This movie is a quite fair adaptation of the Prosper Merimeé's novel. In the novel Merimeé himself is a character, Don José is from Navarra (North Spain, and historically a Basque Country zone, they can speak Basque language). They are in Seville (Andalusia, South Spain) and they only speak Spanish with Andalusian accent, in no way they speak Basque, but Carmen explains to Don José that she was living in Navarra. You can believe it or not, anyway this is the book's version, then you can't be critical with the movie about this, be with the book! You have to note are different the novel by Merimeé and the opera by Bizet, and this movie is an adaptation from the novel, anyway in the opera Don José is still Spanish from Navarra, never he's French. Why so many people keep thinking Don José is French? I don't know but I guess because the novel and the opera are in French although is supposed to be in Spanish.
The only important difference between the movie and the novel is that in the movie Don José also kills the "torero" lover of Carmen and in the novel he doesn't (neither in the opera). I guess they wanted to keep the movie a little more gore! I think the movie is quite good, anyway.