Hurdles to Jump:

Foreign Trade Barriers to US Film Exports

By Li Y. Wang, Entertainment Lawyer

Besides the contractual issues of foreign film distribution, distributors and producers face inadequate market access abroad. Many countries impose trade barriers such as import quotas, high duties, special and discriminatory taxes, foreign remittances restrictions, local ownership requirements, screen and air-time restrictions, and subsidies to local film industries. Motivations for imposing these restrictions vary from the government’s desire for profits from the activity, to a decision to subsidize the local film industry, to cultural protectionism.

For example, import quotas are imposed in China, where only about a dozen films a year can be foreign. This does not guarantee twelve American films. Further, the number of foreign movies may be reduced if they do not pass censorship standards of the China Film Commission. Moreover, a foreign distributor may have to distribute Chinese films outside of China as a quid pro quo for releasing films in China.

High duties in India and Malaysia are imposed on theater tickets. Indian ticket taxes are 100 percent while Malaysian taxes are 32 percent. In Hungary, a special distribution tax of 20 percent for pornographic and violent films could "kill all action, and horror films" in the market according to Variety. The problem is that the Hungarian bill has no fixed standards. For instance, the bill says that "if a problem is solved with violence then the film is categorized as violent." Action films are a major Hollywood export genre and will be hurt by this tax.

Other nations impose discriminatory taxes against foreign films. Turkey maintains a 25 percent discriminatory municipality tax on receipts from foreign films. Australia also imposes a ten-percent discriminatory tax on American distributors who do not market Australian films.

 

Foreign distributors also face local ownership requirements such as Canada’s requirement that non-Canadian distributors must own worldwide distribution rights to a film before it can be distributed in Canada without a Canadian distributor. Although Hollywood producers have been exempt from this law due to a threat of a boycott, other independent American distributors and foreign distributors, such as Dutch owned Polygram, have been constrained by the law. Recently, the European Union (EU) has taken Polygram’s dispute with Canada to the World Trade Organization.

Screen and airtime restriction are also widely used to keep American movies from local markets. Airtime restriction for television in China allows for only 15 percent foreign programming, and Canada and EU nations require a 50 percent minimum of local programing. Screen restrictions in the United Kingdom mandate that a minimum of 20 percent of the screens show British films, where only ten percent of box office receipts come from British films. These protectionist rules may keep local markets on air and on screens but they reduce the demand for American movies abroad.

Finally, subsidies for domestic film industries are funded through taxation of foreign movie revenues. In France, a twelve-percent tax is imposed on cinema admissions as one way to fund its $250 million subsidy of local films. While admission taxes are a common means of subsidizing domestic film production, licensing fees, tax rebates, loans and grants are other ways that nations fund their film subsidies.

Despite all these taxes and restrictions on American films, it is still profitable for most filmakers to exploit their works abroad because by increasing the audience worldwide, they are more likely to maximize their film revenues.

Author acknowledges the contributions of Jan D’Alessandro; Willie Brent, Variety; Don Grove, Variety; John Nadler, Variety.

© COPYRIGHT BLAKE & WANG, P.A. ENTERTAINMENT LAWYER SERVICES. ALL RIGHTS RESERVED. 

 

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