South Korea and France this weekend signed an agreement to increase co-operation between their two film industries, with the aim of expanding it into a full co-production accord.

However, the agreement fell short of being a co-production treaty, of which France boasts 43, and which would have allowed French and Korean film-makers to full utilise each other's support and subsidy systems.

The agreement was signed at the Pusan International Film Festival (PIFF) between representatives of France' Centre National de la Cinematographie (CNC) and the Korean Film Commission (KOFIC) and came with the blessing of the two countries'culture ministries.

The deal underlines the common ground between the two countries' cultural wings and recent film policy. Both have very significant market shares for their domestically produced films - France over 30% and Korea close to 50% this year - and both have maintained strongly protective measures in favour of local film and culture.

The issue preventing a move to the establishment of a full co-production treaty seems to emanate from disagreements between the EU and Korea' economics ministry which has asked for cultural goods and services to be included alongside trade in conventional goods and to be regulated by the World Trade Organisation (WTO). This runs directly contrary to the "cultural exception" so fiercely fought for by France during the last round of negotiations at WTO predecessor, the General Agreement on Tariffs and Trade (GATT).

Francois Descoueyte, French ambassador to Korea, said: "Both countries are attached to the notion of cultural diversity and we cannot allow liberalisation in the arts to be bartered for free trade in toothpaste."

Lee Choong-Jik, the newly elected chairman of KOFIC, was more upbeat, saying "I'm ready to fight for this agreement. We believe that bi-lateral co-operation is fundamental." He said that the first film projects seeking aid from the two support systems would be ready by March 2003.

But a press conference for the signing was interrupted by statements from Yang Gi-Hwan, chairman of the Coalition for Cultural Diversity in Moving Images (CDMI), an organisation which defends Korea' "Screen Quotas" system. "The government trade position is closer to that of the US than Europe. It is directly opposite your hopes," he said. The CDMI held silent vigils in downtown Pusan in favour of the quotas during the first three days of the festival.

David Kessler, director general of the CNC, said: "what we have signed should not be seen as a substandard version of a co-production treaty. It already covers matters of training and heritage. The [Korean] ministry of culture has already indicated to us its desire to move to a co-production treaty, but it may not be in a position to do so. We prefer not to get involved in a disagreement between two branches of the Korean government." The agreement covers six fields of joint action: cultural diversity, co-production, distribution, education, festivals and cinema heritage.