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Report of the Panel

TABLE OF WTO CASES CITED IN THIS REPORT

Short TitleFull Case Title and Citation
Australia – Automotive Leather II Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather, WT/DS126/R, adopted 16 June 1999, DSR 1999:III, 951
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007
Brazil – Retreaded Tyres Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/R, adopted 17 December 2007, as modified by Appellate Body Report, WT/DS332/AB/R
Canada – Pharmaceutical Patents Panel Report, Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, adopted 7 April 2000, DSR 2000:V, 2289
EC – The ACP-EC Partnership Agreement II Award of the Arbitrator, European Communities – The ACP-EC Partnership Agreement – Second Recourse to Arbitration Pursuant to the Decision of 14 November 2001, WT/L/625, 27 October 2005, DSR 2005:XXIII, 11703
EC – Bed Linen Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, 2049
EC – Chicken Cuts Appellate Body Report, EuropeanCommunities – Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005, DSR 2005:XIX, 9157
EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of Certain Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851
EC – Trademarks and Geographical Indications (Australia) Panel Report, European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, Complaint by Australia, WT/DS290/R, adopted 20 April 2005, DSR 2005:X, 4603
EC – Trademarks and Geographical Indications (US) Panel Report, European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, Complaint by the United States, WT/DS174/R, adopted 20 April 2005, DSR 2005:VIII, 3499
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97
US – Corrosion-Resistant Steel Sunset Review Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, 5663
US – Gasoline Panel Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body Report, WT/DS2/AB/R, DSR 1996:I, 29
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3
US – Oil Country Tubular Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257
US – Section 110(5) Copyright Act Panel Report, United States – Section 110(5) of the US Copyright Act, WT/DS160/R, adopted 27 July 2000, DSR 2000:VIII, 3769
US – Section 211 Appropriations Act Panel Report, United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/R, adopted 1 February 2002, as modified by Appellate Body Report, WT/DS176/AB/R, DSR 2002:II, 683
US – Section 211 Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, 589
US – Superfund GATT Panel Report, United States – Taxes on Petroleum and Certain Imported Substances, L/6175, adopted 17 June 1987, BISD 34S/136
US – Section 301 Trade Act Panel Report, United States – Sections 301-310 of the Trade Act of 1974, WT/DS152/R, adopted 27 January 2000, DSR 2000:II, 815
US – Tobacco GATT Panel Report, United States Measures Affecting the Importation, Internal Sale and Use of Tobacco, DS44/R, adopted 4 October 1994, BISD 41S/131
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, DSR 1997:I, 323
US – Zeroing (Japan) Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R, adopted 23 January 2007

I. INTRODUCTION

1.1.
On 10 April 2007, the United States requested consultations with the Government of the People's Republic of China pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement") (to the extent that Article 64 corresponds to Article XXII of the General Agreement on Tariffs and Trade 1994) with respect to certain measures pertaining to the protection and enforcement of intellectual property rights in China.1 Consultations were held on 7-8 June 2007 but did not lead to a resolution of the dispute.
1.2.
On 13 August 2007, the United States requested the Dispute Settlement Body ("DSB") to establish a panel pursuant to Article 6 of the DSU, with standard terms of reference.2 At its meeting on 25 September 2007, the DSB established a Panel, pursuant to the request of the United States in document WT/DS362/7, in accordance with Article 6 of the DSU (WT/DSB/M/239).
1.3.
The Panel's terms of reference are the following:

"To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS362/7, the matter referred to the DSB by the United States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.4.
On 3 December 2007, the United States requested the Director-General to determine the composition of the Panel pursuant to paragraph 7 of Article 8 of the DSU.
1.5.
On 13 December 2007, the Director-General accordingly composed the Panel as follows:

Chairperson: Mr. Adrian Macey

Members: Mr. Marino Porzio

Mr. Sivakant Tiwari

1.6.
Argentina, Australia, Brazil, Canada, the European Communities, India, Japan, Korea, Mexico, Chinese Taipei, Thailand and Turkey reserved their rights to participate in the Panel proceedings as third parties.
1.7.
The Panel met with the parties on 14-16 April 2008 and on 18-19 June 2008. It met with the third parties on 15 April 2008.
1.8.
The Panel submitted its interim report to the parties on 9 October 2008. The Panel submitted its final report to the parties on 13 November 2008.

II. FACTUAL ASPECTS

A. MEASURES AT ISSUE

2.1.
The measures at issue in this dispute are identified in the United States' request for establishment of a panel as follows:

1. Thresholds for criminal procedures and penalties

2. Disposal of goods confiscated by customs authorities that infringe intellectual property rights

2.3.
The United States claims that China's measures for disposing of confiscated goods that infringe intellectual property rights are inconsistent with China's obligations under the TRIPS Agreement. In this regard, the measures at issue are:

(a) the Regulations of the People's Republic of China for Customs Protection of Intellectual Property Rights (adopted at the 30th Ordinary Meeting of the State Council on 26 November 2003, published by the State Council on 2 December 2003, and effective from 1 March 2004), in particular Chapter 4 thereof;

(b) the Implementing Measures of Customs of the People's Republic of China for the Regulations of the People's Republic of China on Customs Protection of Intellectual Property Rights (adopted at an Administration Affairs Meeting of the General Administration of Customs on 22 April 2004, issued by the General Administration of Customs with Order No. 114 on 25 May 2004, and effective from 1 July 2004), in particular Chapter 5 thereof; and

(c) General Administration of Customs Announcement No. 16 (2 April 2007);

as well as any amendments, related measures, or implementing measures.

3. Denial of copyright and related rights protection and enforcement to works that have not been authorized for publication or distribution within China

2.4.
The United States claims that China is acting inconsistently with its obligations under the TRIPS Agreement by denying the protection of its Copyright Law to creative works of authorship (and, to the extent Article 4 of the Copyright Law applies to them, sound recordings and performances) that have not been authorized for, or are otherwise prohibited from, publication or distribution within China. In this regard, the measures at issue are:

(a) the Copyright Law of the People's Republic of China (adopted at the 15th Session of the Standing Committee of the Seventh National People's Congress on 7 September 1990, and amended according to the Decision on the Revision of the Copyright Law of the People's Republic of China, adopted at the 24th Session of the Standing Committee of the Ninth National People's Congress on 27 October 2001), in particular Article 4;3

as well as any amendments, related measures, or implementing measures.

B. PROCEDURAL HISTORY

1. Translations

2.5.
Paragraph 10 of the Working Procedures adopted by the Panel on 10 January 2008 provided that where the original language of exhibits or text quoted in a submission was not an official WTO language, the submitting party shall submit the original language version of that at the same time.
2.6.
In view of certain differences between the parties' respective translations of certain measures the Panel, at its first substantive meeting, suggested that the parties submit mutually agreed translations of these measures. In communications dated 11 and 14 June 2008, the parties submitted mutually agreed translations ("MATs") of the following measures:

(MAT-1) Criminal Law (Articles 213, 214, 215, 217, 218 and 220)

(MAT-2) 2007 Judicial Interpretation (Articles 1 through 7)

(MAT-3) 2004 Judicial Interpretation (Articles 1 through 17)

(MAT-4) 1998 Judicial Interpretation (Article 17 paragraph 2)

(MAT-5) Prosecution Standards on Economic Crimes (Articles 8, 16, 23, 38, 39 and 70)

(MAT-6) Regulations on Customs Protection of Intellectual Property Rights (Article 27)

(MAT-7) Customs IPR Implementing Measures (Article 30)

(MAT-8) Customs Announcement No. 16/2007

(MAT-9) Measures on the Administration of Property Confiscated by Customs (Articles 1, 2, 3, 17 and 18)

(MAT-10) Law on Donations for Public Welfare

(MAT-11) Copyright Law (Articles 2 and 4)

(MAT-12) Regulations on the Administration of Films (Articles 2, 24, 25, 27, 28, 29, 31, 42 and 55)

(MAT-13) Regulations on the Administration of Audiovisual Products (Articles 2, 4, 28 and 36)

(MAT-14) Regulations on the Administration of Publication (Articles 6, 26, 27, 40, 44, 45 and 56)

2. Request for factual information from the International Bureau of WIPO

2.7.
On 21 April 2008, the Panel sent a letter to the International Bureau of WIPO requesting its assistance in the form of any factual information available to it relevant to the interpretation of certain provisions of the Berne Convention for the Protection of Literary and Artistic Works (1971).4 The parties had been given the opportunity to comment on the draft letter at the Panel's first substantive meeting.
2.8.
The International Bureau's reply was received by the Panel and the WTO Secretariat on 7 June 2008. The Panel gave the parties an opportunity to submit comments on the reply by 7 July 2008. The United States submitted its comments on 7 July 2008. China informed the Panel that it would not submit comments on the WIPO reply. China submitted comments on the United States' comments on 21 July 2008.
2.9.
The factual information provided by the International Bureau consists of a note that it prepared and 16 annexes containing excerpts from the Official Records of the various Diplomatic Conferences which adopted, amended or revised the provisions currently contained in Articles 5(1), 5(2) and 17 of the Berne Convention (Paris Act of 1971).5

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. UNITED STATES

3.1.
The United States requests that the Panel find that:

(a) China's IPR thresholds are inconsistent with China's obligations under Article 61, 1st and 2nd sentence, and Article 41.1 of the TRIPS Agreement;

(b) the compulsory sequences of steps set out in the Chinese measures mean that Chinese customs authorities lack the authority to order destruction or disposal of infringing goods in accordance with the principles set out in Article 46 of the TRIPS Agreement, and that the measures at issue are therefore inconsistent with China's obligations under Article 59 of the TRIPS Agreement;

(c) the first sentence of Article 4 of China's Copyright Law is inconsistent with Article 9.1 of the TRIPS Agreement, incorporating Articles 5(1) and 5(2) of the Berne Convention (1971), as well as Article 14; Article 61, 1st and 2nd sentence; and Article 41.1 of the TRIPS Agreement.

3.2.
The United States requests that the Panel recommend, pursuant to Article 19.1 of the DSU, that China bring its measures into conformity with the TRIPS Agreement.

B. CHINA

3.3.
China requests that the Panel find China's measures to be consistent with China's obligations under the TRIPS Agreement.

IV. ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties as set forth in their executive summaries of their written submissions submitted to the Panel, are attached to this Report as Annexes A and B (see List of Annexes, page v).

V. ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of the third parties as set forth in their executive summaries of their written submissions and oral statements submitted to the Panel, are attached to this Report as Annex C (see List of Annexes, page vi).6

VI. INTERIM REVIEW

6.1.
On 9 October 2008, the Panel submitted its interim report to the parties. On 23 October 2008, the United States and China submitted written requests for review of precise aspects of the interim report. On 30 October 2008, the United States and China submitted written comments on each other's request for interim review.
6.2.
The Panel has modified specific aspects of its report, where it considered appropriate, in light of the parties' comments as explained below, and made other modifications for the purposes of accuracy and clarity. References to paragraph numbers and footnotes in this Section VI refer to those in the interim report.

1. Copyright Law

Works that fail content review
6.3.
China requests that the Panel consider amending paragraphs 7.87 and 7,103 to avoid confusion regarding the parties' respective descriptions of works that have failed content review.
6.4.
The United States opposes this request, as it believes that the Panel has accurately characterized the positions that the parties expressed to the Panel.
6.5.
The Panel has not made the requested modification but modified paragraphs 7.87 and 7.88 and made consequential changes to paragraphs 7,103 and 7,118 to clarify its characterization of works that have failed content review and works for which an edited version has been approved for distribution in China, and to explain why it does not accept some of China's description of such works.

Rights specially granted by the Berne Convention

6.6.
The United States requests that paragraph 7,107 be modified so as to add a reference to Article 14bis, and to delete the reference to Article 14ter, in the list of rights specially granted by the Berne Convention (1971).
6.7.
China responds that the request to add a reference to Article 14bis is not warranted. That Article does not articulate any independent rights, and the request is unnecessary in view of the Panel's footnote providing that the enumeration of minimum rights is without prejudice.
6.8.
The Panel has modified the list to add a reference to Article 14bis which provides for the grant of a right to a particular category of works. The Panel has not deleted the reference to Article 14ter, as it provides for a distinct right, but this is without prejudice to the provisions of Article 14ter(2) and (3). The Panel has also deleted the reference to Article 13 and reiterates its statement in footnote 111 that this list is without prejudice to other such rights.

Effectiveness of prohibitions on content

6.9.
China requests that paragraph 7,138 be modified to refer to Article 364 of the Criminal Law and Article 56 of the Film Regulations.
6.10.
The United States responds that, in the context discussed in paragraph 7,138, China only referred to Article 56 of the Film Regulations and that that Article does not change the substance of the Panel's finding in that paragraph.
6.11.
The Panel has not made the requested modification because the paragraph in question concerns the actual effectiveness of enforcement actions whilst China's comment refers to standards set out in legislation. The Panel has also merged this paragraph with the previous one, for clarity.

Other modifications

6.12.
China requests a clarification in paragraph 7,101 regarding the jurisdiction of its copyright authorities. The Panel has made the clarification.
6.13.
The United States requests that paragraph 7,136 be modified to track the text of the response quoted. The Panel has made the requested modification.

2. Customs measures

Donation to social welfare bodies
6.14.
The United States requests that paragraph 7,310 be modified because there are circumstances in which donation is possible to other social welfare bodies besides the Red Cross.
6.15.
China responds that the United States appears to misinterpret the second sentence of paragraph 7,310 because that sentence simply observes that Customs has the power to donate to the Red Cross in all instances where it can donate to other social welfare organizations.
6.16.
The Panel has not made the requested modification. The point of the paragraph in question is that China Customs has authority to donate infringing goods to the Red Cross Society of China, with whom it has a donation agreement, and that authority to donate infringing goods to other social welfare bodies does not preclude that authority. The Panel has modified the paragraph, for clarity.

Auction and authority to order the destruction of infringing goods

6.17.
The United States requests that paragraph 7,341 be modified due to a systemic concern because the Panel appears to take the position that the word "shall", when used in Chinese legal measures, does not impose a mandatory legal obligation. The meaning of the Chinese term translated as "shall" in the formal legal context differs from its meaning in other contexts. It was because of this difference that the parties agreed that the correct translation was "shall" for the purposes of translation into English. China confirmed that the use of the verb "shall" in the context of the measures at issue meant that once Customs makes particular findings it has a legal obligation to carry out the relevant disposal option.
6.18.
China responds as follows: (1) in reaching the mutually agreed translation, there was no discussion between the parties on whether the meaning of the word translated as "shall" in formal legal contexts was different from its meaning in other contexts; (2) the Panel's assessment of the measure is a factual finding particular to this dispute and does not affect future assessments by other panels in other disputes involving China's domestic law; (3) the dictionary definition of the word translated as "shall" forms part of the Panel's assessment of the meaning of the measure and the Panel is within its authority in using such a source.
6.19.
The Panel notes that the English word "shall" is only used in a non-authentic translation. Even then, the word is used specifically in the description of the auction method in only one of the three Customs measures, and that measure is a lower norm. The United States' case seems to place great weight on the choice of the word "shall" in the translation of that lower norm. This may not be the case in other disputes. However, in this dispute, the Panel is not satisfied that the translation, on an objective assessment, can support the conclusion that the United States apparently seeks to draw from it as regards the conformity of the measures at issue with China's WTO obligations. The Panel has modified the paragraph, in part as requested.

Auction and "simple removal of the trademark unlawfully affixed"

6.20.
China requests a revision of the conclusion in paragraph 7,397(c) for the following reasons: (1) Article 46 does not apply to goods from which all infringing features have been removed as they are no longer infringing; (2) reaffixing a counterfeit trademark constitutes a separate act of infringement; and (3) US authorities may publicly auction merchandise after obliteration of the trademark.
6.21.
The United States opposes this request, and responds to China's three reasons as follows: (1) this is just a variant of an argument that the interim report already disposes of in paragraphs 7,381-7.382; (2) this is irrelevant as the obligation in the fourth sentence of Article 46 refers to a procedure not the substantive legal effect of affixing a counterfeit trademark; (3) the United States has previously demonstrated that China's arguments regarding this aspect of US law are irrelevant and without merit.
6.22.
The Panel has not made the requested modification for the reasons already given in paragraph 7,235 regarding the temporal scope of the obligations in Article 46, paragraph 7,264 noting that the "counterfeit trademark goods" referred to in the fourth sentence of Article 46 are a category of the infringing goods covered by that Article, and paragraphs 7,375 and 7,382 regarding the insufficiency of ceasing infringement. The Panel has modified paragraph 7,382 to emphasize that the fourth sentence of Article 46 imposes an additional requirement and clarified paragraph 7,388. The third point raised by China in its interim review comments concerns US measures which are not part of the matter before the Panel.

Exceptional cases

6.23.
The United States requests a clarification before paragraph 7,396 that the Customs measures provide that simple removal of the trademark unlawfully affixed is sufficient to permit release of the goods into the channels of commerce in more than just exceptional cases.
6.24.
China responds that the text of TRIPS uses the formulation "other than in exceptional cases" so that the request that the Panel alter the text of its finding is unwarranted by the record evidence and the text of TRIPS.
6.25.
The Panel has added the requested clarification. The Panel has used the phrase "more than just exceptional cases" as requested because it indicates that the Customs measures do not comply with the formulation in the fourth sentence of Article 46 of the TRIPS Agreement as regards exceptional cases.

3. Criminal thresholds

Construction of the measures at issue
6.26.
The United States requests that the subheading above paragraph 7,471 be modified.
6.27.
China considers that the subheading is neither inaccurate nor misleading.
6.28.
The Panel has made the requested modification, for clarity.

