ABUNDANT PARADOX: THE TRADE AND CULTURE DEBATE
W.A. DYMOND AND MICHAEL M. HART 
“More matter with less art”
(Hamlet Act II, Scene2)
INTRODUCTION
The relationship between Canadian trade policy and cultural policy first burst into full public
debate during the negotiation of the Canada-US Free Trade Agreement (CUFTA) in the 1980s.
While there had been some isolated episodes of conflict between Canadian trade and cultural
polices in the 1960s and 1970s, the CUFTA negotiations brought two well-armed protagonists
together in hand-to-hand combat. The debate ended in a temporary truce with the cultural
exemption in the CUFTA, and subsequently in the North America Free Trade Agreement
(NAFTA). The truce broke down in the late 1990s in the face of serious disputes with the US
over specific Canadian measures and the onset of multilateral negotiations on foreign
investment, services negotiations in the World Trade Organization, and the negotiation of the
Free Trade Agreement of the Americas (FTAA). As a result, the trade/culture nexus has assumed
a place near the centre of public debate over the direction of Canadian international trade and
investment policy. Like the CUFTA debate, the discussion is characterized by distrust and a
woeful lack of mutual comprehension between the advocates of cultural sovereignty and the
defenders of trade and investment agreements.
Cultural sovereignty believers reject the notion that cultural goods and services should or
can be treated as ordinary goods. In their view, subjecting trade in cultural goods and services to
international trade rules denies the special characteristics of the cultural industries and the crucial
role they play in defining national identity and reinforcing national attachment. Trade agreement
supporters disagree that trade in cultural goods and services should be outside the bounds of
international trade and investment rules. They contend that, like all internationally traded goods
and services, cultural goods and services result from the application of capital, technology, and
labour. Similar to other sectors, the cultural industries depend upon success in the commercial
marketplace for their prosperity. A subtext for this debate is the controversy surrounding
globalization. Cultural sovereignty advocates argue that international trade erodes the capacity of
nation states to promote national cultural expression and that this erosion is aided and abetted by
international trade rules. Supporters of the trade system retort that trade enriches economic and
cultural choices for people around the world. While there are many variations and nuances in the
presentation of arguments of both sides, essentially it is a debate between two solitudes. The
government position, trapped between these solitudes, is heavy on posture and light on
substance. As Queen Gertrude admonished Polonius, “more matter with less art” is required if
the debate is to resolve itself into some practical negotiating positions.
The debate is replete with paradox. The argument of the cultural industries — that the
production of cultural goods and services is so close to the national soul that it requires special
treatment — echoes the haunting argument that international trade threatens the family farm. The

William Dymond is the Executive Director of the Centre for Trade Policy and Law at Carleton University
Michael Hart is Distinguished Fellow to the Centre for Trade Policy and Law at Carleton University
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demand by some in the cultural industries that the government support (i.e., subsidize) domestic
production and consumption, their complaint that foreign products occupy too much shelf space
in the national market, their pleading for tax exemptions, and their appeals for more content
quotas, are reminiscent of the equally passionate pleas from the representatives of protected or
threatened sectors in earlier years. Their long-standing demand that trade agreements provide a
total exemption for cultural products and services is the polar opposite to a cardinal principle of
Canadian trade and foreign policy: Canadian interests are best advanced and protected through
international agreements.
Trade agreement supporters can make a strong economic case for the applicability of the
rules. Their case is bolstered by the traditionally pragmatic approach governments have used in
negotiating and in applying the rules. Multilateral and regional trade agreements have a long
history of tolerating, even encouraging, special trade restrictive regimes for politically difficult
sectors such as textiles and agriculture. If such regimes can exist within the architecture of
international trade rules, there is every reason to believe that trade in cultural goods and services
can be fitted within the system in a manner compatible with expanding trade and vibrant cultural
expression.
The February 1999 report of the Cultural Industries Sectoral Advisory Group on
International Trade marks a decisive break with the past. It recognizes that technology is
threatening the efficacy of traditional cultural industry support polices. It acknowledges that
countries all over the world have benefited economically from the liberal approach to trade and
supports the worldwide trend towards more open trade. There is, however, in the industry’s view,
a need to find a balance between cultural policy objectives and international trade agreements.
The report calls upon the government to abandon the cultural exemption and negotiate in its
place a new international cultural diversity instrument to define the rules of the game for trade
and investment in cultural goods and services. While the language of the report is defensive,
reflecting the bunker mentality that continues to inflict much of the Canadian industry, it does
point to a way to move the debate off its sterile centre and effect a much needed and long
overdue reconciliation between the trade and cultural policy solitudes.
This paper argues that the needs of Canadian cultural industries can and should be
accommodated within the architecture of international trade rules. An effort to devise a selfcontained set of rules, which attempts to limit existing trade rights and obligations, will face the
implacable opposition of major exporters of cultural goods and services. An effort to impose
disciplines upon the use of cultural support measures, additional to those within current
agreements, is equally doomed to failure. The current situation, where such measures are covered
by the rules, for example tariffs on goods, but others are not, for example, quotas on services, is
clearly unsatisfactory. Fifty years of experience with creating and modifying international trade
rules have established ample precedent for devising either new rules or modifications to existing
rules to meet the needs of the cultural sector. An effort to devise and negotiate such a regime is
fully justified by the prospect of bringing security and predictability to the rules.
The paper does not address whether Canadian measures to defend and promote the
cultural industries make sound public policy. Such an issue can generate a robust discussion at
any moment where the heat of argument frequently obscures the issues at play; for the purposes
of this paper, this issue is left for another occasion. Rather, the paper seeks to provide guidelines
for the negotiation of an appropriate international rules-based regime on the assumption that the
Canadian government, for the foreseeable future, will maintain an array of measures to govern
the exchange of cultural goods and services between Canada and other countries.
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Part one examines the origin and rationale of the cultural exemption in the CUFTA and
the NAFTA and assesses its effectiveness. Part two discusses the report of the Cultural Industries
Sectoral Advisory Group. Part three surveys the existing WTO and NAFTA provisions which
affect cultural industries. Part four identifies some of the principal issues for resolution in the
development of rules for the cultural sector. A conclusion suggests some practical steps to move
the debate forward.1
PART ONE: THE CULTURAL EXEMPTION
Article 2005 of the CUFTA exempts cultural industries from its provisions except as regards
tariff elimination on cultural goods, cable retransmission rights, and provisions relating to the
divestiture of an enterprise in a cultural industry. It also provides either Party the right to take
measures of equivalent commercial effect in response to actions that would have been
inconsistent with the CUFTA but for the exemption. This exemption was carried over in Article
2106 and Annex 2106 of the NAFTA. A cultural exemption has been incorporated in the
subsequent Canada-Israel, Canada-Chile, and Canada-Costa Rica free trade agreements as well
as in Canada's 24 bilateral Foreign Investment Protection Agreements. In the 1994 WTO
agreement on services (The General Agreement on Trade in Services — GATS), Canada
declined to schedule any cultural industry for liberalization under the agreement and exempting
film co-production agreements from the obligation to provide most-favoured-nation treatment.
