This policy paper examines the debate over cultural trade protectionism versus free trade in audiovisual products. It traces historical trade barriers imposed by countries including Germany, France, and China, and contrasts restrictive import quotas with subsidy-based approaches used by the United States, Canada, and Brazil. The paper argues that countries should permit importation of foreign films while providing subsidies to domestic producers, supported by evidence that international co-production and open markets generate economic growth, employment, and cultural development rather than protectionist policies.
This memo responds to the question of whether countries should impose barriers to hinder the import of cultural trade or provide subsidies to promote the distribution and production of cultural products such as film and television.
Historically, cultural products including television, movies, and broadcasting systems were developed and distributed exclusively within national territories, shaped by national regulations. Even in the twenty-first century, the promotion of cultural values through television, films, and movies remains largely a national phenomenon. However, rapid development of information technology has revolutionized the international promotion of cultural values. The advent of satellite and cable channels, coupled with the growth of modern technology such as the internet and digital compression, has transformed cultural products into global commodities. To spread their channels across borders and reach transnational audiences, major television stations such as MTV, CNN, Eurosport, and BBC have launched international channels in multiple languages. Similarly, film and movie companies have translated their works into different languages to reach international viewers. One significant benefit of selling cultural products internationally is that it helps countries earn foreign exchange. Additionally, cultural products enhance the development of the audiovisual sector and create employment opportunities. The growth of television has also stimulated strong regional development in markets such as Latin America and the Arab countries.
Despite these benefits, some countries have implemented strict policy and regulatory frameworks to control the importation of cultural products. Their primary concern is that foreign television, movies, and films reflect the cultures of their countries of origin, and allowing such imports can erode a nation's cultural values. Countries such as China and South Korea have implemented strict policies and regulations to control foreign cultural product importation. Between 1916 and the 1920s, the German government initiated policies banning the importation of foreign movies. France established 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, which required theaters to screen certain percentages of domestic films.
Alternatively, some countries have not employed aggressive trade barriers on cultural products; instead, they have offered tax concessions and subsidies to promote local film production. The United States actively opposed foreign film quotas, arguing that such policies conflicted with globalization and World Trade Organization (WTO) deregulation agreements. Many countries removed their quotas due to trade disputes with the United States. Brazil attempted similar quota policies in the 1940s but abandoned them under pressure from the U.S. government. Today, many countries employ different strategies to support domestic film production through passive regulatory policies such as tax concessions and subsidies. However, countries such as China continue to restrict foreign cultural product imports. Despite these varied approaches, empirical evidence supporting the effectiveness of audiovisual sector protectionism remains limited.
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.
The audiovisual sector—encompassing film and television—is significant for its contribution to economic wealth creation and employment. At the same time, the audiovisual industries play an important cultural role in conveying ideas and entertainment to large audiences, with substantial cultural and welfare implications. The nature of audiovisual content has made authorities in various countries keenly interested in policing and regulating the sector. Some countries have employed strict regulatory policies against cultural products, while others have provided subsidies for the distribution and production of cultural products.
Subsidies for domestic film production represent an important policy choice to enhance rapid development of the cultural sector. Several countries have discontinued policies of barriers or quotas on foreign films, movies, and television, recognizing that such policies do not enhance growth of the domestic audiovisual sector. Rather, by allowing foreign cultural product importation and fostering domestic competition, countries have created more efficient industries. Some nations have also offered subsidies to local film companies to enhance the distribution and promotion of their domestic audiovisual industries. The United States is a notable example, providing subsidies for cultural product production and distribution. Beyond federal subsidies, each U.S. state provides tax incentives for in-state film production. Since 1990, different states have offered various incentives such as tax credits, tax exemptions, cash grants, and other benefits to enhance film production. These subsidies have stimulated rapid development of the film production industry, created jobs, increased tourism, and generated tax revenue. For example, Louisiana 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 the state economy after offering subsidies in 2004. The U.S. subsidies have enabled the American film market to dominate the global film market. Other countries such as Hungary and Canada have also offered subsidies for film distribution and promotion. In 2004, Hungary introduced the Financial Incentives and Film Financing Tax to enhance the production and distribution of domestic film.
Despite the financial incentives many countries offer for the distribution and production of cultural products, policymakers in some nations still believe that importing foreign cultural products—including music, video, film, radio, and television—produces negative cultural and economic outcomes. From an economic perspective, foreign cultural product imports compete with locally made films, movies, and television, potentially harming the local cultural industry. From a cultural perspective, foreign culture imports can influence a country's culture, posing a threat to existing cultural values. Currently, U.S. films and movies enjoy more than 70 percent of the global market share. Many countries view this dominance as a threat to their cultural sovereignty and domestic film industry. For instance, U.S. films account for 90 percent of films distributed in Canada and 70 percent in France. Consequently, many countries have implemented various policies to protect their domestic audiovisual sectors against foreign films. Due to U.S. film dominance, many nations have adopted policies including screen quotas, import quotas, and tax concessions to protect domestic film industries and preserve local market share.
