JUMP CUT
A REVIEW OF CONTEMPORARY MEDIA

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Hollywood’s blessings: MPAA, the U.S. government, and the trade and PR game

"That every major metropolitan area on the planet is playing mostly American movies is a monument to Jack Valenti."
— Douglas Gomery, film historian (Bromley 2000, 41)

"China's WTO accession, together with PNTR, constituted up perhaps the most important American trade and foreign policy debate of the past decade." — Charlene Barshefsky, U.S. Trade Representative (Barshefsky 2000)

If eroding movie attendance within a troubled domestic film industry was China’s trigger from within for its 1994 policy shift to import ten revenue-sharing foreign films, then the unremitting efforts of the MPAA, especially its Chairman and CEO, Jack Valenti, in assisting the U.S. government to press China’s Intellectual Property Rights (IPR) enforcement, laid the desirable ground for the transition from without. As a veteran lobbyist for the Hollywood majors on Capitol Hill, and having served as a special assistant to U.S. President Lyndon Johnson, Valenti had uniquely calculating tactics to push the U.S. government hard to coerce China to comply with its requests on IPR protection and market access through threats of trade sanctions. Yet he knew that the U.S. side could not go too far lest the pressure drive China completely out of dialogue and potential business co-operation. He knew when to push and when to hold back, yet he always tried to play the “good cop” role in front of the Chinese government, while letting the U.S. government do the hard work. By this means, he tried to maintain a clever balance between carrot and stick with the tacit collaboration of the U.S. government. He knew that collaboration has always been ensured, given the predominant position that U.S. entertainment industry has held in the overall U.S. export sector.[28][open notes in new window] For the most part, his tactics seemed effectively to have worked effectively.

In the immediate aftermath of Deng’s open-door policy in the late 1970s, the U.S., together with other Western countries, began to pressure China to adopt more stringent intellectual property laws to protect foreign rights. The pressure escalated in the early 1990s when China had become a lucrative destination for foreign investments. In 1989 and 1990, the U.S. trade representative (USTR) applied the newly acquired instrument of Special 301[29] by placing China on the Priority Watch List to push for the process of legal reform in the country. China promulgated the Copyright Law of the People’s Republic of China in 1990 to be in line with international practice. In 1991, USTR named China a Priority Foreign Country on the ground that the new law was not compatible with the Berne Convention[30] (Wang, Shujen 2003, 77 & 79). Backed by Valenti’s personal engagement in the matter, China and the U.S. entered into a Memorandum of Understanding in January 1991, under which China soon complied with its commitment to adopt Berne-compatible copyright regulations, join the Berne Convention, and adhere to the Geneva Phonograms Convention within the next two years. Most importantly, China agreed to make U.S. works “fully eligible for protection (“Excerpt from”)." After the legal framework went into place in China, the MPAA began to ascribe the high level of piracy there to the lack of enforcement (Wang, Shujen 2003, 79). In 1994, the MPAA was granted permission to open an office in Beijing. That, even more significantly than China's importing The Fugitive, marked the real beginning of Hollywood's business in China. To ensure China’s effective enforcement of IPR and to advance Hollywood’s market access in China have been the two top priorities on the agenda of the MPAA ever since.

Together with the International Intellectual Property Association (IIPA)[31], the MPAA lobbied intensely for sanctions against China in Washington on the ground of IPR violations with regard to the Sino-U.S. bilateral IPR negotiations in 1994-95. That effort successfully pushed the Clinton Administration to take a tough stance and use the Special 301 designation, which was hailed by Valenti as “an essential weapon in the war against worldwide piracy and market access barriers” (“Motion Picture Association”), with the threat of potential, imminent trade sanction to press for China’s enforcement of copyrights. In June 1994, acting USTR Mickey Kantor put China on the Special 301 Watch List by giving an ultimatum of six months for copyright enforcement (Rosen 2002, 53). By the end of the six months, on the last day of 1994, the Clinton administration warned the Chinese leaders that beginning from February 1995, it would impose trade sanctions on over US$1 billion worth of Chinese imports, unless they took strong measures to severely penalize piracy of U.S. movies[32], music recordings, and computer software, and to allow greater market access in China for U.S. entertainment, publishing and technology products (Behr 1995, A27).

