trade in audiovisuals between physical trade and e-commerce

7/28/2019 Trade in Audiovisuals Between Physical Trade and e-commerce

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Practical Trade & Customs Strategies Thomson Reuters/WorldTrade Executive 2013

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KORUS, continued on page 2

WTE

PRACTICAL

TRADE & CUSTOMS STRATEGIESWTE

TRADE & CUSTOMS STRATEGIES

In ThIs Issue

June 30, 201Volume 2, Number 1

udrtadig KORus adRl of OrigiThe Korea and U.S. Free Trade Agreement(KORUS) provides unique opportunities,requirements and obligations for bothU.S. and South Korean exporters andimporters. In order to receive duty freetreatment, certain requirements must be

followed such as direct shipment of goodsbetween the two countries and propercertication of origination. Page 1

Trad i Adiovial,e-CommrcThe audiovisuals sector has recentlyemerged at the forefront of transatlantictrade agreement negotiations, whichextends to a broader discussion of e-commerce regulation in trade. PTCSoutlines the legal framework for trade inthis sector at the level of the WTO as wellas its predecessor General Agreement onTariffs and Trade. Page 1

Modifed Regulations on

Atidmpig DtyProcdigThe U.S. Department of Commerce recentlymodied its regulations addressing thesubmission of factual information duringantidumping and countervailing dutyinvestigations and administrative reviewproceedings, making early preparationeven more crucial. Page 3

u.s., Vitam still Far Apart

o Txtil i TPP TalkUnsettled contentions between the U.S.and Vietnam over textile trade policymay stall Trans-Pacic Partnership (TPP)talks, which the U.S. hopes to conclude

by the end of the year. While Vietnamwould like Washington to phase out hightariffs on its textile goods, the U.S. fearsthat such a drastic change would threatenits textile trade relationship with NAFTAmembers. Page 6

Understanding the South Korea-United States FTA

By Kevin Smith (Sandler & Travis Trade Advisory Services)

In order to have any meaningful discussion of KORUS, it must rst beviewed within the context of the trade ows between South Korea and theUnited States (U.S.). Trade statistics show that South Korea is the seventh-largesttrading partner of the U.S., and the U.S. is the third largest trading partner of

South Korea. The Korea and U.S. Free Trade Agreement (KORUS), like all freetrade agreements, provides unique opportunities, requirements and obligationsfor both U.S. and South Korean exporters and importers.

These opportunities include several elements such as an elimination of cus-toms duties on qualifying goods that are staged over fteen years, an eliminationof over ninety ve percent of tariffs on industrial and consumer goods withinve years, along with the elimination and prevention of future merchandiseprocessing fees on qualifying goods. By any measure, these are signicantopportunities but, like all free trade agreements, duty free treatment must be

Trade in Audiovisuals betweenPhysical Trade and E-commerce

By Renato Antonini, Eva Monard and Lorenzo Di Masi1 (Jones Day)

The regulation of trade in audiovisual goods is characterized by a ten-sion between attempts of liberalization carried out by certain countries andprotectionist policies, pursued, most notably, by European states. Moreover,the emergence of the Internet as a major means for trade in audiovisuals posesinteresting questions on how to interpret the law of the World Trade Organiza-tion in the contemporary digital age.

IntroductionAs widely reported by the international press during the past few weeks,

there has been quite some debate concerning the inclusion of audiovisual ser-vices, including those provided online, in the mandate for the negotiations ofthe Transatlantic Trade and Investment Partnership (TTIP), the future freetrade agreement between the European Union (EU) and the United Statesof America (U.S.).2

As the result of the opposition of France, the negotiating mandate given tothe European Commission for the start of the talks with the U.S. does not in-


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8. How does the government verify the cor-rectness of KORUS claims?

Answer The governments may send writtenquestions or a questionnaire, or they may also con-duct an on-site visit to the exporter or importer.

9. Can a written determination of origin

from the government be obtained?Answer Yes, if requested by the importeror exporter, a written determination can be ob-tained.

10. Must the importer and exporter retainrecords and for how long?

Answer Yes, records that support the claimand the determination of origin must be main-tained for a period of ve years.

