Last November's agreement to further open China to the US entertainment industry is set to come into force after this week's vote in Congress to normalise trade relations between the two countries.

The normalisation bill was passed in the House of Representatives on Wednesday (May 24), and is likely to pass through the Senate next month. As a result, China is expected to become part of the World Trade Organisation (WTO), and restrictions against the import of foreign films will be relaxed (see Screen International, Nov 19, 1999).

Motion Picture Association (MPA) chairman Jack Valenti called the vote "a significant step towards a new era in global trade." It opens the way for several ground-breaking trade initiatives, among them:

  • The number of foreign films that can be distributed in China on a revenue-sharing basis will be increased from 10 to 20 a year.
  • In addition, another 20 foreign films a year - rising to 30 over the three years covered by the agreement - can be distributed on a flat-fee basis.
  • The agreement also allows US companies to own up to 49% of Chinese video and audio distribution companies and up to 49% of companies that build, own and run cinemas.
  • Tariffs on US movies will be cut from 9% to 5% of the value of the film and home video tariffs will drop from 15% to 10%. The method for assessing tariffs will also change.
  • The agreement also calls for China to abide by the WTO's anti-piracy obligations.

    • Some big Hollywood names put their shoulders to the wheel in the run-up to the vote. Disney's Michael Eisner, Fox's Rupert Murdoch and other moguls did their bit as part of the industry's China Trade Relations Committee. Valenti reportedly took time out from his trip to the Cannes Film Festival to phone wavering voters in Washington. And Arnold Schwarzenegger reportedly lent some muscle by calling undecided Californian members of the House of Representatives.

    The Hollywood studios see the agreement as a step in the right direction - but not too much more. "It's an evolutionary step in what might be a lengthy process," said Jim Gianopulos, president of 20th Century Fox International, whose Titanic has been the best US performer in China with a gross of $45m. Gianopulos says that going forward Fox will "continue to develop the market and encourage change. There's not much more you can do."

    Duncan Clark, president of Columbia TriStar Film Distributors International (CTFDI), said the Chinese market: "has no real infrastructure in terms of exhibition. So there is still a long way to go." In line with most recent US releases in the country, CTFDI's Stuart Little grossed around $3m when it was distributed in China earlier this year.

    The problem for the majors - besides the occasional souring of relations with Chinese authorities caused by politically loaded films such as Seven Years In Tibet, Kundun and Red Corner - is that they only get to keep about 20% of the revenues generated by their films in China. And the WTO agreement does not specifically call for that percentage to change. What's more, the majors have little opportunity to exercise their marketing expertise since the state-run China Film Corporation handles distribution itself.

    Independent US companies will have to wait even longer to see beneficial results from the WTO agreement. Jean Prewitt, president of the American Film Marketing Association (AFMA), said that since most of the 20 revenue-sharing films allowed into China will probably still come from the studios, the agreement "is important for independents, but the benefits will be further down the road."

    Up to now, independents, whose films are distributed by China Film through around 40 state-approved sub-distributors, have only rarely managed to secure revenue-sharing deals. New Line, for example, scored its first revenue-sharing deal in late 1998 on Jackie Chan feature Rush Hour, which managed a gross of around $3m in the territory. "It's only worth it for a really big movie," said New Line's international president and co-chairman of worldwide theatrical marketing Rolf Mittweg.

    In the end, it could be the corporate ownership provisions of the WTO agreement, rather than the quota provisions, that will have the most effect. AFMA's Prewitt suggests that by allowing US companies to own almost half of video distribution and exhibition operations, the agreement will serve to stimulate the growth of a privately-owned entertainment infrastructure in China. As that infrastructure grows, it will create an expanded demand for product that could lead to a more significant relaxation of product quotas and distribution rules.

    The video market already offers a relatively open route into China for US companies. Warner Home Video has been among the pioneers in offering US product in video CD form in the territory.

    The Chinese exhibition business is much less developed. But a few US companies have made exploratory moves and there is still plenty of room for growth. At present, the country has only about 3,000 theatres: that's one for every 122,000 people compared to one for every 8,600 people in the US.