[PDF] Directed by Hollywood, Edited by China: How China’s



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Directed by Hollywood, Edited by China: How China’s

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October 28, 2015

Disclaimer: This paper is the product of professional research performed by staff of the U.S.-China Economic and Security Review

Commission, and was prepared at the request of the Commission to support its deliberations. Posting of the report to the Comm

website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.-

China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 108-7. However, the

public release of this document does not necessarily imply an endorsement by the Commission, any individual Commissioner, or the

$IIHFW)LOPV:RUOGZLGH and

Nicholas Armstrong, Esq., Research Fellow

U.S.-China Economic and Security Review Commission

Table of Contents

Abstract ......................................................................................................................................................................3

Background ................................................................................................................................................................4

Gaining Market Access ..............................................................................................................................................8

Coproduction ..........................................................................................................................................................8

The State Administration of Press, Publication, Radio, Film and Television ........................................................9

Circumventing Market Barriers ................................................................................................................................10

Appealing to Chinese Audiences ..........................................................................................................................10

Appeasing Regulators ...........................................................................................................................................11

Implications for the United States ............................................................................................................................13

U.S.-China Economic and Security Review Commission 3

EVWUDFW

Organization (WTO) commitments, as determined in a 2007 WTO decision calling for China to open its film market

to foreign films. After years of noncompliance and inaction, China partially opened its film market in 2012

following a deal with the United States. The deal allowed for the import of 34 films each yearup from the previous

limit of 20 filmsin exchange for a temporary suspension importation policies. 2015 visit to the United States, the Motion

Picture Association of America and China Film Group reached two new film agreements, which could increase

market access for foreign films in China. Based on recent history, however, promises that China will further open

its film market should be viewed skeptically.

remain consistent over the next few years, many experts expect China to surpass the United States as the largest

get films into China is arduous due to strict and opaque

social control. As a result of these regulations, Hollywood filmmakers are required to cut out any scenes, dialogue,

and themes that may be perceived as a slight to the Chinese government. With an eye toward distribution in China,

American filmmakers increasingly edit films ities. U.S.-China Economic and Security Review Commission 4

In April 2007, the United States brought a World Trade Organization (WTO) case against China for its restrictions

on imports of films and other audiovisual and entertainment products.1 Two years later, a WTO panel found China

constraints on film imports were in violation of its trading rights obligations.2 At the time, the Chinese government

imported only 20 revenue-sharing foreign films into its theaters each year and enforced restrictions on sales of

DVDs and other cultural p

enterprises, both foreign and domestic, importing entertainment products into China on an unlimited basis.3

China was required to com he Chinese

government, however, failed to modify its practices to meet WTO standards by the deadline, instead maintaining

limited foreign access to its film market.4 It was not until February 2012 that China and the United States agreed to

a deal in the form of a Memorandum of Understanding to significantly increase market access for foreign films and

provide a greater share of revenue for American film companies.5 While the deal did not bring China into

compliance with the WTO ruling, it did provide a temporary settlement to the dispute:* in exchange for some

Chinese concessions, the United States agreed to forbear taking further action in the WTO.6 The deal dictates that

China allow 34 revenue-sharing foreign film imports each year, with foreign studios receiving 25 percent of box

office receipts, up from 13 percent before the agreement.7 In accordance with the deal, a minimum of 14 of the 34

-film limit on standard

formats while increasing the number of total film imports allowed each year.8 The deal mandates further

consultation in 2017 to provide for additional compensation and importation of foreign films in China. If the

consultations fail to produce an agreement by January 1, 2018, the United States would pursue procedural action

against China in the WTO.9

Although China remains largely closed to foreign films, the 2012 deal was hailed by both the Obama Administration

and Hollywood executives as a breakthrough for expanding American film access to

entertainment markets.10 Speaking in front of a group of network executives, studio heads, and technology lobbyists,

11 Still,

the 2012 deal was merely an incremental step for tapping into the Chinese market and increasing film revenues.12

Piracy issues continue to inhibit sales of U.S. films in China and limit other sources of income derived from films,

for its film market. According to a 2014 ILQDOL]HGquotesdbs_dbs16.pdfusesText_22