"on a commercial scale"

6.29.
The United States requests adjustments of the text or the insertion of cross-references for clarity to indicate that certain paragraphs refer to the concept in paragraphs 7,579 and 7,580.
6.30.
The Panel has not made the requested adjustments. Paragraph 7,600 states that the interpretation of "on a commercial scale" is set out in paragraph 7,579 and that the Panel will apply that interpretation in the following sub-section. Paragraphs 7,605 and 7,607 relate that interpretation to China's marketplace. The Panel has modified one aspect of paragraph 7,580 and added a new paragraph introducing the remainder of the Panel's assessment.

Article 63.3 of the TRIPS Agreement

6.31.
The United States requests that paragraph 7,631 be modified to delete a reference to Article 63.3 of the TRIPS Agreement as it could be misunderstood.
6.32.
China objects to this request because it understands that the Panel included this statement as part of the explanation of its treatment of the evidence on the record. The US concern is misplaced because Article 63.3 of the TRIPS Agreement is not part of the matter before the Panel and the Panel's use of the word "notwithstanding" indicated that the conclusions in this section are made setting aside any issues relating to Article 63.3.
6.33.
The Panel has made the requested modification to avoid any possible misunderstanding as to the meaning of Article 63.3 of the TRIPS Agreement.

Physical evidence

6.34.
The United States requests that paragraph 7,642 be modified as regards the anti-counterfeiting efforts of Nintendo of America.
6.35.
China responds that paragraph 7,642 requires no change. Only three criminal cases were analysed in the Nintendo report and the record of this dispute does not disclose the status of two of them.
6.36.
The Panel has made the requested modification, in part, but drawn no conclusion as to the status of two of the cases analysed in the Nintendo report.

VII. FINDINGS

A. COPYRIGHT LAW

1. Description of the measure at issue

7.1.
This Section of the Panel's findings concerns China's Copyright Law. The Copyright Lawwas adopted by the Standing Committee of the National People's Congress and promulgated in 1990 then amended by a Decision of the Standing Committee of the National People's Congress in 2001. The claims concerning the Copyright Law address, in particular, the first sentence of Article 4. The parties agreed to translate that sentence as follows:

"Works the publication and/or dissemination of which are prohibited by law shall not be protected by this Law."7

7.2.
This Report refers to the first sentence of Article 4 as "Article 4(1)" for ease of reference, although the original version does not use paragraph numbers within that Article.

2. Claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement

7.3.
The United States informed the Panel in its comments on the draft descriptive part of this Report that it makes a claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. In this regard, it refers the Panel to arguments in its written submissions. It also notes that its request for establishment of a panel referred to "Articles 1 through 21 of the Berne Convention".8
7.5.
In the present dispute, the request for establishment of a panel refers to Article 5(1) and 5(2) of the Berne Convention (1971), followed by the incorporation provision in Article 9.1 of the TRIPS Agreement. The request sets out three sentences on the measure at issue, then one sentence reciting terms used in Article 5(1) of the Berne Convention (1971), followed by a conclusion under Article 9.1 of the TRIPS Agreement, then another sentence reciting terms used in Article 5(2) of the Berne Convention (1971), followed by a conclusion under Article 9.1 of the TRIPS Agreement. The request makes no specific reference to Article 2 of the Berne Convention (1971) at all.
7.6.
It was in this context that the request for establishment of a panel recited part of the terms of Article 9.1 of the TRIPS Agreement, insofar as it requires all WTO Members to comply with "Articles 1 through 21" of the Berne Convention. There is no indication that the reference to the terms of the Berne Convention (1971) incorporated by Article 9.1 of the TRIPS Agreement was intended to refer to any particular provision of that Convention besides Article 5(1) and 5(2).
7.7.
The Panel notes that Articles 2 and 5 of the Berne Convention (1971) are incorporated in the TRIPS Agreement by the same provision, i.e. Article 9.1 of the Agreement. However, a reference to Article 9.1 of the TRIPS Agreement and a broad reference to 28 incorporated provisions of the Berne Convention (1971) are not sufficient to "provide a brief summary of the legal basis of a complaint sufficient to present a problem clearly". In such circumstances, the respondent, third parties and the Panel cannot know which particular obligations under the Berne Convention (1971) are at issue.
7.8.
The Panel notes that its approach to the proper way to summarize the legal basis of a claim under the provisions of an intellectual property convention incorporated in the TRIPS Agreement is consistent with the approach followed in the Panel Report in EC – Trademarks and Geographical Indications (Australia) which ruled that a claim regarding a provision of the Paris Convention (1967) that had not been specifically mentioned in the request for establishment of a panel was outside its terms of reference.10
7.9.
For the above reasons, the Panel finds that the request for establishment of a panel discloses no claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.10.
Even if the Panel were to accept arguendo that the request for establishment of a panel had been unclear in its broad reference to the incorporated provisions of the Berne Convention (1971) and its specific reference to the "protection" of "works" (terms used in Article 2(6), as in many other provisions of the Berne Convention (1971)), the United States' first written submission did not explicitly make any claim regarding Article 2(6) of the Berne Convention (1971) either. The United States argued in its first written submission that several of the Berne Convention Articles with which China must comply pursuant to TRIPS Article 9.1 "are relevant" in this dispute. It quoted Article 5(1) of the Berne Convention (1971), then mentioned ten other provisions of that Convention in order to elaborate on the meaning of certain phrases used in Article 5(1), regarding "works" and "the rights specially granted".11 Article 2(6) was one of those ten other provisions. None of those references hinted at a claim under any provision besides Article 5(1). The United States also argued that Article 4 of the Copyright Law excludes from copyright protection an entire category of works, but that exclusion from protection is not permitted or even contemplated by the Berne Convention. It mentioned six provisions of Articles 2 and 2bis of the Berne Convention (1971) in support of that argument.12 Article 2(6) was one of those six provisions. However, there was no explicit statement that a separate claim was being made under Article 2(6).
7.11.
China understood that the United States' claims under the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, were made under Article 5(1) and 5(2).13
7.12.
None of the third parties referred to a claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.13.
Even in its rebuttal submission, the United States did not clarify explicitly that it wished to make a claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. Rather, it presented only two claims regarding the provisions of the Berne Convention. In the first, it argued that Article 4 of the Copyright Law denies copyright to works contrary to China's obligations under Article 9.1 of the TRIPS Agreement and "the provisions of the Berne Convention" referenced in Article 9.1. Its arguments regarding "works" and "rights" supported a single claim which, in light of the request for establishment of a panel, appeared to be the original claim under Article 5(1), as incorporated by Article 9.1 of the TRIPS Agreement. It referred to two provisions of Article 2, one of which was Article 2(6), without expressly articulating a claim under Article 2(6). A subheading asserted an inconsistency with "Articles 2 and 5(1) of the Berne Convention" but, given that the definition of works in Article 2 is relevant to the claim under Article 5(1) (as shown in the Panel's consideration of the claim under Article 5(1) at paragraphs 7,115 and 7,116 below), it was still not clear that the United States wished to assert a separate claim under Article 2 of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.14.
For the above reasons, even if the Panel were to accept arguendo that the request for establishment of a panel had been unclear, the Panel finds that the United States' submissions to the substantive meetings with the Panel did not clarify that a claim was being made under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, in accordance with Article 6.2 of the DSU.
7.15.
Therefore, in light of the above, the Panel finds that a claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, lies outside the Panel's terms of reference.

3. Claim under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement

(a) Main arguments of the parties

7.16.
The United States claims that Article 4(1) of China's Copyright Law denies the protection of the Copyright Law to certain categories of works, and refers to the text of that sentence. The United States recalls that China, during a review of its legislation in the Council for TRIPS in 2002, explained that this sentence referred to works of which the publication or distribution was prohibited by such laws and regulations as the Criminal Law, the Regulation on the Administration of Publishing Industry, the Regulation on the Administration of Broadcasting, the Regulation on the Administration of Audiovisual Products, the Regulation on the Administration of Films and the Regulations on the Administration of Telecommunication. The United States gives examples of four regulations that prohibit the publication or distribution of works under various circumstances.14 The United States claims that Article 4(1) of China's Copyright Law denies to the authors of works "the publication or distribution15 of which is prohibited by law" the broad set of rights enumerated in Article 10 of the Copyright Law, which largely encompasses the rights contemplated by the provisions of the Berne Convention (1971). Nor do authors of works denied protection of the Copyright Law benefit from the remedies specified in Articles 46 and 47 of the Copyright Law. Consequently, the authors of such works do not enjoy the minimum rights that are "specially granted" by the Berne Convention, inconsistently with Article 5(1) of that Convention.16 The United States submitted more detailed arguments with respect to content review in relation to Article 5(2) of the Berne Convention (1971) (see paragraph 7,145 below).
7.17.
China responds that copyright vests upon creation and is independent of publication. Article 2 of the Copyright Law grants full copyright protection by expressly incorporating into Chinese law the rights conferred under international agreements, including the Berne Convention and the TRIPS Agreement. In contrast, Article 4(1) of the Copyright Law is extremely limited in scope. China, like many other countries in the world, bans from publication and dissemination such works as those that consist entirely of unconstitutional or immoral content. Article 4(1) simply provides that such a work shall not be protected by the Copyright Law. China argued in its first written submission that the application of Article 4(1) was not dependent on content review or any other regulatory regime related to publication and that the only result of a finding of prohibited content in that process was a denial of authority to publish, not a denial of copyright. Specifically, China argued that works that fail content review were not denied copyright protection.17 Article 17 of the Berne Convention (1971) subjects to the sovereign power of governments all of the rights otherwise granted by that Convention.18
7.18.
At the first substantive meeting with the Panel, the United States stated that China's written submission appeared simply to concede that Article 4 of its Copyright Law was inconsistent with its obligations under the TRIPS Agreement because it admitted that Article 4(1) denies protection to works whose contents are prohibited.19
7.19.
At the same meeting, China confirmed parts of its first written submission but clarified that, with respect to a work edited to pass content review, it would protect copyright in the edited version of the work, including against copies of the unedited version that infringed copyright in the edited, approved version. With respect to works that failed content review, China informed the Panel that it intended to provide additional written comments and clarification of its position later.20
7.20.
China provided its additional comments together with its responses to the Panel's questions after the first substantive meeting and asked the Panel to rely on these additional comments to the extent that they were inconsistent with its first written submission. China confirmed that it would protect copyright where a work was edited to pass content review. Where no authorized edited version had been created, it would enforce copyright in the legal portion of the original work against copies of an unauthorized edited version. However, it would not enforce copyright against unedited, prohibited copies of an unedited, prohibited work that failed content review.21
7.21.
At the same time, in response to the Panel's questions, China submitted that Article 4(1) of the Copyright Law did not affect the vesting of copyright under Article 2 of that Law. China asked the Panel to note that under the Chinese system of copyright, "copyright" and "copyright protection" are distinguishable. To the extent that Article 4(1) of the Copyright Law would come into play with respect to a work, it would operate not to remove copyright, but to deny the particularized rights of private copyright enforcement.22
7.22.
The United States notes that China admits that it denies copyright protection to certain works whose contents Chinese authorities determine are prohibited by law and submits that, therefore, China has confirmed that it is acting inconsistently with its obligations under Article 9.1 of the TRIPS Agreement. The United States rebuts China's arguments as follows: first, even if Article 2(2) of the Copyright Law grants protection to foreigners' works, Article 4(1) denies protection to those for which publication or distribution is prohibited by law. Article 2 cannot, by the terms of Article 4, apply to such works. Second, as Article 4 denies the exclusive rights enumerated in Article 10 of the Copyright Law, the minimum set of exclusive rights guaranteed by Article 5(1) of the Berne Convention (1971) is denied to such works. The distinction between "copyright" and "copyright protection" is not found in the text of the Berne Convention and is irrelevant. Third, Article 4(1) creates significant commercial uncertainty and, where it is clear that a work has been denied copyright protection, allows pirates to profit at the expense of the legitimate right holder, including by exporting.23 Article 17 of the Berne Convention (1971) does not permit Members to deny copyright protection to authors in their respective works.24
7.23.
China responds that the United States has failed to make a prima faciecase with respect to its view that copyright protection is contingent upon content review (see paragraph 7,145 below). The whole claim with respect to Article 4(1) of the Copyright Law must therefore fail. With respect to the claim of a facial violation, there is a strong presumption that a Member's law is WTO-compliant and the United States has offered no evidence in support but the text of Article 4(1) of the Copyright Law itself. Article 2 of the Copyright Law directly implements an author's rights under the Berne Convention into Chinese law. The scope and operation of Article 4(1) of the Copyright Law are extremely limited.25 The sovereign power to prohibit works, recognized in Article 17 of the Berne Convention (1971), permits Members to maintain a provision of law such as Article 4(1) of the Copyright Law.26

(b) Main arguments of third parties

7.24.
Argentina considers that Article 4(1) of the Copyright Law appears to deny to works that are prohibited or not permitted the protection established in Article 10 of the Copyright Law, which contains the rights enumerated in the Berne Convention (1971). This does not imply that China has no right to prohibit the publication or distribution of certain kinds of works. In fact, Article 17 of the Berne Convention (1971) contemplates such a possibility.27
7.25.
Canada notes that China has admitted that Article 4(1) of its Copyright Law refers to works, including those of the Berne Union, that the Chinese authorities find unconstitutional or immoral, and that these works are not protected in China. Canada does not see how this conclusion is affected by the second sentence of Article 2 of the Copyright Law as Article 4 seems to take precedence. Canada agrees that Members can prohibit the publication and distribution of work but considers that Members do not have a right to deny copyright protection to them.28
7.26.
The European Communities notes that China acknowledges that Article 4(1) of its Copyright Law denies copyright protection for works "the publication or distribution of which is prohibited" because of "unconstitutional or immoral" or "reactionary, pornographic or superstitious" content. Such denial of protection is not covered by the exemptions or limited exceptions permitted under the Berne Convention (1971) and the TRIPS Agreement. Article 17 of the Berne Convention (1971) does not allow limiting exclusive rights or even exempting works from protection.29
7.27.
Chinese Taipei considers that, without a content review, it can never be determined whether a work is unconstitutional or immoral. Works that have not passed, or that fail to pass, content review are prohibited from distribution by law, which means that they fall within the scope of Article 4(1) of the Copyright Law. Clarification is required as to whether China protects works that have not been submitted for a content review or that are pending authorization. Even if Article 4(1) of the Copyright Law were limited to works that fail to pass a content review, this withdrawal of protection would be inconsistent with the obligation under Article 9.1 of the TRIPS Agreement and Article 5(1) of the Berne Convention (1971). Chinese Taipei shared the view of both parties that China has the right to conduct content review based on Article 17 of the Berne Convention (1971).30

(c) Consideration by the Panel

(i) Construction of the measure at issue

7.29.
The United States claims that Article 4(1) of the Copyright Law on its face denies immediate, automatic protection to certain works of creative authorship.34
7.30.
China responds that this claim is based on the "mistaken view" that copyright protection in China is contingent upon successful completion of content review.35 In the course of addressing the issue of when copyright vests under Chinese law, China acknowledged that Article 4(1) of the Copyright Law denies protection to certain works due to their content.36
7.31.
The United States stated at the first substantive meeting that, in view of that acknowledgement, China appeared simply to concede that Article 4 of the Copyright Law was inconsistent with China's obligations under the TRIPS Agreement.37 Canada and the European Communities, as third parties, took the same view.38 Argentina considered that the text of Article 4 was straightforward.39
7.32.
After that meeting, China clarified the terms of its earlier acknowledgement. It clarified that Article 4(1) denies "copyright protection" in the sense of enforcement but does not disturb "copyright".40
7.33.
The United States dismissed China's clarification as an "artificial distinction".41
7.34.
The Panel begins its assessment by observing that Chapter I of the Copyright Law comprises eight articles. Article 1 sets out the purpose of the law, which includes the purpose of protecting the copyright of authors in their literary, artistic and scientific works and the rights and interests related to copyright.
7.35.
Article 2 sets out criteria of eligibility for protection. The first paragraph (to which the Panel will refer as "Article 2(1)") may be translated as follows:

"Chinese citizens, legal entities or other organizations shall enjoy copyright in their works in accordance with this Law, whether published or not."42

7.36.
The second (to which the Panel will refer as "Article 2(2)") may be translated as follows:

"The copyright enjoyed by foreigners or stateless persons in any of their works under an agreement concluded between China and the country to which the author belongs or in which the author has his habitual residence, or under an international treaty to which both countries are parties, shall be protected by this Law."43

The Berne Convention (1971) is defined as an "international copyright treaty" for the purposes of the Provisions on the Implementation of International Copyright Treaties.44

