The Trade Dimension of Cultural The Trade Dimension of Cultural IndustriesIndustries

RAMESH CHAITOORAMESH CHAITOOServices Trade Specialist, CRNMServices Trade Specialist, CRNM

rchaitoo@sunbeach.netrchaitoo@sunbeach.net

IX IX Encuentro Internacional Encuentro Internacional dede Economistas Sobre GlobalizaciEconomistas Sobre Globalizacióón n yyProblemas Problemas del del DesarrolloDesarrollo

Havana, February 5Havana, February 5--9, 20079, 2007

Creative/Cultural IndustriesCreative/Cultural Industries

"Creative industries" include the recording "Creative industries" include the recording industry; music and theatre production; the industry; music and theatre production; the motion picture industry; music/magazine motion picture industry; music/magazine publishing; book, journal and newspaper publishing; book, journal and newspaper publishing; the computer software publishing; the computer software industry; photography; commercial art; and industry; photography; commercial art; and the radio, television and cable the radio, television and cable broadcasting industries. (UNCTAD)broadcasting industries. (UNCTAD)

Global Market for Cultural Goods & Global Market for Cultural Goods & ServicesServices

Price Waterhouse Coopers estimated global Price Waterhouse Coopers estimated global market value of creative industries at market value of creative industries at US$1.3 US$1.3 trilliontrillion in 2005 (from $831 billion in 2000):in 2005 (from $831 billion in 2000):-- North AmericaNorth America -- 43.5% (USA43.5% (USA-- $523$523 bill; bill; Canada Canada -- $23 bill)$23 bill)-- Europe,Europe, Mid East, AfricaMid East, Africa -- $450 bill$450 bill-- AsiaAsia -- $229 bill$229 bill-- Latin AmericaLatin America -- $32 bill$32 billGlobally, creative industries forecast to grow by 10 % Globally, creative industries forecast to grow by 10 % annually over next decade.annually over next decade.

Contribution of cultural productsContribution of cultural products & services& services

Trade inTrade in ““core cultural goodscore cultural goods”” increased from US$38increased from US$38billion to $60 billionbillion to $60 billion over 1994over 1994--2002 (UNESCO)2002 (UNESCO)United KingdomUnited Kingdom -- in 2004 in 2004 -- 8% of gross value added, 8% of gross value added, employed 1.8 million people, accounted for employed 1.8 million people, accounted for ££11.611.6 billion billion in exports or 4% of all goodsin exports or 4% of all goods & services exported by UK.& services exported by UK.USAUSA -- 2003 2003 -- 6% of GDP; employing 4.7 million people; 6% of GDP; employing 4.7 million people; exports of copyexports of copy--right based industries amountedright based industries amounted to $89 to $89 billion according to IIPA reportbillion according to IIPA reportThe US, Japan, UK, Germany, France and China The US, Japan, UK, Germany, France and China account for the majority of global cultural goods and account for the majority of global cultural goods and services trade (imports and exports).services trade (imports and exports).Statistics Canada Statistics Canada -- the value of cultural services trade the value of cultural services trade exports increased by 81%, from $1.45 billion in 1996 to exports increased by 81%, from $1.45 billion in 1996 to over $2.63 billion in 2002.over $2.63 billion in 2002.

Developing countries Developing countries

Despite rich, diverse creativity and talent Despite rich, diverse creativity and talent developing countries are marginal players in developing countries are marginal players in trade in cultural products and services.trade in cultural products and services.In 2004 In 2004 -- UNCTAD estimated that developing UNCTAD estimated that developing countries accounted for onlycountries accounted for only 3 % of global 3 % of global market for paintings and 4%market for paintings and 4% for sculpturesfor sculptures

Cultural Production isCultural Production is DifferentDifferent

Expensive to produce & market worldExpensive to produce & market world--class class cultural products & services (e.g. audio visual)cultural products & services (e.g. audio visual)Success in Canada and EU Success in Canada and EU –– based on based on substantial substantial state support.state support.But some But some DCs DCs have managed with little.have managed with little.Small size is a handicap; but creativity is not Small size is a handicap; but creativity is not limited by size of firm but business skills lacking.limited by size of firm but business skills lacking.Cbbean Cbbean governments need to invest more in governments need to invest more in cultural industries; need innovative incentives.cultural industries; need innovative incentives.