The claim by IIPA head, Eric H. Smith, that piracy-based, total commercial losses for U.S. firms (including all copyrights products such as movies, music recordings, and computer software) in China exceeded US$1 billion each year (Behr 1995, A27), might be an exaggeration. Yet the considerable loss was understandably a major source of frustration for the United States. It was clear that the annual film import quota of ten definitely fell far short of Hollywood’s appetite. And Mickey Kantor was obviously dissatisfied with the 260 anti-piracy enforcement raids launched by Chinese authorities in the first ten months of 1994 as reported by China Daily, China’s official English-language newspaper (Behr 1995, A27). China’s Ministry of Foreign Trade and Economic Cooperation (MFTEC) promptly responded to the threat of trade sanctions from the U.S. government with a counter-threat to block imports of U.S. films and television programs, music records, among other things (ironically, including those very products that Washington accused China of pirating). It also threatened to suspend requests of U.S. companies to establish subsidiaries in China as well as talks with major U.S. automakers regarding potential joint ventures (Bilski and Nankivell 1995, 18). A trade war that could mark the most serious economic confrontation between the two countries seemed imminent. The stakes were high for both sides, as an average of 40% of China’s exports went to the U.S., mostly to leading U.S. retailers. Meanwhile, most major U.S. corporations were rushing to invest in China, one of the world’s fastest-growing markets. The stakes might have been even higher for China, given that China’s trade surplus with the United States was US$24.6 billion in the first ten months of 1994, second only to Japan’s (Behr 1995, A27). Besides, China was eager to obtain membership in, and hence become a founding member of the WTO, which was to be established per the Final Act of the Uruguay Round of negotiations on January 1, 1995 to replace GATT (General Agreement on Tariffs and Trade) and oversee global trade rules. The Clinton administration led the opposition to China’s WTO membership, and used that as forceful leverage to push China for compliance in anti-piracy enforcement and for market access expansion for U.S. companies, particularly the Hollywood majors.

After further “torturously complex” negotiations before the ultimatum, as acknowledged by one insider to the talks, with the final days spent on the issue of market access for U.S. film and music companies, on February 27, 1995, the two sides signed the Agreement on Enforcement of Intellectual Property Rights and Market Access. The 22-page pact was described by U.S. officials as “the most comprehensive and detailed copyright enforcement agreement” they had ever negotiated with any country (Faison 1995, A1). The agreement entailed strong IPR enforcement measures such as an intensified six-month crackdown on copyright violations, including:

  • an intensified six-month crackdown on copyright violations,
  • a series of evidence-collecting task forces,
  • expanded anti-piracy power for Chinese customs, and also
  • an item on market access demanding the immediate removal of quotas on U.S. film imports.

That pact clearly displayed Hollywood’s intention to eliminate all regulatory barriers on their way to invade the Chinese market freely. Chinese officials, however, voiced their complaints during the negotiations that some U.S. demands would violate China’s sovereignty (Faison 1995, A1). As Valenti made very clear later, based on the success in China’s experiment of importing ten foreign films on a revenue sharing basis, “all limits on that process should be removed." He hailed the agreement as “a thorough blueprint for action," and a major step towards “a positive and constructive partnership” between the two sides (“Statement of Jack Valenti” 1999).