Free trade agreements play a critical role inthe success for all globally operating companies,whether they are trading between two countriesor many. The U.S. currently has free trade agree-

ments with twenty countries and while they all

have much in common, none of them are simpleto understand or to execute. This article is not in-tended to address or answer all questions relatedto KORUS, but to give the reader a sense of what itis and knowledge that when approached properly,KORUS provides real opportunities. o

1 One exception to the direct shipment rule is that mer-chandise can be unloaded and reloaded in the Customscontrol of a third country.2 Depending on the goods, Special Processing Rulesmay also apply3 For textiles and apparel the deminimis is 7 percent.

Kevin Smith ([email protected]) is the SeniorVice President of Strategic Programs for Sandler &Travis Trade Advisory Services Inc., resident in theDetroit ofce. He is responsible for the development andimplementation of customs and business strategies forSTTAS clients and partners.

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clude trade in audiovisuals services. However, themandate also states that the Commission, accord-ing to the Treaties, may make recommendations

to the Council on possible additional negotiatingdirectives on any issue, with the same proceduresfor adoption, including voting rules, as for thismandate.3 Thus, the Commission reserves itsright to come back to the Council with additionalnegotiating directives that might arise from thetalks with the U.S. counterpart at a later stage,including the possibility to re-include audiovisualservices in the scope of the negotiations.

The non-inclusion in the mandate of trade inaudiovisual services does not come as a surprise.In general terms, trade in audiovisuals has alwaysbeen one of the sectors least liberalized since theend of the Second World War, especially in Europe.The so-called cultural exception represents thebasis for the non-liberalization of trade in audio-visuals.4 According to this concept, given theirimportance in the creation and conservation ofthe national and cultural identity of a country,audiovisuals should be excluded from the rulesof free trade.

In the following section, we will describe thelegal framework for trade in audiovisuals at thelevel of the World Trade Organization (WTO)

and its predecessor, the General Agreement onTariffs and Trade (the GATT). Moreover, wewill discuss the relevant WTO disputes related totrade in audiovisuals.

Trade in Audiovisuals in the Framework of theGATT and the WTO

Trade in Audiovisuals under the GATTThe rst attempt to regulate global trade in

audiovisuals took place in 1947 in the contextof the GATT. Article IV of the GATT SpecialProvisions Relating to Cinematograph Films establishes a system of quotas for the exhibi-tion of cinematograph lms of national originduring a specied minimum proportion of thetotal screen time.

As explained by Burri, Article IV of the GATTis symptomatic of the sought-after [] culturalexception as well as of its narrow focus on audio-visual media5 in a post World War II scenariocharacterized by the attempt of European statesto protect their domestic lms industry from therising power of the U.S. lms industry.

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Trade in Audiovisuals in the Context of theWTO: the GATS

The issue of trade in audiovisuals was tackledagain in the context of the General Agreement onTrade in Services (the GATS) negotiated duringthe Uruguay Round, the multilateral negotiations

that led to the establishment of the World TradeOrganization on January 1, 1995.In order to understand how audiovisual

services are regulated under the GATS, it is nec-essary to describe briey the functioning of theAgreement itself.

In extreme synthesis, the denition of servicestrade under the GATS is four-pronged, dependingon the territorial presence of the supplier and theconsumer at the time of the transaction. Pursuantto Article I:2, the GATS covers services supplied:

a. f rom the terr i tory of one Mem-ber into the terr itory of any other Member

(Mode 1 Cross border trade);b. in th e terr itor y of one Me mbe r to

member shall accord immediately and uncon-ditionally to services and service suppliers ofany other Member treatment no less favorablethan that it accords to like services and servicesuppliers of any other country. However, suchprinciple, known as Most Favored Nation treat-

ment (MFN treatment), can be waived at theconditions set in Annex on Article II Exceptionsof the GATS.6

Audiovisual services fall under point D ofSector 2 Communication Services and includemotion picture and video tape production anddistribution services, motion picture projectionservices, radio and television services, radio andtelevision transmission services and sound re-cording.7

The concept of cultural exception playsan important role in the regulation of trade inaudiovisuals services under the GATS.8 Indeed,

audiovisual services are the least liberalized ser-vice sector under the GATS. According to the datamade available by the WTO, as of January 2009,only 30 WTO Members had made commitmentsin the sector9 and all the 27 EU Member stateshad not made any commitment at all. Moreover,the sector is characterized by a high number ofexemptions to the MFN treatment which havebeen tabled, inter alia, by the EU.

