A deal to change China’s 20-year-old quota on U.S. films and low distribution fees came at the last moments of a visit by Chinese Vice President Xi Jinping and U.S. Vice President Joe Biden on Friday.
Spending the day with the Chinese leader in Los Angeles, Biden pressed for an end to a trade dispute that had remained unresolved for a year and had Hollywood deeply frustrated.
“We’re really close,” Biden told Xi, according to an official who was present. “It would be great to get this done.”
By the end of the day, Xi had agreed, achieving two major concessions from China that may have major implications for Hollywood in the fastest-growing movie market in the world.
The deal adds another 14 films to the 20 non-Chinese films that can currently be distributed, provided they are made in 3D or IMAX formats. (The non-3D version may also be distributed, according to the new agreement.)
And even more important, the distribution fee for non-Chinese distributors will rise from 13 percent to 25 percent. The average fees for foreign distribution is close to 30 percent.
“This is a very big deal,” said Chris Dodd, chairman of the Motion Picture Association of America, in an interview with TheWrap. “The industry has been living with the numbers in terms of percentages and quotas for 20 years… It begged for a conclusion.”
China is the fastest-growing market in the world for exhibition, adding thousands of new theaters this year, and expected to more than double its exhibition screens to 16,000 by 2015.
China had 2,500 3D screens by the end of last year and is expected to have 48 IMAX theaters by mid-2012.
The concessions were a joint effort, resulting from two years of pressure on China from the U.S. trade representative Ron Kirk, Treasury Secretary Timothy Geithner and Hollywood leaders including Dodd, Disney CEO Bob Iger and DreamWorks Animation chief Jeffrey Katzenberg.
But it was the personal diplomacy by Biden that got the deal closed by Friday night.
The dispute reached back several years when the United States challenged China’s limits on movie distribution fees in the World Trade Organization as a violation of international trade laws.
The matter was decided in the United States’ favor in March 2011, but China had resisted a final resolution – and risked a penalty from the WTO by doing so.
Hollywood moguls pressed their case in a two-hour meeting with Biden last summer, according to Dodd, emphasizing the importance of the issue to the movie industry.
Both sides continued to negotiate over the past 11 months, arriving at an impasse as China offered 23 percent in distribution fees, and the United States sought 27 percent, according to Anthony Blinken, Biden’s national security advisor, who spoke to TheWrap.
China has resisted allowing more non-Chinese films into the country, largely on cultural grounds and its desire both to protect the Chinese film industry and limit the influence of Western mores. Chinese officials frequently argued that the issue was “politically sensitive” in negotiations.
But the WTO ruling loomed, and an opportunity arose to finally conclude the matter when Biden decided to accompany Xi to Los Angeles on the last day of the Chinese leader’s visit to the United States last week.
“The two vice presidents sat next to each other at lunch and Biden said, ‘We need 25 percent. It’s a good deal – let’s get it done today,’” said Blinken.
Xi responded that he needed the sign-off of three agencies in China, and promised to make those calls after lunch.
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Later in the day, the two leaders met up again at an event for Western governors. Xi told Biden that he had called all three agencies and they had agreed: “You have a deal,” he told Biden, according to Blinken.
But it was not until dinner at about 7 p.m. that the two leaders signed a memo of understanding on the matter.
The victory is well-timed, coming just as the Obama White House needs the strong support of the deep-pocketed, liberal movie industry in the upcoming election, and on the heels of the embarrassing collapse of legislation aimed at protecting intellectual property.
A final agreement is expected to be signed at the WTO in Geneva in a matter of days.