CULTURE INDUSTRIES & INTERNATIONAL TRADE

GOODS > Market Access

> Piracy & Infringement

SERVICES > GATS

> Immigration Policy

E-COMMERCE > Digital rights management

> Information & Communication

Technologies (ICTs)

INTELLECTUAL PROPERTY

> TRIPS > Rights Owners

> Collective Administration

UNESCO

Convention on the Protection and Promotion of the Diversity of Cultural Expressions (2005)

WTO

EPA

US Bilateral

WIPO > WIPO Copyright Treaty (WCT)

> WIPO Performances and Phonograms Treaty (WPPT)

To Trade or not to Trade?To Trade or not to Trade?

Is it in developing countriesIs it in developing countries’’ interest to exclude interest to exclude trade in cultural goods and services from trade in cultural goods and services from multilateral trade rules?multilateral trade rules?UNESCO UNESCO Convention on the Protection and Convention on the Protection and Promotion of the DiversityPromotion of the Diversity of Cultural Expressionsof Cultural Expressions, , (Paris, Oct. 2005) signed by (Paris, Oct. 2005) signed by 148 countries 148 countries -- to to come into effect on March 18, 2007.come into effect on March 18, 2007.Small states need to develop cultural industries Small states need to develop cultural industries but lack investment base.but lack investment base.

ChallengesChallengesDisconnect betweenDisconnect between the Souththe South where an where an incredibleincredible pool of talent and cultural expression pool of talent and cultural expression existsexists AND control over the marketingAND control over the marketing & & distribution infrastructure for cultural products distribution infrastructure for cultural products and servicesand servicesRelatively poor countriesRelatively poor countries have very creative have very creative people (music & entertainment) people (music & entertainment) -- Cuba, Haiti, Cuba, Haiti, JamaicaJamaicaBut concentration in global music industryBut concentration in global music industryConcentration in global film and mediaConcentration in global film and mediaHow to ensure that benefits accrue to societies How to ensure that benefits accrue to societies from which artists emerge?from which artists emerge?

Globalization means less firms in Globalization means less firms in ““Cultural IndustriesCultural Industries””

Time Warner AOL; UniversalTime Warner AOL; Universal VivendiVivendiSony BMG merger approved by European Sony BMG merger approved by European CommissionCommissionBut challenged by IMPALA (independents)But challenged by IMPALA (independents) in in European Court of Justice; ECJ ruled that too European Court of Justice; ECJ ruled that too much concentration in the music distribution much concentration in the music distribution industry would be not in the publicindustry would be not in the public’’s interest.s interest.Internet is helping Internet is helping ““revolutionizerevolutionize”” distribution & distribution & allowing space for small playersallowing space for small players

Common Lessons?Common Lessons?

Technology has little to do with 'capitalization'Technology has little to do with 'capitalization'initial investments in MP3.com & Napster are initial investments in MP3.com & Napster are 'laughable' in view of the level of participation by 'laughable' in view of the level of participation by both content owners (in case of MP3.com) and both content owners (in case of MP3.com) and consumers. consumers. barrier to exploiting technology is not barrier to exploiting technology is not capitalization, but the ability to enable all capitalization, but the ability to enable all stakeholders stakeholders -- content owner/producers on the content owner/producers on the one hand and consumers on the other one hand and consumers on the other -- to to develop new ways to interact and transactdevelop new ways to interact and transact

CD Baby.comDistribution network for independents•74,863 artists•1,260,078 CDs sold by 2004•$10,157,363.23 paid to artists•retain $4 per CD•non-exclusivity

•Also MusicDish Network

October 27, 2004 Eric Fontenay

The Impact of Trade and Technology on Caribbean Creative Industries

CD Baby

• 74,863 artists• 1,260,078 CDs sold• $10,157,363.23 paid

to artists• retain $4 per CD• non-exclusivity

Key elements of ConventionKey elements of Convention

Art. 8 Art. 8 -- Parties may take measures to protect & preserve Parties may take measures to protect & preserve cultural expressions.cultural expressions.Art. 12 Art. 12 -- endeavour endeavour to promote international cooperation to promote international cooperation on culture.on culture.Art. 20 Art. 20 -- ““Developed countries shall facilitate cultural Developed countries shall facilitate cultural exchanges with developing countries by granting, exchanges with developing countries by granting, through the appropriate institutional and legal through the appropriate institutional and legal frameworks, preferential treatment to artists and other frameworks, preferential treatment to artists and other cultural professionals and practitioners, as well as cultural professionals and practitioners, as well as cultcultural goods and services from developing countries.ural goods and services from developing countries.””Art 21 Art 21 -- International Fund for Cultural Diversity.International Fund for Cultural Diversity.