7.37.
Article 3 sets out a non-exhaustive list of "works" for the purposes of this Law, including works of literature, art, natural sciences, social sciences, engineering and technology which are created in the form of any of a series of enumerated works.
7.38.
Article 4 provides inter alia that certain "works" shall not be protected by this Law.
7.39.
Article 5 sets out subject matter to which this Law does not apply (that appears to concern subject matter that falls into the public domain or is considered to lack originality).
7.40.
Article 6 provides that certain works will be dealt with in other measures.45
7.41.
A link can be observed between Article 2(2) and 4(1). Article 2(2) provides that the copyright enjoyed by certain foreigners in any of their works "shall be protected by this Law" (受本法保护) whilst Article 4(1) uses identical language with the addition of a negative (不) to provide that certain works "shall not be protected by this Law" (不受本法保护). This suggests that Article 4(1) denies what Article 2(2) grants.
7.42.
Turning to Article 4(1), the text of this provision is quoted at paragraph 7.1 above.
7.43.
The term "works" (作品) is defined in the previous article, Article 3.
7.44.
The term "publication and/or dissemination" (出版、传播) was agreed between the parties as an appropriate translation. The parties had earlier used the phrases "publication or distribution" and "publication and dissemination". China alleges that the word translated as "dissemination" (传播) has a distinct, and wider, meaning than a word commonly used in its content review regulations, which may be translated as "distribution" (发行).46
7.45.
The term "prohibited by law" (依法禁止), on its face, is not limited to any particular piece of legislation but could apply to any law that prohibits the publication and/or dissemination of a work. The United States alleges that it refers to "other laws and regulations".47 In any event, it is clear from its wording that the provision applies to a class of "works", the class being defined as those the publication and/or dissemination of which are, in some way, prohibited by law. (This phrase is examined in greater detail at paragraphs 7.72 to 7.82 below.)
7.46.
The phrase translated as "shall not be protected by this Law" (不受本法保护) does not include the word "shall" in the original, as it uses no modal verb. However, it is not disputed that Article 4(1) of the Copyright Law is mandatory. The reference to "this Law" (本法) is evidently a reference to the Copyright Law. On its face, it refers to the protection of the Copyright Law and not to any subset of its protection.
7.47.
The United States explained that this phrase provided for the denial of the rights enumerated in Article 10 of the Copyright Law and the remedies in Articles 46 and 47 of the Copyright Law.48 China agreed that it included all the rights listed in Article 10.49
7.48.
The Panel observes that the protection provided by the Copyright Law is addressed inter alia in Chapter II, Section 1 titled "Copyright Owners and Their Rights". That Section includes Article 10, which provides that "copyright" includes a list of four moral rights and 13 economic rights set out in the first paragraph of that Article. The economic rights include, for example, (5) the right of reproduction; (11) the right of broadcasting; (14) the right of adaptation; and (15) the right of translation. Every specific right in that list relates to "a work" (作品). The second paragraph of Article 10 provides that copyright owners may "authorize" others' exercise of the economic rights set out in subparagraphs (5) through (17). Chapter II, Section 3, titled "Term of Protection for the Rights" provides in Article 21 for the term of "protection" for the economic rights set out in subparagraphs (5) through (17) of the first paragraph of Article 10.
7.49.
The economic rights appear to be exclusive rights in light of, inter alia, Article 11, which provides that the copyright in a work shall belong to its author, and Article 24, which provides that anyone who exploits another person's work shall conclude a copyright licensing contract with the copyright owner, subject to exceptions.
7.50.
The Panel finds that the Copyright Law is sufficiently clear, on its face, to show that Article 4(1) denies the protection of Article 10 to certain works, including those of WTO Member nationals, as the United States claims.
7.51.
This interpretation is consistent with, and clarified by, the view expressed by the Supreme People's Court of China in the course of domestic litigation in 1998, to which the Panel will refer as "the Inside Story case".50 The United States submitted a letter sent from the Supreme People's Court to a provincial Higher People's Court during that case, which the Supreme People's Court reissued in 2000.51 This letter, from China's highest judicial body, is instructive in the interpretation of Article 4(1) of the Copyright Law.52 That case concerned a book, the publication of which violated administrative regulations but the content of which did not violate any laws. In the letter, the Court ruled that it was correct for the courts of the first and second instances to provide protection under the Copyright Law to the book at issue for the following reason:

"The Inside Story was originally published in the magazine 'Yanhuang Chunqiu' (1994, No. 2). In May of the same year, the United Front Department of the Sichuan Provincial Communist Party Committee reviewed the book and approved its publication. Nothing was found in the text of the Inside Story to violate any laws. Therefore, it is correct for the courts of the first and second instances to provide it protection under the Copyright Law."53

7.52.
The Panel finds that the Supreme People's Court letter confirms that Article 4(1) of the Copyright Law denies copyright protection and clarifies that Article 4(1) applies where the publication and/or dissemination of a work is prohibited due to its content.
7.53.
The Panel notes that China's own submissions support this view. In the course of its submission that the application of Article 4(1) of the Copyright Law does not depend on content review or any other regulatory regime related to publication (in defence of the claim that content review constituted a "formality" under Article 5(2) of the Berne Convention (1971)), China made the following statements:

"China, like many countries in the world, bans from publication and dissemination such works as those that consist entirely of unconstitutional or immoral content. Art. 4.1 simply provides that such a work also shall not be protected by the Copyright Law. …"54

"As a matter of law, Article 4.1 of the Copyright Law only denies protection to works whose contents are completely unconstitutional or immoral."55

"China also notes that to the extent that Art. 4.1 independently of the content review process might act to deny copyright protection to a work independently found by a court to be prohibited by law, this act of prohibition is protected by Berne Convention Art. 17 …"56

7.54.
China submitted a written reply from the National Copyright Administration of China ("NCAC") to the Supreme People's Court in the Inside Story case, in response to a request from the Supreme People's Court prior to sending the letter quoted at paragraph 7.51 above. China quoted the NCAC reply in its first written submission which stated, in part, as follows:

"Under the Copyright Law, the copyright is created upon the composition of the work. In general, the author is entitled to the copyright, and is protected by the Copyright Law. Only works the publication or dissemination of which are prohibited by law are not protected by the Copyright Law. Yet the '[w]orks the publication and dissemination of which are prohibited by law' in Article 4 of the Copyright Law refer only to works whose contents are illegal (reactionary, pornographic, or superstitious contents). If the contents of Inside are illegal, it will not be protected by Copyright Law, and all the presses shall neither publish nor disseminate it. …"57

7.55.
From the above, China concluded in its first written submission as follows:

"Thus, the NCAC had clarified that only when the contents of the work are found to be illegal will Article 4.1 come into play; violation of publishing rules does not deprive the right-holder the right to have its copyright protected and enforced by law."58

7.56.
In its first oral statement, China stated as follows:

"China also notes that while Article 4.1, on its face, could operate to deny protection to works whose contents are illegal or immoral, the content review process operates independently of Article 4."59

7.57.
The above evidence confirms the Panel's finding at paragraph 7.50 above, as confirmed and clarified at paragraph 7.52. Later, China continued to confirm the same point (subject to a clarification, discussed at paragraph 7.61 below) but explained that denial of protection under Article 4(1) of the Copyright Law was subject to a determination by a court or the NCAC. In response to questions after the first substantive meeting, China stated that:

"Article 4.1 of China's Copyright Law empowered China's courts and the National Copyright Administration of China to deny copyright protection to works that are prohibited by law."60

7.58.
In its rebuttal submission, China reiterated the point as follows:

"Nor does Art. 4.1 function in any other way as a condition precedent to copyright. … Art. 4.1 is envisaged by China's authorities to operate as a condition subsequent in one narrow judicial context, and to the extent that it so operates, it is entirely consistent with the requirements of the Berne Convention."61 (footnote omitted)

7.59.
China specifically acknowledged that it would not protect the copyright in the unedited, prohibited version of a work that failed content review where enforcement action was requested against unedited, prohibited infringing versions.62
7.60.
All of the above statements confirm the Panel's view, based on the evidence submitted by the United States including, in particular, the wording of the Copyright Law on its face, that Article 4(1) of that Law provides for the denial of copyright protection to certain works based on their content.
7.61.
However, after the first substantive meeting, China provided a clarification of its earlier statements. China submits that Article 4(1) of the Copyright Law does not lead to a denial of "copyright" but only of "copyright protection". China argues that Article 4(1) of the Copyright Law does not affect the vesting of copyright afforded by Article 2. The core principle is that Chinese law will not enforce the protection of the Copyright Law for works the contents of which are already illegal. China explained as follows:

"To the extent that Art. 4.1 would come into play with respect to a work, it would operate not to remove copyright, but to deny the particularized rights of private copyright enforcement. Art. 4.1 thus does not operate in any manner that would violate Berne Art. 5(1): it does not destroy the residual Art. 2 copyright. If applied, its effect would be to deny to the right-holder the power of private censorship that would generally be available to non-prohibited works."63

7.62.
In response to questions after the second substantive meeting, China argued that, after "protection" is denied under Article 4(1), the underlying recognition – the "enjoyment" of, or "entitlement" to, copyright – would continue.64 As noted earlier, the United States submits that this distinction is artificial.65
7.63.
The Panel notes that China equates the "protection" of the Copyright Law referred to in Article 4(1) with enforcement rights. However, China does not show any suitable basis in the text of Article 4(1) that would limit its effect to a subset of the protection under the Copyright Law. China contrasts the "protection" of the Copyright Law referred to in Article 4(1) with the "enjoyment" of copyright in accordance with Article 2 of the Copyright Law. However, the concepts referred to in Articles 2(2) and 4(1), on their face, are identical. China points out that Article 4(1) does not state that certain works "shall not enjoy copyright".66 That is true, but the protection of the Law is copyright.
7.64.
China's argument distinguishing "copyright" from "copyright protection" also contrasts the vesting of copyright under Article 2 of the Copyright Law, which allegedly occurs upon creation of a work automatically without formality, on the one hand, with the procedure for denial of copyright under Article 4(1) of the same Law, which allegedly occurs only after a determination by a court or the NCAC during an enforcement proceeding, on the other hand.
7.65.
The United States submits that the fact that an author may not be on official notice of the operation of Article 4 until the denial of protection is stated by an authoritative content review agency or court does not appear to alter the way in which the law operates.67
7.66.
The Panel considers that the distinction drawn by China is inapposite. It appears to be a consequence of the rule that the enjoyment and exercise of copyright shall not be subject to any formality whilst the denial of protection, in China's view, is subject to a formal determination. Even accepting the distinction at face value, it does not properly address the situation after a court or the NCAC has denied protection to a work under Article 4(1) of the Copyright Law. It is difficult to conceive that copyright would continue to exist, undisturbed, after the competent authorities had denied copyright protection to a work on the basis of the nature of the work and the prohibition in the Copyright Law itself.
7.67.
After a denial of copyright protection under Article 4(1) of the Copyright Law, China has not explained in what sense authors would enjoy copyright, or copyright would exist, in their works. For example, it has not explained how authors would be able to assert ownership of, license, or transfer copyright in their works. To the extent that any copyright exists under Article 2 in this situation, it would seem to be no more than a phantom right, the existence of which could not be demonstrated. Therefore, on the basis of the evidence submitted, the Panel is unable to conclude that, after a work is denied protection under Article 4(1) of the Copyright Law, the author could enjoy "copyright" in that work.
7.68.
In any event, the scheme of the TRIPS Agreement is one which provides for certain subject matter to enjoy protection under Part II, and Members must ensure that procedures to enforce that protection are available as specified in Part III. Where a Member's law provides that eligible subject matter shall not be protected by an intellectual property law, this is not simply a provision that the enforcement procedures shall not be available, inconsistent with Part III. Rather, it is inconsistent with Part II as well. Whilst China's judicial authorities may decide that they will not provide particular remedies in particular circumstances in the exercise of their own discretion, Article 4(1) of China's Copyright Law goes further by denying protection of eligible subject matter altogether.
7.69.
China refers to the letter of the Supreme People's Court and to the written reply of the NCAC in the Inside Story case, both quoted above, in support of a distinction between "copyright" and "copyright protection".68 The Panel observes that those distinguished authorities used the language of Article 4(1) of the Copyright Law and that the NCAC related Article 4(1) both to copyright protection and to the enjoyment of copyright.69 Therefore, the Panel sees no reason why this evidence would lead to a different conclusion from that reached based on the wording of the Copyright Law on its face.
7.70.
China asserts that Article 2 of the Copyright Law directly implements an author's rights under the Berne Convention (1971) into Chinese law and that, so long as copyright is granted under the Berne Convention, that right is protected by Chinese law.70 China does not argue that any international treaty prevails over the terms of the Copyright Law with respect to foreign works in case of any deviation from the obligations in an international treaty.71 Rather, China specifically confirms that Article 4(1) is envisaged as a limited exception to this general principle in Article 2.72 Therefore, the Panel sees no reason to consider the possible direct effect of the rights specially granted by the Berne Convention (1971), as incorporated by the TRIPS Agreement.
7.71.
For the above reasons, the Panel does not consider that China has provided any evidence that would disturb its finding at paragraph 7.50 above.

(ii) Criteria for prohibited works

7.72.
The Panel will now consider the range of works that are subject to Article 4(1) of the Copyright Law. This depends in large part on the meaning of the phrase "the publication and/or dissemination of which are prohibited by law" as used in Article 4(1). The Panel recalls its finding at paragraph 7.45 above that that term, on its face, is not limited to any particular law.
7.73.
The United States submits an illustrative list of laws and regulations prohibiting publication or distribution that, in its view, lead to the denial of copyright protection under Article 4(1) of the Copyright Law. The list was provided by China during the Council for TRIPS review of its legislation in 2002 in a response to a question regarding the laws and regulations to which Article 4(1) of the Copyright Law refers. The laws and regulations mentioned are the Criminal Law, the Regulations on the Administration of Publishing Industry, the Regulations on the Administration of Broadcasting, the Regulations on the Administration of Audiovisual Products, the Regulations on the Administration of Films, and the Regulations on the Administration of Telecommunication.73
7.74.
China confirms that the listed laws reference a legal standard defining what kind of works, or contents, are prohibited.74 In response to a question from the Panel, China confirmed that the term "prohibited by law" has a broad meaning, and may refer to the criteria set forth in various provisions of some of the laws and regulations in this list, so that a work that contains contents prohibited by such laws is a prohibited work within the meaning of Article 4(1) of the Copyright Law.75
7.75.
The Panel notes the parties' eventual agreement regarding criteria for prohibited works but, in view of the evolution of this issue during this proceeding, the Panel will review the evidence.
7.76.
The letter from the Supreme People's Court of China in the Inside Story case shows that Article 4(1) of the Copyright Law was considered inapplicable in that case because nothing was found in the text of the workat issueto violate "any laws".76 The terms of the letter were not limited to any particular laws but appear to include any law that determines the legality of content.
7.77.
The written reply of the NCAC to the Supreme People's Court of China in the same case was translated as follows:

"Yet the '[w]orks the publication and dissemination of which are prohibited by law' in Article 4 of the Copyright Law refer only to works whose contents are illegal (reactionary, pornographic, or superstitious contents)."77

7.78.
China, in its first written submission to the Panel, interpreted this as follows:

"As a matter of law, Article 4.1 of the Copyright Law only denies protection to works whose contents are completely unconstitutional or immoral."78

7.79.
The broad criteria quoted in China's submission appeared to the Panel to be subsets of the criteria applied under the content review regulations. For example, Article 25 of the Regulations on the Administration of Films, Article 3 of the Regulations on the Administration of Audiovisual Products and Article 26 of the Regulations on the Administration of Publications contain identical lists of ten categories of prohibited content in films, audiovisual products and publications, including those that:

"(1) are against the fundamental principles established in the Constitution;

(2) jeopardize the unification, sovereignty and territorial integrity of the State;

(3) divulge State secrets, jeopardize security of the State, or impair the prestige and interests of the State;

(4) incite hatred and discrimination among ethnic groups, harm their unity, or violate their customs and habits;

(5) propagate cults and superstition;

(6) disrupt public order and undermine social stability;

(7) propagate obscenity, gambling, or violence, or abet to commit crimes;

(8) insult or slander others, or infringe upon legitimate rights and interests of others;

(9) jeopardize social ethics or fine national cultural traditions;

(10) other contents banned by laws, administrative regulations and provisions of the State."79

7.80.
China confirmed that content falling within categories (1), (2) and (7) were "clearly unconstitutional".80 Categories (5) and (7) on their face refer to "superstitious" and "pornographic" content, or "immoral" content, which is mentioned in paragraphs 7.77 and 7.78 above. In response to a question from the Panel, China submitted that the phrase "prohibited by law" may refer to the above substantive criteria81 and to provisions such as Article 57 of the Regulations on Telecommunications82 and Article 364 of the Criminal Law.83
7.81.
The Panel notes that the list of prohibited content in the three content review Regulations set out at paragraph 7.79 includes six other categories of content that were not mentioned by the NCAC. However, the Panel does not infer that the NCAC meant that the criteria to determine whether the publication and/or dissemination of a work are prohibited by law for the purposes of Article 4(1) of the Copyright Law are narrower than the complete list of criteria in the content review regulations. The written reply of the NCAC listed three broad criteria, followed in the original version by 等, meaning "etcetera", indicating that they were not exhaustive, and the written reply was provided in the context of a case where the issue was whether a prohibition of publication for administrative reasons unrelated to content fell foul of Article 4(1) of the Copyright Law. China's submissions referred to at paragraph 7.74 above appear to confirm this view.
7.82.
For the above reasons, the Panel accepts that prohibited works for the purposes of Article 4(1) of the Copyright Law include works that contain content considered illegal under the criteria set out in the law and regulations listed at paragraph 7.73 above, including the content review regulations.

