NAFTA and the Cultural Exception

photo credit: http://www.cbc.ca

As we enter another frantic week of NAFTA negotiations between Canada and the US designed to keep Canada in a trilateral accord after Mexico and US concluded their own bilateral agreement in late August, the old chestnut of culture has once again resurfaced. For Canada “culture” in trade terms means the ability to maintain discriminatory provisions in the areas of ownership, subsidies and regulation in order to protect Canadian “cultural industries”. Cultural industry is a flexible term but in trade terms generally refers to broadcasting and publishing–although clearly culture goes well beyond these industries.

The cultural exception goes back to the original Canada-US Free Trade Agreement negotiated in 1988. At the time, there was a great deal of opposition from various circles within Canada to free trade with the US. Nationalist groups like the Council of Canadians denounced the accord as a sell-out to US business interests that would undermine Canadian sovereignty and result in the eradication of Canadian culture, among other things. It was considered a political necessity by the government of the time to show that it was standing up for Canadian culture, a “fragile plant” allegedly threatened by Canada’s proximity to the cultural and content powerhouse of the United States. The problem was that what Canada considered to be a “cultural industry” was viewed in the US as an entertainment or publishing business. The result was the classic ambiguous compromise.

Article 2005 of the Canada-US FTA stated that;

“1. Cultural industries are exempt from the provisions of this Agreement” (with minor exceptions)

“2. Notwithstanding any other provision of this Agreement, a Party may take measures of equivalent commercial effect in response to actions that would have been inconsistent with this Agreement but for Paragraph 1”.

 

In other words cultural industries (unspecified) were exempt but if Canada applied any discriminatory measures that violated the agreement in the name of culture, the US was fully within its rights to retaliate with measures of equivalent value. The same provision was carried over into NAFTA. Given this standoff it is not surprising that the cultural exemption has never been invoked.

At the time that NAFTA renegotiations were launched last year, among Canada’s ten main negotiating objectives was protecting the cultural exemption. However, the attention soon turned to other more thorny issues, like auto trade, Canada’s protected dairy market, a NAFTA sunset clause and the US desire to claw-back the NAFTA-specific dispute settlement mechanism (Chapter 19). It was not until last week that culture suddenly resurfaced as an issue when Prime Minister Justin Trudeau raised it, indicating that Canada would not sign an Agreement that did not protect culture, including the news media. He used the example of a US network buying a Canadian broadcaster as an illustration of what should not be allowed to happen.

While it is true that in its annual National Trade Estimates report on Foreign Trade Barriers, the US Trade Representative’s Office listed several “barriers” in the cultural field, namely Canadian content requirements, lack of simultaneous ad substitution for the NFL Superbowl Game (for a fuller explanation of the intricacies of this arcane issue, see my earlier blog here), and concerns of some US border broadcasters that their signals were being rebroadcast in Canada (under a compulsory licence) without their consent, yet the issue of investment restrictions prohibiting ownership of Canadian broadcasting entities was not mentioned. (There is one reference to ownership restrictions on “the cable TV industry, a major competitor for Internet access services” in the context of concerns about investment restrictions in telecommunications services, but this is a different issue).

The annual National Trade Estimates report is a “laundry list” of every conceivable barrier or potential barrier to US exports globally and hardly constitutes a negotiating mandate. In fact if you comb through the 18 pages of the US NAFTA negotiating objectives published by USTR you will be hard-pressed to find the word culture mentioned even once. (I couldn’t). Why then did the cultural exemption suddenly rear its controversial head again last week?

There is speculation that the Trudeau government’s sudden discovery of the need to protect Canadian culture is more about politics than policy. It is useful to set up a potential “win” in the (likely) event that Canada will have to make some compromises on dairy access and possibly dispute settlement in order to clinch a deal. The risk is that while eliminating the cultural exemption may not have been very high on US Trade Representative Robert Lighthizer’s “to do” list, by making it a key element that it has to retain, Canada has just put a bullet into the chamber of Lighthizer’s gun. It may now have to make some additional concessions to keep the exemption. The real question, however, is whether Canada needs a cultural exemption or is this really just about optics?

The experience of how culture was handled in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which Canada has yet to ratify, is instructive. As I noted in a commentary back in late 2017 when Canada was seeking to leverage more last-minute concessions out of its ten CPTPP partners–to the point that Canada almost sunk the deal and only got back on board when it became clear that the other negotiating partners were prepared to move ahead without it–in the original TPP Canada had fully retained its ability to protect and subsidize cultural industries by successfully negotiating chapter-by-chapter exceptions. There was no need to make any changes in the revised CPTPP Agreement. Nonetheless, at the last moment Canada put a demand for a full cultural exception on the table, probably to strengthen the political credibility of then-Canadian Heritage minister Melanie Joly who was taking a lot of criticism over her handling of the Netflix file. This was all about optics rather than substance. In the end, Canada did not get a cultural exception override clause but negotiated bilateral side deals with each of the CPTPP partners allowing it to take discriminatory measures to promote Canadian content, if necessary.

Getting back to the fundamental question as to whether Canada really needs a cultural override in NAFTA in order to promote Canadian cultural industries, I was surprised to read Michael Geist’s latest blog where he states that a blanket culture exemption in NAFTA is unnecessary. For once, and on this point, I agree with Dr. Geist although I take issue with his conclusion that giving up this demand would allow Canada to focus on other digital issues, such as resisting the move to a longer term of copyright protection. In fact, this is something that would be in Canada’s interest and would put Canada in line with a measure adopted by all developed and many developing countries.

Practically, however, I suspect that no Canadian government will allow itself to be accused of “selling out” Canadian culture, even if an exemption is unnecessary. Canadians already are prolific consumers of US content, and that is not going to change. In fact, with digital access becoming more and more prevalent, outdated measures like simultaneous substitution of local commercials into cable feeds of US produced programs become increasingly irrelevant. Maintaining a walled garden where Canadian content is fertilized with funds skimmed from Canadian broadcasters is a practice that is increasingly being challenged by technology, with Netflix being the most obvious example.

None of that is going to change the current political need in Canada to find a few “wins” in an increasingly difficult NAFTA negotiation where the negotiating partner holds most of the cards. One of those wins at the end of the day may well be maintaining the status quo on the cultural exception. But does it really matter?

© Hugh Stephens 2018. All Rights Reserved.

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