Globalization & CultureGlobalization & Culture

Do WTO rules prevent aDo WTO rules prevent a state from state from implementing cultural policies?implementing cultural policies?Not really. States are free to do as they wish. Not really. States are free to do as they wish. They can liberalize cultural services only if it is in They can liberalize cultural services only if it is in their interest their interest and they canand they can impose conditions for impose conditions for market access.market access.The real problem is not the WTO but lack of The real problem is not the WTO but lack of investment in cultural industries in developing investment in cultural industries in developing countries & inadequate government support;countries & inadequate government support;Related challenge is technological changes Related challenge is technological changes which now make some government control which now make some government control difficult. difficult.

Canadian restrictions in CulturalCanadian restrictions in CulturalIndustriesIndustries

While any foreign investment in a cultural industry is reviewed and may be denied, the ownership restrictions apply with particular force in book publishing and new investments in film distribution. The rules regarding broadcasting licenses permit foreign ownership to a maximum of 46.7 percent.

BUT IS CULTURE SPECIAL?BUT IS CULTURE SPECIAL?

Very valueVery value--ladenladenTied up with nationalism and identityTied up with nationalism and identityBut in a But in a globalized globalized economy to preserve economy to preserve and promote culture you have to sell itand promote culture you have to sell itIf not, dominant economies will present If not, dominant economies will present their culture since they own the means of their culture since they own the means of disseminating cultural expressiondisseminating cultural expressionThey also are the creators of the They also are the creators of the technology for such (ICT)technology for such (ICT)

WTO Exceptions for WTO Exceptions for ““cultureculture””

No special treatment for cultural goods & No special treatment for cultural goods & services but GATT Art. IV has special services but GATT Art. IV has special exception for exception for ““cinematographic films.cinematographic films.””GATT Art XX GATT Art XX -- exception for protection of exception for protection of ““artistic, historic and archaeological artistic, historic and archaeological treasurestreasures”” since 1949.since 1949.

GATS & GATS & ““CulturalCultural”” ServicesServices2. 2. CommunicationCommunication ServicesServices

D. AudioD. Audio--visualvisual servicesservicesa. Motion picture and video tape production and a. Motion picture and video tape production and distribution servicesdistribution servicesb. Motion picture projection service b. Motion picture projection service c. Radio and television services c. Radio and television services d. Radio and television transmission servicesd. Radio and television transmission servicese. Sound recording e. Sound recording f. Otherf. Other

Cultural Services (ContCultural Services (Cont’’d)d)

10. 10. Recreational, Cultural and Sporting Recreational, Cultural and Sporting Services (other than audioServices (other than audio--visual services)visual services)A. EntertainmentA. Entertainment services (including theatre, live services (including theatre, live bands and circus services) bands and circus services) B. News agency servicesB. News agency servicesC. Libraries, archives, museums and other C. Libraries, archives, museums and other cultural servicescultural servicesD. Sporting and other recreational servicesD. Sporting and other recreational servicesE. OtherE. Other

Modes of Supply:Modes of Supply:

1. Cross border trade 1. Cross border trade -- satellite TVsatellite TV2. Consumption Abroad 2. Consumption Abroad –– concerts for tourists in concerts for tourists in CbbeanCbbean3. Commercial Presence 3. Commercial Presence –– set up recording studio inset up recording studio inSantoSanto DomingoDomingo4. Temporary Entry/Movement of Natural persons 4. Temporary Entry/Movement of Natural persons ––travel overseas to perform in concerts and get paid.travel overseas to perform in concerts and get paid.

In todayIn today’’s world (1) depends on technologys world (1) depends on technology(2) is easiest for developing countries ((2) is easiest for developing countries (DCsDCs); But (3) is high ); But (3) is high

cost and firms are too small in cost and firms are too small in DCsDCs; (4) is constrained by ; (4) is constrained by immigration issues but immigration issues but DCs DCs can greatly increase their can greatly increase their cultural services exports through this modecultural services exports through this mode

Allowed Restrictions on Market Allowed Restrictions on Market Access (Art. XVI) under GATSAccess (Art. XVI) under GATS

Allows one-time limitations on:number of service suppliers:– License requirement, subject to an economic needs test, to open

a new radio or TV station

total value of service transactions or assets:– Limit on amount of firms in any cultural sector

total number of service operations or on the total quantity of service output:– Limit on the broadcasting time allocated to foreign movies

Market Access (contMarket Access (cont’’d.)d.)

total number of natural persons:– Requirement that a local musician is used for every

foreign musician in a concert

types of legal entity or joint venture:– Stipulate branch, subsidiary, etc.

participation of foreign capital:– Limits on foreign shareholding, Canada, France, etc.

