Abstract
The North American Free Trade Agreement renegotiation has created uncertainty around a number of provisions, including the cultural exemption. I argue that Canadian government advocacy of a cultural exemption will take place in a new context due to the approaches they have favoured in recent trade agreement negotiations, and to economic shifts driven by digital technologies.
Throughout the 2016 campaign for the presidency, Donald Trump repeatedly characterized the North American Free Trade Agreement (NAFTA) as a bad deal for the United States. Not long after he took office, he vowed to renegotiate the trade pact, officially notifying Congress of his intention on 18 May 2017. Talks started on 16 August 2017. Many, including the Canadian government, claimed to welcome the renegotiation, noting that NAFTA, in some respects, is outdated: in the 23 years since it took effect, many things have changed. New talks present the opportunity to reflect these changes, necessitating some new chapters in a renegotiated agreement. These changes may also have consequences for existing provisions. I focus on one specific issue here.
In this policy brief, I ask, “How might the economic and political changes that have occurred in the last two decades affect the cultural exemption that Canada negotiated in NAFTA?” The threat that economic openness poses to cultural diversity was a central debate in NAFTA (and in its precursor, the Canada–US Free Trade Agreement [CUSFTA]). 1 It might be on the agenda again. Despite the fact that the Trump administration’s “Summary of Objectives for the NAFTA Renegotiation” does not specifically mention the cultural exemption, submissions from the Motion Picture Association of America (MPAA) and the Recording Industry Association of America (RIAA) to the United States Trade Representative (USTR) argue that the cultural exemption should be on the table. At the same time, Canadian groups like the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), the Canadian Arts Coalition, and the Canadian Arts Presenting Association (CAPACOA) have consistently endorsed a cultural exemption in a modernized NAFTA.
A contemporary discussion of the cultural exemption will take place in a different context. This paper identifies two major sets of developments—one political and one economic—since NAFTA’s original text went into force in January 1994. Politically, neither the US nor Canada has refrained from making international commitments in the last 23 years. Free trade agreements (FTAs) and other international treaties comprise the backdrop for NAFTA modernization. Economically, key drivers of North American economies have shifted. Digital technologies and intellectual property play a much larger role as the internet has transformed commercial and private practices. While neither of these developments precludes Canadian government advocacy of a cultural exemption in a NAFTA renegotiation, they do change the focus of those talks in some key ways. I explore these below, following a brief description of the original cultural exemption.
The cultural exemption
Annex 2106 of NAFTA establishes a cultural industries 2 exemption by invoking article 2005 of CUSFTA, which states that “cultural industries are exempt from the provisions of this Agreement, except as specifically provided in Article 401 (Tariff Elimination), paragraph 4 of Article 1607 (divestiture of an indirect acquisition) and Articles 2006 and 2007 of this Chapter.” The cultural exemption is intended to reserve a space for domestic policies that support Canadian cultural industries, including Canadian content requirements for licensed television and radio broadcasters; limits on foreign ownership of cultural industries; and direct funding support to artists and to public entities, like the Canadian Broadcasting Corporation (CBC). In the absence of the exemption, such policies could be deemed incompatible with trade agreement principles of non-discrimination and national treatment. Indeed, the MPAA says as much in their submission to the USTR, calling the NAFTA cultural carve-out “inconsistent with the principles of free and fair trade.” 3 Yet these policies are considered necessary by many to counter the dominance of American entertainment exports. Canadian negotiators are expected to defend a cultural exemption in NAFTA talks. However, two broad political and economic developments will colour their strategy and impact.
International commitments since NAFTA
Supporting cultural industries has been on the Canadian international agenda since NAFTA, notably in negotiations leading to the 2005 United Nations Educational, Scientific and Cultural Organization (UNESCO) Convention on the Promotion and Protection of the Diversity of Cultural Expressions and in the series of FTAs inked in the last two decades.
The UNESCO Convention
Despite having negotiated a supposedly reliable carve-out for culture in NAFTA, Canada lost a World Trade Organization (WTO) dispute to the United States in 1997, based on Canadian obligations under the General Agreement on Tariffs and Trade (GATT). The GATT, which became a WTO agreement in 1995, dated back to 1947 and did not include a broad cultural exemption. The Canadian government supported its magazine industry through a series of policies, including favourable postal rates for domestic publications and penalties on American “split-run” periodicals that recycled content from US editions for sale in Canada. A WTO panel ruled that these policies contravened Canada’s trade commitments under the GATT, requiring change to domestic magazine industry support mechanisms. The seed of the UNESCO Convention was planted in this experience. Many, including the members of the Sectoral Advisory Group on International Trade (SAGIT) on cultural industries, concluded that carve-outs in trade agreements were insufficient to protect cultural industries. 4 A separate, legally-binding international instrument was needed. The Government of Canada, including then-minister of heritage, Sheila Copps, was persuaded by the idea. Copps soon invited several of her counterparts to meet and discuss strategies. The International Network on Cultural Policy (INCP) grew out of this meeting to study and promote the idea of an international instrument for culture.
