Tracking the Cultural Exception, Part One: How Does One Exempt a Culture?

by Alex McHugh on June 25, 2013

in Features, International, Trade

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On June 14, the European Union’s Council of Foreign Affairs adopted a mandate for negotiation on the Transatlantic Trade and Investment Partnership (TTIP). It includes a “cultural exception” so obviously protectionist that it’s hard to understand how it got through. Many European leaders made a good show of opposing the exception, but French ministers didn’t have to twist too many arms. The French Culture Ministry released a letter documenting support for the cultural exemption from across Europe, and mentions a pro-exception petition by filmmakers that has gathered 5,000 signatures. In light of all this, the reassurance from European Commissioner for Trade Karel de Gucht that this industry could always be brought back onto the table falls flat.

There have been many predictions about the effects of the cultural exception carve-out. Will it ruin the chances of the treaty moving forward? Probably not. Will it lead to other exemptions by the U.S. or some European nations? Probably. But, assuming the exception does stay in, it will impact how both sides fare post-negotiation. To get an idea how, we can look to how this sort of exemption has fared in other trade agreements and what effects this has had.

This certainly isn’t the first time the “culture” sector was taken off the table in a trade deal. From discussions surrounding the General Agreement on Tariffs and Trade (GATT, the predecessor to the World Trade Organization) to regional treaties like the North American Free Trade Agreement (NAFTA), Mercosur, and some of the EU’s founding documents, audiovisual goods are widely protected against foreign competition. One interesting feature of these protection regimes is which nations insisted on carve outs and which ones didn’t. It wasn’t, for instance, Mexico’s large conglomerates that sought to exempt themselves from the NAFTA negotiations; it was Canada’s small niche players.

Interestingly, NAFTA also exempts retaliatory action where “cultural” products are concerned. As a report prepared for Canada’s Parliament noted: “[I]f one of the parties uses it to establish measures that would otherwise have been inconsistent with the Agreement, the other party may retaliate with measures of equivalent commercial effect.”

Yet it’s not just about protecting small markets like Canada’s. During Mercosur negotiations, it was the Brazilian market (Spanish link) that got protection while the tiny Argentine market left its fate to market forces. In Europe it was more complicated. The EU’s conflicting internal policies are driving some of the confusion today and are of concern for how TTIP could look in the end.

The European Union’s media policy seeks to simultaneously protect and promote “cultural diversity” while striving to create a single European market. Basically, EU programs intended to promote cross-border trade and competition coexist with regulations to protect cultural heritage that allow traditionally protectionist nations like France to have strict quotas. This allows EU member states to do lip-service to the free flow of goods while protecting markets back home. If the EU model dominates upcoming talks, we could be looking at an expensive international subsidy program meant to offset internal subsidies. Actors may have some new competition after all—from the anti-protectionist play-acting that comes with policies like these.

Most nations protect their markets through subsidies, broadcast quotas, investment caps, or a combination of these. Right now, French producers have access to subsidies and are also protected by quotas. The following charts show how heavily the French market is protected relative to other European states:

My calculation from data  in a report to the European Commission.

My calculation from data in a report to the European Commission.

So, in terms of what to look out for, France wants to maintain some mix of subsidies and quotas and there may be the addition of an institution similar the EU’s MEDIA film subsidy program in the works. What this structure looks like will determine how widespread—or how limited—the benefits of the eventual treaty will be for media consumers on both sides of the Atlantic.

The next segment in this series will look at how these measures might impact markets and how nations that opted for various forms of protection in existing regional treaties fared compared to those that did not.

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