The shadow of trade war did not fade away. Another scenario followed only about one year later. This time the trigger came again from the Valenti-led MPAA as well as IIPA. In February 1996, in their annual report to USTR Kantor, the two organizations called for the U.S. government’s help in wiping out piracy in the Chinese market by retaliating against China for not living up to the Enforcement Agreements signed the previous year, unless immediate steps were taken to enforce copyright protection (Wharton 1996, 8). In May 1996, based on a charge of China’s unsatisfactory implementation of the 1995 Enforcement Agreement, acting USTR Charlene Barshefsky threatened to impose US$2 billion in tariffs on certain goods imported from China, unless China took unambiguous actions to fulfill its commitments in the agreement by June 17. Again, China’s MOFTEC responded quickly with a list of U.S. automobiles and other products targeted for retaliatory trade barriers. The two sides once again were on a brink of a trade war. Valenti expressed his concurrence with Barshefsky’s decision before the Special 301 Committee on June 6, 1996. Nevertheless, he acknowledged the important progress the Chinese government had made in improving anti-piracy enforcement, especially on the retail and wholesale levels, and expressed his optimism that “critical work” could be done to achieve the objective in the next ten days to reverse the decision (“Statement of Jack Valenti” 1996). Finally that potentially disastrous scenario was averted by a last-minute accord signed between the two sides on June 17.

In addition to installing more explicit and heavy-handed copyright enforcement measures, and expanded market access for the recording industry, the trade agreement officially eliminated the film import quotas imposed by the Chinese government. Nevertheless, it kept intact China’s ability to block film imports that would violate standards set by China’s film censorship board. In fact, this provision left much open to interpretation and turned out to be an effective means of protection for the Chinese film industry (hence the de-facto “unofficial quotas” thereafter). Hollywood majors were still upset by the fact that no advance in market access encouraged joint ventures for cinema construction between the U.S. and China companies, despite Valenti’s warm celebration of the new accord (“Breakthrough," 1). Following the new agreement, Barshefsky called off the threat of trade sanctions against China that she made earlier, citing a sufficient demonstration of China’s commitment to IPR protection. China also called off its counter-retaliations against the United States.

To Valenti, one major roadblock that still remained in the Chinese market was China's arduous resistance to pushing through increasing market access for Hollywood. His plan, representing major Hollywood studios' ultimate objectives, was clearly laid out in June 1996 when he called for further support from the U.S. government to that end, in particular, for eliminating all quotas on film, video and TV, and revising duties and taxes imposed by the Chinese government on Hollywood imports. As he stated, these were the “last obstacles on the threshold of one of the biggest and most exciting markets in the world," i.e. obstacles to Hollywood studios’ readiness to make major investments in China, which included, to construct or renovate cinemas, to do film and TV co-productions, to join in cable TV projects and build theme parks, etc., as he went on to specify (“Statement of Jack Valenti” 1996). These terms later would become the major components on the agenda that USTR strived to push through during the Sino-U.S. bilateral negotiations towards China’s accession to the WTO.

One thing that deserves special note here is the linkage Valenti has tried to build, from the very beginning, between pressuring the Chinese government for ever more forceful anti-piracy enforcement on the one hand and for increasingly expanded Hollywood’s market access in China on the other. He has argued repeatedly that the market access barriers exerted by the Chinese government have thwarted Hollywood’s efforts to deliver legitimate film and home entertainment products to Chinese audiences. “How can we expect to beat piracy,” he asserted, “if there is not an assured supply of legal, good quality videos?” He went on to say,

"If Chinese audiences do not have the option of seeing a legitimate film in the cinemas, pirated home video products will fill in the demand….Only the criminal elements behind piracy will benefit from this decision while legitimate businesses are deprived of success" (“Valenti Testifies”).

Ironically, the Hollywood majors have been known to recruit former pirates as their well-connected licensees for local distribution in China. One prominent case is that of the first of Warner Bros. studio's three homevideo licensees in China, Xianke. The company happened to be the first of the two “test cases” for home video piracy that the MPAA brought to the Chinese court in 1994. In 1996 it was ordered to compensate the MPAA for damages, lawyers’ fees, as well as court expenses. (By summer 2000, two major Hollywood studios were also designating a pirate network to be their licensee.) By adopting strategies to convert pirates into legitimate partners, Hollywood majors intended to minimize their financial losses and competition, while trying to take advantage of the sophistication and efficiency of the existing piracy networks (Wang, Shujen 2003, 87).[33]

The above best demonstrates Valenti’s masterful lobbying of and tacit collaboration with the U.S. government in using the sticks of trade sanctions to press for China’s compliance in enforcing IPR protection[34] and its relaxing market access for Hollywood. On the other hand, the MPAA he led and its member companies have been equally good, if not better, at resorting to carrots to appease and curry favor with the Chinese government through a series of diplomatic and public relations initiatives when necessary.