In October 2005, the Convention on the Protection and Promotion of the Diversity of Cultural Expressions was approved by a vote of 148–2 UNESCO members with four abstentions, entering into force in March 2007. Over 140 parties have ratified the Convention. The United States voted against it and has not ratified it. The Convention affirms governments’ sovereign right to make cultural policy, noting that “cultural activities, goods and services have both an economic and a cultural nature, because they convey identities, values and meanings, and must therefore not be treated as solely having commercial value.” It stipulates that “states have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to adopt measures and policies to protect and promote the diversity of cultural expressions within their territory.” The hope was that this language would provide a robust counterweight to trade agreements that seek to liberalize trade in cultural products. However, as article 20 of the Convention makes clear, the UNESCO instrument does not supersede other government commitments; specifically: “parties recognize that they shall perform in good faith their obligations under this Convention and all other treaties to which they are parties.” Furthermore, it states, “Nothing in this Convention shall be interpreted as modifying rights and obligations of the Parties under any other treaties to which they are parties.”
This language makes it unlikely that the Convention can be used as a defence in a WTO dispute. It has yet to be tested in this way. It was invoked by China in its dispute with the United States over its audiovisual policies. However, the Chinese government did not rely on the Convention for its defence. Instead, it made a “public morals” argument based on article 20 of the GATT, mentioning the UNESCO Convention to assert that audiovisual products have both economic and cultural value. Even if China had based its case on the Convention, the dispute panel could have found itself in a difficult position, acknowledging the existence and importance of the Convention, yet loath to apply to the US a rule that it has not accepted. 5 Indeed, this is significant in NAFTA renegotiations. While one might be tempted to claim that things are different now due to the existence of the UNESCO Convention, the US is not directly bound by it.
This does not mean that the Convention is without impact, though the effect is likely more normative, helping to consolidate cultural diversity as a legitimate global policy objective. 6 Indeed, Canada and the European Union (EU) make specific mention of the Convention in the preamble to the Canada-EU Comprehensive Economic and Trade Agreement (CETA). The European Court of Justice has also invoked the Convention in a case concerning private broadcasters’ requirement to support films in traditional Spanish languages. 7 Nonetheless, the fact remains that the US is not a signatory, therefore the Convention will likely have little direct effect on NAFTA negotiations.
FTAs since NAFTA
Canada has negotiated nearly a dozen bilateral FTAs since NAFTA, and all of them include a broad cultural exemption. However, Canada’s approach in the Trans-Pacific Partnership (TPP) and in CETA represents a “departure” from previous trade agreements.
8
Instead of a broad exemption for cultural industries covering goods and services, in TPP and CETA, Canada “took specific cultural exemptions on a chapter-by-chapter basis.”
9
In CETA, chapters 7 (“Subsidies”), 8 (“Investment”), 9 (“Cross-border trade in services”), 12 (“Domestic regulation”) and 19 (“Government procurement”) each contain a cultural carve-out. For example, chapter 7 states that “nothing in this Agreement applies to subsidies or government support with respect to audio-visual services for the European Union and to cultural industries for Canada.”
10
TPP lays out the exemptions in a series of annexes pertaining to “Non-Conforming measures” and “State-owned enterprises.” For example, annex 1, article 4(e) preserves the Canadian government’s right to consider cultural policy implications in reviewing foreign investments. Annex 2 contains a specific provision pertaining to Cultural Industries which states: Canada reserves the right to adopt or maintain a measure that affects cultural industries and that has the objective of supporting, directly or indirectly, the creation, development or accessibility of Canadian artistic expression or content, except: (a) discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development; and (b) measures restricting the access to on-line foreign audio-visual content.
That Canada favoured the chapter-by-chapter approach even in CETA, with a fellow UNESCO Convention signatory generally hospitable to cultural diversity provisions in trade agreements, suggests that this is now the preferred strategy. It is partly a reflection of the increasing scope and depth of trade agreements, which can make a blanket cultural exemption harder to enact. 11 Providing select, chapter-by-chapter coverage in a modernized NAFTA might be an acceptable concession, should it be necessary.
While CETA and TPP share the chapter-by-chapter approach to the cultural exemption, their preambular language is quite different. In the CETA preamble, Canada and the EU affirm: their commitments as parties to the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, done at Paris on 20 October 2005, and recognis[e] that states have the right to preserve, develop and implement their cultural policies, to support their cultural industries for the purpose of strengthening the diversity of cultural expressions, and to preserve their cultural identity, including through the use of regulatory measures and financial support.
