countries impose barriers to stop or hinder the import of cultural products (film, movies, etc.) or offer subsidies to promote their production and distribution

“This memo is in response to your request for input regarding the debate of whether countries should impose barriers to hinder the import of cultural trade or provide subsidies to promote their distribution and production.”

In the olden days, the cultural products such as television, movies and broadcasting systems were only developed within the national territories and were shaped using the national regulations. Even during the twenty-first century, the promotion of cultural values through television, films and movies remain the national phenomenon. (Morris and Waisbord 2001). However, rapid development of information technology has revolutionized the promotion of the cultural values to international level. The advent of satellite and cable channels as well as the growth of modern technology such as internet and digital compression has transformed the promotion of cultural products into the international level. In an attempt to spread their channels across the borders and to the transnational audience, many television stations such as MTV, CNN, Eurosport and BBC have launched the international channels using different languages to spread the news services. Moreover, many films and movies company have translated their films into different languages in order to reach international audience. One of the benefits of selling cultural product to other countries is that it assists countries to earn foreign exchanges. Moreover, the cultural product enhances the development of the audiovisual sector and provides employment opportunities within the country. The growth of television has also led to a strong development of the regional television market in Latin America, and Arab countries. Despite the benefits that countries derive from the growth of cultural products, some countries still emphasis on policy and regulations to control the importation of cultural products. The major reason is the contents of the foreign televisions reflect the culture of the foreign countries. Thus, allowing the foreign TV, movies or films in the country can erode the cultural value of a country. Thus, countries such as China and Korea implement a strict policy and regulation to control the importation of foreign cultural product. Between 1916 and 1920s, the German government initiated a policy and banned the importation of foreign movies. The France also set a quota on the importation of foreign movies to protect the domestic film market in the same period. The UK and Portugal implemented a screen quota policy in the mid-1920s, which required theaters to screen films.

However, some countries did not use aggressive policy such as trade barrier on cultural products; rather they had offered tax concessions and subsidies to promote local film production. However, the United States was aggressive against the quota on foreign films by emphasizing that the policy was against the globalization, GATT and OECD deregulation agreement. Many countries removed the quotas because these countries were having trade problems with the United States. The Brazil attempted to implement the similar quota policies in 1940s; however, the country abandoned the policies because of the aggressive pressure from the U.S. government. Lately, many countries are using different strategies to support the domestic film production using passive regulatory policies such as tax concessions and subsidies. However, a country such as China is still restricting the importation of foreign cultural product in the Chinese market. Nevertheless, there is still no empirical evidence that support the effectiveness of the policy of protectionism for the audiovisual sector.

This paper argues that countries should allow the importation of foreign films in the country as well as providing subsidies to promote the distributing and production of film and movies production in the country.

POLICY OPTION

“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.” (Doyle 3).

The nature of audiovisual sector and the type of contents delivered to consumer have made authorities of various countries to have a significant interest in policing and regulating the audiovisual sector. Many countries have used strict regulatory policies against the cultural products; however, some countries have provided subsidies for the distribution and production of cultural products.

Subsidies for the domestic film production are part of the important policy choice to enhance rapid development of cultural product in a country. Several countries have stopped the policy of barriers or quotas on foreign films, movies and television because this policy does not enhance growth of domestic audiovisual sector. Rather, countries have allowed the importation of foreign cultural products to allow efficient competition in the domestic industry. Moreover, some countries have also offered subsidies to local film companies to enhance the distribution and promotion of domestic audiovisual industry. The United States is one of the notable countries that provides subsidies for the production and distribution of cultural products. Apart from the subsidies from the federal government, each state in the United States provides tax incentives for the in-state film production. Since 1990, different states in the United States have provided different incentives such as tax credits, tax exemptions, cash grants, and other incentives to enhance film production in the United States. The subsidies have enhanced a rapid development of film production and assisted in creating job, increase tourism and generate tax revenue for the country. For example, the Louisiana was able to create more than 5,437 jobs shortly after introducing the tax incentives to enhance production and distribution of films and movies in the state. The New York has recorded the influx of $7 billion in the state economy after the state has offered subsidies in 2004. The subsidies that the United States offers for the development of the audiovisual sector has made the U.S. film market to dominate the global film market. Other countries such Hungary and Canada have also offered subsidies for the distribution and promotion of films in the country. In 2004, the Hungary introduced the Financial Incentives and Film Financing Tax to enhance the production and distribution of domestic film.