A salient example was their handling of totally unfamiliar types of political and cultural sensitivities, one of the major challenges they were confronted with in the late 1990s. In October 1997, the Chinese government issued a temporary ban on business co-operation with three Hollywood studios — Sony Pictures, Disney, and MGM — due to their respective films — Seven Years in Tibet (Jean-Jacques Annaud, 1997; starring Brad Pitt; Sony Pictures Entertainment), Kundun (Martin Scorsese, 1997; Disney), and Red Corner (Jon Avnet, 1997; starring Richard Gere; MGM).With the former two criticizing China’s Tibet policies and the latter critiquing China’s judicial system, they were all regarded by the Chinese government as politically offensive and culturally insulting to China. Particularly, in the case of Disney’s Kundun, Martin Scorsese’s presentation of the life of the Dalai Lama, including a portrayal of brutal repression by the PRC in Tibet, the Disney studio did not back off from a Chinese government warning in late 1996 prior to the film’s release and still proceeded with its China distribution. That led the studio to face an unanticipated official threat that could end to its business with China.[35] The episode was also a factor in the firing of Disney President, Michael Ovitz. Disney made some initial PR efforts to mend ties with the Chinese government, in which the importance of filmmakers’ rights to free speech in the U.S. and the company’s contract-bound obligation to distribute the film were stressed. This action was not enough.

For fear of jeopardizing its access to the alluring Chinese market, including a promising outlook for building a theme park in the country, the all-powerful Disney corporation hired one of the most prestigious U.S. statesmen, Henry Kissinger, who in the early 1970s had helped President Richard Nixon take the historical step towards establishing state-to-state relations with China. Kissinger joined Disney in seeking to assuage China’s outrage over the movie Kundun, and to reach rapprochement with the Chinese government through his good offices (Weinraub 1997, E7). Disney also bought two Chinese films and offered to sponsor an acrobatic troupe from Shandong province in a performance tour of Europe (Bates and Farley 1999, A30). Furthermore, Disney tried to draw the Chinese authority’s attention to its upcoming Chinese legend-based animation film Mulan, which had been under development since 1994, and sold it as a major move of good-will to help promote Chinese culture and tradition throughout the world. The film turned out not to be authentically Chinese, hence resulting in box office receipts well below expectations in China. Yet, besides garnering considerable box office revenues in the overseas market, including the U.S., it also played its due part in mending fences. In the fall of 1998, Disney CEO Michael Eisner made a special trip to China and paid visits to top Chinese leaders in the hope of putting the unpleasant episode behind them for good. After that, the release of Mulan in China in February 1999 with the permission of the Chinese government signaled the beginning of the end of the freeze in relations.

In the two years that followed China’s temporary ban on business relations with the three studios, senior executives of Sony Pictures Entertainment. After relations resumed, that company’s senior executives frequented China and established a business plan to co-produce and distribute Chinese-language films as both a good-will gesture and a feasible long-term strategy of localization[36] to overcome linguistic, cultural, and other access barriers in the Chinese market. Other Hollywood heavyweights not involved in the three films with offensive “anti-China” themes also stepped up their PR efforts to build up an image of good corporate citizen in China. For instance, Time Warner Inc. started a short-term training program in 1998, accepting interns from Fudan, a top university in Shanghai. It also sponsored FORTUNE Global Forum with the theme “China: The Next 50 Years” in Shanghai in September 1999 to highlight China’s increasing global significance at the dawn of the new millennium.