During the failed negotiations for a multilateral investment agreement (MAI) in the Organization
for Economic Cooperation and Development, 1995-1998, Canada made clear that the
incorporation of a cultural exemption in the agreement, either generally or for Canadian
industries, was a non-negotiable demand (Dymond, 1999). In the new round of GATS services
negotiations, which began in 2001, the government has stated that it will not make any
commitment that restricts its ability to achieve Canadian cultural policy objectives until a new
international instrument can be established that is designed to specifically safeguard the right of
countries to promote and preserve their cultural identity.2
The origin of the cultural exemption lies in the negotiation of the CUFTA. Prior to the
CUFTA, Canadian policies designed to promote Canadian cultural industries did not encounter
any challenges under international trade rights and obligations. The principal policy instruments
— direct and indirect subsidies, ownership and investment restrictions, and Canadian content
regulations for the audio-visual sectors — did not conflict with Canadian obligations under the
General Agreement on Tariffs and Trade (GATT). It helped that the GATT’s disciplines were
confined to international trade in goods.3 Canada had not had recourse to GATT Article IV,
which permits the establishment of quotas to limit the showing of foreign films. Further, Canada
had entered into no obligations limiting its right to restrict or discriminate against foreign
investment.
1. This paper does not discuss intellectual property issues.
2. See statement of government’s negotiating position on Web site of Department of Foreign Affairs and
International Trade (DFAIT).
3. The import prohibition introduced in the 1960s on split-run magazines was arguably contrary to the GATT
(Article XI) but was not challenged until the WTO case on Sports Illustrated. For a discussion of this case and the
background to it (Acheson and Maule, 1999).
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The launch of comprehensive free-trade negotiations with the US raised the prospect that
Canadian cultural support policies might become subject to trade agreement obligations for two
reasons. First, the number and intensity of disputes with the US over such policies had been
growing. In the 1960s, Canada amended the income tax act to impede the flow of Canadian
advertising revenues to US-based magazines prompting strong US protest. In the 1970s, a similar
measure was imposed on Canadian advertising placed with US television and radio stations
broadcasting into Canada. In the 1980s, Canada required a US company to sell a Canadian book
publisher, which it had acquired as part of an acquisition of a Canadian corporation, to Canadian
interests. The US certainly saw the negotiations as an opportunity to seek changes in Canadian
polices that limited access to the Canadian market. Second, in the consultations with Canadian
officials that established the parameters of the negotiations, US officials made clear that a freetrade agreement would need to go beyond trade in goods and address services, intellectual
property, and investment issues. Indeed, it was US frustration with the absence of multilateral
progress on such issues in the GATT and the opportunity to advance US interests bilaterally,
which made a free trade agreement with Canada attractive to the American business community
and saleable to the US Congress (Hart et al. 1994:95-98). Negotiations in such areas directly
engaged the economic interests of Canadian cultural industries.
The relationship between trade and cultural policy objectives in the negotiations
commanded a high level of political attention, quite apart from the evident need to devise ways
and means to insulate cultural support measures from the disciplines of the agreement. Some
weeks after the formal launch of negotiations, leading members of the Toronto-based cultural
industries met with senior federal ministers to underline their opposition to free trade in
principle. Throughout the negotiations, these groups waged a vigorous campaign against any
agreement. During the federal election of 1988, they were leading members of the coalition that
sought to defeat the agreement and the government (Doern and Tomlin, 1991). It was evident to
the government that, while as a technical matter an array of devices were available and
negotiable to assure the necessary immunities, nothing short of a general exemption would
provide a usable weapon to counter the attack of the cultural industries on the agreement. Hence,
it was no surprise that in the first major speech by a senior Canadian minister in the US after the
decision to proceed with negotiations, External Affairs Minister Joe Clark, declared that
“Canada’s culture was not on the negotiating table.” While this declaration no doubt baffled his
audience (the New York Foreign Policy Association), it clearly established the Canadian position
on cultural industries for the negotiations (Hart et al. 1994:110).
While borne of necessity and serving a useful political purpose, the cultural exemption
was a sharp departure from the bedrock principles not only of Canadian trade policy but also
from Canadian foreign policy generally since the end of World War II. Over the past half
century, Canada has been among the premier rule makers of the world. Present in most
international organizations, Canada has been committed to the negotiation of multilateral,
regional and bilateral rules-based systems and procedures to discipline nation-state behaviour.
The scope of Canadian international rule-making impulse covers virtually the whole range of
intercourse between nation states. The impulse to international regulation owes its force to
Canada’s perception of itself as a country whose most intimate foreign relations are with
powerful countries which, unrestrained, will take little account of, or even damage, Canadian
interests. Hence, the instinct to resolve problems through agreed rules and procedures and, in so
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doing, to cede Canadian sovereignty has been a constant factor throughout the whole range of
Canadian foreign policy endeavours.4
Canadian trade policy over this period has been fully consistent with the constant search
for rules-based systems and procedures (Hart 1998). Through the now 55-year history of the
multilateral trading system embodied in the GATT and its successor, the WTO, the policy
objective has been to achieve an international regime that provides predictability and certainty
for Canadian trade. As GATT trade negotiations expanded their scope beyond customs tariffs to
a growing range of disciplines covering non-tariff measures, Canada has been a signatory to each
of the separate agreements ranging from anti-dumping actions to rules governing government
procurement to subsidies on aircraft production. In the CUFTA; and subsequently the NAFTA,
Canada sought and obtained broader and deeper limits on unilateral measures to interfere with
the international exchange of goods and services. The evolution of the international trade system
has involved the willing surrender of Canadian sovereign decision-making over a growing area
of domestic policy-making in favour of rules that place strict limits on the scope for unilateral
action and make those limits subject to enforcement through dispute settlement. Furthermore, the
system has been readily able to accommodate special protective regimes in sectors such as
textiles and agriculture5 where intense political sensitivities required a negotiated departure from
the general rules. Notwithstanding the politics of culture in Canada, the policy of seeking to
ensure that trade and investment in cultural goods and services are outside any agreed
international disciplines and established means for resolving disputes stands in stark contrast
with Canadian trade policy.
