Cultural Trade Policy: Barriers vs. Subsidies for Film

Introduction: Cultural Products in the Global Market

In the past, cultural products such as television, movies, and broadcasting systems were developed exclusively within national territories and shaped by national regulations. Even into the twenty-first century, the promotion of cultural values through television, films, and movies remained largely a national phenomenon (Morris and Waisbord, 2001). However, the rapid development of information technology has revolutionized cultural promotion at the international level. The advent of satellite and cable channels, along with the growth of modern technologies such as the internet and digital compression, has transformed the distribution of cultural products into a global enterprise.

In an attempt to reach transnational audiences, many television networks — including MTV, CNN, Eurosport, and the BBC — have launched international channels in multiple languages. Similarly, film and movie companies have translated their productions into numerous languages to reach international audiences. One benefit of selling cultural products abroad is that it enables countries to earn foreign exchange. Cultural products also support the development of the audiovisual sector and create employment opportunities domestically. The growth of television has additionally spurred strong development of regional television markets in Latin America and the Arab world.

Despite these benefits, some countries continue to emphasize policies and regulations to control the importation of cultural products. The primary concern is that foreign television content reflects foreign cultural values, and allowing foreign films, movies, or television programs into a country could erode its own cultural identity. Countries such as China and South Korea have therefore implemented strict policies to restrict the importation of foreign cultural products. Between 1916 and the 1920s, the German government banned the importation of foreign movies, and France set quotas on foreign film imports to protect its domestic film market during the same period. The United Kingdom and Portugal implemented screen quota policies in the mid-1920s, requiring theaters to screen a minimum proportion of domestic films.

Some countries chose not to use aggressive trade barriers, but instead offered tax concessions and subsidies to promote local film production. The United States, however, strongly opposed quotas on foreign films, arguing that such policies conflicted with globalization principles and the deregulation frameworks of GATT and the OECD. Several countries removed their quotas in response to trade pressure from the United States. Brazil, for example, attempted to implement similar quota policies in the 1940s but ultimately abandoned them under U.S. pressure. Today, many countries use passive regulatory approaches — such as tax concessions and subsidies — to support domestic film production. China remains a notable exception, continuing to restrict the importation of foreign cultural products. Nevertheless, there is still no strong empirical evidence that protectionist policies effectively support the audiovisual sector.

This paper argues that countries should allow the importation of foreign films while simultaneously providing subsidies to promote the distribution and production of domestic film and movie industries.

Policy Options: Barriers and Subsidies

As Doyle (2012, p. 3) observes: "The audiovisual sector — for current purposes, film and television — is significant in terms of its contribution to economic wealth creation and employment but, at the same time, it is widely recognized that the audiovisual industries play an important cultural role. The role of conveying ideas and entertainment to usually large audiences involves significant cultural and welfare implications."

The nature of the audiovisual sector and the type of content delivered to consumers have prompted authorities in many countries to take a strong interest in regulating it. While some countries have imposed strict regulatory policies on cultural products, others have provided subsidies for their distribution and production.

Subsidies for domestic film production represent an important policy choice to accelerate the development of cultural products. Several countries have moved away from barriers and quotas on foreign films, movies, and television, recognizing that such restrictions do not promote growth in the domestic audiovisual sector. Instead, these countries have allowed the importation of foreign cultural products to foster efficient competition, while also offering subsidies to local film companies to support domestic production and distribution.

The United States is one of the most notable examples of a country that provides subsidies for the production and distribution of cultural products. In addition to federal subsidies, individual states offer tax incentives for in-state film production. Since 1990, states have provided various incentives including tax credits, tax exemptions, cash grants, and other financial instruments to encourage film production. These subsidies have accelerated growth in the film industry, created jobs, increased tourism, and generated tax revenue. Louisiana, for example, created more than 5,437 jobs shortly after introducing tax incentives for film production and distribution. New York recorded an influx of $7 billion into its state economy after introducing film subsidies in 2004. These financial incentives have helped the U.S. film market achieve dominance in the global marketplace. Other countries, such as Hungary and Canada, have also offered subsidies to support their domestic film industries. Hungary introduced the Financial Incentives and Film Financing Tax in 2004 to encourage domestic film production and distribution.

