This is a guest post by Peter Grant. Peter S. Grant is Counsel at McCarthy Tétrault LLP. He is an expert on communications and cultural policy, and the co-author of Blockbusters and Trade Wars: Popular Culture in a Globalized World (Vancouver: Douglas & McIntyre, 2004), a book focused on the interrelationship of trade law with cultural policy.
There is an inherent conflict between free trade agreements and cultural policy. Unless measures that support local culture are exempted from these agreements, there is a risk that the principle of “national treatment” (the free trade rule that foreign products must be given the same treatment as local products) might override those measures.
That is why Canada sought and obtained a cultural exemption in the Canada-US Free Trade Agreement. But Canada did not obtain a cultural exemption in the 1947 General Agreement on Tariffs and Trade (the GATT agreement) that applies to goods. And as we learned in the “split-run periodicals” case at the World Trade Organization in 1995, because of this agreement, Canada remains vulnerable to attacks if it implements cultural measures affecting the importation or distribution of cultural goods like books and magazines.
As it happens, however, most cultural products that cross borders are classified as “services”, not as goods. That includes broadcasting and film production. So because of the cultural exemption, we have the freedom to have quotas or expenditure rules that favour Canadian content over foreign content in services.
Are these rules vulnerable to attack under the Trans-Pacific Partnership agreement that has been recently negotiated? Michael Geist thinks so. In a recent blog he argues that “the TPP creates significant cultural concerns for those that support a cultural policy that includes mandated contributions to support the creation of Canadian content.”
Moreover, he goes on to suggest, the TPP “represents a major departure from longstanding Canadian trade policy that sought a full exception to ensure full flexibility in implementing Canadian cultural policy.”
Are Geist’s concerns well-placed? Have Canada’s negotiators failed to protect our cultural policies?
It turns out that on inspection, Professor Geist’s comments are somewhat overblown. In fact, the wording of the TPP does protect our ability to maintain or enhance our cultural policies.
Let’s start with Geist’s second point, namely, that the TPP represents a “major departure” from the approach taken in past trade agreements. Here he is not entirely wrong. For many years, Canada negotiated a broad cultural exemption to all its trade and investment treaties. However, this approach was modified in the Comprehensive Economic and Trade Agreement (CETA) negotiated with the European Union in 2012. Instead of a broad exemption, Canada took specific cultural exemptions on a chapter-by-chapter basis, at the request of the EU negotiators. This made more sense, because many chapters in CETA have nothing to do with culture, and the chapter on Intellectual Property actually benefits Canadian creators so it would not have made sense to exclude it.
This did represent a significant change in approach, however, and the CETA negotiators brought the Canadian cultural industries “into the tent” to ensure that they understood and accepted the new language. The chapter by chapter exemptions were carefully reviewed by counsel and the cultural community has generally accepted the new approach.
Turning to the TPP, the Canadian negotiators took exactly the same approach that they had adopted in CETA. They focused on the chapters that affect cultural policy, such as Services, Investment and Government Procurement, and carefully excluded Canadian cultural policies from their application.
In the case of the chapter on Electronic Commerce, the key obligation is set forth in Article 14.1, paragraph 1, which states that “No Party shall accord less favourable treatment to digital products created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another Party, or to digital products of which the author, performer, producer, developer or owner is a person of another Party, than it accords to other like digital products.” However, Article 14.1, paragraph 4, specifically states that this obligation does not apply to broadcasting, a term broad enough to embrace electronically delivered “over-the-top” services like YouTube and Netflix. And paragraph 3 makes it clear that the obligation does not apply to “subsidies or grants provided by a Party, including government-supported loans, guarantees and insurance.”
Some have raised concerns about Article 14.3, paragraph 1, which states that “No Party shall impose customs duties on electronic transmissions, including content transmitted electronically, between a person of one Party and a person of another Party.” However, this is followed by paragraph 2, which states that “For greater certainty, paragraph 1 shall not preclude a Party from imposing internal taxes, fees or other charges on content transmitted electronically, provided that such taxes, fees or charges are imposed in a manner consistent with this Agreement.”
When read together with the rest of the TPP agreement, it is clear that Canada would be able to impose a tax on cultural services crossing the border in electronic form, as long as the tax is non-discriminatory (more on this below).
That brings me to the form of the reservation that Canada has made to the relevant chapters. It reads as follows in Annex II to the TPP agreement:
Canada reserves the right to adopt or maintain any 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 services suppliers or investors to make financial contributions for Canadian content development; and
b) measures restricting the access to on-line foreign audiovisual content.
Professor Geist is no fan of cultural content regulation on the internet and he has argued against Netflix regulation. However, based on the text of this reservation, he states that “it is shocking to find the Canadian government locking itself into rules that restrict its ability to consider expanding Cancon contributions to entities currently exempt from payment or adopting rules that limit regulatory jurisdiction over foreign online video providers that target Canadian consumers.”
A closer look at the TPP agreement, however, leads to a much different conclusion. If Canada wanted to impose Cancon expenditure requirements on Netflix, it is completely free to do so, as long as it also imposes similar requirements on CraveTV and Shomi, the Canadian over-the-top subscription streaming services that compete with Netflix in Canada.
Section 3(1)(e) of the Broadcasting Act states that “each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming.” Insofar as the internet is concerned, the CRTC has ignored this provision to date and since 1999 it has exempted all over-the-top (OTT) broadcasting services from Cancon requirements. But it is entirely free to impose such requirements under the Act, and nothing in the TPP would restrict it so long as it applies the same rules to both domestic and foreign OTT services.
Professor Geist argues that any Cancon payment requirement imposed on an OTT service might be seen as discriminatory because the service might not have all the “protections and benefits” that go to Canadian companies. But this argument does not hold water. Under the relevant TPP chapter, the claim of discrimination can only be made in respect of services and service suppliers that are in like circumstances with each other. So the situation of Netflix would need to be compared with that of CraveTV and Shomi, not with services in different circumstances. Moreover, an exception to the non-discrimination provisions of the TPP provides that any subsidies or grants provided by the government to a service supplier are not to be taken into account.
It is interesting to note that Australia faced the same issue as Canada in its TPP negotiations. It obtained a specific reservation to adopt any measure with respect to “non-discriminatory expenditure requirements for Australian production on subscription television broadcasting services.” It also added that in respect to “other audio-visual services transmitted electronically,” it reserved the right to adopt any measure “to make Australian audio-visual content reasonably available to Australian consumers.”
Although the wording of the Canadian reservation is different, the end result is the same. There is nothing in the TPP to preclude Canada from imposing non-discriminatory requirements on internet service suppliers to support Canadian content. Nor would the TPP preclude the government from imposing a tax on foreign suppliers of content over the internet to ensure that HST revenue is collected, not avoided.
As a trading nation, Canada needs to be part of the multilateral trading framework. There is always a tension between free trade and the need for countries to ensure that there is space and choice for local cultural content. As noted above, Canada is still subject to the 1947 GATT agreement (now a WTO agreement) which did not include an exemption for measures respecting cultural goods. Some have argued that in the CETA negotiations, Canada should have tried to roll back that 1947 agreement. But in my view, this would have been highly unrealistic.
The key area where cultural measures will be important in the future relates to cultural services, particularly forms of broadcasting over the internet. And the TPP in my view adequately protects Canada’s ability to implement measures to support Canadian culture in that sector.
 Michael Geist, “The Trouble with the TPP, Day 18: Failure to Protect Canadian Cultural Policy,” January 27, 2016; at http://www.michaelgeist.ca