Despite the financial incentives that many countries offer for the distribution and production of cultural products, policy makers of some countries still belief that the import of foreign cultural products especially the music, video, film, radio and television have negative impacts on the cultural and economic outcomes of their countries. Looking from the economic angle, the importation of foreign cultural products competes with locally made films, movies and television thereby may harm the local cultural industry. From the cultural angle, the importation of foreign culture can influence a country’s culture thereby serving a threat to the existing culture. At present, the United States films and movies enjoy more than 70% of the global market shares. Many countries consider dominance of the U.S. films in the global film market as a threat to their cultural sovereignty and domestic film industry. For example, the U.S. account for the 90% of the film in distributed in Canada. Moreover, the 70% of the film distributed in France are from the U.S. In essence, many countries have implemented various policies to protect their domestic audiovisual section against foreign films. Due to the domination of the U.S. film production, many countries have implemented various policies that include screen quota, import quota, and tax concessions to protect the domestic films industry in order to preserve the local films market shares against foreign film domination. Countries around the world implement different policies to discourage the importation of foreign films and promote the domestic film industry. For example, Shalia (2013) argue that China introduced a policy in 2012 that prohibits showing the imported programs in the Chinese television. McCutchan, (2013) also reveals that the Chinese government implements a strict regulation to decrease the market shares of the U.S. film using the censorship, import quota as well as “competitive release-scheduling policies” (2) in order to restrict the access of the U.S. films into the Chinese market. (McCutchan, 2013).

Implementing policies of protecting local audiovisual market has a significant symbolic reason because the market share of a country domestic film is related to a country’s cultural sovereignty. Despite the argument of the countries in favor of protectionism policy and create a barrier against the importation of foreign films, this policy can have negative effects on their economy because the development of the film industry contributes to the economic development of a country. Moreover, the policy of creating barrier against foreign films may not bring any benefit to the local film industry. Typically, the policies of protectionism can strain a trade relationships with other countries especially the United States, which is a country controlling the world economy.

Despite the argument against the importation of the cultural products, the importation of cultural product faces two different economic policies: free trade and protectionism. Countries that are against the free trade and support protectionism believe that they are required to protect their cultural industries against foreign cultural domination. In essence, these countries do not want foreign culture to penetrate their own culture because of the belief that foreign culture can erode the values and identities of their culture. For example, the Hollywood films face strict Chinese regulations. The Chinese has recently introduced a policy to control the distribution and importation of foreign audiovisual cultural works. Using this regulation, the Chinese has prevented the penetration of the foreign audiovisual work in the Chinese market. However, the Chinese restriction of foreign audiovisual products is affecting the WTO trading rights and the WTO has obliged the Chinese to relax the barriers and allow foreign films into its market. However, the Chinese has not yet complied with the WTO order leading to ongoing protest from the United States.

On the other, the supporters of free trade view protectionism as unfair and counter the agreement of the WHO (World Trade Organization). The supporters of the free trade further believe that protectionism is an infringement on their freedom of trade because it harms freedom of consumers. For example, by disallowing foreign cultural products from entering a country, the consumer will be forced to choose fewer products leading to a decline in the economic growth. Similar to country’s opinion about the policy of protectionism and cultural free trade, different international organizations also provide different views whether a country should create a barrier against the importation of cultural products.

The World Trade Organization is an international institution established to promote free trade among the member countries. The WHO is created to enhance flow of free trade among member countries. The WHO believes that free trade promotes competitiveness within an industry making firms operating in the industry to deliver high quality products for consumer. The WHO free trade tenet is also based on non-discrimination, and transparency. In essence, several evidences have demonstrated the positive impact of free trade and allowing importation of foreign culture into a country is beneficial to a country economic development. Thus, WTO has supported the cultural free trade through the audiovisual product.