In the meantime, News Corp continued to consolidate its ties with China. Rupert Murdoch had delivered a famous London speech in 1993, shortly after the media giant acquired Star TV, a Hong Kong-based pan-Asia satellite TV service with a “footprint” in the mainland. His suggestion in his speech, that his satellites would soon eliminate totalitarian politics throughout the world, considerably angered the Chinese government. China responded by blocking News Corp’s planned venture with a Shanghai magazine, as well as by prohibiting individuals from owning satellite dishes to receive Star TV programs. Since then, Murdoch has taken some noticeable steps to remedy the situation. On March 21, 1994, to appease the PRC government, Rupert Murdoch dropped the BBC World Service from Star TV, which sometimes ran stories critical of the Chinese authority. In 1998, Murdoch’s HarperCollins publishing house refused to publish East and West, a book by Chris Patten, who had infuriated the PRC government by introducing more democracy while serving as the last Hong Kong governor (Gittings and Borger 2001). In January 1997, News Corp. invested US$5.4 million to establish a joint venture with China’s major official newspaper, People’s Daily — an Internet Portal for IT information and consultation service known as ChinaByte Technology Co. (“Murdoch and China”). News Corp.’s strenuous government PR efforts have taken the company quite far in China, as proved by later developments.[37]

Meanwhile, Valenti, on behalf of the Hollywood studios, made unremitting efforts to try to assuage the Chinese government. He stressed in his signature, hyperbolic style that a few specific films can not possibly “disrupt or collapse a culture richly fertilized by several thousand years of historical glory," and should not “interrupt the long range beneficial interests” of both sides (Valenti 1997). He also emphasized to the visiting Chinese Minister of Radio, Film and Television, Sun Jiazheng, in late 1997 that individual films only exert a very brief though loud repercussion on the U.S. collective imagination (Stern 1997). While the disappointing box office of Kundun (grossing US$5.53 million with a budget of US$28 million) and perhaps, to a lesser extent, Seven Years in Tibet (grossing US$37.9 million, low only relative to its budget of US$70 million) seemed to somewhat back Valenti’s claim in financial terms, the two film s’ actual impact in the U.S. were by no means negligible.

Their production rationale was also worth noting. As one U.S. journalist observes, thanks largely to the two Hollywood films, “…now, whenever the Dalai Lama visits, he’s greeted by crowds befitting a rock star," due to the hot spiritual trend in the U.S., of which Buddhism, particularly Tibetan Buddhism, constitutes one major religious foundations (Hogan 2004). Meanwhile, the images and messages of the two films have undoubtedly helped reinforce the Dalai Lama’s long-term effective publicity for his cause in the U.S. that runs counter to the official stand of the PRC government. Interestingly, even Red Corner, which was partially shot surreptitiously in Beijing with execution footage, and in which “the Nazis seem preferable to the Chinese Communists," starred Richard Gere, one of the prominent and ardent supporters of the Dalai Lama in Hollywood (Marchetti 2004). And the three films happened to coincide with Hong Kong’s return to mainland China, appearing to remind the world of “America’s prerogative to question Chinese legal institutions and claims to sovereignty” (Marchetti 2004).

Media critics in China considered the three films as

“laughable gimmicks…elaborately cooked up for the sake of ‘demonizing’ China."

They attributed Hollywood’s presentation of “untrue," negative images about China, which are consistent with the U.S. mainstream ideological standards, to the “uniformity of consensus” between the increasingly oligopolistic U.S. entertainment industry and the U.S. government. In other words, the “profits correlations” between the two sides, according to the critics, “promote the worldwide expansion of the mainstay U.S. industry under their political auspices," and “conform entirely to the national interests and overall strategy of the U.S." (“A Renewed” 2003, 50). In this sense, it becomes natural for Hollywood as Washington’s reliable collaborator to serve its government’s ideological objective consciously, and meanwhile for the U.S. government and the MPAA to defend the three films on the sole basis of their pure commercial pursuit on the diplomatic front.