In trade policy terms, the objective of the cultural exemption is to establish a special
regime for trade and investment in cultural goods and services of a kind that would be familiar to
any negotiator of textile and agricultural agreements within the GATT. The exemptions does
this, however, in a highly inefficient manner. For example, it is not comprehensive; in all the
agreements that contain the exemption, customs tariffs are eliminated for goods used in the
cultural productions.6 Furthermore, the capacity to take equivalent measures to respond to
actions covered by the exemption is tantamount to a right of automatic retaliation for a breach of
obligations. Retaliation rights are only available under normal trade rules after a process of
dispute settlement and the opportunity to remedy the offending action or to offer compensation.
It is not, therefore, surprising that Canada and the US offered radically different explanations of
the meaning of the exemption. Canada contended that the CUFTA and NAFTA left untouched
Canada’s unique cultural identity and Canada’s ability to pursue cultural objectives and that the
US right to retaliate was limited to measures inconsistent with the CUFTA. In the case of the
CUFTA, the US Administration assured the Congress that it would discourage Canadian action
4. The government’s 1995 foreign policy statement, Canada and the World is a celebration of Canadian
achievements in international rule-making and promises to continue along this road. In section V, Promoting
Canadian Values and Culture, the statement declaims “The international system must be rules by law not by
power.” A cultural exemption is, of course, the polar opposite of this high principle.
5. The WTO Agreement on Textiles and Clothing, which provides for significant departures from the rules of nondiscrimination and quota prohibition, is an example of a fully elaborated special regime. The waiver granted to the
US to depart from any rules conflicting with its internal support measures is an example of an ad hoc special regime.
Canada was an enthusiastic participant in the former and learned to tolerate the latter.
6. If the exemption were, in fact, comprehensive, pre-FTA tariffs on a vast range of inputs to the industry, for
example, sound recording equipment, would have been maintained.
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under the exemption; in the case of the NAFTA, the Administration indicated it would monitor
Canadian treatment of the cultural industries, particularly in respect of measures which in the US
view unfairly discriminate against US exports.
A well-ordered special trade regime needs, at a minimum, to establish certainty and
predictability in trading relationships for the goods and services affected when the objective is to
induce trade results different from those which would occur in the absence of such a regime. It
needs also to provide for regular review, consultation, and dispute settlement mechanisms to
ensure that its implementation meets the objectives of the participants. By these criteria, the
cultural exemptions of both the CUFTA and the NAFTA fall well short. While neither
exemption has been tested, neither Canadian actions nor US responses in the two cases since the
NAFTA entered into force, provide any evidence that the exemption and means for disciplining
it have not proven attractive.
In 1994, the US contended that the cancellation of the licence held by Country Music
Television, a US-based company, to sell programming on Canadian cable systems, was
unreasonable and discriminatory, but not that it was counter to any specific obligation. The US
government threatened retaliation against Canadian telecommunication and cultural enterprises
operating in the US. In reaching such a judgment and formulating a threat to retaliate, it had
recourse neither to the GATT nor the NAFTA, both of which offer mechanisms for dispute
avoidance and conciliation. In the end, a partnership was formed between the US company and
its Canadian competitor, resulting in a settlement. In 1997-1998, Canadian measures amounting
to an import prohibition on magazines were successfully challenged by the US under the WTO,
rather than the NAFTA, and led to a threat of retaliation (Acheson and Maule 1999). These cases
suggest that the terms and conditions under which the exemption may be invoked, and any
limitations that may exist on the US right to retaliate, remain essentially unknown and probably
unknowable.
If the objective of the exemption was to leave unimpaired Canada’s ability to pursue
cultural objectives, it has missed its target. A new approach is needed.
PART TWO: REPORT OF THE CULTURAL INDUSTRIES
SECTORAL ADVISORY GROUP
The Cultural Industries Sectoral Advisory Group on International Trade (SAGIT) is part of the
formal consultative system created by the government in 1986 to provide advice on international
trade issues. There are currently twelve SAGITs, each comprised of senior business executives,
and representation from industry associations, labour unions, environmental groups, and
academia. Members serve in their individual capacities and not as representatives of specific
entities or interest groups. Members are appointed, for a two-year (renewable) term, by the
Minister for International Trade to whom the SAGITs report.7
In February 1999, the Culture SAGIT delivered a major report to the government,
“Canadian Culture in a Global World.” The report, which was requested by then Minister of
International Trade, Sergio Marchi, is the servant of many masters. It celebrates the
achievements of Canadian cultural industries in delivering goods and services to the Canadian
7. In addition to the cultural industries, there are groups for textiles, fur and leather; services; mining, metals and
minerals; medical and health care products; information technologies; forest products; fish and sea products;
environment; energy chemicals and plastics; apparel and footwear; and agricultural, food and beverage. The DFAIT
Web site provides information on the operation of the SAGITs.
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market in the face of stiff international competition, records the success of the government’s
support programs, identifies the threats posed to cultural industries by rapid technological
changes in the industry and global economic integration, and proposes a new approach to
cultural trade policy. Specifically, the report proposes that Canada negotiate an International
Cultural Diversity Instrument that would establish clear rules on permissible and prohibited
cultural support policies. The government has embraced this recommendation8 and is engaged in
consultations with a growing group of countries intended to lead to the negotiation of such an
instrument.9
Elegantly written and faithfully maintaining the rhetorical flourishes that distinguish the
work of this SAGIT from its more prosaic stable mates, the report rests its analysis on two
critical assumptions. The first is that cultural goods and services are different from all other
goods and services and thus require special treatment under international trade and investment
rules. Culture, the report argues, is
an integral part of who [Canadians] are … and represents the values that makes
us unique from other nations. … As the world becomes more economically
integrated, countries need strong local cultures and cultural expression to
maintain their sovereignty and sense of belonging, [hence] cultural goods and
services are different from the goods and services and other industries and should
be treated differently (7-8).
The second is that the technological revolution in the production and distribution of cultural
goods and services is threatening the efficacy of traditional support polices. For example, the
report notes that until recently, Canadian consumers had few choices in how they received
programmes and information (22). Past efforts to provide a market for Canadian cultural
products in broadcasting succeeded because the government could allocate scarce bandwidths
and require broadcasters, cable companies, and other service providers to provide space for
Canadian content. With new technologies, consumer choice expands significantly, rendering the
market more fragmented and more difficult to regulate. Canadian cultural industries face the
additional challenge of producing for a small market and lack the economies of scale which are
available to its US competitors (6).
It is these assumptions that lead the SAGIT to adjust the traditional posture of the cultural
industries on international trade agreements. Unlike their predecessors of 15 years ago, which
opposed trade liberalization, the cultural industry representatives have come to the view that “To
prosper we [Canada] must continue to participate … in international trade negotiations” (23).