(iii) Procedure for determination that a work is prohibited for the purposes of Article 4(1)

7.83.
The Panel notes that the range of works "prohibited by law" may depend not only on the criteria by which content is considered illegal but also on the procedure for determination that a work contains illegal content for the purposes of Article 4(1) of the Copyright Law.
7.84.
The United States claims that Article 4(1) of the Copyright Law applies to (a) works never submitted for content review in China; (b) works awaiting the results of content review in China; (c) the unauthorized versions of works edited for distribution in China; and (d) works that have failed content review.84
7.85.
China, in its first written submission, submitted that the content review process operates independently of Article 4(1) of the Copyright Law and that the only result of a finding of prohibited content is a denial of authority to publish. Nothing in that finding leads to a denial of copyright.85 However, after the first substantive meeting, China revised lengthy sections of its first written submission with respect to the relationship between copyright and content review.86
7.86.
China maintains that "[t]he process of content review remains, as an administrative matter, separate from copyright."87 The only authorities competent to make a decision under Article 4(1) of the Copyright Law are the courts and the NCAC. However, a court or the NCAC, when making a decision on copyright protection under Article 4(1) of the Copyright Law, would be "deferential" to a content review finding. When a content review authority makes a determination that a work contains prohibited content, that finding will "guide" a determination by the NCAC or the courts that the work would be considered "prohibited by law". China specifically acknowledges that when a work has failed content review it will not protect the copyright in the unedited, prohibited version of a work against infringing versions that also are unedited and prohibited. Nor will it protect copyright in the deleted portion of a work edited in order to pass content review.88
7.87.
The Panel will first consider works that have failed content review as a whole.89 The parties agree that such works are prohibited works under Article 4(1) of the Copyright Law. The Panel recalls that Article 4(1) denies prohibited works the protection of the Copyright Law, not just a sub-set of the protection of that Law. China asserts that works that have failed content review can receive protection under the Copyright Law in a situation where the illegal content has been deleted. The Panel observes that this situation does not apply where the work that failed content review is considered illegal in its entirety. If a prohibited work includes some legal content, and an edited version has been produced without approval, China asserts that it "willenforce the copyright in the legal portion of the original work, even though that work itself – as a whole – is prohibited by law."90 However, China did not explain how this was possible under its law. Therefore, the Panel finds that the class of prohibited works under Article 4(1) of the Copyright Law includes works that have failed content review.
7.88.
The Panel now considers works that have passed content review subject to a requirement to delete specific illegal content.91 China protects the approved version but acknowledges that it will not protect the deleted illegal content.92 It is not clear on the face of the Copyright Law if or how Article 4(1) applies where enforcement is sought against infringing copies of the unedited version. The Panel notes China's position in this proceeding that:

"China notes that it also will enforce the right-holder's copyright in [a situation] where there is an authorized edited version. In that case, the copyright will be protected irrespective of whether the infringing copy is of the edited or the unedited version."93

7.89.
The Panel now turns to works never submitted for content review in China and works awaiting the results of content review in China. The United States provides no specific examples where such works have been denied copyright protection.94 The claim, with respect to these categories of works, is based on the response given by China in the Council for TRIPS' review of its legislation referred to at paragraph 7.73 above, and the United States' own construction of the relationship between these other measures and the Copyright Law.
7.90.
The Panel will first consider the content review regulations. The Regulations on the Administration of Films, in Article 24, provide as follows:

"Article 24. Films which have not been reviewed and approved by the film review institutions under the administrative department of radio, film and television under the State Council … shall not be distributed, projected, imported or exported."95

7.91.
The Regulations on the Administration of Audiovisual Products, in Article 36, provide for mandatory content review prior to wholesaling, retailing or rental of audiovisual products.96
7.92.
It is not disputed that films and audiovisual products that have not yet been approved under the Regulations on the Administration of Films or the Regulations on the Administration of Audiovisual Products, as the case may be, may not be published and/or distributed. Although none of the content review regulations submitted in evidence makes any express provision for the denial of copyright protection, they do provide for the prohibition of publication of films and audiovisual products. Whilst it seems plausible that films and audiovisual products in this situation might be considered ipso facto works the publication of which is prohibited for the purposes of Article 4(1) of the Copyright Law, it is not clear if another determination is required that their content violates these Regulations before the works are considered prohibited works within the scope of Article 4(1).
7.93.
The Regulations on the Administration of Publications do notprovide for mandatory government content review prior to publication. However, in Articles 40 and 44, they do prohibit the distribution by a "distribution entity", or the importation by a "publication importation entity", of publications containing prohibited content.97 A determination would appear to be required that their content violates these Regulations before such works are considered prohibited works within the scope of Article 4(1) of the Copyright Law.
7.94.
Two of the measures listed by the United States prohibit certain content withoutproviding a procedure for content review.98 These are the Regulations on Telecommunications99 and the Criminal Law.100 Accordingly, with respect to these two measures, a determination is required that works violate these measures for the purposes of Article 4(1) of the Copyright Law.
7.95.
Where no content review has taken place, it is not clear on the face of any of these measures how a determination is made that a work is prohibited within the meaning of Article 4(1) of the Copyright Law. China submits that if no prior review has taken place, a court or the NCAC must determine legality or illegality de novo and that thiswould normally be the case for most books, periodicals and newspapers, foreign works not released in China, works pending review and other unpublished books and works that may have illegally bypassed the reviewing process and are in unlicensed circulation.101China also submits that the court or the NCAC could be expected to solicit opinions from the content reviewing authorities.102
7.96.
The question arises as to the status of copyright in such works in the absence of a determination for the purposes of Article 4(1) of the Copyright Law. The Panel notes that Article 2 of the Copyright Law, on its face, provides that copyright in certain works shall be protected by the Copyright Law. Article 6 of the Regulations for the Implementation of the Copyright Law of 2002 (the "Copyright Implementing Regulations") provides that "[a] copyright shall subsist on the date when a work is created."103
7.97.
Whilst it is clear on the face of the measure that Article 4(1) of the Copyright Law denies copyright protection to certain works, it does not necessarily follow that this pre-empts the subsistence of copyright protection under Article 2, as implemented by Article 6 of the Copyright Implementing Regulations, from the time of creation of the work up until the time that a competent authority makes a decision under Article 4(1) of the Copyright Law. Consequently, it is not clear to the Panel whether works not submitted for mandatory content review and works awaiting the results of content review would fall within the scope of Article 4(1) of the Copyright Law.104
7.98.
The Panel has also reviewed evidence of specific instances of administrative enforcement submitted by China. With respect to works never submitted for content review, the evidence includes examples of pirated versions of foreign textbooks. The Panel notes that Decision notices for administrative penalties were issued by the NCAC and two subsidiary copyright bureaux in June and October 2006 under Article 47 of the Copyright Law to three universities for unauthorized reproduction and distribution of textbooks.105 However, the Panel does not find these instances instructive as (1) there is no mandatory pre-publication content review procedure for university textbooks; and (2) the textbooks concerned subjects such as bridge design, social welfare, physics and economics that do not have any obvious relationship to the content prohibited under the relevant Regulations.
7.99.
With respect to works awaiting the results of content review, the evidence includes an example of a "special" administrative enforcement action with respect to pirated audio-visual products of one foreign animated film, Shrek 2,before the genuine version was approved for marketing.106 The Panel notes that administrative penalty documents citing Article 47 of the Copyright Law and Article 36 of the Copyright Implementing Regulations were issued in September 2004 to one audio-visual shop in Xiamen relating to the distribution of unauthorized DVD copies of Shrek 2.107
7.100.
The evidence also includes a Circular of the NCAC issued in November 2001 to subsidiary copyright bureaux in order to enhance enforcement actions against a list of 788 foreign cinematographic works in response to a request from the Motion Picture Association of America. The introductory paragraph of the Circular indicates that this was also a special action. The Circular included works without enquiry as to whether they had all been edited to pass content review and, in accordance with paragraph 2, it applied inter alia to pirated DVDs coded for zones outside China, which may include unedited versions not approved during content review.108
7.101.
The United States responds that the NCAC and local copyright bureaux are administrative agencies with no authority to interpret the Copyright Law in cases that are before the courts.109 China replies that Articles 46 and 47 of the Copyright Law and Articles 217 and 218 of the Criminal Law provide three means of enforcement of copyright: civil procedures, administrative procedures and criminal procedures, and that the courts have jurisdiction over civil and criminal matters while the NCAC has jurisdiction over administrative matters.110
7.102.
The Panel notes that the NCAC is a competent administrative agency under the Copyright Law111 and that the Supreme People's Court of China sought its view in the Inside Story case on the issue under examination in this claim. Therefore, the Panel considers that it may take this evidence into account. However, the Panel notes that both instances discussed in paragraphs 7.99 and 7,100 above occurred in special circumstances and there is no indication in the second instance that any enforcement procedures actually took place. Therefore, the Panel gives this evidence little weight in its assessment of the Copyright Law as such. Accordingly, the Panel reiterates its comments at paragraph 7.88 and 7.97 above.
7.103.
For the reasons set out above, the Panel finds that the class of works denied protection under Article 4(1) of the Copyright Law includes works that have failed content review and, to the extent that they constitute copyright works, the deleted portions of works edited to satisfy content review. The Panel considers that the United States has not made a prima facie case with respect to works never submitted for content review in China, works awaiting the results of content review in China and the unedited versions of works for which an edited version has been approved for distribution in China.

(iv) Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement

7.104.
This claim is made under Article 9.1 of the TRIPS Agreement, insofar as it incorporates Article 5(1) of the Berne Convention (1971). Article 9.1 of the TRIPS Agreement provides as follows:

"Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom."

7.105.
The United States and China are both WTO Members and, accordingly, both are bound by the TRIPS Agreement, including the incorporated provisions of the Berne Convention (1971). The provisions of the Berne Convention (1971) incorporated by Article 9.1 of the TRIPS Agreement include Article 5(1) of that Convention, which provides as follows:

"(1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union other than the country of origin, the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention."

7.106.
Article 5(1) of the Berne Convention (1971) provides for the enjoyment of two overlapping sets of rights that have been described as "the twin pillars on which protection under the Convention rests".112 First, there are "the rights which their respective laws do now or may hereafter grant to their nationals".113 This is a national treatment obligation. The request for establishment of a panel included a claim under this part of Article 5(1) with respect to the Copyright Law in conjunction with certain other measures listed at paragraph 7,186 below, but this claim was not pursued.
7.107.
Second, there are "the rights specially granted by this Convention". This term is not defined. However, Article 5(1) refers to rights that authors shall enjoy in respect of works. Articles 6bis, 8, 9, 11, 11bis, 11ter, 12, 14, 14bis and 14ter all provide for such rights.114 Nevertheless, the incorporation of provisions of the Berne Convention (1971), including Article 5, is subject to the terms of Article 9.1 of the TRIPS Agreement (quoted at paragraph 7,104 above). Therefore, "the rights specially granted by this Convention" as used in Article 5(1) of that Convention, as incorporated by Article 9.1 of the TRIPS Agreement, do not include the rights referred to in Article 6bis of the Berne Convention (1971). This Report refers to these rights in that sense.
7.108.
The United States' claim relates to these rights, as a group. It makes a separate claim with respect to Article 5(2) of the Berne Convention (1971), which the Panel does not consider in this sub-section of this Report.
7.109.
China submits that it has implemented Article 5(1) of the Berne Convention (1971).115 It offers no defence based on the terms of that Article but rather refers to Article 17 of the Berne Convention (1971), which the Panel addresses at paragraphs 7,120 to 7,137 below.
7.110.
The Panel notes that the "rights specially granted" by the Berne Convention (1971), as incorporated by the TRIPS Agreement, include the exclusive right of making and of authorizing translation of works (in Article 8) and the exclusive right of authorizing reproduction of works (in Article 9), to name but the first two substantive rights.
7.111.
As regards China's implementation of the "rights specially granted" by the Berne Convention (1971), the United States refers to the rights enumerated in Article 10 of the Copyright Law, as well as Articles 46 and 47 of the same Law. It does not challenge any of these particular Articles of the Copyright Law.116
7.112.
China agrees that it grants to authors all the substantive protections of the Berne Convention, in addition to others, through Article 10 of the Copyright Law.117 It submits that Article 10 of the Copyright Law fully complies with all Berne Convention requirements.118
7.113.
The Panel notes that many of the rights listed in subparagraphs (5) to (17) of the first paragraph of Article 10 of the Copyright Law provide for rights specially granted by the Berne Convention (1971), that the second paragraph of Article 10 provides that copyright owners may authorize others' exercise of these economic rights, and that these rights appear to be exclusive (as reviewed at paragraphs 7.48 and 7.49 above). Therefore, the Panel finds that it is Article 10 of the Copyright Law that implements rights specially granted by the Berne Convention (1971).119
7.114.
The Panel recalls its finding at paragraph 7.50 above that Article 4(1) of the Copyright Law denies the protection of Article 10 to certain works, including those of WTO Member nationals, as the United States claims. The Panel observes that no party alleges that the denial of protection under Article 4(1) of the Copyright Law is permitted by any of the exceptions available with respect to certain specific rights under Articles 9(2), 10 or 10bis of the Berne Convention (1971). Nor does any party allege that the denial of protection under Article 4(1) of the Copyright Law is permitted by the exceptions provision in Article 13 of the TRIPS Agreement.
7.115.
The Panel notes that both sets of rights under Article 5(1) of the Berne Convention (1971) relate to "works" for which authors are protected under that Convention. The categories of "works" in respect of which authors shall enjoy the rights specially granted by the Convention vary according to the terms of each Article granting the relevant right. For example, the rights of reproduction (Article 9) and of broadcasting (Article 11bis) are granted to authors of "literary and artistic works". That expression is defined, in a non-exhaustive manner, in Article 2(1) of the Berne Convention (1971).
7.116.
The Panel recalls its finding at paragraph 7,103 above that the class of works denied protection under Article 4(1) of the Copyright Law includes works that have failed content review and, to the extent that they constitute copyright works, the deleted portions of works edited to satisfy content review. The Panel also recalls its findings at paragraphs 7.37 and 7.43 regarding the meaning of the word "works" as used in the Copyright Law, in particular in Article 4(1). No party has disputed that the "works" to which the Copyright Law, in particular Article 4(1), applies include at least some, if not all, the categories of works falling within the definition of "literary and artistic works" in Article 2(1) of the Berne Convention (1971). It is not disputed that the "works" to which Article 4(1) of China's Copyright Law applies are more extensive than those for which protection may be refused or limited under other provisions of Article 2, and under Article 2bis, of the Berne Convention (1971).
7.117.
For the above reasons, the Panel finds that the Copyright Law is sufficiently clear on its face for the United States to have established that the Copyright Law, specifically Article 4(1), is inconsistent with Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. This finding is subject to the Panel's consideration of Article 17 of the Berne Convention (1971), set out below.
7.118.
The Panel recalls its finding at paragraph 7,103 above and confirms that this conclusion does not apply to works never submitted for content review in China, works awaiting the results of content review in China and the unedited versions of works for which an edited version has been approved for distribution in China. However, the Panel recognizes that the potential denial of copyright protection, in the absence of a determination by the content review authorities, implies uncertainty with respect to works that do not satisfy the content criteria prior to a determination under Article 4(1) of the Copyright Law, with the consequent impact on enjoyment of rights described above. Therefore, the Panel reiterates for the record the firm position of China taken in these proceedings that:

"Copyright vests at the time that a work is created, and is not contingent on publication. Unpublished works are protected, foreign works not yet released in the Chinese market are protected, and works never released in the Chinese market are protected."120; and

"Works that are unreviewed are decidedly not 'prohibited by law'."121

7.119.
China has an international obligation to protect copyright in such works in accordance with Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.

(v) Article 17 of the Berne Convention (1971) as incorporated by Article 9.1 of the TRIPS Agreement

7.120.
China raises a defence under Article 17 of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. China submits that all rights granted to authors under the Berne Convention (1971) are limited by Article 17 of that Convention, that Article 17 is not an exhaustive codification of the sovereign right to censor122 and that Article 17 is drafted using very expansive language "that effectively denies WTO jurisdiction in this area".123
7.121.
The United States responds that Article 17 of the Berne Convention (1971) does not authorize a content review system that denies all enforceable copyright protection to all works that have not been approved for publication or distribution.124
7.122.
The Panel recalls that Article 9.1 of the TRIPS Agreement, quoted at paragraph 7,104 above, incorporates Article 17 of the Berne Convention (1971). Article 17 of the Berne Convention (1971) provides as follows:

"The provisions of this Convention cannot in any way affect the right of the Government of each country of the Union to permit, to control, or to prohibit, by legislation or regulation, the circulation, presentation, or exhibition of any work or production in regard to which the competent authority may find it necessary to exercise that right."

7.123.
"The provisions of this Convention" as referred to in Article 17 include Article 5(1) of the Berne Convention (1971).125
7.124.
The parties agree that Article 17 confirms that governments have certain rights to control the exploitation of works. They do not agree as to whether those rights include a denial of all copyright protection with respect to particular works.
7.125.
The Panel observes that the terms of Article 17 include certain broad phrases, notably "cannot in any way affect" and "any work or production". The use of the words "any work" (although it is slightly different in the French text) confirms that the subject-matter dealt with by Article 17 is the same as that addressed by the other substantive provisions of the Convention. However, these phrases are not used in isolation but refer to the right of a government to "permit, to control, or to prohibit … the circulation, presentation, or exhibition" of any work or production.
7.126.
The right of a government "to control, or to prohibit" the "circulation, presentation, or exhibition" of any work or production clearly includes censorship for reasons of public order.126 Both China and the United States referred to the records of the diplomatic conferences of the Berne Convention127, opinions in the academic literature128 and (in the case of China) to the WIPO Guide to the Berne Convention129, that explained that Article 17 relates mainly to censorship and public order.
7.127.
The Panel accepts that the three terms "circulation, presentation, or exhibition" are not necessarily an exhaustive list of the forms of exploitation of works covered by Article 17. However, a noticeable feature of these three terms is that they do not correspond to the terms used to define the substantive rights granted by the Berne Convention (1971), although they may be included within some of those rights130 or they may refer to acts incidental to the exercise of some of those rights.131 The word "exhibition" is not even used in the provisions setting out the substantive rights granted by the Convention.132 Therefore, it cannot be inferred that Article 17 authorizes the denial of all copyright protection in any work.
7.128.
The Panel appreciates that the position may be somewhat different under Article 10 of China's Copyright Law. Article 10 of the Copyright Law grants in subparagraph (6) "the right of distribution", in subparagraph (8) "the right of exhibition", and in subparagraph (10) "the right of presentation", which may correspond to the "circulation, presentation, or exhibition" of any work in Article 17 of the Berne Convention (1971). Article 10 of the Copyright Law also grants in subparagraph (1) "the right of publication", as well as the "right of distribution", both of which appear to be directly contrary to a prohibition of the publication and/or dissemination of a work due to illegal content, as referenced in Article 4(1) of the Copyright Law. To the extent that Article 10 of the Copyright Law might provide rights additional to, or broader than, those specially granted by the Berne Convention (1971), as incorporated in the TRIPS Agreement and, hence, that Article 4(1) of that Law might deny such rights, the Panel makes no finding.
7.129.
The Panel does note that the second sentence of Article 4 of the Copyright Law (that is not the subject of the claim in this dispute) may already address China's public policy concerns with respect to some of these rights. The second sentence of Article 4 provides as follows:

"Copyright owners, in exercising their copyright, shall not violate the Constitution or laws or prejudice the public interests."

