RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/78
8 December 1998
(98-5007)
Council for Trade in Services Original:  English
COMMUNICATION FROM UNITED STATES
Audiovisual Services
The following communication received from the delegation of the United States was
circulated informally on 25 June 1998 to the Members of the Council for Trade in Services to assist in
the discussion on Audiovisual Services in the context of the Information Exchange Programme.
_______________
1. Introduction
The U.S. delegation wishes to thank the WTO Se cretariat for its informative and constructive
paper on audiovisual services.  Our comments are intended to expand upon the useful groundworkestablished by this paper and point to areas where further work in this sector may be constructively
undertaken to advance discussions by Council Members.
2. The audiovisual sector is both a cultural and commercial activity
The United States wishes to join with the Secretariat in underscoring that audiovisual services
reflect the social and cultural characteristics of a nation and its peoples, and in acknowledging thegreat social and political importance of these services -- as a source of entertainment and education, as
a means for helping to integrate a nation domestically, and in presenting to the rest of the world a
nation’s unique identity.
At the same time, the audiovisual sector shares characteristics that are common to other
services sectors.  At today’s meeting, for example, papers have been presented on the distribution and
construction services sectors that point to the impor tant role that services play in strengthening a
nation’s economic infrastructure.  Without such services, a country would be placed at a global
competitive disadvantage in exporting its goods and services.
As part of the explosion in information technology that has taken place in the past decade,
audiovisual services, too, play their role in fostering a nation’s economic development, both through
the spread of information and ideas and by fostering investment in a nation’s advanced
communications infrastructure.
Moreover, the ability to make and distribute audiovisual products, both to domestic and
foreign audiences, is not independent of business and regulatory considerations. Given the costly and
uncertain nature of the audiovisual sector, there is of necessity a commercial aspect to this artistic
activity that will affect both the production and distribution of audiovisual product, which is widely
traded internationally.S/C/W/78
Page 2
3. Trade rules are sufficiently flexible to address both the creative and the commercial aspects of
the audiovisual sector
As references in the Secretariat’s paper to GATT Article IV indicate, motion pictures have
been covered by trade rules for over half a century, ever since the 1947 founding of the GATT. Asappropriate, however, trade rules have  been adapted to the special characteristics of the audiovisual
sector.  For example, while GATT rules in general apply to motion pictures, an exception was
included in GATT Article IV.  Article IV authorized continuation of existing screen time quotas in
recognition of the difficulty that domestic film producers faced in finding adequate screen time to
exhibit their films in the immediate post World War II period.
Today, in the WTO, when governments schedule commitments for motion pictures, or for any
service sector, they have the flexibility to make partial commitments, should they so desire.  This
permits them to continue to maintain restrictions they deem necessary to foster development of their
audiovisual sector, while providing some assurances to trading partners that the barriers will not be
increased.
Moreover, in its current form, the WTO does not prevent governments from continuing to
fund existing systems to finance domestic film production, an issue of importance in many countries
where indigenous film making is dependent on government support.  While the WTO provides for
future negotiations to develop disciplines on trade-distorting subsidies, it is unclear as to what those
provisions will contain.
4. New technologies globalize opportunities and problems for audiovisual service providers
The technology of the audiovisual sector is such that nearly all the cost of making a film goes
into the production of the first print.  Once the or iginal is completed, the cost of making additional
prints is relatively small as compared to the initial cost of production. Thus it is to the interest of the
motion picture or television program producer to seek  the widest possible market -- both domestic and
foreign -- in order to maximize the return on this investment. This is as true for European and
Australian film producers or Canadian and Mexican television producers as it is for American
counterparts.
The technological revolution has opened global exhibition possibilities to film and television
producers from every nation. The spread of multichannel distribution system has in turn created an
explosive demand for a diverse range of products. Important new players have arisen in various
industry segments in markets around the world.  Major international investors from Brazil, Mexico,
France, and South Africa, for example, now compet e internationally to provide cable and satellite
networks and programming services.  Construction of modern, multiplex theaters has also seen therise of important players from Australia, the United Kingdom, and Hong Kong.
As foreign film producers enjoy growing success in world markets, they too can expect to
face many of the same problems that the U.S. motion picture sector continues to confront. Cases in
point are the recent film distribution problems encountered by Polygram in Canada, or dubbers from aWestern Hemispheric country excluded from competing in a major export market.
WTO rules are in place to address these problems, but to make the rules meaningful in a new
technological environment, countries need to under stand how these rules apply to the broad range of
audiovisual activities and other projects involving cultu ral content.  Only in this way will there be a
meaningful multilateral discipline to assure all countri es they will be able to take advantage of the
export market opportunities they require to have a successful audiovisual sector.  The alternative will
be a patchwork of different national regulations that, in themselves, will hinder the audiovisual sector
from taking full advantage of the benefits offered by a global market.S/C/W/78
Page 3
5. Next Steps for Audiovisual Services in the WTO
The Secretariat’s paper points to the fact that only a handful of nations made commitments in
the audiovisual sector, and that most of these commitments were of a limited nature (paras 24-26). We
are now preparing for a new round of services negotiations where technological changes haveexpanded both the possibilities and the problems of this sector.  What preparatory work can the
Secretariat undertake to ensure that audiovisual services will be addressed in a constructive and
productive manner in these forthcoming services negotiations?