The digital economy
The advent of the internet and the digital universe means that consumers access content differently than they did in the late 1980s. Ninety-six percent of Canadians have access to high-speed internet; 66 percent own a smart phone, and 50 percent a tablet. 15 Online distribution platforms make traditional outlets less relevant. Consumers may prefer to retrieve a movie on Netflix rather than going to a theatre, purchase an e-book rather than going to a bookstore, or stream their music rather than purchasing a CD—though these activities are not mutually exclusive. Consumers may avail themselves of online distribution in addition to traditional modes of access, depending on the industry. The preference for print books over e-books, for example, remains high while consumers increasingly favour digital music products. 16
Some online distribution platforms are Canadian, while most with dominant market share are headquartered in the United States, “bypass[ing] the traditional Canadian distribution system” 17 and redirecting subscriber and advertising revenue outside of Canada. This is significant because there is evidence that a portion of the revenue that now leaves Canada had previously been reinvested to generate Canadian content or support Canadian artists. Furthermore, for now, online distribution platforms (Canadian and foreign) benefit from an exemption order issued under the Broadcasting Act by the Canadian Radio-television and Telecommunications Commission (CRTC). So long as the exemption order applies, internet broadcasting platforms have no obligation to spend a portion of their revenue on Canadian programming expenditures or programming in the national interest. 18
That they are not obliged to support Canadian content does not mean that they do not do so. For example, in its submission to the Heritage Department’s consultation on Canadian Content in a Digital World, Netflix highlights its role as “an active investor in movies and TV series made in Canada.” 19 To date, this mostly involves acquiring existing Canadian content, and providing an alternate distribution platform. However, Netflix is increasingly developing new programming in Canada and with Canadians. 20 Other so-called “over the top” services have been less active.
This analysis suggests that domestic regulation is as important as the cultural exemption in FTAs. The latter safeguards the possibility of effective domestic support mechanisms. Two examples of such domestic policies surfaced in the summer of 2017. In June, Prime Minister Justin Trudeau rejected the idea of a levy on the revenues of internet service providers (ISPs). That levy was intended to generate revenue for the production of Canadian content by augmenting the coffers of the Canadian Media Fund. The idea of imposing a levy on the Canadian revenues of foreign or domestic “over-the-top” internet programming services, while rejected by the CRTC so far, may resurface again, given the recent change in the leadership of the Commission. Also, in August 2017, heritage minister Mélanie Joly asked the CRTC to review its decision to lower the spending threshold required of certain private broadcasters for programs of national interest.
Canadians are clearly debating the best measures to support Canadian artists and Canadian content in a digital age. As Peter Grant argues, the “cultural tool kit” will evolve. 21 Content requirements may become less relevant in a digital universe while subsidies might become more relevant. 22 New measures not yet tried may be developed. In the meantime, some analysts wonder whether the definition of cultural industries (see footnote 2) typically contained in Canadian FTAs is broad enough to accommodate the range of technologies that we now rely on to enjoy cultural content. 23 Likewise, FTA chapters that have been less central to the cultural exemption are taking centre stage. CAPACOA have focused their NAFTA advocacy energies on labour mobility provisions that would ease cross-border travel for Canadian performers. Provisions germane to cultural diversity also appear in intellectual property chapters, especially copyright. Furthermore, a chapter that did not appear in NAFTA, but that will certainly appear in a modernized version, with potential implications for the cultural exemption, is e-commerce. Cultural diversity will be just one consideration for Canadian negotiators in crafting this chapter on cross-border data flows, alongside concerns about privacy and national security. 24
Conclusion
It is highly unlikely that the NAFTA renegotiation will stand or fall on the cultural exemption. Nevertheless, the space available for domestic cultural policy may be affected by the trilateral modernization of the Canada–US–Mexico partnership. Three scenarios seem possible. First, the cultural exemption continues untouched. As Wolfe argues, “It’s easy—but wrong—to think that on every issue where some American group has ever stated a maximal demand (like dairy farmers in Wisconsin) that this is what the administration will seek in the renegotiation.” 25 If this is so, then MPAA and RIAA demands for revisions to the cultural exemption may fall on deaf ears.