While the unexpected scenario kept Valenti busy trying to assist the three studios to re-open channels of business cooperation with China, especially MGM, which had remained largely passive in its own conciliatory efforts, Valenti did not neglect his paramount mission of expanding market access for the major studios in China. Valenti paid a visit to China in late March of 1999, as part of a trade mission led by U.S. Commerce Secretary William Daley. He met for the first time Ding Guangen, head of China’s Ministry of Publicity, who oversaw SARFT and the Ministry of Culture and was known among other senior Chinese officials as the conservative cultural czar of China. Valenti's primary efforts to persuade the Chinese government to accept his proposal to import 17 U.S. films in 1997 and 25 the next year[38] did not bear fruit. His other major request for allowing U.S. companies to build cinemas in China also failed to draw a commitment from top Chinese officials, including Chinese Premier Zhu Rongji. Nevertheless he announced to Chinese officials at those meetings the plan of the MPAA and its member studios to host a Chinese film festival in the US in October that year. His ultimate intention to foster a détente between the two sides, and especially to engender some good-will from China that could lead to easing market barriers for Hollywood films, can be easily read from his diplomatic hyperbole:

"This festival is a demonstration of our commitment to the future of the global film community….We firmly believe that sharing the work of China's finest filmmakers will unveil to new audiences the tremendous creative talents that reside in this great nation and, perhaps, encourage China to open its screens to more films from abroad…."

"It is my hope that the new millennium will bring us closer to a time when each of our nations can freely share the many wondrous, magical stories we yearn to tell….Perhaps the festival will one day be looked back upon as a significant step toward that most worthy goal" (Boliek 1999a).

“Free” sharing of films has never existed. There has been no “free trade” in films, between the U.S. and China, in the name of which the MPAA has consistently fought on behalf of the Hollywood majors, by lobbying the U.S. government to press for the lifting of any protectionist tariffs and quotas from China. It probably will not happen anytime in the near future. The flow has been almost totally one-way. According to China Film, U.S. films have accounted for the majority of films imported on a revenue-sharing basis in China. Among 65 revenue-sharing films imported from 1994 to 2000, 48 (74%) were from the U.S., with the rest from the U.K. and Hong Kong. From 1995 to 2001, a total number of 134 films were imported from the U.S., 61 of which were big revenue-sharing films. Nevertheless, over the same period, no Chinese film was released via U.S. mainstream, commercial cinema chains.[39] On many occasions, China’s requests for reciprocity in film trade, at least to some degree, were invariably turned down by the MPAA on the pretext that Chinese films, like most other foreign films, simply will not sell in the U.S.. Among other reasons, the MPAA claimed, the films simply do not appeal to the mass U.S. audience, who rarely can stand subtitles, much less dubbing. As a matter of fact, the fortressed, oligopolistic structure of Hollywood[40] has successfully blocked the vast majority of foreign films from getting into the U.S. market, much less its mainstream commercial cinema venues. Hence the U.S. film market has essentially been kept for U.S. domestic films, particularly those by major Hollywood studios, without the need to impose any explicit quotas and tariff. The following complaints by U.S. independent producers help explain the challenges, of a similar nature but to a greater extent, faced by foreign producers in gaining market access in the U.S., which seem to be perpetuated by the oligopoly of the Hollywood majors.

"Independents accuse the majors of being too lacking in vision to recognize the merit in their films (and therefore refusing to distribute them) or having distributed them, of marketing them incompetently so that they do not make money; or having distributed and marketed them well so that they generate a great deal of revenue, of cheating them out of their just share of the profits" (Prindle 1993, 17).