Allowed Limits on National Treatment Allowed Limits on National Treatment (Art. XVII) under GATS(Art. XVII) under GATS

No less favourable treatment to foreign service suppliers and services provided, unless any discriminatory conditions and qualifications are set out in national Schedule of specific commitments.

Examples of limitations on national treatment

– Preference given to domestic audiovisual services firms in the allocation of radio frequencies for the national territory

– Foreigners required to obtain a special work permit to work in the entertainment sector; may have to meet economic needs test.

Typical Barriers to Trade in Cultural Typical Barriers to Trade in Cultural Goods and ServicesGoods and Services

Tariff barriers (e.g. custom duties on CDs. But Tariff barriers (e.g. custom duties on CDs. But low in OECD low in OECD -- 6 % US; 6% Canada; 9% EU)6 % US; 6% Canada; 9% EU)Other tax barriers Other tax barriers -- VATVATWithholding tax on revenues from live Withholding tax on revenues from live performances performances NonNon--tariff measures (e.g.tariff measures (e.g. practice barriers such practice barriers such as screen quotas)as screen quotas)Investment barriers (e.g. restriction or limitation Investment barriers (e.g. restriction or limitation of foreign capital or equity participation, control of foreign capital or equity participation, control of the nationality of company directors, or of the nationality of company directors, or restriction on the repatriation of capital).restriction on the repatriation of capital).

Other BarriersOther Barriers

Work permit or visa requirements Work permit or visa requirements ––unclear, cumbersome, timeunclear, cumbersome, time--consumingconsumingRequirements such as licensing by Requirements such as licensing by industry associations industry associations –– for Theatre in UK for Theatre in UK you must comply with EQUITY rulesyou must comply with EQUITY rules

WTO Rules & Cultural PolicyWTO Rules & Cultural PolicyCurrent rules allow governments room to protect Current rules allow governments room to protect cultural interests;cultural interests;Most WTO Members (especially OECD states) Most WTO Members (especially OECD states) have subsidies for cultural industries;have subsidies for cultural industries;Domestic content requirements; local screen Domestic content requirements; local screen times; local music quotas on radio;times; local music quotas on radio;But if you open a sector,But if you open a sector, conditions should be conditions should be scheduled in GATS commitments;scheduled in GATS commitments;PoliciesPolicies re preservation of cultural identityre preservation of cultural identity are are NOT incompatible with current trade rules.NOT incompatible with current trade rules.

Cultural Industries in CARICOMCultural Industries in CARICOM

Jamaican music industry employs about 15,000 people Jamaican music industry employs about 15,000 people and accounts for 15and accounts for 15--20 % of the US$300 million in 20 % of the US$300 million in reggae music sales (Nurse, 2002). reggae music sales (Nurse, 2002). The music industry in Barbados is estimated to earn The music industry in Barbados is estimated to earn about US$15 million and in the Eastern Caribbean music about US$15 million and in the Eastern Caribbean music accounts for about US$20 millionaccounts for about US$20 million

The CI sector makes a valuable contribution to the The CI sector makes a valuable contribution to the Caribbean economy but goes largely undocumented.Caribbean economy but goes largely undocumented.Consequently, the sector has suffered from neglect in Consequently, the sector has suffered from neglect in government economic policy formulation throughout the government economic policy formulation throughout the region.region.

Policy responses by Policy responses by DCsDCs

Cultural policy frameworkCultural policy frameworkRecognize & appreciate cultural industriesRecognize & appreciate cultural industriesSupport industriesSupport industriesEnsure they get efficient platformsEnsure they get efficient platformsInput costs to the sectorInput costs to the sectorEnsure they get proper market access in Ensure they get proper market access in rich countriesrich countriesTrade not only protectTrade not only protect

CARICOM Objectives re Cultural CARICOM Objectives re Cultural Goods & ServicesGoods & Services

Create and facilitate opportunities for Create and facilitate opportunities for Caribbean business in creative industries Caribbean business in creative industries (performing and lyrical arts, music & (performing and lyrical arts, music & entertainment sectors, publishing, Aentertainment sectors, publishing, A--V, V, etc.) to contribute to investment, etc.) to contribute to investment, employment generation and wealth employment generation and wealth creation;creation;Market access in OECD & other countries Market access in OECD & other countries is very importantis very important

Media & Communication & CultureMedia & Communication & Culture

Support for local artistsSupport for local artistsImprove access of cultural industries to Improve access of cultural industries to existing media.existing media.Align trade policy with telecoms and Align trade policy with telecoms and broadcast media policy.broadcast media policy.Source funding for audioSource funding for audio--visual visual production.production.Encourage coEncourage co--production and production and collaborations in media productions.collaborations in media productions.