WTO Case-lawAudiovisual goods and services were the

object of a WTO dispute between the U.S. and

China, the China Publications and AudiovisualProducts case.10

In China Publications and Audiovisual Products,the U.S. challenged the compatibility with WTOlaw of certain Chinese measures restricting theimportation and distribution of cinematographiclms, sound recordings, DVDs and publications.In particular, China had established a system al-lowing only state-owned enterprises to importpublications and audiovisuals, therefore prevent-ing foreign-invested companies from engaging inimport activities.

According to the U.S., such system violatedseveral GATT and GATS provisions as well asArticle 5.1 of Chinas Protocol of Accession to theWTO. Such provision requires China to grant to allenterprises in China, including foreign-investedones, the right to trade in all goods within threeyears from its accession to the WTO.

China rebutted that its measures were justiedunder Article XX (a) of the GATT, which allowsWTO Members to adopt measures necessary toprotect public morals provided that their applica-

T i of trad i digital adiovial goodad rvic fall dr t broadr problmof t rglatio of lctroic commrc (-commrc) witi t WTO.

the service consumer of any other Member(Mode 2 Consumption abroad);

c. by a service supplier of one Member,through commercial presence, in the territory ofany other Member (Mode 3 Commercial pres-ence); and

d. by a service supplier of one Member,through the presence of natural persons of a Mem-ber in the territory of any other Member (Mode 4 Presence of natural persons).

In addition to establishing the four above-mentioned modes of supply, the GATS identies12 sectors of services. For each one of these 12 sec-tors, the GATS Members are left free to determineto which extent they want to liberalize trade vis vis all the other parties. This is done in practicethrough a positive list approach: Membersundertake to provide market access to servicessuppliers from other countries only with respect tosectors that are explicitly included in lists denedas schedules of commitments.

Another basic obligation of the GATS iscontained in Article II, which states that each


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E-Commerce, continued on page 14

tion does not lead to an arbitrary or unjustiablediscrimination or a disguised restriction of inter-national trade. According to China, the system forthe selection of import entities was justied sinceaudiovisual were cultural goods, whose contentcould have had a negative impact on public mor-

als in China.11

The Appellate Body dismissed Chinas de-fense based on Article XX (a) as China failedto establish a causal connection between theexclusive ownership of the state in the equity ofa publication import entity or the exclusion of for-eign invested enterprises from importation of therelevant products, on the one side, and the protec-tion of public morals in China, on the other side12.Moreover, both the panel and the Appellate Bodyagreed with the U.S. that the measures were notnecessary as China could have employed al-ternative and less trade-restrictive measures to

pursue its goal of protecting public moral.13

Trade in Digital Audiovisual Goods andServices and E-commerce

Even if audiovisual services are included inthe new services negotiations, which will haveto re-dene the WTO rules applicable to trade inservices and lead to a new wave of liberalization,very insignicant progresses have been madesince their opening in 2000.

In parallel to the deadlock of multilateraltalks, there have been new developments in theeld of trade in audiovisuals. In particular, it hap-

pens increasingly often that audiovisual goodsand services are traded in a digital form via theInternet. Common examples are the possibility topurchase and download music from the Internetor the possibility to listen to online radios.

From a classicatory point of view, the issueof trade in digital audiovisual goods and servicesfalls under the broader problem of the regulationof electronic commerce (e-commerce) withinthe WTO.

While WTO Members have become awareof the necessity to regulate e-commerce since1998, the year of the establishment of the WorkProgramme on E-Commerce,14 no binding legalinstrument has been adopted yet. Despite thisfact, some steps forward in the denition of traderules applicable to e-commerce have been made,especially through the contribution of WTO dis-pute settlement bodies.15

First, since the establishment of the WorkProgram on E-Commerce in 1998, WTO Membershave agreed not to impose customs duties onelectronic transmissions.16 The moratorium has

been conrmed at the Geneva Ministerial Con-ference in 201117 and it will be in force until thenext Ministerial Conference taking place in Baliin December 2013.

