs to be willing to play fair when it loses a case.

Taking genuine steps to fix its trade shortcomings will be important for its relationship with Washington. U.S. Trade Representative Ron Kirk has made "enforcement" a centerpiece of his agenda. The Administration is weighing a request for protectionism against Chinese tires. Chinese chickens are in Congress's line of sight. China's best chance of defusing all this is to demonstrate that it is as committed to playing by global trading rules as the U.S. should be.

As for the Obama Administration, well, the same lesson applies. For the system to work, America must be ready to abide by its own agreements. Fumbles like the "Buy American" stimulus provision, clearly a violation of the WTO, or the continuing ban on Mexican trucks, a Nafta infraction, are an invitation to others to play the same game.

The media case shows how much the U.S. can gain by getting other countries to play by global rules. Amid the celebration in Washington, it's worth remembering that's a two-way street.