Media & Cultural OutputMedia & Cultural OutputAccess to media is vital to business Access to media is vital to business development in the sector. development in the sector. ““Consumers buy Consumers buy what they see, hear and read in the mediawhat they see, hear and read in the media””..Regional content in the print, radio and Regional content in the print, radio and audiovisual media is low relative to the quantum audiovisual media is low relative to the quantum of cultural content produced across Caribbean. of cultural content produced across Caribbean.

The goal should be to make local & regional The goal should be to make local & regional content more accessible to media houses to content more accessible to media houses to expand contribution of cultural industries to expand contribution of cultural industries to Caribbean identity formation.Caribbean identity formation.Protection of Intellectual property issuesProtection of Intellectual property issues

Negotiating ObjectivesNegotiating ObjectivesReduce any current barriers to export of Reduce any current barriers to export of Caricom Caricom cultural goods and services;cultural goods and services;Restrictions on temporary entry Restrictions on temporary entry -- work permit work permit requirements & proceduresrequirements & proceduresRestrictions on investment Restrictions on investment –– e.g., set up radio e.g., set up radio station in Toronto to play Caribbean music; set station in Toronto to play Caribbean music; set up radio station or magazine/newspaper up radio station or magazine/newspaper targeted to Caribbean audience.targeted to Caribbean audience.Reduction of tariffs on cultural products Reduction of tariffs on cultural products –– CDs, CDs, craftscraftsReduction of constraints to export of live Reduction of constraints to export of live performances (domestic requirements)performances (domestic requirements)

Linkages are keyLinkages are keyFor creative industries to grow we need efficient For creative industries to grow we need efficient ““otherother”” servicesservicesTrade negotiations may help you in some Trade negotiations may help you in some respects respects -- liberalization leads to cheaper liberalization leads to cheaper telecoms and broadband (Internet is new telecoms and broadband (Internet is new platform for distributing cultural products platform for distributing cultural products nad nad services)services)ICT isICT is critical critical -- but most developing countries but most developing countries have inadequate infrastructure andhave inadequate infrastructure and wrong wrong policiespolicies

Caribbean PositionCaribbean PositionNo formal regional policy position on cultureNo formal regional policy position on culture--trade issue as yet;trade issue as yet;But most CARICOM states have opened But most CARICOM states have opened Entertainment Services in GATS/WTO (with Entertainment Services in GATS/WTO (with limitations);limitations);All CARICOM states need investment in cultural All CARICOM states need investment in cultural industries;industries;Domestic capital base is inadequate;Domestic capital base is inadequate;Financial services industry too conservative;Financial services industry too conservative;Convergence of media and ICT is important for Convergence of media and ICT is important for marketing cultural products & services.marketing cultural products & services.

UNESCO & Cultural DiversityUNESCO & Cultural Diversity

Convention on the Protection of the Convention on the Protection of the Diversity of Cultural ExpressionsDiversity of Cultural Expressions

Overall aims and objectives of the Convention Overall aims and objectives of the Convention are laudable and such Convention can be are laudable and such Convention can be supportedsupportedBUTBUT small states must ensure that this initiative small states must ensure that this initiative does not result in restrictions on market access does not result in restrictions on market access forfor their cultural exports of goods & services in their cultural exports of goods & services in big countries.big countries.

UNESCO ConventionUNESCO Convention

Generally affirmed that preGenerally affirmed that pre--eminence of the eminence of the cultural value of cultural products over their cultural value of cultural products over their economic value would be underscored;economic value would be underscored;Demand that cultural goods and services from Demand that cultural goods and services from developing countries receive special treatment.developing countries receive special treatment.

May affect WTO obligations, even if indirectlyMay affect WTO obligations, even if indirectly. .

UNESCO ConventionUNESCO Convention

Agreed that a nonAgreed that a non--exhaustive list of cultural exhaustive list of cultural goods and services would be included; goods and services would be included; Disagreement re obligations arising from Disagreement re obligations arising from Convention on state parties at the Convention on state parties at the international level;international level;Some experts think Convention should expressly Some experts think Convention should expressly allow countries to derogate from existing allow countries to derogate from existing commitments in international agreements if commitments in international agreements if exercise of these rights would threaten or cause exercise of these rights would threaten or cause serious damage to cultural diversity serious damage to cultural diversity -- No No agreement on this issueagreement on this issue