7.130.
This provision does not deny copyright protection but, as China acknowledges, obliges copyright owners and authorized parties to respect the law in the exercise of their rights.133 In contrast, the first sentence of Article 4 of the Copyright Law denies all copyright protection with respect to particular works.
7.131.
China draws the Panel's attention to the WIPO Guide to the Berne Convention, which states as follows regarding Article 17 of the Berne Convention (1971):

"It covers the right of governments to take the necessary steps to maintain public order. On this point, the sovereignty of member countries is not affected by the rights given by the Convention. Authors may exercise their rights only if that exercise does not conflict with public order. The former must give way to the latter. The Article therefore gives Union countries certain powers to control."134

7.132.
The Panel agrees with this interpretation. A government's right to permit, to control, or to prohibit the circulation, presentation, or exhibition of a work may interfere with the exercise of certain rights with respect to a protected work by the copyright owner or a third party authorized by the copyright owner. However, there is no reason to suppose that censorship will eliminate those rights entirely with respect to a particular work.
7.133.
With respect to those rights that are granted by the Berne Convention (1971), China is unable to explain why Article 4(1) of its Copyright Law provides for the complete denial of their protection with respect to particular works. Without prejudice to the range of rights that are granted by the Berne Convention (1971), it suffices to note that they are mostly exclusive rights of authorizing certain acts with respect to protected works. An exclusive right of authorizing necessarily entails the right to prevent others from carrying out the relevant acts with respect to protected works. China is unable to explain why censorship interferes with copyright owners' rights to prevent third parties from exploiting prohibited works.
7.134.
China argues that such copyright protection is a "legal and material nullity", as economic rights are pre-empted by public prohibition. It also argues that copyright enforcement is meaningless in this context.135 China asks the Panel to note that Article 4(1) of the Copyright Law is an exceedingly narrow provision of law with negligible implications in the marketplace and in terms of any nullification or impairment of benefits to Members.136
7.135.
The Panel notes that copyright and government censorship address different rights and interests. Copyright protects private rights, as reflected in the fourth recital of the preamble to the TRIPS Agreement, whilst government censorship addresses public interests.
7.136.
In response to a question from the Panel, China indicated that it "will always enforce copyrights against infringing edited versions, even when there is no edited version authorized by the author".137 It did not explain how this was possible under its law. In response to another question from the Panel, China indicated that if an unprotected, prohibited work later becomes legal, it will protect copyright in the work going forward.138 This might require a new court or NCAC determination but, in China's view, such a requirement does not constitute a formality under Article 5(2) of the Berne Convention (1971). In any event, the Panel recalls that Article 4(1) of the Copyright Law produces commercial uncertainty prior to a determination that a work is prohibited.139
7.137.
China maintains that public censorship renders private enforcement unnecessary, that it enforces prohibitions on content seriously, and that this removes banned content from the public domain more securely than would be possible through copyright enforcement.140 The Panel notes that these assertions, even if they were relevant, are not substantiated.
7.138.
The Panel also recalls that if a measure infringes China's obligations under a covered agreement, in accordance with Article 3.8 of the DSU, this is considered prima facie to constitute a case of nullification or impairment. Even if the measure at issue has had no actual impact on foreign works to date, it has a potential impact on works of WTO Member nationals.
7.139.
For the above reasons, the Panel confirms its finding at paragraph 7,117 above and concludes that, notwithstanding China's rights recognized in Article 17 of the Berne Convention (1971), the Copyright Law, specifically Article 4(1), is inconsistent with Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.

(vi) Procedural issue

7.140.
China emphasizes that the United States bears the burden of proof of this "as such" claim.141 China alleges that the only evidence that the United States has offered is the text of Article 4(1) of the Copyright Law itself.142
7.141.
The Panel notes that the United States provided more evidence than the text of the provision. In any case, the Panel recalls the following statement in the Appellate Body Report in US – Corrosion-Resistant Steel Sunset Review:

"When a measure is challenged 'as such', the starting point for an analysis must be the measure on its face. If the meaning and content of the measure are clear on its face, then the consistency of the measure as such can be assessed on that basis alone. If, however, the meaning or content of the measure is not evident on its face, further examination is required. …"143

7.142.
In the present case, the Panel's review of the Copyright Law, in particular Article 4(1), on its face, shows that the measure is sufficiently clear to conclude that the United States has made a prima facie case of inconsistency. Article 5(1) of the Berne Convention (1971) provides that Members shall ensure that authors shall enjoy in respect of their works the rights specially granted by that Convention. Article 4(1) of the Copyright Law provides that certain works shall not receive the protection of that Law and that Law provides the rights specially granted by that Convention. Whilst the Panel has not accepted all the United States' allegations regarding the range of works that fall within Article 4(1), that does not undermine the basic finding of an inconsistency.
7.143.
Therefore, the Panel confirms its conclusion at paragraph 7,139 above that the Copyright Law, specifically Article 4(1), is inconsistent with Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.144.
The Panel wishes to emphasize that the United States' claim did not challenge China's right to conduct content review.144 The Panel's findings do not affect China's right to conduct content review.

4. Claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement

(a) Main arguments of the parties

7.145.
The United States claims that China subjects the enjoyment and exercise of copyright to the formality of successful conclusion of content review, inconsistently with Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. Works that have not successfully completed content review under the Regulation on the Administration of Films, the Regulation on the Management of Publications, the Regulation on the Management of Audiovisual Products or the Regulations on the Management of Electronic Publications may not legally be published or distributed within China. The United States submits that, consequently, works in this unauthorized status fall within the scope of Article 4(1) of the Copyright Law, and thus they are not protected by that Law. The United States submits that the Copyright Law's protection attaches only after such a work has been submitted for content review and, if it passes that review unchanged, an authorization to publish and distribute the work has issued. As a formal matter, therefore, copyright protection is dependent, in part, on the issuance of the authorization to publish and distribute resulting from successful conclusion of the content review process.145
7.146.
China responds that, under Article 2 of the Copyright Law and Article 6 of the Copyright Law Implementing Regulations, copyright protection vests upon creation of a work. While such works are pending review they enjoy the full panoply of copyright.146 In response to the Panel's questions, China asked the Panel to note that under the Chinese system of copyright, "copyright" and "copyright protection" are distinguishable. To the extent that Article 4(1) of the Copyright Law would come into play with respect to a work, it would operate not to remove copyright, but to deny the particularized rights of private copyright enforcement. Article 4(1) of the Copyright Law thus does not operate in any manner that would violate Article 5(2) of the Berne Convention (1971) as it is not a condition precedent to copyright formation, nor does it destroy the residual copyright granted under Article 2 of the Copyright Law.147
7.147.
The United States responds that China's distinction between copyright and copyright enforcement lacks any legal effect under Article 5(2) of the Berne Convention (1971). Article 5(2) applies both to the enjoyment and "exercise" of rights so that a content review that affects the exercise of rights would still impose a "formality" within the meaning of that provision.148
7.148.
China further submits that the type of "formality" referred to in Article 5(2) of the Berne Convention (1971) is a condition precedent to the vesting of copyright. Given that Article 4(1) of the Copyright Law does not function as a condition precedent to copyright but rather as a condition subsequent, it is consistent with Article 5(2) of the Berne Convention (1971).149

(b) Main arguments of third parties

7.149.
Australia considers that Article 5(2) of the Berne Convention (1971) prohibits the enjoyment and exercise of rights in a protected work being subject to any prior legal or administrative procedure, such as registration of the work or approval of its content.150
7.150.
Brazil does not consider that Article 5(2) of the Berne Convention (1971) requires that copyright arise "automatically" or "immediately" independently of what national legislation may dispose. The principle of automatic protection should be understood and limited to the fact that copyright protection is not conditional upon compliance with any formality, such as registration, deposit and the like.151
7.151.
Canada considers that the term "formality" extends to national laws that make copyright protection for foreign works contingent on compliance with administrative obligations. China seems to have laid down in its national laws the administrative obligation for exporters or importers to obtain approval to publish and distribute the work in China such that, if not fulfilled, it will lead to the loss of copyright or copyright–related protection.152
7.152.
The European Communities considers that if the enjoyment and exercise of copyright were contingent upon the dissemination approval by Chinese censorship authorities, this would be a "formality" inconsistent with Article 5(2) of the Berne Convention (1971). The European Communities does not comment upon the factual question of whether such a nexus exists under Chinese law but would be reticent to give specific instances of administrative enforcement too much weight in the assessment of an "as such" claim that appears to be based on the plain wording of the Chinese law.153

(c) Consideration by the Panel

7.153.
The Panel notes that this claim concerns the denial of copyright protection under Article 4(1) of the Copyright Law. The Panel has already ruled on that issue in its consideration of the claim under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. Additional findings regarding this claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, would not contribute further to a positive solution to this dispute. Therefore, it is unnecessary for the Panel to rule on this claim.

5. Submission regarding Article 14 of the TRIPS Agreement

(a) Description of relevant provisions of the Copyright Law

7.154.
Article 4 of the Copyright Law uses the term "works". Article 3 provides an inclusive definition of "works" for the purposes of the Copyright Law that does not expressly mention performances or phonograms (sound recordings). Meanwhile, Chapter IV of the Copyright Law sets out provisions regarding publication, performance, sound recording, video recording and broadcasting.

(b) Main arguments of the parties

7.155.
The United States submitted to the Panel that "[d]epending on the construction given to Article 4, its first sentence may also be inconsistent with China's obligations under Article 14 of the TRIPS Agreement"; that "[i]t is unclear whether Article 4 of the Copyright Law operates to deny the protection of the Law to performances (or their fixations) and sound recordings whose publication or distribution is prohibited"; that "it is not certain that Article 4 is meant to be limited to "works" that are the subject matter of copyright, as opposed to encompassing as well the subject matter of related rights (such as performances and sound recordings)"; and that "if Article 4 of the Copyright Law does deny protection" of certain related rights then in those cases performers and producers will not have certain rights required by Article 14.1 and 14.2 of the TRIPS Agreement.154 (emphasis added in each instance)
7.156.
The United States concludes "[t]herefore, to the extentthat Article 4 of the Copyright Law is interpreted as applying to performances (or their fixations) and to sound recordings, it is also inconsistent with China's obligations under Article 14 of the TRIPS Agreement.155
7.157.
China responds that the United States has failed to properly state a justiciable claim on this issue. It argues that the US first written submission fails to allege that Article 4 of the Copyright Law actually violates Article 14 of the TRIPS Agreement, and that the United States fails to make a prima faciecase that it does.156

(c) Main arguments of third parties

7.158.
Canada submits that China's Copyright Law is inconsistent with Article 14.1 and 14.2 of TRIPS for the same reasons that it alleges the Law is inconsistent with Article 9.1 of the TRIPS Agreement.157

(d) Consideration by the Panel

7.159.
The Panel has carefully reviewed the United States' request for establishment of a panel and its submissions. The Panel observes that at no point has the United States actually asserted that Article 4 of China's Copyright Law, in fact, applies to performances and phonograms or sound recordings and is, in fact, inconsistent with Article 14 of the TRIPS Agreement. Therefore, the Panel cannot discern a claim on which it may rule.
7.160.
In any event, the Panel's findings with respect to Article 4(1) of the Copyright Law under the claim under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, would appear to dispose of the United States' underlying concern as regards Article 14 of the TRIPS Agreement.

6. Claim under Article 41.1 of the TRIPS Agreement

(a) Main arguments of the parties

7.161.
The United States claims that the enforcement provisions of Chapter V of China's Copyright Law are unavailable with respect to works denied copyright protection under Article 4 of that Law. Therefore, China fails to ensure that enforcement procedures as specified in Part III of the TRIPS Agreement are available under its law, as required by Article 41.1 of the TRIPS Agreement.158
7.162.
China responds that this claim fails in light of the fact that copyright is not in fact denied under the Copyright Law as alleged by the United States, for the reasons set out above in relation to Article 5(1) of the Berne Convention (1971).159
7.163.
The United States notes China's defence – that Article 4(1) of the Copyright Law only denies "copyright protection" not "copyright" – and argues that, therefore, authors of the works for which copyright protection is denied do not benefit from the enforcement remedies specified in Chapter V of the Copyright Law.160
7.164.
China submits that Article 41.1 of the TRIPS Agreement only requires enforcement procedures to be provided for rights covered by the TRIPS Agreement. If a right is not covered by the Agreement, then there is no obligation to enforce it. China also submits that the standard for enforcement procedures is that they permit "effective action". Given that China prohibits publication of the content at issue entirely, and rigorously enforces that prohibition, it has provided a procedure for "effective action" against any attempt to publish that content.161 Lastly, China submits that its copyright enforcement procedures are "available", in the sense in which that term was interpreted in US – Section 211 Appropriations Act,because the author of any work may go to court and seek remedies, regardless of what judgement a court eventually reaches.162

(b) Main arguments of third parties

7.165.
Canada submits that as a result of Article 4 of the Copyright Law, that Law does not apply to works that have been banned from publication or distribution in China and that, as a result, none of the required enforcement procedures is applicable. Therefore, Article 4 of the Copyright Law is also inconsistent with Article 41.1 of the TRIPS Agreement.163

(c) Consideration by the Panel

7.166.
The Panel observes that Chapter V of the Copyright Law, titled "Legal Liabilities and Enforcement Measures", includes Articles 46 and 47. Article 46 provides for civil liability for 11 types of acts of infringement, many of which correspond to the rights set out in Article 10. Article 47 provides for civil and administrative liability and investigation of criminal liability for eight specific types of action, many of which correspond to rights set out in Article 10.
7.167.
It is undisputed that Chapter V of the Copyright Law provides for enforcement procedures against acts of infringement of copyright, including orders to cease infringement, to pay compensation for damages and to confiscate the products of infringement, and provisional measures to order discontinuation of the infringement and to preserve property.
7.168.
The Panel recalls its conclusion at paragraph 7,139 above that the Copyright Law, specifically the first sentence of Article 4, is inconsistent with China's obligations (with respect to the rights specially granted by the Berne Convention) under Article 5(1) of that Convention, as incorporated by Article 9.1 of the TRIPS Agreement. In the absence of protection of the rights specially granted by the Berne Convention, there can be no enforcement procedures against any act of infringement of such rights with respect to the relevant works.
7.169.
The Panel recalls that, in reaching that conclusion, it dismissed China's argument that Article 4(1) of the Copyright Law does not remove copyright but only "the particularized rights of private copyright enforcement".164 However, the Panel will accept that argument arguendo for the purposes of the claim under Article 41.1 of the TRIPS Agreement.
7.170.
Article 41.1 of the TRIPS Agreement provides as follows:

"1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse."

7.171.
This claim is made under the first sentence of Article 41.1. This raises certain interpretative issues. The first concerns the scope of application of this sentence, as expressed by the phrase "any act of infringement of intellectual property rights covered by this Agreement".
7.172.
The term "intellectual property" is defined in Article 1.2 of the TRIPS Agreement as follows:

"For the purposes of this Agreement, the term 'intellectual property' refers to all categories of intellectual property that are the subject of Sections 1 through 7 of Part II."

