(iPoster) Cultural Exclusion Clause and Domestic Audiovisual Protection

• In Event: Poster Session: International Political Economy II

Abstract

The inclusion of exempt provisions has long been recognized as a critical strategy for increasing the likelihood of successfully finalizing trade agreements. By allowing countries to shield certain sensitive industries from the impact of trade liberalization, thereby improving the chances of negotiating and signing free trade agreements (FTAs). Are exempt provisions in trade agreements effective, especially in service sectors? This paper addresses this question by focusing on cultural exclusion clauses and their impact on the film industry. 
The film industry faces great pressures of liberalization and difficulties in protection due to the transformation of content distribution. Cultural exclusion provisions affect film industries through two primary institutional mechanisms. First, these provisions enable countries to suspend the application of the fundamental multilateral free trade principles—national treatment and most-favored-nation (MFN) status—to imported foreign films. This suspension of core free trade disciplines permits countries to impose differential regulatory requirements, distribution restrictions, and market access conditions on imported films, effectively raising their entry costs and constraining their ability to compete in domestic markets. Second, cultural exclusion provisions justify the implementation of discriminatory domestic policies designed to encourage domestic production by claiming to protect and promote national cultural heritage. Countries may enforce measures such as screen quotas or provide preferential subsidies and tax incentives exclusively for local productions. 
To evaluate how cultural exclusion affects film industries, I hand-collected data on the presence of cultural exclusion clauses across 206 trade agreements among 189 countries that cover the service sector and were notified to the WTO between 1958 and 2020. Among these agreements, 29 involve cultural exclusion clauses, covering 71 countries. For movie data, I use the commercial database OpusData, which includes 33,943 films released or re-released since 1997. The movies included in the dataset are those with at least one recorded revenue entry. 
The results reveal two key findings. First, the presence of a cultural exclusion clause in a country dyad significantly reduces the bilateral flow of movies from one country to the other. This decline in foreign movie imports primarily affects films intended for public consumption, such as those released in theaters, on online platforms, on television, or on DVD. Second, countries that incorporate cultural exclusion clauses in trade agreements with a larger number of partners exhibit an increase in domestic movie production and releases. These findings suggest that, despite the pressures of liberalization and the transformation of content distribution formats, cultural exclusion clauses continue to benefit countries’ audiovisual sectors by reducing foreign movie inflows and fostering domestic movie production.
This paper contributes to the literature on exempt provisions in trade agreements. Previous research on exempt provisions has primarily focused on the strategic selection of products and sectors, as well as the negotiation and composition of these provisions. This study offers a comprehensive analysis of the impact of cultural exclusion clauses on protecting the audiovisual sector. The findings demonstrate that, even in a sector facing significant liberalization pressures and increasing challenges in restricting content transmission, exempt provisions that carve out national treatment and most-favored-nation (MFN) treatment can effectively reduce imports of foreign products while stimulating domestic production. This highlights the enduring utility of exempt provisions in supporting domestic industries in a globalized trade environment.

Author

• Lu Sun, Tecnologico de Monterrey