By Bloomberg News

Aug. 13 (Bloomberg) -- China may appeal a World Trade Organization ruling that its limits on the sale of books, films and music from the U.S. are unfair.

“China will evaluate the WTO ruling, while not ruling out the possibility of appealing against that ruling,” Commerce Ministry spokesman Yao Jian said in a statement on the agency’s Web site today. The nation “regrets” the decision, Yao said.

President Barack Obama’s administration secured its first trade victory against China when the trade organization said the limits violate global commerce rules, in a decision released yesterday. WTO judges largely sided with a U.S. complaint that accused China of making U.S. companies sell copyright-protected products such as magazines, CDs and video games through state- approved or state-run businesses.

“It’s potentially a very valuable ruling for U.S. companies,” said David Cohen, an economist with Action Economics in Singapore. “We have to see whether it can be enforced; I suspect there’s a lot of skepticism about that.”

The ruling, handed down in June and made public yesterday, also went against Chinese curbs on foreign producers of audiovisual goods that exempt domestic rivals.

The U.S. film industry “won a major victory in its years- long battle to open the Chinese movie market,” Dan Glickman, head of the Motion Picture Association of America, said in a statement. The WTO decision “points a way forward that will begin to even the playing field in this important market.”

‘Important Step’

The issue is one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software may help American companies even more than changes in its currency policies, analysts say.

The ruling “is an important step toward ensuring market access for legitimate U.S. products in the Chinese market,” U.S. Trade Representative Ron Kirk said in a statement.

China should be asked “to bring the relevant measures into conformity with its obligations,” WTO judges said in their 469- page report issued on the Geneva-based trade arbiter’s Web site.

The ruling stops short of a clear-cut U.S. victory. Judges agreed with the Chinese argument that its criminal law was strong enough to deter piracy. The U.S. failed to convince the panel that thresholds for criminal prosecution of people pirating copyrighted goods are so high they effectively allow sales of illegal items on a commercial scale.

Copyright Piracy

The case was one of two the U.S. lodged against China at the WTO in April 2007 in an effort to stop what it said is rampant piracy of copyrighted audiovisual products. The other complaint argued that Chinese law isn’t harsh enough on counterfeiting and sets too high a value on pirated movie and music discs before prosecuting violators.

WTO judges also issued a mixed ruling on that case, saying China must protect copyrighted content banned by state censors and Chinese regulators can’t release confiscated products back into the market. They also agreed with the U.S. that China had to have criminal penalties for deliberate commercial piracy.

The U.S. and China are each other’s second-largest trading partner, with the value of two-way trade in goods worth $408 billion last year. China is the third-biggest market for U.S. exports, which have doubled in the last five years and amounted to $69.7 billion in 2008, up 7 percent from the previous year.

China said after the complaints were filed that they would “severely damage” trade ties.

Record Trade Surplus

China’s trade surplus with the U.S. surged to a record $268 billion last year, according to the U.S. Trade Representative’s Office, and rose to $17.5 billion in May from $16.8 billion the prior month. That’s prompted accusations from some American lawmakers and companies that China undervalues its currency to promote exports, causing the U.S. trade deficit to soar and costing manufacturing jobs.

China’s copying of movies, music and software cost companies $2.2 billion in 2006 sales, according to an estimate by lobby groups representing Microsoft Corp., Walt Disney Co. and Vivendi SA. The U.S. case also includes a complaint about Chinese censorship of music recording downloads such as those sold by Apple Inc.’s iTunes store.

WTO judges also rejected a U.S. argument that limitations on the number of approved distributors of foreign films are discriminatory because they don’t apply to Chinese cinematic releases.

Both China and the U.S. can appeal the WTO ruling.

Source:  http://www.bloomberg.com/apps/news?pid=20601087&sid=a242Nz1MGdXc