Evan Soltas
Jun 29, 2013

Of French Movies and Free Trade

(Originally published here.)

Trade talks between the U.S. and the European Union may have the same ending as many a French movie: inconclusive and unsatisfying.

Fiercely protective of its cultural heritage, France subsidizes its film industry and shields it from foreign competition. French-made films had a 40.2 percent share of its domestic market in 2012. Other European countries have around 10 percent shares of their own. France has by far the largest film industry in Europe, producing a third of the continent's movies.

That costs the U.S. film industry. If France's EU market share were to fall to 4 percent -- where the U.K., Italy and Germany are -- Hollywood would stand to gain roughly $500 million in annual box-office receipts.

France's radio and television stations are required by law to play at least 40 percent French material, and no more than 40 percent non-European material. The National Center of Cinematography, a French government agency, covers filming costs to the tune of hundreds of millions of euro a year.

France's "exception culturelle" dates back to a prior trade agreement: the Uruguay Round of multilateral trade talks. The issue had threatened to sink that deal in 1993 -- but negotiators exempted the industry from the so-called General Agreement on Tariffs and Trade. The exception did prevent the formation of a proposed Transatlantic Free Trade Area in the 1990s, the direct ancestor of current US-EU talks. It might be déjà vu.

France sees film as a cornerstone of an endangered "national identity" -- an issue that looms large in French politics. That the industry is dying makes this issue only touchier. French films sold 206 million tickets in France in 1957 but only 74 million tickets in 2010.

France is now threatening to veto the start of negotiations, the New York Times reported yesterday. European Union officials are rushing to accommodate its demands by giving them bigger say, at the expense of their own negotiators.

How could a small industry sink a behemoth trade deal? An exclusion of French films would set a precedent. Other nations would like to protect their own entertainment industries. The demand could set off an escalating "tit-for-tat" game with the U.S. and other European nations -- eventually leaving large segments of their economies immune from freer trade.

France is almost certainly willing to kill the deal to protect its films. Instead of being equally obstinate, American negotiators should trade a continued film exception for further European concessions on issues that excite less passion, such as financial regulation and tradable services. The U.S. has leverage to bargain, but it cannot, of course, prevent the French from being French.