Second, WTO case-law has afrmed the ap-plicability of the rules of the GATS to e-commerce

and to electronically supplied services.18

Moreover,WTO case-law has conrmed that the electroniccross-border deliverance of a service is a servicesupplied under GATS mode 1 (cross-border sup-ply) and not mode 2 (consumption abroad).19

Third, according to WTO case-law, speciccommitments for GATS mode 1 encompass thedelivery of services through electronic means.20In particular, in the case US-Gambling, the panelstated that a market access commitmentimpliesthe right of other Members service suppliers tosupply a service through all means of delivery,whether by mail, telephone, Internet etc., unless

specied in the Members Schedule.21

T ftr of t rglatio of trad i

adiovial rmai crtai. no frtrlibralizatio of t ctor i likly to bacivd i t ar ftr at a WTO lvl.

This principle has been re-afrmed in the caseChina Publications and Audiovisual Products. In

this case, the WTO judiciary bodies had to decidewhether the insertion by China in its schedule ofcommitments of sound recording distributionservices only covered the supply of such servicesin a physical form or also in an electronic form.China argued that its schedule of commitmentshad to be interpreted taking into account thetechnical feasibility and commercial reality of aservice at the time such commitments were made.According to China, digital music services hademerged in China only after its accession to theWTO and therefore after schedule commitmentswere made.22 While the panel somehow upholdthe arguments raised by China,23 the AppellateBody ruled that schedule of commitments haveto be interpreted in an evolutionary way:

[W]e consider that the terms used in ChinasGATS Schedule (sound recording and distribu-tion) are sufciently generic that what they applyto may change over time. In this respect, we note thatGATS Schedules, like the GATS itself and all WTOagreements, constitute multilateral treaties with con-tinuing obligations that WTO Members entered into


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for an indenite period of time, regardless of whetherthey were original Members or acceded after 1995[].We further note that interpreting the terms of GATSspecic commitments based on the notion that theordinary meaning to be attributed to those terms canonly be the meaning that they had at the time the

Schedule was concluded would mean that very similaror identically worded commitments could be givendifferent meanings, content, and coverage dependingon the date of their adoption or the date of a Membersaccession to the treaty. Such interpretation wouldundermine the predictability, security, and clarity ofGATS specic commitments, which are undertakenthrough successive rounds of negotiations, and whichmust be interpreted in accordance with customary rulesof interpretation of public international law.24

Final RemarksThe future of the regulation of trade in audio-

visuals remains uncertain. No further liberaliza-tion of the sector is likely to be achieved in the nearfuture at a WTO level. Similarly, the adoption of abinding legal text on e-commerce, as such poten-tially applicable to audiovisuals, is unlikely dueto the deadlock of the multilateral talks.

In this scenario, possible developments couldcome from free trade agreements, such as forinstance the TTIP. In this framework, the U.S. islikely to exert pressure to re-include audiovisualsin the negotiating mandate of the TTIP. The effectof such possible re-inclusion should not be under-

estimated. Free trade agreements can be steppingstones to multilateral trade negotiations. If theU.S. and the EU, the two major trading blocks inthe world, agree to liberalize trade in audiovisualsbetween them, they might be willing to do it alsoat the multilateral level and their example couldbe followed by other WTO Members. o

1 The views adopted in the present article representthe personal opinions of the author and not the posi-tion of Jones Day.2 For general information concerning the TTIP, see R.Antonini, E. Monard and L. Di Masi, TransatlanticTrade and Investment Partnership in Practical Trade &Customs Strategies 28 February 2013, Vol. 2, No. 4 andPractical International Corporate Finance Strategies,Vol 39, No. 4, Thomson Reuters; www.wtexecutive.com.3 See European Union,Member States endorse EU-U.S.trade and investment negotiations (available at http://eu-ropa.eu/rapid/press-release_MEMO-13-564_en.htm).

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