7.173.
The subject of Section 1 of Part II is "Copyright and Related Rights". Within Section 1, Article 9.1 incorporates Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto, with the exception of rights conferred under, or derived from, Article 6bis. Those provisions provide for the grant of various rights to authors in respect of their literary and artistic works. Any act falling within the scope of those rights carried out with respect to protected works without the authorization of the right holder or outside the scope of an applicable exception is a priori an act of infringement. Accordingly, an act of infringement of copyright in a literary or artistic work, as provided for in those provisions of the Berne Convention (1971) that are incorporated by Article 9.1 of the TRIPS Agreement, is an "act of infringement of intellectual property rights covered by this Agreement" within the meaning of the first sentence of Article 41.1 of the TRIPS Agreement.165
7.174.
China acknowledges that a right holder of a work denied copyright protection under Article 4(1) of the Copyright Law is denied "the particularized rights of private copyright enforcement".166 China has explained Article 4(1) in the following terms:

"Its core principle is that the Copyright Law shall not enforce the protections of the copyright law for works the contents of which are illegal."167

7.175.
In the Panel's view, this is an acknowledgement that, despite the alleged existence of "copyright" under Article 2 of the Copyright Law, there are no enforcement procedures against any act of infringement of copyright in the relevant works, as required by Article 41.1 of the TRIPS Agreement.
7.176.
China contested that the rights denied by Article 4(1) of the Copyright Law were "covered by [the TRIPS] Agreement". This defence stems from China's view that it is entitled, under Article 17 of the Berne Convention (1971), to deny the rights provided for in Article 5(1) of that Convention. The Panel recalls its findings at paragraphs 7,122 to 7,139 above in which it rejected that view. Accordingly, that view provides no defence to the claim that the rights denied by Article 4(1) of the Copyright Law include protection against "act[s] of infringement of intellectual property rights covered by [the TRIPS] Agreement", within the meaning of the first sentence of Article 41.1 of the TRIPS Agreement either.
7.177.
The second issue concerns the nature of the obligation to ensure that "enforcement procedures as specified in this Part are available under their law so as to permit effective action". Article 41 is found in Part III of the TRIPS Agreement. Therefore, the reference to the enforcement procedures as specified in "this Part" is a reference to the enforcement procedures as specified in Part III of the TRIPS Agreement.
7.178.
China asserts that the enforcement procedures in Chapter V of the Copyright Law are "available" in the sense that the authors of all works have "access" to enforcement process irrespective of whether they have adequate evidence or a valid right to enforce.168 The Panel observes that this argument, in effect, asserts that a Member may make available the enforcement procedures as specified in Part III of the TRIPS Agreement simply by not preventing right holders from filing and pursuing claims in vain.
7.179.
The Panel notes that, whilst right holders whose works are denied protection under Article 4(1) of the Copyright Law may or may not have access to process, the enforcement procedures "as specified in [Part III]" of the TRIPS Agreement are far more extensive. This is clear, among other things, from the text of Article 41.1 of the TRIPS Agreement which specifies that these procedures include "remedies". For example, Articles 44, 45, 46 and 50 of the TRIPS Agreement specify that the judicial authorities shall have the authority to make certain orders, such as injunctions, orders to pay damages, orders for the disposal or destruction of infringing goods, and provisional measures. Where copyright protection is denied to a work under Article 4(1) of the Copyright Law, the judicial authorities have no such authority under Chapter V of the Copyright Law. It is not asserted that they are available in China under any other law.169 Therefore, this set of enforcement procedures, including remedies, is not available to the right holders as required by Article 41.1 of the TRIPS Agreement.
7.180.
China asserts that an entire ban on publication of a work is a form of "effective action" and that "it is in a sense an alternative form of enforcement against infringement".170 The Panel notes that the range of exclusive rights recognized under the Berne Convention (1971) that may be infringed is broader than simply a right to authorize publication. In any event, the effectiveness of a government ban on publication is beside the point. Part III of the TRIPS Agreement includes a multilaterally-agreed minimum set of enforcement procedures that Members must make available to right holders against any infringement of intellectual property rights covered by the TRIPS Agreement. Where a Member chooses to make available other procedures – for enforcement of intellectual property rights or for enforcement of other policies with respect to certain subject matter – that policy choice does not diminish the Member's obligation under Article 41.1 of the TRIPS Agreement to ensure that enforcement procedures as specified in Part III are available.171
7.181.
For the above reasons, the Panel concludes that the Copyright Law, specifically the first sentence of Article 4, is inconsistent with China's obligations under Article 41.1 of the TRIPS Agreement.

7. Claims under Article 61 of the TRIPS Agreement

(a) Main arguments of the parties

7.182.
The United States claims that the criminal procedures referred to in Article 47 of China's Copyright Law are unavailable with respect to works denied copyright protection under Article 4 of that Law. Therefore, China does not provide for, or make available, criminal procedures and penalties to be applied in certain cases of wilful copyright piracy on a commercial scale, as required by the first and second sentences of Article 61 of the TRIPS Agreement.172
7.183.
China responds that this claim fails in light of the fact that copyright is not in fact denied under the Copyright Law as alleged by the United States.173

(b) Main arguments of third parties

7.184.
Canada submits that Article 47 of China's Copyright Law provides for criminal procedures and penalties to be applied in certain case of copyright piracy. However, by operation of Article 4 of that Law, such criminal procedures and penalties do not apply to banned foreign works.174

(c) Consideration by the Panel

7.185.
The Panel notes that these claims concern the denial of copyright protection under Article 4(1) of the Copyright Law and its impact on enforcement. The Panel has already ruled on those issues in its consideration of the claims under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, and under Article 41.1 of the TRIPS Agreement, respectively. Additional findings regarding these claims under Article 61 of the TRIPS Agreement would not contribute further to a positive solution to this dispute. Therefore, it is unnecessary for the Panel to rule on these claims.

8. National treatment claims

(a) List of relevant measures at issue

7.186.
Section III of the request for establishment of a panel lists the following other measures: the Criminal Law; the Regulations on the Administration of Publishing Industry; the Regulations on the Administration of Broadcasting; the Regulations on the Administration of Audiovisual Products; the Regulations on the Administration of Films; and the Regulations on the Administration of Telecommunication; the Regulations on Administration of the Films Industry; the Administrative Regulations on Audiovisual Products; the Administrative Regulation on Publishing; the Administrative Regulations on Electronic Publications; the Measures for the Administration of Import of Audio and Video Products; the Procedures for Examination and Approval for Publishing Finished Electronic Publication Items Licensed by a Foreign Copyright Owner; the Procedures for Examination and Approval of Importation of Finished Electronic Publication Items by Electronic Publication Importation Entities; the Procedures for Recording of Imported Publications; the Interim Regulations on Internet Culture Administration; and the Several Opinions on the Development and Regulation of Network Music; as well as any amendments, related measures, or implementing measures.175

(b) Arguments of the parties

7.187.
The United States claimed in its request for establishment of a panel that these measures appear to establish different pre-distribution and pre‑authorization review processes for Chinese nationals' works, performances (or their fixations) and sound recordings than for foreign nationals' works, performances (or their fixations) and sound recordings. It claimed that these measures, taken together with Article 4 of the Copyright Law, appeared to result in earlier and otherwise more favourable protection and enforcement of copyright rights for Chinese authors' works than for foreign authors' works, inconsistently with China's obligations under Article 3.1 of the TRIPS Agreement and under Article 9.1 of the TRIPS Agreement with respect "at least" to Articles 5(1) and 5(2) of the Berne Convention (1971).176 However, the United States has made no submission to the Panel with respect to these claims. The United States referred to four of the Regulations listed above in connection with its claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.188.
China submits that the United States has neglected to assert any claim whatsoever and thus has seemingly abandoned the national treatment arguments.177
7.189.
The United States confirms that it is not pursuing a claim under Article 3.1 of the TRIPS Agreement before this Panel.178

(c) Consideration by the Panel

7.190.
The Panel takes note that the United States has not pursued any national treatment claims in this dispute.

9. Conclusions with respect to the Copyright Law

7.191.
The Panel recalls its conclusions at paragraphs 7,139 and 7,181 above that the Copyright Law, specifically the first sentence of Article 4, is inconsistent with China's obligations under:

(a) Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement; and

(b) Article 41.1 of the TRIPS Agreement.

7.192.
The Panel exercises judicial economy with respect to the claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, and the claims under Article 61 of the TRIPS Agreement (with respect to the Copyright Law).

B. CUSTOMS MEASURES

1. Description of the measures at issue

7.193.
This Section of the Panel's findings concerns three of China's Customs measures. The Regulations on Customs Protection of Intellectual Property Rights ("Customs IPR Regulations") were enacted by the Standing Committee of the State Council in November 2003 and entered into force in March 2004. The Regulations were formulated in accordance with the Customs Law and provide a procedure for Customs to take protective measures against goods suspected of infringing trademark, copyright and related rights and patent rights upon importation or exportation. Article 27 provides for the confiscation of goods determined to have infringed an intellectual property right and, in the third paragraph, sets out different options for the disposal or destruction of such goods. The parties agreed to translate the relevant text as follows:

"Where the confiscated goods which infringe on intellectual property rights can be used for the social public welfare undertakings, Customs shall hand such goods over to relevant public welfare bodies for the use in social public welfare undertakings. Where the holder of the intellectual property rights intends to buy them, Customs can assign them to the holder of the intellectual property rights with compensation. Where the confiscated goods infringing on intellectual property rights cannot be used for social public welfare undertakings and the holder of the intellectual property rights has no intention to buy them, Customs can, after eradicating the infringing features, auction them off according to law. Where the infringing features are impossible to eradicate, Customs shall destroy the goods."179

7.194.
The Measures for the Implementation of the Customs IPR Regulations ("Implementing Measures") were adopted by the Standing Committee of the General Administration of Customs in April 2004 and entered into force in July 2004. The Implementing Measures were formulated in accordance with the Customs Law and other laws and administrative regulations for the purpose of effectively implementing the Customs IPR Regulations.180 The parties agreed to translate Article 30 of the Implementing Measures as follows:

"Article 30 Customs shall dispose of infringing goods it has confiscated according to the following provisions:

(1). Where the goods concerned may be used directly for the social public welfare or the holder of the intellectual property rights wishes to purchase the goods, Customs shall181 hand the goods over to the relevant social welfare bodies182 for the use in social public welfare183 or assign them to the holder of the intellectual property rights with compensation;

(2). Where the goods concerned cannot be disposed of in accordance with Item (1) but the infringing features can be eradicated, they shall184 be auctioned off according to law after eradicating the infringing features. The proceeds arising from the auction shall be turned into the state treasury; and

(3). Where the goods concerned cannot be disposed of in accordance with Items (1) and (2), they shall be destroyed.

When Customs destroys the infringing goods, the holder of the intellectual property rights shall provide necessary assistance. In cases where relevant social welfare bodies use the infringing goods confiscated by Customs for the social public welfare, or the holder of the intellectual property rights assists Customs in destroying the infringing goods, Customs shall carry out necessary supervision."185

7.195.
Public Notice No. 16/2007 was notified by the General Administration of Customs in April 2007. Public Notice No. 16/2007 was notified in order inter alia to regulate the auction of infringing goods by Customs in accordance with Article 27 of the Customs IPR Regulations. The parties agreed to translate the operative paragraphs as follows:

"1. Where the confiscated infringing goods are auctioned by Customs, Customs shall completely eradicate all infringing features on the goods and the packaging thereof strictly pursuant to Article 27 of the Regulations, including eradicating the features infringing trademarks, copyright, patent and other intellectual property rights. Any goods the infringing features of which cannot be completely eradicated shall be destroyed and shall not be auctioned.

"2. Customs shall solicit comments from the holder of the intellectual property rights before the infringing goods are auctioned."186

7.196.
It is not disputed that these three measures are all binding upon the General Administration of Customs.187 These three measures are referred to collectively in this Report as "the Customs measures".

2. Claim under Article 59 of the TRIPS Agreement

(a) Main arguments of the parties

7.197.
The United States claims that the competent Chinese authorities lack the scope of authority to order the destruction or disposal of infringing goods required by Article 59 of the TRIPS Agreement. The measures at issue create a "compulsory scheme" so that the Chinese customs authorities cannot exercise their discretion to destroy the goods and must give priority to disposal options that allow infringing goods to enter the channels of commerce or otherwise cause harm to the right holder.188Donation to social welfare bodies can be harmful to a right holder and nothing appears to prevent such bodies from selling the infringing goods; sale to the right holder harms the right holder in the amount that the right holder pays for the infringing goods; and auction does not constitute disposal outside the channels of commerce and, absent his consent, may harm the right holder. Where any of these three options is available, the authorities are not authorized to order destruction ofthe infringing goods.189
7.198.
China responds that its Customs authorities possess the authority to order both disposal and destruction of infringing goods in accordance with Article 59 of the TRIPS Agreement. Donation to social welfare bodies and sale to the right holder constitute disposal outside the channels of commerce in such a way as to avoid harm to the right holder.190 Article 59 must be read in conjunction with Article 1.1 of the TRIPS Agreement.191 Chinese law sets forth criteria that reflect an official preference for the use of disposition methods besides destruction but Customs has the discretion to determine whether the criteria are met and therefore which disposition method is appropriate. China Customs chose to destroy 58 per cent of the total value of infringing goods between 2005 and 2007 which proves that the putative hierarchy of disposition options does not hinder Customs' ability to order destruction of infringing goods.192 The obligation in Article 59 to grant "authority" to order destruction does not mean that Members must make a grant of unfettered and unguided discretion and that domestic agencies must have the absolute power to order destruction of infringing goods in any circumstance whatsoever.193
7.199.
The United States responds that Article 59 requires fullauthority to be granted to dispose of or destroy confiscated infringing goods in accordance with the principles of Article 46. The authorities should have the power to choose among any legitimate options for dealing with these goods from the outset when the goods are found to be infringing, and thereafter until the goods are finally dealt with.194 Article 1.1 of the TRIPS Agreement only offers flexibility in how a Member implements TRIPS obligations and does not exempt a Member from full compliance with TRIPS obligations.195 Statistics provide no response to this claim because the United States is not arguing that the TRIPS Agreement obligations require China to destroy or dispose of all infringing goods in accordance with the principles in the first sentence of Article 46. The pertinent issue is what decisions China Customs is permitted by law to make in particular circumstances.196
7.200.
China responds that it does not have an obligation under the TRIPS Agreement to ensure that every infringing good disposed of outside the channels of commerce avoids harm to the right-holder. Rather, Customs must have the authority to dispose of seized goods outside the channels of commerce in such a way as to avoid harm to the right-holder.197 The determination of what constitutes an appropriate grant of authority under the TRIPS Agreement is highly circumstantial. China Customs' authority is appropriate in light of the level of discretion that it enjoys in making decisions, its autonomy, that the rules constraining it serve legitimate government interests and the deterrence of infringement and the avoidance of harm to the right-holder.198
7.201.
The United States claims that the measures at issue are inconsistent with the principle in the fourth sentence of Article 46 because nothing suggests that the auctioning of goods after removal of the infringing mark is permitted only in "exceptional cases".199
7.202.
China responds that, even if the fourth sentence of Article 46 set forth an independent obligation on Customs authorities, which it does not admit, China Customs would fulfil the obligation because they remove "all" infringing features, not just the trademarks, and solicit comments from the right holders.200 China argues that the use of the word "release" envisions a return to the infringer. Customs uses a reserve price at auction to ensure that infringers do not have the opportunity to purchase the seized goods at an unreasonably low cost and reaffix counterfeit marks. In China's view, this complies with the purpose of the fourth sentence of Article 46, which is to ensure that in the course of dealing with seized goods authorities deprive infringers of economic benefits from the goods.201 China also argues that the word "sufficient" indicates that release of goods into the channels of commerce is permitted by the fourth sentence of Article 46, and not only in exceptional cases. It also raises the possibility that China's use of auction is "exceptional" as it constitutes a mere 2 per cent of disposition outcomes.202

(b) Main arguments of third parties

7.203.
Argentina considers that customs authorities can freely select from a number of alternatives the most viable method for the situation at issue. Officials could discretionally choose either to destroy confiscated merchandise or to dispose of it outside the channels of commerce in a manner harmless to the right holder's interests. Donation to social welfare organizations is a viable alternative but avoidance of harm to the right holder would need to be determined by customs authorities on a case-by-case basis.203
7.204.
Australia considers that "the channels of commerce" comprise any activity relating to the supply or transfer of goods in pursuit of financial reward within a Member's territory. Article 59 requires, in effect, that competent authorities be able to order that infringing goods be destroyed or be disposed of in such a manner that the goods do not enter the channels of commerce within that Member's territory. Such disposal methods could include recycling or donation to a charity within a Member's territory, provided the infringing goods are not likely to enter the channels of commerce as a result.204
7.205.
Brazil considers that the fourth sentence of Article 46 suggests that the release of infringing goods into the channels of commerce is admitted by the TRIPS Agreement. The obligation is to grant the power to dispose of infringing goods outside the channels of commerce or order their destruction. The authority to employ one disposal option or another does not need to be unconditional but it should not be simply theoretical. Article 46 does not require Members to ensure that absolutely no harm ever happens to the right holder following disposal of infringing goods, rather, the obligation is to avoid,which is not an obligation of result but one of means.205
7.206.
Brazil considers that the limitation set forth in the fourth sentence of Article 46 applies to disposal of infringing goods into the channels of commerce. An a contrario reading indicates that goods other than counterfeit trademark goods may be released into the channels of commerce, and counterfeit trademark goods may be released into the channels of commerce when additional measures are adopted besides the simple removal of the trademark.206
7.207.
Canada submits that Article 59 of the TRIPS Agreement requires Members to give their competent authorities the powers set out in Article 46 ab initio, that is, as soon as it is has been established that the goods infringe intellectual property rights. China's competent authority acquires the requisite powers only after other disposal options have been explored or, in some cases, not at all. Obvious ways to dispose of goods outside the channels of commerce without harming the right holder are to give them to the right holder or to recycle them. Donation to social welfare bodies precludes destruction and the social welfare bodies may sell the infringing goods. The right holder has a choice of purchasing the infringing goods, thereby suffering financial harm, or running the risk that the goods will be auctioned. The competent authorities only then acquire the power to destroy the goods when the infringing feature can not easily be removed or nobody has purchased them at auction.207
7.208.
Canada submits that China's measures are inconsistent with Article 59 for an additional reason. The obligation to dispose of infringing goods in accordance with the principles of Article 46 includes complying with the prohibition on releasing counterfeit goods after simply removing the infringing features. China's customs authority does not auction counterfeit trademark goods from which it has removed infringing features "in exceptional cases" only.208
7.209.
The European Communities agrees with China that Articles 59 and 46 of the TRIPS Agreement do not impose an obligation to dispose of infringing goods only through the two options set out in Article 46, first sentence. The terms of both Article 59 and Article 46 require that "authorities shall have the authority to order" remedies, not that they must use these remedies under specified circumstances. However, if customs authorities choose a different way of disposing of infringing goods, for example by auction, the principle of Article 46, fourth sentence applies. With respect to disposal outside the channels of commerce, this must be in such a manner as to avoid any harm caused to the right holder.209 This means that even a slight degree of harm is too much. A core interpretation question is the extent to which the obligation in Article 59 permits Members to subject the "authority" to order disposal or destruction to conditions.210
7.210.
The European Communities disagrees with China that the fourth sentence of Article 46 is not incorporated into Article 59. Article 59 refers to "the principles set out in Article 46" in their entirety. The second sentence of Article 59 is not a lex specialis derogating from the general provision in the fourth sentence of Article 46 as the two provisions address different ways of dealing with counterfeit trademark goods that are all relevant for customs authorities.211
7.211.
Chinese Taipei submits that a Member should be considered to have met the minimum standard of Article 46 of the TRIPS Agreement if its judicial authority is provided with power and authority that includes both destruction and disposal according to the conditions set out in that Article. A Member is free to determine for itself the circumstances under which infringing goods are to be disposed of or destroyed and the sequence or priority between the two options.212

(c) Consideration by the Panel

(i) Introduction

7.212.
The Panel notes that this claim challenges the Customs measures "as such". The parties disagree on the proper interpretation of the measures at issue. The Panel is therefore obliged, in accordance with its mandate, to make an objective assessment of the meaning of the relevant provisions of those measures. The Panel recalls its observations at paragraph 7.28 above and confirms that it examines the Customs measures solely for the purpose of determining their conformity with China's obligations under the TRIPS Agreement.