The report recognizes that countries all over the world have benefited economically from the
liberal approach to trade and supports the world-wide trend towards more trade and greater
liberalization. There is a need, however, to find a balance between cultural policy objectives and
international trade negotiations. Technology, challenges to Canadian support policies, and
continuing negotiations in the WTO, which will bring, in the SAGIT’s view, more and more
cultural industry sectors under pressure, highlight “the urgent need for strong cultural policies in
8. Trade Minister Pettigrew says that the government is keeping all options open on the most appropriate forum for
negotiating such instrument, including the WTO. Pettigrew Speech, 2001/24, June 11, 2001.
9. On the most recent meeting, see Canadian Heritage press release, September 25, 2001.
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the future … [since] without strong cultural polices, we will become simply producers and
consumers of tradeable goods and services” (26).10
The SAGIT reviews four options for cultural trade policy. One is a broad cultural
exemption in all new international trade agreements. The second is to make no commitments in
the cultural sectors. The third is to create a new international instrument on cultural diversity.
The fourth is sector-specific measures negotiated between Canada and other countries. Without
indicating why three of the four options are unattractive, the SAGIT makes a clear choice for a
new instrument, which would provide global coverage of cultural goods and services, include all
financial and tax support measures, address competition policy issues to address market
dominance problems, and deal with copyright policy. The report sets out the basic requirements
for such an instrument (31): It would recognize the importance of cultural diversity,
acknowledge that cultural goods and services are significantly different from other products,
recognize that domestic support measures and policies are intended to ensure access to a variety
of indigenous cultural products, set out rules on the kind of domestic regulatory and other
measures that countries can and cannot use to enhance cultural and linguistic diversity, and
establish how trade disciplines would apply or not apply to cultural measures that meet the
agreed-upon rules.
As the product of an industry whose creative achievements have traditionally contrasted
with its hidebound orthodoxy on international trade issues, the report is an important step
forward in recognizing that prospering in a global world can not be realized without a set of
international rules and procedures for their enforcement. At the same time, there are some
glaring limitations in the analysis which impede the development of practical and consistent
negotiating positions. These limitations may be divided into three categories.
First, there is an obsession with the share of imports in Canadian consumption of cultural
goods and services, combined with a failure to recognize the growing role which exports of
goods and services play in the economic health of the industry. It is an article of faith for
Canadian cultural industries that foreign competition dominates the domestic market. The report
documents the bad news (7) that foreign firms and products provide 45 percent of book sales in
Canada, 81 percent of English-language consumer magazines and 63 percent of magazine
circulation revenue, 79 percent of the retail sales of tapes, CDs, concerts, merchandise and sheet
music, 85 percent of film distribution, and between 94 and 97 percent of screen time in Canadian
theatres.
The report does not, however, record the growing share of Canadian exports of cultural
goods and services. A recent Statistics Canada study (2001) reports that exports of Canadian
cultural products of all kinds were worth $4.5 billion in 2000, an increase of almost 40 percent
since 1996. Imports have risen 23 percent since 1996 to reach $7.5 billion. Not surprisingly it is
the US which is the major export market for Canadian cultural products and the major source of
imports.11 While trade figures on the cultural industries are more than usually untrustworthy
indicators of what is happening in the marketplace, the importance of exports combined with a
10. Many in the Canadian industry would endorse the view that “standard explanations of protectionism do not
satisfy … because they emphasize economic considerations at the expense of nonmaterialist motivations” (Goff
2000).
11. For a thundering denunciation of Statistics Canada’s mercantilist conclusion that a goal of cultural policy should
be to redress the imbalance, see William Watson in the National Post, “The Culture of Mercantilism,” June 23,
2001.
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significant level of imports is the sign of a healthy and mature sector of the economy (Acheson
and Maule 1999). This pattern of high dependence on both imports and exports is replicated
across scores of mature industries in Canada.12 Accordingly, while the industry stress is upon
maintaining flexibility for cultural support policies in the development of international trade
rules, industry performance suggests that assuring and improving access to export markets for
Canadian cultural goods and services should enjoy a high position on Canada’s list of negotiating
priorities.
Second, there is an assumption that all cultural support policies are equally effective and
should be subject to international disciplines only to the extent necessary to achieve a new
international instrument. The report recognizes implicitly that a new international cultural
diversity instrument will necessarily discipline some support measures and prohibit others. Since
it would be illusory, if not irresponsible, to seek to immunize all current and prospective
Canadian support polices from the rules, choices will have to be made. One criterion should be
decisive in deciding the kinds of disciplines that Canada is prepared to accept: the extent to
which cultural policies generate goods and services which Canadians are prepared to purchase.13
There can be little merit in policies that generate an unsaleable inventory of cultural products. As
a precondition to developing a coherent position, a number of issues warrant careful study.
Among these are the relevance of content quotas in a world of steadily increasing consumer
choice made possible by technology, and the belief that Canadian ownership of cultural
industries is essential to the production of Canadian cultural goods and services.14
Third, and most serious of all, is the insistence that cultural goods and services are so
qualitatively different from other goods and services traded internationally that a new instrument
is essential, particularly an instrument that stands outside current and prospective international
trade rules embodied in the WTO and regional agreements such as the NAFTA. The economic
circumstances confronting the cultural industries — a small domestic market and the
employment of capital and labour in a sector dominated globally by companies resident in other
countries — are equally present in many other Canadian industrial sectors. Across a range of
such sectors, from agriculture to machinery and commercial aircraft, Canadian companies are
successful competitors in world markets and conduct their trade under the rules established by
the WTO as supplemented by regional trade agreements. The production of cultural goods and
services are characterized by the high cost of the first unit of production, compared to the
decreasing amounts for each subsequent unit. The same factors and risks apply in any industry,
which requires heavy up-front research and development expenditures, leading to low per-unit
costs of production. Petroleum is an example of a traditional industry with such characteristics,
while pharmaceuticals, biotech and computer software are examples of new industries. The two
12. The automotive sector (receipts 97 billion and payments 77 billion) agriculture and fishing (receipts 27 billion,
payments 18 billion and machinery and equipment (receipts 106 billion and payments (122 billion) are examples.
All figures for 2000. Statistics Canada, Canadian International Merchandise Trade, Catalogue no. 65-001.
13. As Daneil Schwanen (2001) notes, “The ultimate test of a successful cultural policy is in resident’s voluntary
take-up of cultural activities and products of Canadian origin that are both commercially available and state
supported.” Acheson and Maule trenchantly observe that ‘there is little evidence that Canadians have been
conditioned into a higher state of being by a number of largely unwatched shows taking up airspace” (1999:155).
14. Such a belief is in fact not only counter-intuitive, it is counter-factual. For example, notwithstanding Canadian
ownership of the film distributor Cineplex Odeon, the SAGIT gloomily records the minuscule portion of Canadian
screen time taken up by Canadian films.
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central issues for the cultural industries, as with any sector, given Canadian resource
endowments — most notably for culture a small population — are 1) the opportunity for
Canadians to invest, produce, and work in the industry and 2) the international trade rules that
govern the pursuit of such opportunities.