Despite these incentives, policymakers in some countries continue to believe that the importation of foreign cultural products — including music, video, film, radio, and television — has negative economic and cultural effects. From an economic perspective, imported cultural products compete with locally made films and television, potentially harming the domestic cultural industry. From a cultural perspective, foreign content can influence a country's cultural identity, posing a perceived threat to existing values and traditions.

At present, U.S. films and movies hold more than 70% of the global market share. Many countries view this dominance as a threat to their cultural sovereignty and domestic film industries. For instance, U.S. productions account for approximately 90% of films distributed in Canada and 70% of films distributed in France. In response, many countries have implemented policies — including screen quotas, import quotas, and tax concessions — to protect domestic film industries and preserve local market share against foreign competition. China, for example, introduced a policy in 2012 prohibiting the broadcast of imported programs during prime-time hours on Chinese television (Shalia, 2013). McCutchan (2013) further notes that the Chinese government uses censorship, import quotas, and "competitive release-scheduling policies" to restrict U.S. film access to the Chinese market.

Implementing protectionist policies carries significant symbolic weight, as a country's domestic film market share is often linked to cultural sovereignty. However, creating barriers against foreign films can have negative economic consequences, since the film industry is an important contributor to overall economic development. Protectionist policies can also strain trade relationships, particularly with the United States, which plays a central role in the global economy.

The Case for Cultural Free Trade

The importation of cultural products is subject to two broad competing economic policy frameworks: free trade and protectionism. Countries that oppose free trade and favor protectionism argue that they must protect their cultural industries against foreign dominance. These countries fear that foreign culture will erode their own cultural values and national identity. China's strict regulations on Hollywood films are a prime example. China has introduced regulations to control the distribution and importation of foreign audiovisual works, effectively limiting the penetration of foreign content in its market. However, these restrictions have been challenged under World Trade Organization (WTO) rules, and the WTO has urged China to relax its barriers and allow foreign films into its market. China has not yet fully complied, resulting in ongoing trade friction with the United States.

Supporters of free trade view protectionism as both unfair and inconsistent with WTO agreements. They further argue that protectionist measures infringe on consumer freedom by limiting the range of available products, which in turn reduces economic growth. The World Trade Organization was established to promote free trade among member nations and to enhance the flow of goods and services across borders. The WTO's core principles include non-discrimination, transparency, and open competition — values it argues lead firms to deliver higher-quality products. The WTO has consistently supported cultural free trade, including in the audiovisual sector.

Doyle (2012) provides a comprehensive argument in favor of cultural product importation, highlighting the economic benefits that the United States enjoys precisely because it does not impose barriers on foreign cultural products. In the United States, the audiovisual sector is a key component of the national economy. It serves as a vehicle for transmitting cultural values and promoting American culture globally, while also stimulating job creation, wealth generation, and cultural exchange. The United Kingdom has similarly benefited, exporting cultural products worth approximately US$1.6 billion annually.

In July 2014, India and Canada signed the Audio Coproduction Treaty, which allows film producers from both countries to combine financial, creative, and technical resources for joint audiovisual production. This agreement was designed to promote knowledge sharing and stimulate economic growth. Canada recognized the treaty as a significant opportunity for national prosperity, noting its potential to attract foreign investment, support workers in the audiovisual sector, create jobs, and generate long-term economic gains for both countries (Canada Heritage, 2014).

Conclusion

The audiovisual sector is one of the major drivers of economic development. This paper has discussed various policy approaches that countries have adopted to promote the development of cultural products. While some countries impose barriers on the importation of foreign cultural products, others have supported domestic film production through subsidies and open trade policies. This paper argues that governments should offer subsidies for the distribution and production of cultural products, and should not impose barriers on the importation of foreign films. Trade barriers risk provoking retaliatory measures from other countries and may ultimately undermine the growth of the very domestic film industries they are intended to protect. A combination of open trade and targeted financial support offers a more effective and economically beneficial path forward.

References

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