Doyle, (2012) provides a comprehensive argument in support of the importation of cultural product in a country. The author reveals several economic benefits that the United States is enjoying today is because the country does not create a barrier for the importation of cultural products, rather the country has allowed the importation of the cultural product in the country. In the United States, audiovisual sector is one of the important components of the U.S. economy. The audiovisual sector assists in transmission of cultural values. The audiovisual is a prime vector that promotes the American cultures to the world. Thus, the U.S. policy of allowing the importation of foreign cultures through the film and television industries into the U.S. market has made the audiovisual sector to become a significant sector of the U.S. economy because it assists in stimulating job opportunities, enhancing wealth creation and the cultural roles within the United States. Moreover, the UK has recorded a remarkable level of success by selling the cultural product to foreign countries. For example, the UK exports the cultural products that worth U.S.$1.6 billion. While some countries implement strict regulation on the importation of cultural products, other countries have recorded the economic benefits from the importation of foreign films, videos and other cultural products in their respective countries. For example, the Canadian and Indian governments have realized that their countries will enjoy immense economic benefits from the importation of cultural products in their respective countries. In July 2014, the India and Canada signed an agreement called Audio Coproduction Treaty. The goal of the treaty was to allow film or movie producers to combine their financial, creative and technical resources to carry out the audiovisual production in order to enhance knowledge sharing and stimulate economic growth between the two countries. In essence, the Canada has realized that the treaty represents a significant opportunities for Canadian prosperity and competitiveness. The treaty will also attract foreign investment into the audiovisual sector, provide a stronger support for organization or those working in audiovisual sector, stimulate job and enhance a long-term economic prosperity for both countries. (Canada Heritage 2014).

Within the past 10 years, the Canada has produced approximately 700 audiovisual treaty co-productions; which contribute to the total production budget of more than $5 billion per year. Between 2012 and 2013, the audiovisual sector in Canada generated more than 127,000 jobs and provided more than $5.8 billion into the Canadian economy. The audiovisual treaty is a feature of television or film production employed to pool financial, technical and creative resources of foreign and Canadian producers. In essence, Canada is one of the countries that have identified the benefits of allowing importation of cultural product in its country because the policy strengthens international cultural ties and promote peace and economic relations between countries.

A report by the Organization of American States (2014) shows that culture is an essential tool for the economic growth. Typically, culture is indispensable for social cohesion, promoting international peace and harmony. Allowing the importation of cultural products into a country enhances a country cultural development and stimulates economic growth. The author argue that cultural sector has contributed to the 2% economic growth in Chile, 7.75% GDP growth in Brazil and 2% economic growth in Paraguay, Colombia, and Ecuador. In essence, the cultural sector and economy is highly correlated. The income elasticity of the cultural sector in Chile and Brazil is greater than one. If the economy grows by 1%, the cultural sector will grow by more than 1% since the cultural sector contributes to the economic growth in many Latin American countries. The major factor leading to the growth of the cultural sector in these countries is the exchange of the cultural products between these countries and the United States. Typically, importation of the U.S. cultural products into Brazil and Chile has stimulated the growth audiovisual sectors in these countries.

Filho, Botelho, Rezende, et al. (2014) argues that the Brazilian audiovisual industry has recorded a significant growth in the last few decades because the Brazilian government allows the importation of films and video in the country. Typically, the Brazilian audiovisual has experienced significant changes in the recent years due to the advance in technology that has assisted the international movie players to penetrate the Brazilian film market leading to a high level of competition and efficiency. Typically, the international players are responsible for the integration of the latest technologies in the audiovisual sector in Brazil. The government favorable policy of allowing foreign audiovisual companies to penetrate the Brazilian economy has led to the development of the co- distribution of audiovisual products by the national and international companies. The data from the Brazilian Statistical Yearbook of Film in 2013 reveals that Brazil records approximately U.S.$196.51 million revenue from film production. However, the international film distributors have contributed to the large share of the development of the audiovisual sector in the country through the international co-production. The international co-production is the combined work of two or more countries to produce films and movies. The benefits of co-production is that it assists in boosting the financial resources, make the companies to have access to government subsidies and incentives from each of their respective country. The co-production has also assisted in combining expertise in the production of films and movies. In essence, the Brazilian film production has derived a great benefit from foreign film producers and international film co-production.

Despite the benefits that the United States and other countries are deriving from allowing the importation of foreign cultural in the country, however, the cultural dimensions of television, movie and film production are always subject to policy intervention and regulatory policies. Some policy makers base their arguments on cultural discount theory that reveals that as the cultural products move away from a national boundary; their content diminishes in styles, beliefs, and values. For example, the viewers of imported films face challenges in understanding the film contents because of the language differences. Some English speaking countries face challenges in understanding the contents of American films despite that the official languages of these countries is English.