These limitations do not detract from the central conclusion of the report: that it is urgent
to focus on the rules that apply to this sector and to determine whether a new set of rules is
required.
PART THREE: THE CURRENT WTO AND NAFTA RULES15
Multilateral trade rules governing goods and services generally also apply to trade in cultural
products. Unlike certain other sectors, such as agriculture, no special set of trade provisions
exists for the cultural sector. The general effect of the multilateral rules is that, with the
exception of screen time quotas for cinematograph films (GATT article IV), trade in cultural
products is subject to the same trade rules as other goods and services.
Multilateral rules governing trade in goods
The multilateral rules governing trade in cultural goods are found in the General Agreement on
Tariffs and Trade (GATT), as incorporated in the World Trade Organization Agreement (WTO),
now known as GATT 1994, and in the twelve ancillary agreements annexed to the GATT, which
develop some of these rules in greater detail. The rules of most relevance to cultural goods are
those concerning most-favoured and national treatment, tariffs, quotas, and subsidies. The rules
generally apply irrespective of the ownership of the firms producing, trading, distributing, or
consuming the goods.
The most-favoured-nation treatment rule (GATT Article I) prohibits the discriminatory
application of import tariffs or any other measure affecting trade in goods, as between members
of the WTO, unless a country is a member of a regional trade agreement, such as the NAFTA,
under the provisions of GATT Article XXIV, or as a result of any other preference that has either
been grand-fathered (e.g., the remaining elements of the British Preferential Tariff), or
specifically authorized by the WTO (or the GATT prior to 1995 and carried over into the WTO,
e.g., the preferential tariff rates applied by developed countries in favour of developing
countries).
The national treatment rule (GATT Article III) generally prohibits the discriminatory
application of internal trade measures, for example sales taxes, as between domestic and
imported goods. Article III: 8 excepts the payment of subsidies and the procurement of goods by
governments for their own use from this requirement. These are two important exceptions
conditioning some government policies in the cultural sector. Article III: 10 excepts screen-time
quotas for films from the rule of national treatment. Such quotas may be established pursuant to
Article IV.
The tariff rule (GATT Article II) prohibits the application of tariffs on imported goods by
a member at higher rates than is provided for in that member’s schedule listing the products on
which a member has undertaken obligations — or bindings — respecting tariff rates.16
15. Drawn from a CTPL paper prepared for the Department of Canadian Heritage.
16. The inscription of items in a member’s schedule results from negotiations. No member is required to make such
commitments on cultural or any other goods. Canada’s commitments, the result of more than fifty years of
multilateral negotiations, are set out in Schedule V, and involve bindings on virtually all goods.
11
The quota rule (GATT Article XI) prohibits the application of import or export
restrictions or prohibitions of any kind on any product except under specifically defined
conditions. One example is in cases where a member restricts imports to safeguard foreign
currency reserves pursuant to GATT Article XII.
A range of other rules are relevant in principle to trade in cultural goods, including a
prohibition of subsidies which are paid contingent either upon export of the product or upon the
use of domestic over imported goods (GATT Article XVI and the WTO agreement on subsidies
and countervailing duties), the right to impose additional tariffs in situations in which subsidized
or dumped goods cause material injury to domestic producers (countervailing and anti-dumping
duties pursuant to GATT Article VI and the WTO agreements on anti-dumping and on subsidies
and countervailing duties) and the right to impose duties or quotas temporarily to halt import
surges which cause serious injury to domestic producers (pursuant to GATT Article XIX and the
WTO agreement on safeguards). Government-owned firms producing or distributing cultural
goods are required to conduct their business in a way that does not disadvantage the import or
export interests of foreign-owned enterprises (GATT Article XVII). Under the general
exceptions article (GATT Article XX), a country may impose barriers to trade to protect national
treasures of artistic, historic, or archaeological value.
Historically, none of these articles has played any significant role in the governance of
international trade in cultural goods.17 While some in the Canadian industry may argue that the
WTO subsidy rules could limit government initiative, it is highly unlikely given the economic
characteristics of the cultural sector, that the current rules would give rise to serious disputes
unless the government were to grant explicit export subsidies.18 Similarly, it is difficult to
imagine that there are serious prospects of the US, or any other government, bringing successful
countervailing, anti-dumping, or safeguard actions against Canadian exports of cultural goods.19
The rules allow any member to seek redress for trade measures it considers to be
inconsistent with the GATT. These procedures provide for a process of consultation,
conciliation, and, if necessary, arbitration. If a member against which a complaint has been
sustained through the WTO dispute settlement procedures does not bring the measure into
conformity with the rules, the complaining member has the right to compensation in terms of
trade benefits on other products or the right to retaliate, that is, to impose trade barriers against
the products of the offending member.
17. Some may argue that the WTO Periodicals case established a sweeping precedent regarding the application of
the WTO to the cultural sector. We disagree. The Periodicals decision was based on narrow and well-founded
grounds and specifically noted that it did not seek to limit any member government’s ability to pursue cultural
objectives.
18. It is important to stress that neither the GATT nor the WTO prohibit governments from using subsidies as
instruments of policy. Only export subsidies and subsidies paid contingent upon using domestic goods are
prohibited. Subsidies that cause harm to the trade interests of other governments may be subject to consultation and
counter measures, but only under limited circumstances.
19. At the same time, it should be noted that the US adversarial system encourages competing interests to bring
cases of dubious merit, such as the possible countervailing duty complaint by the Screen Actors Guild about
subsidies to Canadian film production. There is not enough space here to assess the many hurdles that need to be
crossed to bring this complaint to a happy conclusion for the Guild. It would also be foolhardy to deny, however,
that the highly politicised US system can yield strange results.
12
Multilateral rules governing trade-related investment measures
The WTO Agreement on Trade Related Investment Measures (TRIMS) applies to trade in goods,
including cultural goods, and provides an amplification of the provisions of GATT Article III
(National Treatment). It generally prohibits the application of measures imposed upon foreign
investors as a condition of investment. Included among these measures are requirements for the
purchase or use of products of domestic origin or a limitation of imports of products matched to
the volume of exports of the foreign-owned enterprise.
This Agreement could come into play with respect to a foreign investment in the cultural
goods sector, which was permitted under the Investment Canada Act conditional on the investor
meeting commitments respecting the utilization of Canadian goods and services.
Multilateral rules governing trade in services
The WTO rules on trade in cultural services are found in the General Agreement on Trade in
Services (GATS). The GATS defines four types of trade in services: services delivered by the
producer in the country of origin to a consumer from another country (e.g., tourism or education
services); services delivered to a consumer in one country by a producer located in another (e.g.,
consulting services through electronic media); services provided by a foreign-owned enterprise
(e.g., as a result of an investment or the establishment of a commercial presence in that country,
e.g., accounting services), and services provided through the temporary presence of persons of
another country in the consuming country (e.g., engineering services).
