There are two words that should be worrying the international film business: cultural diversity. That's not in any way to disagree with the principle: globalised trade does have an innate drive towards homogenisation, with the big overpowering the small. So United Nations body Unesco was fully justified in raising the issue in a convention that came into force earlier this year, supported by almost all nations of the world but pointedly opposed by the US.

Film was at the heart of the policy, driven by a fear that Hollywood was a threat to local industries and culture, particularly language. But it is easier to agree the principle than to turn it into active policies that genuinely benefit diversity.

A little heralded protest last week from Europe's film-funding bodies highlighted one of the fault lines. The argument is buried in a document that broadly welcomes the European Commission's attention to cultural diversity in its catchily titled Communication On A European Agenda For Culture In A Globalised World.

Where the film bodies diverge from the document is on the commission's insistence on 'cultural tests' to underpin government subsidies. There's a logic to the tests: subsidies in many countries have really been designed to attract big bucks US productions - which neither fits the principle of diversity nor is acceptable in trade talks with the US.

Of course, the flip side to the argument is that in the real world, it is the big US productions that bring in the money necessary to build a sustainable local business.

But the European Commission looks to be dead set on one-size-fits-all tests that ensure government subsidy is limited to locally spent investment.

What the film bodies point out is that the result does the opposite of encouraging diversity - it encourages a narrow nationalism. They use an ugly neologism that you will read just this once in Screen: 'territorialisation'.

The aim of cultural diversity was surely not meant to be a retreat behind national boundaries. But then what on earth does it mean in practical terms'

Concentrating policy on narrow local tests is surely no answer. Let's not forget how much the European film business has been revitalised in recent years by waves of films from Asia in particular. And let's not miss the contribution of US independents or, increasingly in recent years, studio specialist arms.

Looking back at Cannes, Universal co-chairman David Linde was surely justified in claiming that a deal his studio struck with film-makers in Mexico and Russia was a practical contribution to cultural diversity.

By contrast, there's a real danger that some of those mandated to make policies on diversity may in practice damage the very principles they want to protect.

The Spanish government is grappling with the realpolitik of diversity policy in trying to draft its new film law. In the noble aim of increasing the visibility of Spanish film, it has opened up cracks in the business between producer, distributor and exhibitor.

Cultural diversity works fine as a broad, guiding principle but it takes a great deal of effort to extrapolate coherent policies based on it.

Ironically the markets have shifted towards diversity of their own accord. The fear when the Unesco convention was drafted in 2005 was of a world swamped by US blockbusters. Yet the studios are turning their attention to the potential of local film because the truth was always that Hollywood is interested in money, not grand cultural imperialism.

The drive for cultural diversity policies across the world needs to be similarly flexible - focused outwards to international markets. The real issue for Europe, and indeed most international territories, is not a shortage of product but that it does not travel. It is insularity that represents the biggest danger to diversity.