Protecting local audiovisual markets carries significant symbolic weight, as a country's domestic film market share relates directly to cultural sovereignty. However, despite arguments in favor of protectionism and barriers against foreign film imports, such policies can produce negative economic effects because film industry development contributes substantially to economic growth. Additionally, barriers against foreign films may not benefit the local film industry. Protectionist policies typically strain trade relationships, particularly with the United States, which controls much of the global economy.
The importation of cultural products faces two contrasting economic frameworks: free trade and protectionism. Countries opposing free trade and favoring protectionism believe they must protect their cultural industries against foreign cultural dominance. These nations worry that foreign culture will penetrate and erode their own cultural values and identities. For example, Hollywood films face strict Chinese regulations. China has recently introduced policies controlling the distribution and importation of foreign audiovisual cultural works, preventing foreign audiovisual work penetration. However, Chinese restrictions on foreign audiovisual products conflict with WTO trading rights, and the organization has obliged China to relax barriers and allow foreign films. China has not yet complied with this WTO order, leading to ongoing protests from the United States.
By contrast, free trade supporters view protectionism as unfair and contrary to WTO agreements. They believe protectionism infringes upon freedom of trade by restricting consumer choice. By prohibiting foreign cultural products from entering a country, consumers face fewer options, potentially declining economic growth. Different international organizations also hold varying views on whether countries should impose barriers against cultural product importation.
The World Trade Organization is an international institution established to promote free trade among member countries, believing that free trade promotes competitiveness and encourages firms to deliver higher quality products. WTO principles emphasize non-discrimination and transparency. Evidence demonstrates the positive impacts of free trade; allowing foreign culture importation benefits economic development. Therefore, the WTO has supported cultural free trade through audiovisual products.
Doyle (2012) provides comprehensive arguments supporting cultural product importation. The author contends that much of the economic success the United States enjoys today stems from not creating import barriers for cultural products. In the United States, the audiovisual sector constitutes a vital economic component. It assists in transmitting cultural values and serves as a prime vector for promoting American culture worldwide. The U.S. policy of permitting foreign culture importation through film and television has enabled the audiovisual sector to become economically significant, stimulating job opportunities, creating wealth, and fulfilling cultural roles.
The United Kingdom has also recorded remarkable success exporting cultural products worth approximately $1.6 billion. While some countries implement strict regulations on cultural product importation, others have realized substantial economic benefits from foreign film, video, and cultural product imports. For example, the Canadian and Indian governments have recognized that their nations can gain immense economic benefits from importing cultural products. In July 2014, India and Canada signed the Audio Coproduction Treaty, which allows film and movie producers to combine their financial, creative, and technical resources in audiovisual production to enhance knowledge sharing and stimulate economic growth. Canada recognized this treaty as representing significant opportunities for Canadian prosperity and competitiveness, with potential to attract foreign investment, provide stronger support for audiovisual organizations, stimulate job creation, and enhance long-term economic prosperity for both nations.
Within the past ten years, Canada has produced approximately 700 audiovisual treaty co-productions, contributing to a total production budget exceeding $5 billion per year. Between 2012 and 2013, Canada's audiovisual sector generated more than 127,000 jobs and contributed more than $5.8 billion to the Canadian economy. The audiovisual treaty structure enables the pooling of financial, technical, and creative resources between foreign and Canadian producers. Canada has identified substantial benefits from permitting cultural product importation because the policy strengthens international cultural ties and promotes peace and economic relations.
A 2014 report by the Organization of American States demonstrates that culture is an essential tool for economic growth and remains indispensable for social cohesion, international peace, and harmony. Allowing cultural product importation enhances national cultural development and stimulates economic growth. The cultural sector has contributed 2 percent economic growth in Chile, 7.75 percent GDP growth in Brazil, and 2 percent growth in Paraguay, Colombia, and Ecuador. Thus, the cultural sector and economy are highly correlated. In Chile and Brazil, cultural sector income elasticity exceeds 1, meaning that if the economy grows by 1 percent, the cultural sector will grow by more than 1 percent. The principal driver of cultural sector growth in these Latin American countries is the exchange of cultural products with the United States. Specifically, U.S. cultural product imports into Brazil and Chile have stimulated audiovisual sector growth.