While the GATS is based on similar concepts as the GATT, for example, of mostfavoured and national treatment, there are significant differences which constitute severe
limitations on their application to trade in cultural services. The most important is that the
commitments of members respecting access to import markets and the right to national treatment
are confined to those service sectors listed in a member’s schedule. Even then, members may
circumscribe any such commitments with a range of conditions. Further, exceptions are
permitted to the most-favoured-nation rule. There are no specific obligations respecting
subsidies, countervailing or anti-dumping duties, or safeguards.20
Since Canada undertook no obligations respecting national treatment or market access for
cultural services, no obligation on most-favoured-nation treatment in respect of film coproduction agreements, and specifically excepted measures affecting cable or broadcast
distribution of radio or television programming in the Telecommunications Annex, the effect of
the GATS on the import of cultural services in Canada is modest. The GATS rules with the most
direct impact on cultural services are the extensive provisions on the transparency of laws and
regulations governing trade in services.
As with trade in goods, procedures exist to resolve disputes. It is important to note that
there is no agreed international definition of the distinction between goods and services, and
conflicting interpretations have already arisen, most notably in the WTO case on split-run
magazines.21
20. Applying antidumping duties in the services sector raises very complex conceptual and methodological issues.
To date, no government has expressed much interest in going down this road. Since current WTO rules and US law
limit application of antidumping duties to trade in goods, the impact of an antidumping duty on the physical film
crossing the border is likely to be marginal. It can also be easily avoided through electronic transmission.
21. The WTO ruled that Canadian laws and policies affecting trade in periodicals were governed by the GATT as
well as the GATS, given the fact that magazines constitute a physical good but that selling advertising in such
13
The NAFTA rules governing trade and investment in North America
The NAFTA rules on goods follow the structure of the WTO. Additionally, however, trade in
cultural goods between Canada and the US and Canada and Mexico is specifically exempted
from the NAFTA (except the elimination of tariffs), as a result of the incorporation into the
NAFTA of the cultural exception set out in the Canada-US Free Trade Agreement. If a measure
is taken that would have been inconsistent with the NAFTA but for the cultural exemption, the
other country may take measures of “equivalent commercial effect.”
The NAFTA rules on services cover all service sectors unless these are specifically
excepted. The basic obligations involve both national and most-favoured-nation treatment to
cross-border service providers of the other countries and may not involve requiring such
providers to establish a “local presence” as a prerequisite to providing a cross-border service
except as required for legitimate regulatory reasons, such as consumer protection. Sectors can be
left “unbound,” providing scope for introducing non-conforming measures in the future. Canada
has inscribed a reservation to permit all layers of government full flexibility regarding various
services delivered as government services. Canada took a number of exceptions in the cultural
area, for example, communications. In addition, however, the application of the cultural
exemption to trade in cultural services aims to provide a blanket exception to the application of
the services chapter. However, as noted above, the efficacy of the exemption is highly
questionable.
PART FOUR: ISSUES FOR DISCUSSION
The Cultural Industries SAGIT’s report sets out broad principles for the negotiation of rules
governing international trade and investment in cultural goods and services. They make a useful
beginning towards the development of a negotiating position. There are, however, four issues
which require detailed analysis before a negotiating position on rules for the sector is established.
The first is that the design of rules for the cultural sector needs to be wedded to the
features of the sector to which it will apply. While cultural goods and services may be said to
enjoy the status of “merit goods,” that is, their output has value beyond that assigned by the
market, the fact remains that the sector’s prosperity largely depends upon its success in
commercial markets. In this respect, the industry exhibits the classic characteristics of a sector
producing goods and services for a small market, which deprives it of economies of scale and
specialization. The industry faces competition in domestic and export markets principally from
US firms, which enjoy the advantages of scale and specialization and which, moreover, produce
goods and services which, for commercial purposes, are on the whole essentially homogeneous.
In short, the sector displays the classic features of the Canadian manufacturing industry before
free trade with the US, in the 1960s for automotive products, and in the 1990s for all others.
Indeed, even the 100-year nightmare of Canadian manufacturers — that they could easily be
swamped by their lager US competitors — is echoed in the paranoia of many of the Canadian
cultural industries.22 There are, however, two significant differences between the situation of
magazines may constitute a service. The same point has been made in other cases, confirming the fact that the WTO
constitutes a single undertaking and that governments cannot pick and choose among the obligations set out in its
constituent agreements.
22. The cri de coeur in the SAGIT report that, without a strong cultural sector, Canadians risk becoming producers
and consumers of tradeable goods, recalls the Cassandras often heard during the FTA debate that US factories could
easily supply Canada with the addition of one late Friday shift.
14
Canadian manufacturing prior to the CUFTA and Canadian cultural industries, which should
inform the design of any special regime. The first is that the sector enjoys no import protection
with respect to cultural goods, but significant protection with respect to services and from
foreign investors. The second is that many companies in the sector have developed significant
export markets, particularly in the US. These factors suggest strongly that the highest priority to
be met by cultural rules should be the predictability and certainty that they can bring to trade in
cultural goods and services.
The second is the compatibility of Canadian cultural policy objectives with the
architecture of the international trade rules, now and in the foreseeable future. The overriding
purpose of the rules as they exist is to improve living standards through the expansion of
international trade.23 The architecture seeks to achieve such results through discipline on
discrimination, the progressive reduction and elimination of trade barriers, and joint decision
making, notably the resolution of disputes. Over successive rounds of multilateral trade
negotiations, and regional trade arrangements, the trade rules in many areas have been developed
into highly elaborate codes of conduct to reflect the evolution of international trade and
experience with international trade regulation. In addition to the rules on goods, services, and
intellectual property set out in the three main annexes to the WTO, there are some further 30
separate agreements and understandings that comprise the multilateral trade system. Further, the
system has also had the capacity to accommodate special regimes, for example in the
textile/clothing sector, providing for supervised departures from the rules accompanied by joint
surveillance. The resilience of the system makes it a highly suitable vehicle to meet the needs of
the Canadian cultural industries for certainty and predictability in the rules governing
international trade in its sector.