Based on the arguments in favor or against the cultural free trade, this policy paper does not agree that countries should impose barriers on the importation of cultural products; rather, the paper argues that countries should provide subsidies to promote the distribution and production of cultural products such as movies, films and other cultural products. However, this policy paper argues that countries should offer subsidies to assist the production and distribution of domestic film companies. Moreover, the paper disagrees that countries should put a barrier on the importation of foreign cultural products.

Recommendations

The social and economic development of a country depends on the development of creative ideas. In essence, the creative ideas originate from effort of films, movies and sound recording. Offering subsidies for the distribution and production of the cultural product is one of the best techniques that a country can employ to enhance production activities of cultural product. Although, this paper does not support that a country should create a barrier to the importation of the foreign cultural product, nevertheless, the paper suggests a country should implement the two policies options of offering subsidies for the promotion and distribution of cultural product at the same removing the barrier to the importation of cultural product. Apart from the United States, Hungary is one of the countries that have used the subsidies to enhance production of the country film industry. The country has passed the Film Act in 20004 involving direct and indirect tax relief to the film industry. The law has provided extremely favorable conditions for film producers in Hungary and made the film product more attractive in foreign countries. One of the benefits of the subsidies is that it will make the producer to be able to reduce the production costs thereby reducing the price of the film that will be offering to the consumer. Using this strategy, the film industry will be able to record an increase in the demand for the film product making the film industry to achieve competitive market advantages. The policy will also increase the country revenue and foreign exchange earnings since the subsidies will make the film product to command market advantages in foreign countries. In essence, the paper does not recommend that a country should impose a barrier for the importation of cultural product. Implementing this policy will lead to retaliation from other countries, which will consequently make the cultural product face a tough time in enhancing market advantages in foreign market. Despite that the U.S. films dominate 80% of the global market, several states in the United States have started introducing subsidies for the film industries to reduce the production costs and make the film producer to produce high quality films that will enhance global market advantages.

Allowing the importation of cultural product is one of the strategies of enhancing creativity in the country because the foreign cultural product brings new ideas into the country thereby enhancing rapid development of audiovisual sector. The paper illustrates the examples of audiovisual sector sectors in Canada, India and Brazil and how the countries have been able to derive more economic benefits by allowing the importation of foreign films and movies in their respective countries.

The U.S. films and movies dominate the Canadian film industry. However, Canada derives immense economic benefits using the international co-production strategy where the Canadian and American producer jointly produce films to enjoy market advantages in both countries. McFadyen, Hoskins & Fin (2000) define the international coproduction as the strategy of international joint venture where film producers of two or more countries team up together to reap global market advantages. In other words, some countries enter into international coproduction to team resources together in order to compete successfully with the U.S. dominant forces. Rather than banning the importation of foreign films in countries, the Canada enters into the international coproduction agreements with several countries in order to enjoy the economic benefits from the audiovisual sector

Typically, allowing the importation of foreign films in a country will create competitions within the country making the domestic film producer to improve on their film production thereby assisting the local producers to enjoy competitive market advantages. Nordicity (2013) points out that the television and film have been the integral part of the Canadian socio-economic development. Typically, the film and television have contributed immensely to both the cultural and economic development of Canada. The development of the audiovisual sector in Canada is attributed to the international coproduction between Canada and other countries and audiovisual agreements that the Canadian government has entered with other countries. Through cooperation with other film producing companies from other countries, Canada has been able to enhance effective value chain of film production. Once a film enters a distribution channel, it will be released into the theater and subsequently enter into the online distribution thereby add to the economic value. The value process stimulates employment opportunity in Canada. In 2011, the audiovisual sector generates more than 262,700 full time jobs and $12.8 billion labor income. The sector also generates $20.4 billion worth of GDP for the Canadian economy. Moreover, the government also realized the $2.7 billion worth of federal tax revenue and $2.7 billion as provincial revenue. In 2011, the Canada is able to generate the $5.5 billion worth of tax revenue from the sector.