(a) Expand on the discussion presented above to explore further how trade rules can be
meaningfully applied to this sector while in corporating “flexibility.” For example, many
nations today depend on subsidies to foster their domestic industry (para 19), and haveindicated concern that trade rules would inhibit the continuation of such subsidies.
The U.S. delegation is of the view that devel opment of trade disciplines to the audiovisual
sector need not necessarily restrict government subsidies for domestic film production and
distribution, as long as subsidies are not derived from discriminatory practices. This is a
significant issue on which we believe furthe r discussion within the WTO is needed.
Establishment of a working group to explore this issue could help to ensure that services trade
rules address a concern of critical importance to many national production communities.
(b) The Secretariat’s paper discusses some of the CPC classification problems for the audiovisual
sector (paras 3-6), especially the boundary between content and transmission. TheUnited States has in the past noted that the CPC does not reflect fully or adequately business
practices in a number of services sectors.  Illustrative of some of the current definitional
problems of the CPC for the audiovisual sector are the following:
- Motion picture and video tape distribution services (CPC 9611) involves “the
sale or rental of movie or tapes to other industries for public entertainment,
television broadcasting, or sale or rental to others.” The description of this
activity is troublesome because, as a practical commercial matter, motion
picture and video tape distributors do not sell or rent their movies to which
they hold the rights: they license those rights to other industries. The
inaccuracy in the CPC is telling because it gets to the heart of how motion
picture distributors operate in the real world.
- Further, a careful reading of the CPC raises questions as to whether the
existing CPC adequately addresses the ownership and operation of theatrical
film facilities.  The development of multiplex chains worldwide, which offer
film producers greater exhibition possibilities, and movie goers greater choice
of films, should be more clearly included in the range of audiovisualactivities. A working group that would examine these, and other definitional
issues, would also further understanding and applicability of trade disciplines
to the audiovisual sector.
- “Videotape projection services,” a sub-sector currently described in the CPC,
is an illegal activity in most, if not all, countries, since video tapes generallyare not licensed for public performance.
- Owning and operating cable systems and broadcast satellite TV delivery
systems, as well as the specialized service of packaging and selling channels
of programming for distribution by multichannel distribution systems, are alsoS/C/W/78
Page 4
not clearly described by the existing classification system. Also, it is unclear
where to draw the dividing line between broadcast services and
telecommunication satellite television and radio systems, such as DTH and
DBS (cf. para 5).
- Finally, the category “Other” should be described at some general level, since
few countries are willing to take commitments into a void.
(c) In discussing the economic importance of the audiovisual sector, the Secretariat’s paper
focuses on the current importance of the sector (paras. 7-16 ), but gives little consideration as
to how the economic situation might change as  a result of the convergence of information,
communications, and computer  technologies. A useful discussion might focus on how
structural problems for the audiovisual sector cited by some nations (para 18) might be
resolved as a result of opportunities created by the new technologies and in turn disciplinedby WTO trade rules.
6. Corrigendum For the record we should like to note what appears to be the following
inaccuracies in S/C/W/40:
Paragraph 5:
The United States does not agree with the Secretariat’s statement in para 5 that “As a general
rule of thumb, it has become accepted that co mmitments involving programming content are
classified under audiovisual services, while those purely involving the transmission of information are
classified under telecommunications.” The distinction between these two sectors that exist in theanalogue world are not as easy to identify in the digital world, where the transmission of digitalized
information can become the same thing as the digitalized content itself.  Indeed, the Secretariat’s
paper refers to the increasing difficulty in differentiating between communications and digitalized
content in other sections of the paper (cf. paras 15 and 23).
Paragraph 18:
The final sentence refers to “public funding to support domestic content production in the
United States” The United States has since eliminated federal funds for film and video art
productions.  Previously the National Endowment for the Art (NEA) provided small production
subsidies for nonprofit film and video production (US$ 900,000 for the two-year fiscal period
1995/1996).
Paragraph 20:
- The paragraph states that India restricts the number of titles imported annually.  Although
India in the past had such a policy in place, the quantitative limit on foreign film imports waseliminated in mid-1992.
- The last sentence of para 20 states that “in a large number of other countries, market access
for foreign films is formally restricted to a limited number of titles per year.”  We are aware
of only two countries that currently impose import quotas on foreign films.
Paragraph 30:
The last sentence of the paragraph states that no agreement was reached on suggestions that
the cinema and broadcasting sectors should be excluded from the Agreement or exempted fromcertain disciplines in recognition of the cultural specificity of these industries. Left unstated, however,S/C/W/78
Page 5
is the fact that, in the absence of such an agreement, GATT disciplines apply to the audiovisual sector,
as they do to all services sectors (with the exception of air transport rights).
Footnote 28:
The footnote incorrectly includes the United States among those nations taking audiovisual
MFN exemptions. The United States took no MFN exemptions for the audiovisual sector.
__________