Filho and colleagues (2014) argue that the Brazilian audiovisual industry has recorded significant growth in recent decades because the Brazilian government permits film and video imports. The Brazilian audiovisual sector has experienced substantial changes due to technological advances enabling international movie players to penetrate the market, creating high competition and efficiency. International players have been instrumental in integrating the latest technologies into Brazil's audiovisual sector. The government's favorable policy of permitting foreign audiovisual companies has led to co-distribution of audiovisual products between national and international companies. Data from the Brazilian Statistical Yearbook of Film (2013) reveals that Brazil generated approximately $196.51 million in film production revenue. However, international film distributors have significantly contributed to audiovisual sector development through international co-production—the combined work of two or more countries to produce films and movies. International co-production provides benefits including boosted financial resources, access to government subsidies and incentives from respective countries, and combined expertise in film and movie production. Brazilian film production has derived substantial benefits from foreign film producers and international co-production.
Despite these benefits, cultural dimensions of television, movie, and film production remain subject to policy intervention and regulatory frameworks. Some policymakers cite cultural discount theory, which suggests that as cultural products cross national boundaries, their content diminishes in styles, beliefs, and values. For example, imported film viewers may struggle to understand content due to language differences. Even English-speaking countries may find challenges comprehending American film content despite shared official languages.
Based on arguments favoring and opposing cultural free trade, this paper rejects the imposition of import barriers on cultural products. Instead, it advocates for subsidies promoting the distribution and production of movies, films, and other cultural products. The paper argues that countries should offer subsidies assisting domestic film company production and distribution while opposing barriers to foreign cultural product importation.
A country's social and economic development depends on the development of creative ideas originating from films, movies, and sound recording efforts. Allowing cultural product importation enhances creativity because foreign products introduce new ideas, stimulating rapid audiovisual sector development. The examples of Canada, India, and Brazil demonstrate how nations have derived economic benefits by permitting foreign film and movie importation.
Although the Canadian film industry is dominated by U.S. films and movies, Canada derives immense economic benefits through international co-production strategy, in which Canadian and American producers jointly produce films to enjoy market advantages in both countries. International co-production is defined as an international joint venture strategy where film producers from two or more countries team together to reap global market advantages. Some countries engage in international co-production to pool resources for competing successfully against U.S. dominant forces. Rather than banning foreign film imports, Canada enters international co-production agreements with several nations to enjoy audiovisual sector economic benefits.
Allowing foreign film importation creates domestic competition, compelling domestic film producers to improve production and gain competitive market advantages. Nordicity (2013) emphasizes that television and film have been integral to Canadian socio-economic development, contributing immensely to both cultural and economic development. Canadian audiovisual sector development is attributed to international co-production and audiovisual agreements entered with other nations. Through cooperation with foreign film companies, Canada has enhanced effective film production value chains. Once a film enters distribution channels, it is released theatrically and subsequently enters online distribution, adding economic value and stimulating employment. In 2011, the audiovisual sector generated more than 262,700 full-time jobs and $12.8 billion in labor income. The sector also generated $20.4 billion in GDP for the Canadian economy, $2.7 billion in federal tax revenue, $2.7 billion in provincial revenue, and $5.5 billion in total tax revenue.
The paper recommends that countries offer subsidies for film and movie distribution and production. The United States derives immense economic benefits by providing financial incentives to film companies. Through subsidies, the United States has enjoyed substantial economic returns from audiovisual sector development. The industry has created support for millions of jobs and delivered billions of dollars as household income. In 2007, motion pictures created 2.5 million American jobs, generated $41.1 billion in worker income, and provided $38.2 billion in payments to U.S. suppliers and vendors. The sector provided $14 billion in sales taxes and $13.6 billion in trade surplus. Between 2001 and 2008, the sector growth rate increased by 15 percent. Importantly, the audiovisual sector provides $80,531 annual remuneration per worker compared to $45,589 in other industries.
The paper recommends that countries engage in international co-production with other nations to leverage foreign film company expertise. Brazil, India, and Canada have enhanced rapid audiovisual sector development through international co-productions. Rather than imposing barriers on foreign film imports, these countries encourage international co-production to enhance film industry development.
Importing foreign cultural products also facilitates international film festival development, enabling countries to generate foreign exchange. International film festivals engage audiences and attract global visitors. Canada, the United States, and the United Kingdom have organized leading international film festivals and generated substantial revenues. The Toronto International Film Festival (TIFF) has grown into one of the largest festivals, comparable to Venice and Cannes. In 2011, TIFF attracted 1.9 million global visitors and more than 400,000 registered industry delegates, providing significant economic benefits for the country.
The paper demonstrates that the audiovisual sector is a major sector promoting economic development. Various policy options exist for promoting cultural product development: some countries impose barriers on cultural product importation, while others encourage film production through subsidies. This paper argues that governments should offer subsidies for the distribution and production of cultural products. Moreover, the paper opposes imposing barriers on foreign film importation, as such policies can lead to trade wars and diminish domestic film industry growth.
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