The third factor is the attractiveness of a new instrument to the US. The US accounts for
80 percent plus of Canadian exports and 90 percent plus of Canadian imports in the cultural
sector.24 All of Canada’s cultural trade disputes save one25 have been with the US. Accordingly,
the primary purpose of a cultural instrument should be to bring security and predictability to the
cultural trade relationship with the US. There is every reason to encourage Canadian and US
cultural industries to make common cause on a regime for trade and investment rules affecting
cultural goods and services. The industries in both countries, for example, film production and
book publishing, show patterns of continental integration not unlike the degree of integration in
other economic sectors.26 Protectionist actions or policies in one country can frequently harm its
own domestic interests.27 While all of the bilateral trade putes on culture have had the US as
23. This purpose is apparent from the preambulatory language of the Marrakech Agreement establishing the WTO,
which states “trade and economic relations should be conducted with a view to raising standards of living …”
Whether such ought to be the purpose of cultural trade rules, as opposed to other purposes, for example, cultural
diversity, is a legitimate question for debate. That economic expansion is, in fact, the objective is beyond question.
24. See Statistics Canada, Market Opportunities: International Trade in Cultural Goods and Services.
25. The exception was a dispute with a Dutch company over film distribution rights resolved when the Dutch
company was bought by a Canadian company (Acheson and Maule, 1999:315-317).
26. Just as a strike in US autoparts products can shut down Canadian assembly plants, so a strike by US actors and
screenwriters can have a serious effect on the substantial Canadian industry that services US production.
27. In the 1980s, Canada applied tariffs to the imports of US books to retaliate for US tariffs on Canadian exports of
roofing shingles. Canadian book publishers, normally the groups most interested in protection, howled over the loss
15
plaintiff and Canada as defendant, the reality is that a highly unstable situation in terms of the
applicability and interpretation of existing rules is damaging to the economic interests of
industries in both countries. There would be substantial economic benefit to both countries from
bringing clarity and predictability to the international trade rules.28 Further the terms and
conditions of access to global export markets are important to both countries. It would be wholly
wrong to believe that restrictions maintained in European and Asian markets are solely of
interest to the US. To the extent that such policies, in the name of cultural diversity, damage the
economic interests of US companies, Canadian companies will not be immune. A cross-border
consensus would not only make a powerful coalition in negotiations, it would also create the
basis for a cross-border redefinition of the rules in the event that multilateral negotiations proved
too time-consuming or too problematical in terms of their capacity to generate a result
satisfactory to both countries.
The fourth is the prospect that a cultural instrument can be negotiated outside the current
international trade rules, either multilaterally, as in the case of the WTO, or regionally, as in the
case of the NAFTA. Such an instrument must involve the major exporters and importers of
cultural goods and services if security and predictability are to be achieved. 29 A cultural
instrument from which major traders abstained would make the present unstable situation even
more volatile by subjecting the industries in adhering countries to different and competing sets of
trade rules. Further, it is delusional to base any position on the prospect that the US or other
major traders, such as Germany or the UK, will accept any dilution of the international trade
rules to the disadvantage of their industries. To make a cultural instrument attractive to such
countries, it will need to fill the gaps in the current rules, for example, subsidies in the audiovisual sector. The critical judgment will be whether the security and predictability, combined
with new rules achieved through a new instrument, create, on balance, a more favourable
situation for the industry and for the development of policies and implementation of cultural
support policies. There is ample precedent, both in the history of the GATT and in the current
WTO structure, for such rules. Its objective would be to interpret the relevant provisions of the
WTO as they apply to cultural industries while confirming that other WTO provisions would
continue to be applicable to these industries.30
One way to proceed would be the negotiation of an interpretative code of ten points.
These focus on the right of states to financially support cultural producers and performers, the
issue of quotas, the treatment of cultural products originating from co-production agreements and
the importance of the rigorous enforcement of competition to ensure consumer choice and to
of business that would result from interference with their US co-production deals. For a discussion of cross border
co-production deals (Acheson and Maule, 1999:170-2).
28. Persuading the US to replace the exemption with a new regime will not, of course be easy. In his comments on
this paper at the Trade and Culture Conference held in Ottawa, November 28, 2001, Geoff Elliot, Vice President of
Canwest Global Communications Corp. pointed out that the NAFTA cultural exemption gives the U.S an
enormous club to defend its commercial interests against Canadian policies; the U.S may, therefore, be
very reluctant to give this up.
29. As indeed, Trade Minister Pierre Pettigrew acknowledged in his speech: “… given the economic might and
global reach of the US cultural industries, [an instrument] without their participation would have little credibility and
effect. So it is in everyone’s interest to bring the US on board.”
30. The demand made by Michael McCabe (2000), the outgoing president of the Canadian Association of
Broadcasters, that “We never again want to see Canadian culture traded off against pork bellies and wheat,” is
catchy but hardly germane to devising a set of rules that meets the needs of the industry.
16
prevent deception (Schwanen, 2001:20-1). However, the negotiation of such a code would
scarcely be less challenging and less controversial than a fully dressed negotiation of rules of the
cultural sector. If a consensus can be reached to proceed to negotiations, there would be every
merit and no disadvantage for setting the goal as high as possible.
The core of cultural rules would be definitions, provisions relating to subsidies, mostfavoured-nation issues as they relate to co-productions under applicable bilateral agreements, and
content quotas to the extent that they remained a necessary component of cultural support
policies and investment.31 While none of these issues would yield to easy solutions, they are not,
in principle, more difficult than other economic sectors with equally explosive combinations of
politics and commercial interests.
Definitions
It would be essential to define the sector to which the instrument would apply. In the MAI
negotiations, France proposed an open-ended exemption which would have applied to any
economic activity which the French defined as belonging to the cultural sector. 32 The NAFTA
and CUFTA exemptions define the cultural sectors and the economic activities notably,
publication, distribution and sale, to which the exemption applies.33 An alternative approach
would be to define scope in terms of customs tariff or services classifications for goods and
services moving in international trade. The French approach fails the test of predictability and
certainty, which an instrument must meet, because it leaves totally obscure what economic
sectors might be withdrawn from the coverage of the general rules. 34 The CUFTA/NAFTA and
classification approaches have the virtue of immunizing purely domestic programmes, such as
the funding of museums from any trade rules, but risk rapid technological obsolescence. One
possiblity would be a definition drawn for Article 2 of the Berne Convention for the Protection
of Literary and Artistic Works, regarding the medium through which that content is
communicated (Schwanen, 2001:20). The thrust of such a definition would be to focus the
impact of the special rules upon the creators and performers of cultural goods and services rather
than the supporting financial interests. Further, there would be considerable advantage in
developing new rules from the base of a fixed definition in an agreement to which all members
of the WTO are already parties. This would be a useful place to begin.
Subsidies
Canada deploys a wide range of subsidy programmes available to support the production and
distribution of cultural products and services.35 These programmes range from long-standing
programmes such as subsidies to the Canadian Broadcasting Corporation to the 1998 Multimedia
31. Such issues as relate to intellectual property are best left to further negotiations under the Trade-Related
Intellectual Property Agreement.