Second, and at the other end of the spectrum, the Trump administration makes good on its threat to terminate NAFTA. Analysts have offered different interpretations of such an eventuality: either we revert to CUSFTA, which would preserve the cultural exemption, or we are governed by WTO rules. While it is true that the WTO offers relatively little room for cultural policies relating to the distribution of cultural goods, e.g. books, magazines, and CDs, the situation is different for the distribution of cultural services like broadcasting and audiovisual services, where Canada and most other countries made no national treatment commitments. Moreover, because most WTO signatories have also ratified the UNESCO Convention, it is unlikely that this situation will change. 26
The third possibility is that cultural provisions are renegotiated in a manner that takes into consideration political developments in Canada’s other FTAs, as well as economic shifts toward digital technology. In this instance, the best outcome would be to obtain wide latitude to continue current policies that work, and to introduce new measures that will help us to navigate the rapidly evolving terrain of cultural industries and cultural content delivery.
Footnotes
Acknowledgment
The author wishes to thank Peter S. Grant for comments on an earlier version of this article.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
1
Patricia M. Goff, Limits to Liberalization: Local Culture in a Global Marketplace (Ithaca, NY: Cornell University Press, 2006).
2
Article 2107 of NAFTA defines cultural industries as “persons engaged in any of the following activities: (a) the publication, distribution, or sale of books, magazines, periodicals or newspapers in print or machine readable form but not including the sole activity of printing or typesetting any of the foregoing; (b) the production, distribution, sale or exhibition of film or video recordings; (c) the production, distribution, sale or exhibition of audio or video music recordings; (d) the publication, distribution or sale of music in print or machine readable form; or (e) radiocommunications in which the transmissions are intended for direct reception by the general public, and all radio, television and cable broadcasting undertakings and all satellite programming and broadcast network services.”
3
4
Peter S. Grant, “The UNESCO Convention on cultural diversity: Cultural policy and international trade in cultural products,” in R. Mansell and M. Raboy, eds., The Handbook of Global Media and Communication Policy (Oxford, UK: Wiley-Blackwell, 2011), 344.
5
Joost Pauwelyn, “The UNESCO Convention on cultural diversity, and the WTO: Diversity in international law making?” ASIL Insights 9, no. 35 (2005): 1–3.
6
Mira Burri, “The UNESCO convention on cultural diversity: An appraisal five years after its entry into force,” International Journal of Cultural Property 20 (2013): 357–380.
7
Grant, “The UNESCO Convention,” 349.
8
9
Grant, “TPP,” 1; Véronique Guèvremont and Ivana Otašević, “Culture in treaties and agreements: Implementing the 2005 Convention in bilateral and regional trade agreements,” UNESCO, Paris, 2017, 21.
10
For full analyses of the cultural provisions in CETA, see Alexandre Maltais, “Cultural exceptions,” in Scott Sinclair, Stuart Trew, and Hadrian Mertins-Kirkwood, eds., Making Sense of the CETA (Ottawa: Canadian Centre for Policy Alternatives, 2014); and Michael Hahn and Pierre Sauvé, “Research for CULT committee—Culture and education in CETA,” Policy Department for Structural and Cohesion Policies, European Parliament, December 2016.
11
Hahn and Sauvé, “Research for CULT committee.”
12
Maltais, “Cultural exceptions,” 49–55.
13
Guèvremont and Otašević, “Culture in treaties and agreements,” 16.
14
Ibid., 24; Maltais, “Cultural exceptions,” 6; Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), “ACTRA submission to Global Affairs Canada on the renegotiation of the North American Free Trade Agreement,” July 18, 2017.
15
Nordicity, “Canadian Media in a Digital Universe,” Centre for Innovation Law and Policy, Faculty of Law, University of Toronto, 2016, 10.
16
Nordicity, “Canadian Media.”
17
Ibid., 12.
18
Ibid., 26.
19
Joshua Korn and Christopher Libertelli, “Netflix submission to the honourable Mélanie Joly,” Consultation on Canadian Content in a Digital World, n.d., 2.
20
Ibid., 3.
21
Grant, “The UNESCO Convention,” 341.
22
Ibid.
23
Guèvremont and Otašević, “Culture in treaties and agreements,” 32.
24
Patrick Leblond and Judit Fabian, “Modernizing NAFTA: A new deal for the North American economy in the twenty-first century,” CIGI Papers 123 (March 2017): 15.
25
Robert Wolfe, “Who has leverage in the NAFTA renegotiation?” Policy Options, 25 July 2017, 3.
26
Grant, “The UNESCO Convention,” 349.
Author Biography
Patricia M. Goff is Associate Professor of Political Science at Wilfrid Laurier University, Waterloo, Canada, and Senior Fellow at the Centre for International Governance Innovation (CIGI). She has been a visiting fellow at USC’s School of International Relations and at the Graduate Institute of International and Development Studies in Geneva. She is the author of Limits to Liberalization: Local Culture in a Global Marketplace (Cornell University Press, 2006) about the treatment of cultural industries in NAFTA and GATT.