BRUSSELS, Belgium -- European Community leaders gave full support yesterday to demands by France that its system of protecting and subsidizing its movie industry be preserved in any world trade agreement.
This subsidy system, bitterly contested by Washington and Hollywood, has become the chief remaining obstacle in the 7-year-old trade negotiations on the General Agreement on Tariffs and Trade (GATT).
Those talks -- aimed at updating and extending trade rules to stimulate the world economy -- continued in Geneva yesterday, with 116 countries trying to meet a Wednesday deadline.
In a statement at the end of a two-day meeting here, the EC leaders said considerable progress had been made in the negotiations.
But they said problems remained, including that of guaranteeing that "an exceptional and separate treatment be reserved for audiovisual products in the present and in the future."
The trade talks deal with bringing the audiovisual sector, which includes movies but also valuable fast-developing technologies like cable and satellite-delivered services, under GATT rules for the first time.
Essentially, the U.S. entertainment industry, backed by President Clinton, wants open access. And the Europeans, led by the French, seem adamant about keeping restrictions that diminish profits, and perhaps jobs, in the United States. U.S. films produce the second largest trade surplus, after airplane sales, of any U.S. industry.
"This is simple protectionism, it's arrogant, as anti-American as you can get," said Frank Price, former chairman of Columbia Pictures and Universal Pictures, and now a producer. "What they don't like is that audiences find American entertainment desirable. They want to prevent that."
Besides movies, the Europeans want quotas on American television programs and future audiovisual technologies.
U.S. Trade Representative Mickey Kantor has pledged not to yield on the movie question, a vow he also made on agricultural trade before giving way in part to French demands. He has argued that the French system deprives Hollywood of money and market access to which it is entitled.
The conflict pits two considerable forces against each other: a huge American export industry, with sales in Europe alone of $3.7 billion last year, and Gallic pride, viscerally attached to the notion that France is the sanctuary of serious cinema and to the argument that Hollywood is trying to move from a position of domination to one of monopoly in world entertainment.
As the EC meeting ended, Sir Leon Brittan, the community's chief trade negotiator, and Mr. Kantor were engaged in potentially decisive talks in Geneva.
A special meeting of European foreign ministers has been called for tomorrow to review the results of their negotiations.
U.S. objections to current French practice center on a quota system used to limit the amount of American programming on television, and on a series of taxes on movie tickets, television movies and videocassettes that raised $350 million last year and was in turn used to subsidize production of about 150 French films.
Because the American movies account for about 57 percent of the French box office, the tax effectively takes money from American creations to pay for French films.
But France argues that Hollywood already has 80 percent of the European market, while Europe has 2 percent of the American, so some protection is required to avoid extinction.
Despite brinkmanship on both sides, it appears that an irresistible momentum toward an agreement on world trade has built up. But Jacques Delors, the president of the European Commission, said he still had "grave doubts about the audiovisual sector," and French Foreign Minister Alain Juppe raised the possibility that it might have to be left out of a trade agreement.
But the exclusion of a huge export like movies from any world trade agreement would probably be unacceptable to Washington.
In Geneva yesterday, Asian and Latin American countries, led by Japan, Singapore, South Korea, Brazil and other increasingly competitive trading nations, resisted U.S. requests for 11 changes in the draft text for a global trade agreement.
The changes are aimed at protecting the U.S. trade laws that allow companies and labor unions to ask the Commerce Department to impose steep tariffs on imported goods that are sold in the United States either below cost or for less than they are sold in other countries, a practice known as dumping.
The current draft text would restrict the ability of the United States to put steep tariffs on many low-priced imports that hurt American industries. The administration, partly at the urging of the steel and computer chip industries, had sought changes to limit or remove those restrictions.