The imbalance in film trade flow that favors Hollywood will only be exacerbated with the other side's quotas and tariff protection being torn down by an aggressive U.S. trade policy in order to promote alleged “free” trade. Yet to appease the Chinese government, major Hollywood studios sent representatives to Beijing Screen, an annual showcase and market of Chinese films organized by China Film since 1996, as well as the Film Market section of Shanghai International Film Festival (SIFF). They went through the motion of selecting films made in China for potential release in the U.S.. In early 1998, the President of China Film, Tong Gang, signaled Hollywood that in making film-import decisions his company would give preferential treatment to foreign companies that acquired Chinese films for distribution overseas. This changed the role of Hollywood majors in Beijing Screen and SIFF from mere observers to “active” participants, approaching China Film and Chinese studios with much good-will intent to discuss prospective arrangements for distribution (Ying 1998, 1). However, in the end, even for the very small number of Chinese films that reached deals,[41] only the luckiest few ended up in U.S. art houses on a very limited scale.[42]

As the year 1999 unfolded, China’s bid for WTO status, starting with WTO's preceding body GATT, had gone on for 13 long years. The bilateral relation, already marked by disputes over human rights and other issues, were further strained by the bombing of the Chinese embassy in Belgrade by U.S.-led NATO. This incident led to another temporary halt of business between the Chinese film industry and Hollywood. The two governments were both eager to arrive at a breakthrough agreement within that year to end the stalemate. During Chinese Premier Zhu Rongji’s state visit to the U.S. in April 1999, China made major concessions following four days of strenuous talks, agreeing to open up the country’s insurance and telecommunication sectors, and to lift restrictions on U.S. agriculture imports. Nevertheless, Zhu failed to get an official nod from Washington for China’s bid for the WTO as he wished. Not surprisingly, the issue of Hollywood’s market access to China was prominent among the several major remaining obstacles to a final agreement. However, heavyweight media moguls from Hollywood, such as Gerald M. Levin of Time Warner and Michael Eisner of Disney, were among the handful to be given access to private meetings with Zhu during his state visits in New York and Los Angeles respectively. Although the meetings were not made public, they would inevitably involve the two media giants’ China dreams. Given the common undeclared conviction that Hollywood’s clout has overtaken that of the U.S. State Department and Defense Department on the world stage, and the MPAA’s well-known alias, “Little State Department," those exceptional opportunities for private meetings with China’s Premier came as no surprise.

In June 1999, while testifying before the Trade Subcommittee of the House Ways and Means Committee, Valenti strongly urged the U.S. government to secure China’s commitment to improve the Hollywood film sector’s access to its market, which, according to him, “must be part of any acceptable WTO accession package with China." With an estimation of the industry’s annual loss of US$200 million due to restrictions in the importation and distribution of Hollywood films as well as to video piracy in the country, the goal Valenti set for the MPAA in the WTO accession negotiation was “to secure a gradual increase in the number of films” into China (“Valenti Supports”). Then in the fall of 1999, as promised, the MPAA, with the firm collective backing and financial sponsorship of Hollywood majors, hosted a bicoastal Chinese Film Festival in New York and Los Angeles.

The film festival featured ten Chinese films, and coincided with the 50th Anniversary of the founding of the People’s Republic of China. A Chinese film delegation headed by China’s top film official, SARFT Vice Minister Zhao Shi, attended the festival. Seizing upon the occasion to advance relations with the Chinese government that it believed vital to its future business opportunities in China, Twenty Century Fox, whose Titanic set the box office record in China, offered to be the primary host of the Los Angeles leg of the event, providing exhibition venues and setting up grand receptions. Disney and Sony Pictures, who wished to clear away any lingering effects of their Tibet films in hindering their co-operation with China, exhibited no less hospitality and good-will toward the delegation, from senior-level business meetings to specially arranged and guided tours to their theme parks or studio facilities to a series of other entertainments. It was during one of the dinners hosted by Sony Pictures that the studio announced its plan to co-produce their first Chinese-language film, Crouching Tiger and Hidden Dragon, which later would turn out to be a smash hit in the U.S. and much of the world.

