CORRECTED - Internet censorship liable to WTO challenge - study

(Corrects 12th paragraph to make clear that foreign-owned search engines, not just Google, have 90 percent of Japanese market. Also updates link to homepage with link to full report)

* Censorship breaks WTO rules if restricts service trade

* WTO challenge could clarify limits of censorship

By Jonathan Lynn

GENEVA, Nov 4 (Reuters) - Censorship of the Internet is open to challenge at the World Trade Organisation as it can restrict trade in services delivered online, a forthcoming study says. A censorship case at the WTO could raise sovereignty issues, given the clear right of member states to restrict trade on moral grounds -- for example, by blocking access to child pornography websites.

But a WTO ruling could set limits on blanket censorship and compel states instead to use more selective filtering, according to the study, to be published on Thursday by think-tank ECIPE.

"Censorship is the most important non-tariff barrier to the provision of online services, and a case might clarify the circumstances in which different forms of censorship are WTO-consistent," said the study by Brian Hindley and Hosuk Lee-Makiyama.

"Many WTO member states are legally obliged to permit an unrestricted supply of cross-border Internet services," they wrote in their report, obtained in advance by Reuters.