(ii) Border measures

7.213.
This claim is made under Article 59 of the TRIPS Agreement, which provides as follows:

"Remedies

Without prejudice to other rights of action open to the right holder and subject to the right of the defendant to seek review by a judicial authority, competent authorities shall have the authority to order the destruction or disposal of infringing goods in accordance with the principles set out in Article 46. In regard to counterfeit trademark goods, the authorities shall not allow the re-exportation of the infringing goods in an unaltered state or subject them to a different customs procedure, other than in exceptional circumstances."

7.214.
This Article contains a number of key terms, such as "the right holder", "the defendant", "competent authorities" and "infringing goods" which are not defined in the Article itself but can only be understood by reading the whole Article in context.
7.215.
Article 59 is found in Section 4 of Part III of the TRIPS Agreement on Special Requirements Related to Border Measures. Section 4 sets out procedures for the suspension at the border by the customs authorities of the release into free circulation of goods. Article 59 sets out the step in these procedures that applies after goods have been found to be infringing. As such, Article 59 forms part of a set of procedures and its key terms must be understood in that context.
7.216.
This reading is confirmed by the opening provision of Section 4. The first sentence of Article 51 provides as follows:

"Members shall, in conformity with the provisions set out below, adopt procedures to enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or pirated copyright goods may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation of such goods." (footnotes omitted)

7.217.
This sentence refers to "procedures to enable a right holder … to lodge an application … for the suspension by the customs authorities of the release into free circulation" of certain goods. These procedures must conform with "the provisions set out below". The "provisions set out below" are the provisions of Section 4, which include Article 59.
7.218.
The description of the procedure as one for an "application" for "suspension" does not appear to exclude related aspects of the procedure in the provisions set out below, such as the provisions on ex officio action in Article 58 or the remedies as a result of application and/or suspension set out in Article 59. Rather, the procedures in Section 4 form a set that must be read together. This is reflected in the second sentence of Article 51 (with respect to other goods, set out below) that refers to "such an application" (i.e. an application such as that referred to in the first sentence) being subject to "the requirements of this Section". This tends to confirm that the "provisions set out below" Article 51 include the whole of Section 4.
7.219.
The need to read provisions in the context of the relevant Section is a feature of Sections 2, 3 and 4 of Part III of the TRIPS Agreement. Whilst some provisions refer expressly to prior provisions, such as Articles 52, 54 and 56, many others do not, such as Articles 53.1, 55, 57 and 59, but rather rely on context for clarity. This confirms that the provisions of Section 4 must be read as a coherent set of procedures and not in isolation.
7.220.
Therefore, the Panel will refer to other provisions of Section 4, in particular to Article 51, in its interpretation of certain terms used in Article 59.

(iii) "infringing goods"

7.221.
The first sentence of Article 59 applies to "infringing goods". The ordinary meaning of these words is not limited to goods that infringe any specific rights. However, read in context, there are certain limitations. The first sentence of Article 51 provides for the relevant procedures to apply, as a minimum, to "the importation" of "counterfeit trademark or pirated copyright goods". This applies to Article 59 for the reasons set out at paragraphs 7,213 to 7,220 above.
7.222.
Article 51 expressly allows Members to provide for procedures at the border for other infringing goods as well. The second and third sentences of Article 51 provide as follows:

"Members may enable such an application to be made in respect of goods which involve other infringements of intellectual property rights, provided that the requirements of this Section are met. Members may also provide for corresponding procedures concerning the suspension by the customs authorities of the release of infringing goods destined for exportation from their territories."

7.223.
Both these sentences use the word "may", indicating that they are optional provisions. The second sentence provides for an optional extension to "other infringements of intellectual property rights". This is a reference both to goods that infringe trademarks and copyright without constituting counterfeit trademark goods or pirated copyright goods, as well as to goods that infringe other categories of intellectual property rights, such as patents. The second sentence includes an express condition that applies where Members provide border measures for other infringements of intellectual property rights, namely "provided that the requirements of this Section are met".213 The requirements of that "Section" include those found in Article 59. Therefore, to the extent that a Member provides for such an application to be made in respect of goods involving other infringements of intellectual property rights, such as patents, the obligation in Article 59 applies.
7.224.
The third sentence of Article 51 provides for an optional extension to "infringing goods destined for exportation" from a Member's territory. The terms of the third sentence do not attach any express condition to this option. An option with respect to "corresponding procedures" is not, on its face, an obligation that procedures shall correspond. The omission of any express condition in the third sentence stands in contrast to the proviso in the second sentence, which also serves the purpose of providing for an optional extension of the border measures. Whilst it would not have been appropriate to include an identical condition to that found in the second sentence, as the requirements of Section 4 refer to importation, the third sentence could nevertheless have included an express condition that the procedures with respect to infringing goods destined for exportation shall correspond to those set out in the Section, or shall comply with the principles thereof.214 However, it does not. Read in context, this omission is not ambiguous. Therefore, the Panel finds that there is no obligation to apply the requirements of Article 59 to goods destined for exportation.215
7.225.
Turning to the measures at issue, the Panel notes that the Customs IPR Regulations, in Article 2, provide that "Customs protection of intellectual property rights in these Regulations means the protection provided by the Customs for the exclusive rights to use a trademark, copyrights and their related rights, and patent rights (hereinafter referred to as intellectual property rights) …" (emphasis added). The same is true of the Implementing Measures and Public Notice No. 16/2007, that both implement the Customs IPR Regulations.216
7.226.
It is apparent that the intellectual property right infringements covered by the Customs measures include not only counterfeit trademark goods and pirated copyright goods, but certain other infringements of intellectual property rights, namely other trademark-infringing goods, other copyright-infringing goods, and patent-infringing goods. For the reasons set out in paragraph 7,223 above, the Panel finds that Article 59 applies to the Customs measures as those measures apply to all these infringements of intellectual property rights.217
7.227.
The Panel notes that the Customs IPR Regulations, in Article 2, also provide that "Customs protection of intellectual property rights in these Regulations means the protection provided by the Customs … related to imports or exports …" (emphasis added). The same is true of the Implementing Measures and Public Notice No. 16/2007, that both implement the Customs IPR Regulations.218
7.228.
In this respect, China's border measures provide a level of protection higher than the minimum standard required by Section 4 of Part III of the TRIPS Agreement. The practical effect of this is that, according to uncontested statistics prepared by China Customs, 99.85 per cent by value of infringing goods disposed of or destroyed under the measures at issue in the years 2005 to 2007 were destined for exportation.219
7.229.
The United States' claim refers to "infringing goods"220 and specifically notes that the measures at issue apply to imports and exports.221 However, in response to a question from the Panel concerning its claim and the relevance of Article 51, the United States advised that it "takes no position" with regard to whether the first sentence of Article 59 also governs border authorities' actions with respect to goods destined for exportation.222
7.230.
In light of the United States' response, and given the complainant's responsibility to assert and prove its claim, China submits that its measures are not subject to this claim with respect to goods destined for exportation.223
7.231.
The Panel notes that the United States has not withdrawn its claim with respect to any aspect of the Customs measures. For the reasons set out in paragraph 7,224 above, the Panel concludes that Article 59 of the TRIPS Agreement is not applicable to the Customs measures insofar as those measures apply to goods destined for exportation.
7.232.
The Panel will continue to assess the claim insofar as it concerns goods destined for importation. Imports represented 0.15 per cent by value of the goods disposed of or destroyed under the measures at issue in the years 2005 to 2007. During that period, all confiscated infringing imports were either donated to the Red Cross Society of China (0.12%) or destroyed (0.02%).224 The volume of infringing imports that was sold to the right holder, or auctioned, was zero.
7.233.
Nevertheless, the Customs measures on their face apply in the same way to both exports and imports. China confirms that its evidence, including of specific shipments of exports, is indicative of how the Customs measures operate with respect to both exports and imports.225 The statistics comprising both exports and imports are a much larger, and therefore more reliable, sample. Therefore, the Panel considers that it may refer to evidence as it relates to both exports and imports in its assessment of this claim as it relates only to imports.

(iv) "shall have the authority"

7.234.
The obligation in the first sentence of Article 59 is that competent authorities "shall have the authority" to order certain types of remedies with respect to infringing goods. It is clear from the context within Section 4 that the obligations in Article 59 apply where customs authorities have suspended the release into free circulation of goods suspected of infringing intellectual property rights. The fact that Article 59 applies to "infringing goods" indicates that the obligations in this Article are triggered when competent authorities find that the goods subject to the suspension are infringing. The fact that Article 59 addresses the authority to order remedies implies that the obligations continue until the time that a remedy has been ordered. The text of the Article does not indicate any other limitation on the temporal scope of the obligations. Therefore, the obligation that competent authorities "shall have the authority" to make certain orders applies from the time that competent authorities find that goods subject to suspension at the border are infringing, right up until the time that a remedy is ordered.
7.235.
The United States confirms that it does notclaim that the obligation that competent authorities "shall have the authority" to order certain remedies requires Members to make those orders. Rather, the United States claims that "[t]he pertinent issue is what decisions China Customs is permitted by law to make in particular circumstances".226
7.236.
The Panel notes that the word "authority" can be defined as "power or right to enforce obedience; moral or legal supremacy; right to command or give a final decision."227 The obligation is to "have" authority not an obligation to "exercise" authority.228 The phrase "shall have the authority" is used throughout the enforcement obligations in Sections 2, 3 and 4 of Part III of the TRIPS Agreement, specifically, in Articles 43.1, 44.1, 45.1, 45.2, 46, 48.1, 50.1, 50.2, 50.3, 50.7, 53.1, 56 and 57.229 It can be contrasted with terminology used in the minimum standards of protection in Part II of the TRIPS Agreement, such as "Members shall provide" protection, or that certain material "shall be" protected. The obligation in Article 46 that certain authorities "shall have the authority" to make certain orders reflects inter alia that orders with respect to specific infringements are left to enforcement authorities' discretion.230
7.237.
This is confirmed by the context. Article 41.1 of the TRIPS Agreement, quoted at paragraph 7,170 above, obliges Members to ensure that enforcement procedures as specified in Part III are "available" under their law so as to "permit" effective action against infringement, which addresses the potential for action.
7.238.
Given the potential importance of this interpretation to the operation of much of Part III of the TRIPS Agreement, the Panel notes that it is further confirmed by the records of the negotiation of the Agreement.231 Previous drafts of the TRIPS Agreement had provided that the authorities shall "provide for" certain remedies, but this phrasing was changed to read shall "have the authority", as were a number of other draft provisions.232 Therefore, the obligation that competent authorities "shall have the authority" to make certain orders is not an obligation that competent authorities shall exercise that authority in a particular way, unless otherwise specified.
7.239.
Moreover, the obligation to have the authority to order certain types of remedies is not an obligation to have the authority to order those remedies only. Both parties to the dispute, and certain third parties, expressly recognize that the obligation that competent authorities "shall have the authority" to order certain types of remedies leaves Members free to provide that competent authorities may have authority to order other remedies notrequired to be within their authority by Article 59 of the TRIPS Agreement.233
7.240.
The Panel agrees. The terms of Article 59 do not indicate that the authority to order the specified types of remedies must be exclusive. This interpretation is confirmed by Article 46, which forms part of the context of Article 59, as Article 59 incorporates the principles of Article 46, and both Articles are phrased as obligations that authorities "shall have the authority" to order certain types of remedies. The first sentence of Article 46 provides, basically, that authorities shall have the authority to order that goods be disposed of outside the channels of commerce or destroyed. At the same time, the fourth sentence of Article 46 relates to release into the channels of commerce which does not correspond to either of the remedies required by the first sentence. This is an express recognition that the remedies set out in the first sentence of Article 46 are not exhaustive. The same position applies under Article 59.
7.241.
Given the potential importance of this interpretation to the operation of Part III of the TRIPS Agreement, the Panel notes that it is confirmed by the circumstances of conclusion of the Agreement.234 One of the most important such circumstances was the fact that the pre-existing international intellectual property agreements contained comparatively few minimum standards on enforcement procedures beyond national treatment and certain optional provisions.235 One of the major reasons for the conclusion of the TRIPS Agreement was the desire to set out a minimum set of procedures and remedies that judicial, border and other competent authorities must have available to them. This represented a major advance in intellectual property protection, as reflected in the second recital of the preamble to the Agreement as follows:

"Recognizing, to this end, the need for new rules and disciplines concerning:

(c) the provision of effective and appropriate means for the enforcement of trade-related intellectual property rights, taking into account differences in national legal systems"236

7.242.
At the same time, the negotiators appear to have considered it unnecessary to state in either Article 46 or Article 59 that the authorities could not release goods that had been found infringing into the channels of commerce. This may have been due inter alia to the fact that such an action itself could constitute infringement or otherwise expose the authorities to liability. Such an action would not constitute infringement if the circumstances of disposal were non-commercial or if the state of the goods was altered so that the goods no longer infringed. The negotiators addressed both these issues: in the first sentence of Article 46, by providing for disposal outside the channels of commerce (and destruction) and, in the fourth sentence, in regard to counterfeit trademark goods, by setting a minimum degree of alteration of the state of goods before release into the channels of commerce.
7.243.
The European Communities submitted that all authority to order remedies, including those not required by Article 59, is subject to an overarching requirement that it be "in such a manner as to avoid any harm caused to the right holder".237 China addressed the degree to which auction, even though it does not satisfy the requirement that disposal be outside the channels of commerce, might still avoid any harm caused to the right holder.238 The United States also addressed this issue.239
7.244.
In the Panel's view, an interpretation that applies the phrase "in such a manner as to avoid any harm caused to the right holder" to all authority to order remedies is based on a selective reading of Article 46. The requirement that authority to order a remedy be "in such a manner as to avoid any harm caused to the right holder" is linked in the text of Article 46 to one remedy only, namely disposal outside the channels of commerce.240 This does not exclude the possibility that other actions, notably release into the channels of commerce, may be subject to requirements, provided that those requirements are set out in the terms of Article 46 or Article 59.
7.245.
The parties disagree as to the circumstances in which competent authorities may be considered to have "authority" in accordance with Article 59, in particular, the extent to which the availability of authority may be subject to conditions. China submits examples of other Members' legislation that, in its view, subject customs' authority to conditions.241
7.246.
The Panel observes that the reference to alternatives in Article 59 of the TRIPS Agreement implies a particular type of condition. Article 59 requires authority to order "destruction or disposal" (emphasis added). It is not disputed that where competent authorities have authority in any given situation within the scope of Article 59 to order either destruction or disposal (in accordance with applicable principles), this is sufficient to implement the obligation in the first sentence of Article 59.242 Therefore, a condition that precludes the authority to order one remedy (e.g. destruction) could be consistent with Article 59 as long as competent authorities still had the authority to order the other remedy (in this example, disposal).
7.247.
The Panel also observes that a common feature of Sections 2, 3 and 4 of Part III of the TRIPS Agreement is that the initiation of procedures under these Sections is generally the responsibility of private right holders. This is reflected in the first sentence of Article 42 and the first sentence of Article 51, the reference to an "applicant" in Article 50.3 and 50.5, the reference to "request[s]" in Articles 46 and 48.1, and the option (not obligation) to make ex officio action available under Article 58. Viewed in context, the phrase "shall have the authority" does not require Members to take any action in the absence of an application or request. Therefore, a condition that authority shall only be available upon application or request seems to be assumed in much of Sections 2, 3 and 4 of Part III. This is consistent with the nature of intellectual property rights as private rights, as recognized in the fourth recital of the preamble of the TRIPS Agreement. Acquisition procedures for substantive rights and civil enforcement procedures generally have to be initiated by the right holder and not ex officio.
7.248.
The above observations do not imply that other types of conditions that do not find such a reflection in the text may not be attached to the required authority. However, the Panel does not consider it necessary, for the purposes of its examination of this claim, to consider what other conditions, if any, may be attached to "authority" consistently with Article 59. Therefore, other than the two conditions mentioned above, the Panel will accept arguendo that the availability of the "authority" required by Article 59 may not be subject to conditions in any given situation within the temporal scope of that Article, as described in paragraph 7,234 above.
7.249.
The "authority" required by Article 59 concerns two types of remedies, namely "destruction or disposal". The meaning of "destruction" is not controversial. As for "disposal", the Panel notes that the English text of Article 59 does not qualify this word so that it could, in accordance with its ordinary meaning, refer both to disposal outside the channels of commerce as well as to release into the channels of commerce.243 However, read in context, the word "disposal" could be a reference to an order that goods be "disposed of" outside the channels of commerce as set out in Article 46. This ambiguity is resolved by reference to the French and Spanish texts, which are equally authentic.244 The French text of Article 59 refers to authority to order "la mise hors circuit" which is a reference to the authority to order that infringing goods be "écartées des circuits commerciaux" in Article 46. The Spanish text of Article 59 refers to authority to order "eliminación" which, read in its context as an alternative to "destrucción", is evidently a reference to the authority to order that infringing goods be "apartadas de los circuitos comerciales" in Article 46. Accordingly, the correct interpretation of the term "disposal" in the first sentence of Article 59 is disposal "outside the channels of commerce".
7.250.
The Panel will refer to "destruction" and "disposal" collectively as "disposition methods" for ease of reference. It is not disputed that China's Customs measures provide the authority to order destruction of infringing goods in accordance with the principles set out in Article 46. However, the United States takes issue with what it considers the "highly limited circumstances" in which the Customs measures permit destruction.245 China does not deny that its authority to order destruction is, in principle, subject to certain limitations but argues that China Customs has considerable discretion to decide whether such limitations apply. The statistics show that, in practice, over half of infringing goods seized by Customs in terms of value are in fact destroyed.246
7.251.
The Panel recalls its finding at paragraph 7,246 above that China is permitted to limit the authority to order destruction of infringing goods provided that its competent authorities have the authority in such situations to order disposal of infringing goods in accordance with the principles set out in Article 46. The limitations on Customs' authority to order destruction of infringing goods are relevant to the claim only to the extent that they show that Customs has authority to order neither destruction of infringing goods nor disposal in accordance with those principles.
7.252.
It is in this context that the United States claims that the measures establish a mandatory sequence of steps, as the authorities will not have either of the required forms of authority in a given situation if the measures at issue compel them to order another disposition method that is not required by Article 59.247 This raises the so-called "mandatory/discretionary distinction" that has been discussed in a number of GATT and WTO Panel Reports relating to trade in goods.248 Whilst authority to order a disposition method not required by Article 59 does not, in itself, lead to WTO-inconsistent action, to the extent that such authority mandates a disposition method in any given circumstance it may preclude authority that is required by Article 59. The preclusion of such authority may be WTO-inconsistent. For that reason, the Panel will examine whether certain aspects of the Customs measures are mandatory.
7.253.
The Panel also notes that authority to order a disposition method within the scope of Article 59 will often be discretionary, as the obligation that Members' competent authorities "shall have the authority" to make particular orders applies to what those authorities are permitted to order by domestic law. Accordingly, the obligation in Article 59 is applicable to both mandatory and discretionary measures and, in principle, both mandatory and discretionary measures "as such" can be examined for conformity with that obligation.249
7.254.
The Customs measures at issue provide for three disposal options besides destruction. These are donation to social welfare bodies; sale to the right holder; and auction. The United States claims that none of these disposal options is in accordance with the principles set out in Article 46 and that all preclude authority to order destruction.250 China responds that the first two of these disposal options constitute authority to order disposal in accordance with the principles set out in Article 46, and that the United States has not established that China Customs lacks authority to order destruction.251 Therefore, the Panel will proceed as follows:

(a) First, the Panel will determine what are "the principles set out in Article 46";

(b) Second, the Panel will assess China Customs' authority to order donation to social welfare bodies and, if necessary, sale to the right holder, in order to determine whether they constitute authority to order disposal in accordance with the principles set out in the first sentence of Article 46; and

(c) Third, the Panel will assess China Customs' authority to order auction of infringing goods (plus either of the first two disposal options that is found to be disposal not in accordance with the principles set out in the first sentence of Article 46) to determine whether such authority mandates a particular disposition method and thereby precludes authority to order destruction.

(v) "the principles set out in Article 46"

7.255.
The first sentence of Article 59 provides that competent authorities shall have the authority to order the destruction or disposal of infringing goods "in accordance with the principles set out in Article 46". The phrase referencing the principles set out in Article 46 attaches to "the authority to order the destruction or disposal of infringing goods". This directs the treaty interpreter to those principles in Article 46 that attach to such authority.
7.256.
The Panel makes the following observations. First, Article 59 refers to "authority". Second, Article 59 incorporates principles that attach to authority to order "destruction or disposal" (outside the channels of commerce for the reasons given at paragraph 7,249 above). Third, Article 59 relates to the authority to order destruction or disposal of "infringing goods" but not principles applicable to the disposition of materials and implements.
7.257.
Article 46 of the TRIPS Agreement provides as follows:

"Other Remedies

In order to create an effective deterrent to infringement, the judicial authorities shall have the authority to order that goods that they have found to be infringing be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed. The judicial authorities shall also have the authority to order that materials and implements the predominant use of which has been in the creation of the infringing goods be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to minimize the risks of further infringements. In considering such requests, the need for proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties shall be taken into account. In regard to counterfeit trademark goods, the simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the channels of commerce."

7.258.
The first sentence of Article 46 refers to "authority" to order that "infringing goods" be "disposed of … or … destroyed". Therefore, it seems pertinent to Article 59.
7.259.
The second sentence of Article 46 refers to disposal of materials and implements and is therefore inapposite. Indeed, materials and implements used to create infringing goods would not normally be suspended at the border with the infringing goods, unlike during enforcement actions within a Member's territory.
7.260.
The third sentence of Article 46 refers to "such requests" although the previous sentences do not refer expressly to any requests. The content of the third sentence clearly relates to materials and implements as addressed in the second sentence but it could equally relate to infringing goods as addressed in the first sentence. The text is ambiguous on this point. This ambiguity can be resolved by reference to the records of the negotiation of the TRIPS Agreement.252
7.261.
The TRIPS Agreement was negotiated during the Uruguay Round in the Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods (referred to below as the "TRIPS negotiating group"). The Chairman's draft text of the Agreement of 23 July 1990 included a draft article corresponding to what is Article 46 in the text as finally agreed.253 In that draft article, the principle of proportionality and the interests of third parties were related to a request of the right holder under the previous sentence. That request could be for remedies with respect to infringing goods as well as materials and implements. In a later draft254, the first sentence of the provision on remedies was divided into two separate sentences, one with respect to infringing goods and the other with respect to materials and implements. Both sentences included the phrase "upon request from the right holder". In the same draft, the phrase "[i]n considering such a request" was revised to read "[i]n considering such requests" (in the plural). This is the version of the third sentence that was retained in the so-called "Brussels Draft"255 and the final text of Article 46 of the TRIPS Agreement.
7.262.
Accordingly, the records of the negotiation of the TRIPS Agreement clarify that the terms of Article 46 in the third sentence refer inter alia to the consideration of requests for orders that infringing goods be disposed of outside the channels of commerce or destroyed. Therefore, the third sentence seems pertinent to Article 59 as well.
7.263.
The fourth sentence refers to a category of infringing goods, i.e. counterfeit trademark goods. It does not refer expressly to authority to order destruction or disposal outside the channels of commerce. However, the context shows that the principle of proportionality in the previous sentence guides the competent authorities' choice between the remedies specified in the first sentence and any alternative remedies. Similarly, the fourth sentence of Article 46 sets out a consideration that the authorities must take into account when choosing between the required remedies, namely those specified in the first sentence, and release into the channels of commerce, if such an order is available. The fourth sentence attaches to the scope of authority to choose between destruction or disposal outside the channels of commerce and release into the channels of commerce, if that remedy is available. Therefore, the fourth sentence of Article 46 seems pertinent to Article 59.
7.264.
Article 59 refers to the "principles" set out in Article 46. Therefore, it is necessary to determine what precisely that refers to in the first, third and fourth sentences of Article 46. The word "principles" can be defined as "a general law or rule adopted or professed as a guide to action."256 Each of these sentences of Article 46 contains language that is a guide to action by authorities and none dictate the precise terms of orders in specific cases.
7.265.
The Panel does not consider that the choice of the word "principles" was intended to reflect a hierarchy of provisions within Article 46 that would include only the most general concepts and exclude the less general. There is a strong similarity in the language and purpose of the two provisions that both provide for authority to order destruction or disposal with respect to goods that have been found to infringe intellectual property rights at the conclusion of an enforcement procedure. However, there are also differences in the government agencies to which they relate ("competent authorities" to order remedies in border measures under Article 59 but "judicial authorities" under Article 46) and also in the scope of property to which the remedies apply ("infringing goods" under Article 59 and "infringing goods as well as materials and implements the predominant use of which has been in the creation of the infringing goods" under Article 46). These differences made it inappropriate simply to provide that the obligation in Article 59 applied "in accordance with Article 46" or otherwise incorporate the whole of Article 46. Instead, the cross-reference to "principles" avoided the duplication of a relatively large amount of text.257 Therefore, in the Panel's view, the reference to "principles" is a reference to language that is a guide to action by authorities with respect to orders for the destruction or disposal of infringing goods.
7.266.
Accordingly, for the purposes of Article 59, the Panel considers that the first sentence of Article 46 sets out the following "principles":

(a) authorities shall have the authority to order disposal or destruction in accordance with the first sentence "without compensation of any sort"; and

(b) authorities shall have the authority to order disposal "outside the channels of commerce in such a manner as to avoid any harm caused to the right holder";258 or

(c) authorities shall have the authority to order destruction "unless this would be contrary to existing constitutional requirements".

7.267.
The third sentence sets out the following principle that applies inter alia to the authority to order disposal or destruction of infringing goods under the first sentence:

(d) in considering such requests "the need for proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties shall be taken into account".

7.268.
The fourth sentence sets out the following principle that attaches to the authority to order destruction or disposal of infringing goods under the first sentence:

(e) in regard to counterfeit trademark goods, the simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the channels of commerce.259

7.269.
The interpretation of all these principles is informed by the common objective set out at the beginning of Article 46, i.e. "to create an effective deterrent to infringement" which is, in itself, also a guide to action with respect to orders for the destruction or disposal of infringing goods and, hence, a principle set out in Article 46.
7.270.
In the Panel's view, the above are the "principles set out in Article 46" incorporated by the first sentence of Article 59.
7.271.
China disagrees, arguing, in effect, that the second sentence of Article 59 constitutes a lex specialis that would exclude the incorporation of the fourth sentence of Article 46 into Article 59.260
7.272.
The Panel observes certain similarities in the respective texts of the fourth sentence of Article 46 and the second sentence of Article 59. The second sentence of Article 59 provides as follows:

"In regard to counterfeit trademark goods, the authorities shall not allow the re-exportation of the infringing goods in an unaltered state or subject them to a different customs procedure, other than in exceptional circumstances."

7.273.
Like the fourth sentence of Article 46, this sentence begins with the words "[i]n regard to counterfeit trademark goods" and includes the words "other than in exceptional" circumstances (as opposed to cases). There is also a similarity in that the second sentence of Article 59 applies to goods "in an unaltered state" whilst the fourth sentence of Article 46 applies to "the simple removal of the trademark unlawfully affixed" which is a means of altering the state of counterfeit trademark goods. Both sentences are found in Articles that provide for remedies after particular enforcement procedures.
7.274.
However, Article 59 applies to procedures at the border with respect to goods destined for importation whilst Article 46 applies to civil judicial procedures within Members' territories. The second sentence of Article 59 refers to re-export or release into a different customs procedure (for example, into transit) which is specific to the enforcement procedure in Section 4. Article 46 refers to release into the channels of commerce which can be applicable to importation and domestic sale in both Sections 2 and 4. The second sentence of Article 59 and the fourth sentence of Article 46 apply in different circumstances and neither is in fact more specific than the other.
7.275.
There is no reason to infer that the risk of further infringement presented by counterfeit trademark goods was only intended to be addressed when the goods were re-exported or subject to another customs procedure and not when they were released at the border into the channels of commerce.261 Counterfeit trademark goods suspended at the border and then released present a risk of further infringement whether the goods are released into the channels of commerce within a Member's territory, or transit through the Member's territory or are re-exported to another Member's territory, as under the second sentence of Article 59.
7.276.
Indeed, read in context, the relevance of "release" of goods into the channels of commerce is even clearer in Article 59 than it is in Article 46. Section 4 concerns the suspension of "release" of goods to importers, and uses that word in Articles 51, 53.2, 54, 55, 56 and 58. In contrast, Article 46 is part of Section 2, on civil and administrative procedures and remedies, so the limited sense of "release" to an importer cannot apply. Read in context, a broader meaning, equivalent to release to any party in the channels of commerce, must apply when this word is used in relation to remedies.
7.277.
For the above reasons, the Panel confirms its finding at paragraph 7,270 above as to the interpretation of "the principles set out in Article 46", as incorporated in Article 59.

(vi) "outside the channels of commerce in such a manner as to avoid any harm caused to the right holder"

7.278.
The parties disagree as to the meaning of the principle set out in the first sentence of Article 46 that refers to disposal "outside the channels of commerce in such a manner as to avoid any harm caused to the right holder". The United States has raised concerns regarding the harm that donations may cause to right holders and the possibility that the donated goods may later be sold by the social welfare bodies.
7.279.
The Panel notes that this principle, by its terms, relates to disposal of goods "outside" the channels of commerce, and not into the channels of commerce. It is not disputed that this principle is applicable to donations (i.e. gifts) to social welfare bodies for their own use or for charitable distribution. However, if the social welfare bodies later sell goods donated to them by Customs for charitable distribution, even to raise money for charitable aims, the goods are not in fact disposed of outside the channels of commerce but into the channels of commerce. If the social welfare bodies charitably distribute goods donated to them by Customs but the goods later find their way back into the channels of commerce, this does not alter the fact that the goods were disposed of outside the channels of commerce, in the ordinary sense of "disposal".262 Instead, the later sale of the distributed goods is relevant to the assessment of whether the disposal outside the channels of commerce was "in such a manner so as to avoid any harm caused to the right holder". Therefore, the Panel will consider the interpretation of that part of the principle in further detail.
7.280.
This principle, by its terms, provides that authorities shall have the authority to order that the goods "be disposed of", in the passive voice. There is no obligation that the relevant authorities carry out the disposal themselves but rather they may entrust the actual disposal to another body. The carrying out of disposal "outside the channels of commerce" recognizes the opportunity for involvement of other bodies, such as charities, or non-commercial use by government. The principle attaches to the "manner" in which infringing goods are disposed of, not to the actual disposal. Authorities are not held responsible for acts of the bodies carrying out the disposal that is beyond the authorized manner. Further, the principle is that the manner shall be "so as to" avoid harm. This is phrased in terms of purpose, not result. The responsibility of the authorities is to ensure that the manner in which the goods are disposed of outside the channels of commerce is designed in such a way that it will comply with the principle.
7.281.
The principle is that the manner of disposal shall "avoid" harm. China argues that this is an obligation to "pay due regard to".263 However, the Panel notes that the ordinary meaning of "avoid" can be defined as "keep off, prevent; obviate".264 Further, the principle is that the manner shall avoid "any" harm caused to the right holder, not just "harm" or "some" harm.265 Therefore, the manner of disposal must be designed in such a way as to prevent any harm occurring to the right holder.
7.282.
It must be recalled that disposal of infringing goods outside the channels of commerce, in context, is an alternative to destruction of the goods. In the Panel's view, this implies that any inherent risk of harm due simply to the fact that the goods have not been completely destroyed is insufficient to disqualify a disposal method, as it would nullify the choice between disposal and destruction. However, more specific concerns linked to harm caused to the right holder by a particular manner of disposal are relevant in assessing conformity with the principle that disposal outside the channels of commerce be "in such a manner as to avoid any harm caused to the right holder".
7.283.
The Panel finds confirmation of this interpretation within Article 46. The fourth sentence of Article 46 expressly provides that simple removal of the trademark unlawfully affixed is not sufficient to permit release of counterfeit trademark goods into the channels of commerce other than in exceptional cases. In contrast, the first sentence of Article 46 contains a more general requirement that the requisite authority to order disposal of goods outside the channels of commerce shall be "in such a manner as to avoid any harm caused to the right holder". Whilst this reflects, in part, the fact that the first sentence does not only apply to counterfeit trademark goods, it also demonstrates that when goods are disposed of outside the channels of commerce it is not assumed that the removal of the trademark is required (or insufficient).
7.284.
It remains possible that the trademark unlawfully affixed may cause confusion, depending on the circumstances in which goods are disposed of outside the channels of commerce. Practical requirements, such as removal of the trademark, affixation of a charitable endorsement or controls over the use of goods or distribution methods, may avoid confusion. The cooperation of the right holder would be valuable in this regard but the terms of the Article do not indicate that that is a requirement.266 However, the issue of harm to the right holder, whether to its reputation or through lost sales, through disposal of goods outside the channels of commerce without removal of the trademark unlawfully affixed depends on the circumstances. Otherwise, any disposal outside the channels of commerce where persons could simply observe a counterfeit trademark would be presumed to cause harm to the right holder. This result is not contemplated by the terms of Article 46, as the possibility of observing the counterfeit trademark is incidental to the requisite authority not to destroy the goods.
7.285.
These observations are subject to the Panel's findings at paragraphs 7,239 to 7,240 above that the obligation that competent authorities "shall have the authority" to order certain types of remedies leaves Members free to provide that competent authorities may have authority to order other remedies notrequired by Article 59. The remedies specified in Article 59 are not exhaustive.

(vii) Donation to social welfare bodies