32. The French proposal read as follows: “Nothing in this agreement shall be construed to prevent any Contracting
Party to take any measure to regulate investment of foreign companies and the conditions of activities of these countries
in the framework of policies designed to preserve and promote cultural and linguistic diversity” (Dymond, 1999).
33. These cover books, magazines, periodicals, music, audio-visual and radio communications.
34. Under the French definition proposal a country could conceivably decide that any activity is part of cultural
diversity, for example fashion design or cuisine.
35. For a summary of current programs, see SAGIT report.
17
Fund designed to assist in the development, production and marketing of multimedia products.
Financial assistance in the television and film sectors is increasingly taking the form of equity
investments in place of grants. In addition to taxpayer-funded programmes, broadcast
distribution companies such as cable operators are required to contribute up to five percent of
their gross annual revenues to the Canadian Television Fund.
Canada is not alone in making extensive use of subsidies as a primary cultural support
policy. The predominance of public funding of cultural industries, notably film production in
many countries, and negotiating issues that have arisen in the past in this area 36 warrant an
examination of the extent to which the existing WTO subsidies rules for goods and the absence
of such rules for services provide sufficient clarity for governments and the beneficiaries of
financial support.37 The three categories of subsidies for goods — prohibited, non-actionable,
and actionable — embodied in the WTO Agreement on Subsidies and Countervailing Duties
provide a useful point of departure. The absence of subsidies rules in the GATS is a recipe for
dispute, amounting to the now-discredited exemption approach as regards subsidies. In both
cultural goods and services, there should be exploration of the scope for defining permissible
rules on the basis of the Subsidy Agreement, that is subsidies which are generally available and
aimed to stimulate production for the domestic market. To that could be added a criterion that to
fall within the non-actionable category the economic beneficiaries of the subsidy should be
producers and creators within the territory of the member granting the subsidy.
Content Quotas
Canadian broadcast licences for radio and television programming and associated distribution
channels, such as cable and satellite systems, require the operators to set aside a specific amount
of air time to Canadian content, which is defined in different ways for radio, sound recordings,
television, and feature films.38 In trade policy terms, such quotas amount to a guaranteed
domestic market share scheme, like those that continue to be used in a number of sectors, in
Canada notably for dairy products, and can be accommodated within the trade rules.39
The elaboration of rules governing content quotas would be politically and technically
challenging. It would also require acceptance by the US and other large exporters of cultural
goods and services that the elimination of content quotas from the cultural policy mix is beyond
realistic reach for the foreseeable future. A formula based upon market share of actual audience
for specific cultural products would have merit in terms of defining the intensity of permissible
quotas; however, the negotiating challenge, given the diversity of countries involved and the
deep attachment to content quotas, seems daunting to say the least (Schwanen, 2001:20). The
36. As Ivan Bernier reports, the US has complained in the past about national film subsidies and during the
Uruguay Round sought a share in the proceeds from videotape sales and box-office revenues (1998:19).
37. In the WTO services negotiations, the US, Brazil and Switzerland have proposed a consideration of subsidy
rules, which apply in the audio-visual sector. These proposals are posted on the WTO Web site, WTO. The fact that
radically different initial positions will be brought to the table is less important than the indication of a readiness to
negotiate rules for the sector.
38. It is interesting to note that content rules do not apply to newspapers which are free to carry as much or as little
foreign content as their readers demand.
39. Since the WTO entered into force, quotas have been replaced with tariffs, usually at a level so as to preserve the
same market share for domestic products as had been achieved with fixed import quotas. The tariff on butter is, for
example, 285 percent.
18
priority of bringing predictability and certainty would suggest that standstill arrangements be
agreed for current quotas and an undertaking reached that such content quotas as may be
associated with the application of new technology not be more restrictive of market access than
current content quotas. At the same time, the negotiations should recognize, as indeed the
SAGIT report acknowledges, that technology may be rendering such tools ineffective. Since
such recognition would need to be accompanied by a shift in focus from forced consumption to
direct financial support, it would be essential to negotiate subsidy rules that are sufficiently
accommodating to provide for a transition away from content quotas.
Investment
Canada imposes severe restrictions on foreign ownership and control in selected sectors of the
cultural industry. While any foreign investment in a cultural industry is reviewed and may be
denied, the ownership restrictions apply with particular force in book publishing and new
investments in film distribution. The rules respecting broadcasting licences have been liberalized
now, permitting foreign ownership to rise from a 20 percent share to 46.7 percent.
There is no apparent reason why the standard rules of investment protection agreements
should not be applied to foreign investment in cultural industries. These are the rules on national
and most-favoured-nation treatment, minimum standard of treatment under international law, and
expropriation. For those sectors of the cultural industries deemed to require shelter from foreign
investors, the technique of establishing limitations on the amount of foreign capital through
exception is well established.40 Similarly, support measures, for example, subsidies intended to
benefit residents only, can be sheltered from the scope of investment disciplines without serious
damage to the central purpose of such provisions: access to foreign capital.
Most-Favoured Nation
Canada and certain other countries took an exception in the GATS to provide most-favourednation treatment in order to protect, for example, financial and other advantages under domestic
content quotas, for films resulting from bilateral co-production quotas. The effect was to prevent
US-Canadian co-produced films from benefiting from the treatment accorded under such
agreements. Drawing from the experience under the Multi-fibre Agreement on Textiles and
Clothing, it should be possible to elaborate some disciplines on the content and scope of coproduction agreements that entitle a country to deny most-favoured-nation treatment. One set of
disciplines could relate to reciprocal financial and other advantages for co-productions. Another
might require that a bilateral agreement be concluded and that agreement be subject to review to
ensure conformity. Schwanen suggests consideration of other criteria such as limiting the
number of non-residents that could benefit from a co-production agreement and criteria for the
apportionment of market share eligible to benefit from such agreements (2001:21). The essential
point is that the new rules set out the terms and conditions under which co-production
agreements can operate with appropriate safeguards for the market-access rights of producers
and creators in countries that do not have such agreements.
In short, the menu for negotiation is rich and varied, but so are all negotiating menus.
40. For example, under the NAFTA, Canada reserved the right to limit foreign ownership of airlines to 25 percent.
19
Conclusion
Paradox is a rich source for artistic creation; it is, however, a poor basis for the development of
cultural trade policy. Still less is the high rhetoric and overdoses of testosterone that tend to
dominate discussion of cultural policy issues. Such discussion is entertaining but suffers from a
glaring absence of practical attention to how to advance the debate.
It is time for plain talk and plain thinking about the trade and investment rules that suit
the needs of the industry. The path ahead lies in embracing the architecture of the international
trade system and working with its strengths and weakness to negotiate rules to govern trade and
investment in cultural goods and services in a rapidly evolving global economy.
Queen Gertrude’s command for matter with less art would be well heeded as the debate
proceeds.
20
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