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Tracking the Cultural Exception, Part Two: Exempt from Success

Arguments for cultural exemptions in free trade agreements seem simple -- allow for continued protection for domestic movie/entertainment industries to bolster their viability. But do such policies actually promote local creative industries?

Advocates for cultural protectionism often forget that although restricting the number of foreign films coming in may help some filmmakers at home, it often hurts them abroad. Filmmakers in countries with restrictions on foreign films are less likely to get reciprocal international promotion. They also are severely limited in their production choices, because quotas on foreign investment make co-production with foreign partners much more difficult -- so difficult in France that tax rebates were introduced to encourage foreign filming and co-production, which had been widely discouraged by strict quotas. The 2013 edition of the Incentives Guide states:

[The] Tax Rebate for International Production reimburses 20 percent of the eligible costs of foreign movies and TV productions shot in France, providing that they comply with a set of requirements. This refundable incentive that can reach up to e4M is also open to animation and VFX projects made partly or completely by a French studio.

Nice work if you can get it. Yet, even from the perspective of a national film industry’s bottom line, protectionism is a bad idea. Rather than fostering a domestic industry, protectionist measures such as France’s quotas and subsidies can impose a net harm on the industries they attempt to promote.

Those who have won exemptions in past trade agreements haven't fared nearly as well as those who scorned such protection.

Take the examples of Argentina, which has a successful film industry despite spending relatively little on film subsidies, and Brazil, which spends a lot without the results to match. As I noted in the first post in this series, Argentina did not exempt its audiovisual industries from Mercosur negotiations, while other Mercosur parties, including Brazil, did.

None of the Mercosur countries has a truly open audiovisual market, but Argentina’s film subsidies have been lower than the others’. It spent only around $4.3 million in 2009; Brazil spent more than 10 times that amount -- $48.1 million in direct funding alone (that is, not counting tax incentives). Furthermore, Brazil has much stricter investment quotas, as well as theatrical screen quotas for foreign films.

All of this spending and protectionism has yielded little for the Brazilian film industry. Revenues for Argentina’s film industry have increased by 40 percent on average during the past five years, compared to an average annual increase of only 19 percent for Brazil during the same period. The Brazilian audiovisual market remains larger, but it is growing more slowly and doesn’t exhibit the same dynamism seen in Argentina, where co-produced projects flourish and the industry has grown both in terms of value and international critical acclaim.

It’s no accident that an Argentine film, The Secret in Their Eyes, is the only Latin American production to have won an Academy Award in the United States. Co-produced with Tornasol films, a Spanish company, and with other foreign firms providing integral services, it also won awards in Mexico, Spain and, yes, Brazil. Without the ability to leverage the specializations of foreign production companies and access a broader funding pool, this film may not have been the huge success it has been. This exemplifies the potential benefits of trade and international exposure often overlooked in discussions of protectionism for certain industries.