The paper also recommends that countries should offer subsidies for the distribution and production of film and movies. The United States is able to derive immense economic benefits by assisting the films companies with financial incentives. Through the subsidies that that the United States offer to the film companies, the United States has enjoyed the immense economic benefits from the development of audiovisual sector. For example, the industry has provided support for million jobs and delivers billion of dollars as income for America households. In 2007, the motion pictures have created 2.5 million of American jobs, generates $41.1 billion income for workers and payments of $38.2 billion for the U.S. suppliers and vendors. The sector has also provided $14 billion as sales taxes and $13.6 billion trade surplus. Between 2001 and 2008, the growth rate of the sector increases by 15%. More importantly, the audiovisual sector provides $80,531 annual remuneration for workers compared to $45,589 remuneration in the other industry.

More importantly, the paper recommends that countries should engage in the international co-production with other countries to reap the expertise of foreign film companies. The Brazil, India and Canada have been able to enhance a rapid development of their audiovisual sector through international co-productions. Rather than putting a barrier on the importation of foreign films, these countries encourage international coproduction to enhance the development of their film industries.

The importation of foreign cultural products in country also assists in the development of international films festival, which can assist countries to generate foreign exchange. The international film festival is an avenue that engages audience and attracts visitors globally. Countries have generated revenues from organizing the international film festival. Canada, the United States and the UK are among the leading countries that have organized the international film festival. For example, the TIFF (Toronto International Film Festival) has grown to become one of the largest film festivals similar to Venice and Cannes. In 2011, the festival attracted 1.9 million visitors globally. The TIFF attracted more than 400,000 registered industry delegates. Typically, the international film festival provides economic benefits for the country.

Conclusion

The paper demonstrates that the audiovisual sector is one of the major sectors that promote economic development. The paper discusses various policy options that countries have employed in promoting the development of the cultural products. While some countries impose a barrier on the importation of cultural products, some countries encourage the development of films production by offering the subsidies. This paper argues that the government should offer subsidies for the distribution and production of cultural products. Moreover, the paper does not support that countries should impose a barrier on the importation of foreign films because this policy can lead to a trade war and may diminish the growth of domestic film industry.

Reference

Doyle, G.(2012). Audio-visual Services: International Trade and Cultural Policy. ADBI Working Paper Series. Available http://www.adbi.org/files/2012.04.17.wp355.audiovisual.srvc.international.trade.cultural.policy.pdf

Canada Heritage (2014). Audiovisual Treaty Coproduction. Government of Canada. http://www.pch.gc.ca/eng/1358521061176/1358521234022

Filho, E.M.G. Botelho, F.B. Rezende, B. et al. (2014). An Analysis of the Brazilian Audio Visual Sector. Tendencias Consultoria Integreda.

http://www.mpaa.org/wp-content/uploads/2014/10/Minuta_Tendencias_MPAA_Economic_Analysis_2014_08_21_en.pdf

McCutchan, S. (2013). Government Allocation of Import Quota Slots to U.S. Films in China’s Cinematic Movie Market. Duke University Durham, North Carolina.

https://econ.duke.edu/uploads/media_items/sabrina-mccutchan-symposium.original.pdf

McFadyen, S. Hoskins, C & Fin.C. (2000). Cultural Industries from an Economic/Business Research Perspective. Canadian Journal of Communication:25(1).

http://www.cjc-online.ca/index.php/journal/article/view/1146/1065

Nordicity (2013). The Economic Contribution of the Film and Television Sector in Canada. Profile 2012: An Economic Report on the Screen-based Production Industry in Canada. http://www.nordicity.com/media/2013724dgfjbufnd.pdf

Organization of American States (2014) Culture as an Engine for Economic Growth, Employment and Development. Inter-American Council for Integral Development (CIDI).

Kirsten, K.L. (1995). Protecting Free Trade in Audiovisual Entertainment: A Proposal for Counteracting the European Union’s Trade Barriers to the U.S. Entertainment Industry’s Exports. Law and Policy in International Business, 26 (2). https://www.questia.com/library/journal/1G1-17539623/protecting-free-trade-in-audiovisual-entertainment

Shalia Sakona, Frankly, My Dear America, We Don’t Give a Damn: Comparing Chinese And European Trade Barriers to American Audiovisual Works and the American Response, 54 B.C.L. Rev. 1385 (2013), http://lawdigitalcommons.bc.edu/bclr/vol54/iss3/19