About one month later, with the signing of the Sino-U.S. agreement on China’s accession to the WTO on November 15, 1999,[43] Hollywood’s desires in the Chinese market, realistically moderate as they might appear compared with their ultimate goal there, seemed to be reasonably fulfilled, with significant concessions on the Chinese side. The commitments made by the Chinese government in the audio-visual sector under the historic agreement included:

  • doubling the annual import quotas of revenue-sharing films from 10 to 20;
  • allowing foreign investment in joint ventures for video distribution;
  • permitting foreign investors to own up to 49% in companies that build and operate cinemas;
  • reducing tariffs on films (from 9% to 5%) and home videos (from 15% to 10%), and
  • protecting intellectual property under the terms of the WTO Agreement on Trade Related Intellectual Property (TRIPS) (“Written Testimony”).

Liu Jianzhong, former Director-General of the Film Bureau at SARFT, represented the Chinese film sector in the WTO negotiations. He later acknowledged that the U.S. side pushed hard to eliminate China Film’s monopoly over film import and to engage directly in film distribution in China. Their requests, however, were turned down by the Chinese side (Liu, Jianzhong 2002). Though the actual confrontations and bargaining between the two sides during the negotiation would remain mostly an historical enigma, the tense emotions can be perceived from one scenario on the side of China. Following one of the six days of grueling negotiations, all the Chinese delegates went to China Film one evening to see a newly finished Chinese film, My 1919. It tells the story of Chinese diplomats saying NO, for the first time in history, to the Western powers at the Paris Peace Conference at the end of WWI. China’s Chief Trade Representative suggested on the spot its sequel be filmed with the title of My 1999 (Zheng 2000, 4).

In the area of film, the agreement required China to make some immediate reductions in film trade and investment barriers. Yet, at the same time, it allowed China to retain some level of protection for its film industry. Fortunately, China was able to maintain its screen quotas (2/3 of all screen time for domestic films) in accordance with the Special Provisions on film trade in Article IV of the legal text of GATT, which were inherited by its successor organization, the WTO, as follows:

  • "Screen quotas may require the exhibition of cinematograph films of national origin during a specified minimum proportion of the total screen time actually utilized, over a specified period of not less than one year, in the commercial exhibition of all films of whatever origin, and shall be computed on the basis of screen time per theatre per year or the equivalent thereof;
  • Screen quotas shall be subject to negotiation for their limitation, liberalization or elimination."[44]

The rule on screen quotas is stipulated in China’s “State Regulations," promulgated by the State Council. The same official document subjects every foreign film to imperative film censorship prior to its import to China, a practice not uncommon in other national film industries. It offers another means by which the Chinese government can bar undesirable films from the market, and can give China a reasonable control over foreign films’ market entry. The fact that the Chinese side was able to include in the agreement this one principal precondition of abiding by the Chinese “State Regulations on Administration of the Film Industry" for bilateral film relations, gave the Chinese government reasonable leverage to protect its film market.

As for the U.S. side, they eventually succeeded in raising the unofficial quotas for film import and in lowering other trade and market access barriers for Hollywood business in China. As some U.S. delegates attending the WTO negotiation “confessed” rather diplomatically, they made a request about Hollywood’s market access in China and pushed it hard in response to the enormous domestic pressure that they faced. Given that the copyrights-based industry has become the Number One U.S. export industry since 1996, of which Hollywood film is the primary driver, and given that the U.S. government is the staunch supporter of corporate interests overseas, U.S. trade negotiators simply could not afford to go back empty-handed on film (Zheng 2000, 4).

The agreement was not entirely satisfactory to Hollywood majors. Yet, it was still welcomed by the Hollywood business community. In particular, Valenti knew that the MPAA had come a long way to get that important, albeit small, open window. Again, in his stylistic rhetoric, Valenti hailed the agreement as a “heartening," long-awaited breakthrough. He certainly hoped that the small advancement could later lead to a significant transformation in Hollywood’s business prospects in China. Hence he implied that it was just the beginning of an aggressively expanding penetration yet to come:

"We are joyful that our friends in China have recognized the worth of American films in their country….We look forward to working with China Film so that the American films that enter China are given the widest distribution….This bodes well for the future" (Boliek 1999b).

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