PRB 99-25E
CULTURAL EXEMPTIONS IN
CANADA'S
MAJOR INTERNATIONAL TRADE AGREEMENTS
AND INVESTMENT RELATIONSHIPS
Prepared by:
René Lemieux, Joseph Jackson
Political and Social Affairs Division
12 October 1999
CULTURAL EXEMPTIONS IN CANADA'S
MAJOR INTERNATIONAL TRADE AGREEMENTS
AND INVESTMENT RELATIONSHIPS
Canada has joined the global economy by
signing a number of international trade agreements. These agreements include certain
cultural provisions allowing Canada to continue to support its domestic cultural
industries. For example, the cultural industries were exempted from the provisions of the
Canada-United States Free Trade Agreement (FTA). A similar exemption was later
incorporated into the North American Free Trade Agreement (NAFTA). This exemption is
limited, however, in that if one of the parties uses it to establish measures that would
otherwise have been inconsistent with the Agreement, the other party may retaliate with
measures of equivalent commercial effect.(1)
To date, trade disputes between Canada and the United States involving the cultural
industries have been resolved informally, outside the dispute settlement procedure
established through the FTA and NAFTA.(2)
In the realm of multilateral trade
agreements, the General Agreement on Tariffs and Trade (GATT) deals with goods and the
General Agreement on Trade in Services (GATS) deals with services. For the purposes of
these agreements, the products of the publishing and sound recording industries are
generally considered goods, and are ruled by the GATT, while the audiovisual services of
the broadcasting and film industries are generally considered services, and are ruled by
the GATS. Through a complex system of exclusions, exemptions, commitments and
qualifications available to all parties, Canada has attempted to shelter its cultural
industries from the provisions of both agreements.
This protection has failed, however, in
the case of the Canadian magazine industry. In May 1996, the United States used the World
Trade Organization’s (WTO) trade dispute settlement procedure created under the GATT
to challenge four measures promoting the Canadian magazine industry.(3) The WTO’s dispute settlement Panel (in March 1997)
and the Appellate Body (in June 1997) found that these measures violate various provisions
of the GATT 1994.(4) In response, the
federal government in 1998 introduced Bill C-55, The Foreign Publishing Advertising
Services Act. This proposed strict limits on foreign publishers' access to the
Canadian advertising services market.
Opposition to the original version of Bill
C-55 was widespread, both in Canada and elsewhere, particularly the United States. In May
1999, however, an agreement between the Governments of Canada and the United States was
struck whereby Bill C-55 was amended to allow foreign publishers limited access to the
Canadian market, provided they establish a majority of Canadian content and new
periodicals businesses in Canada. Accordingly, the United States has provided Canada with
written assurances that it will not take any trade action under WTO agreements, the NAFTA
or section 301 of the U.S. Trade Act in response to the amended Bill C-55.
In the area of international investment
agreements, Canada, together with other countries from the Organisation for Economic
Co-operation and Development (OECD) Council, agreed in May 1995 to negotiations in the
OECD aimed at reaching a Multilateral Agreement on Investment (MAI) with its member
countries.(5) From the outset, several areas
were deemed non-negotiable by the Canadian governement. In particular, it was considered
essential that Canada’s ability to regulate in the public interest remain unfettered.
Furthermore, foreign investors would have to adhere to existing national and provincial
laws, policies and regulations.
Regarding the federal government’s
position on cultural matters and the MAI, it was made clear that Canada’s culture was
not open for discussion and that it was the government’s intent to seek an exemption
for its cultural industries. As the Honourable Sergio Marchi, then Minister of
International Trade explained in November 1997: "I can … tell you what the MAI
is not. It is not a charter of rights for multinational companies, nor does it spell the
end of Canada’s sovereignty. We will retain the right to enact laws in all areas and
… [w]e will still be able to impose restrictions on foreign investment in sectors
– like culture.(6)
In October 1998, senior OECD officials
decided to terminate the MAI negotiation process without an agreement. For the Government
of Canada, the cessation of the MAI negotiations has brought clarity and closure to the
debate. As a Department of Foreign Affairs and International Trade statement explains:
"Canada’s participation in the negotiations was constructive … Since the
outset, we have maintained our bottom-lines to fully safeguard our freedom of action in
key areas, including health care, social programs, culture, labour, environment, programs
for Aboriginal Peoples and programs for minorities."(7) Moreover, given that trade and investment are "twin
engines for job creation, prosperity and economic growth," the federal government now
feels that future MAI negotiations should be conducted via the World Trade Organisation
(WTO).
(1) The United States would first have to demonstrate
that, were it not for the exemption, a new Canadian measure would be in violation of the
FTA. The subsequent United States response would be limited to measures of equivalent
commercial effect.
(2) Examples are the removal of the American-owned Country
Music Television channel from Canadian cable services by the Canadian Radio-television and
Telecommunications Commission (CRTC) and the CRTC licensing of Canadian direct
broadcasting satellites.
(3) The four measures are: Canada’s Tariff
Code 9958, which prohibits the importation of split run magazines; the 80% excise tax on
advertising in split-run magazines (Part V.1 of the Excise Tax Act); the postal
subsidy (publications assistance program), which allows certain Canadian periodicals to
reach their subscribers at lower costs; and the commercial publications mail rates
(differential between domestic and foreign commercial publications rates).
(4) Panel and Appellate Body findings in short:
Tariff Code 9958 violates GATT Article XI and is not justified as an exception under GATT
Article XX; the 80% excise tax is inconsistent with GATT Article III:2; the postal subsidy
is in violation of GATT Article III:4; and the commercial publications mail rates
("funded" postal rates) do not constitute subsidies under GATT Article III:8(b)
and violate GATT Article III:4.
(5) The original purpose of the MAI was to: (1) provide a
broad multilateral framework for international investment with high standards for the
liberalisation of investment regimes and investment protection and with effective dispute
settlement procedures; and (2) be a free-standing international treaty open to all OECD
members and the European Communities, and to accession by non-OECD member countries, which
were to be consulted as the negotiations progressed.
(6) "Notes for an address by the Honourable Sergio
Marchi Minister for International Trade to the Standing Committee on Foreign Affairs and
International Trade, The Multilateral Agreement on Investment," Ottawa, Ontario, 4
November 1997.
www.dfait-maeci.gc.ca/english/news/statements/97_state/97_048e.htm.
(7) "Multilateral Agreement on Investment
(MAI)," Department of Foreign Affairs and International Trade, Ottawa, 1998.
www.dfait-maeci.gc.ca/english/trade/backgr-e.htm.
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