the time this article was written Dennis Browne was Director of the Centre for
Trade Policy and Law at Carleton University. This article is based on a presentation
to a Library of Parliament seminar on February 20, 1998.
has long been a strong supporter of open markets and the international trade
agreements necessary to secure them. But recently conflicts have developed
between policies put in place to foster Canadian culture and international
trade agreements Canada has signed. This article argues that culture is a
“special” commodity. It also examines the framework for international trade and
at one specific recent case involving the World Trade Organization’s decision
on split-run magazines.
In general discussions of
Canadian culture and the need to foster and protect it, almost everyone finds
it best to avoid definition. I remember the L.A. Times, headline:
“Canadian Culture? Whatever It Is, They Want to Preserve It.”
Definitions do exist in trade
agreements. The North American Free Trade Agreement (NAFTA), for example,
provides an exemption for individuals or enterprises engaged in cultural
product creation, distribution, broadcasting, etc., but this does not fully
address the underlying issue of the need for cultural expression in a modern
When pressed for a definition of
Canadian culture I suggest that culture is “the value-laden expression of
ideas”. In other words Canadians must have opportunities to hear themselves
speak in their own voices.
We must recognize that Canadians
and Americans are not the same. We are remarkably similar, but we do have some
pretty fundamental underlying differences. They are often subtle, they are not
easily identified or catalogued without appearing to make derogatory
comparisons, but they are there.
Social scientists have conducted
studies which demonstrate that a sense of shared values is an essential
underpinning to the continued functioning of a democratic society. Intuitively
it makes sense. Democracies function on the basis of consent by their citizens.
The citizens may agree to disagree on various details, but they have to share a
common set of fundamental values. Otherwise they would not risk elections every
few years that may result in political power passing from one group to another.
From this we can extrapolate
that if we are going to preserve these shared values, we must have
opportunities to hear, read and see common expressions of value. If Canada is
to continue as a nation state, we must share or exchange value-laden
expressions of ideas that reflect Canadian values – whatever they might be.
In our society the media are the
mirrors. Films and television give back images which confirm things for us. We
hear our language, we see our neighbourhoods, we watch stories about people
like ourselves. The question is whether our children have access to a mirror
which reflects something of themselves. Does what they see identify who they
Frequent exposure to value-laden
expressions of ideas is necessary to ensure the political socialization of
children into their respective societies. It is very important. If children
grow up without identifying themselves as members of their society, by the time
they reach early adulthood, they will have real problems fitting in and we will
end up with a sort of dysfunctional family – nationwide.
As the population has become
more mobile, as family ties grow a bit looser, as community structures such as
neighbourhood churches and neighbourhood playgrounds become less central to our
personal development, the importance of commercial cultural expression
increases almost exponentially.
achieved through cultural expression are essential to a well functioning
democracy. Such expressions are now most frequently found in commercial
packages. Hence the link between culture and trade is inextricable.
The cultural expressions I have
been talking about tend, more often than not, to be embedded in cultural
products, most of which are the subject of commercial transactions: books,
magazines, newspapers, films, videos, television programs, recorded music,
various live performances, and so on. These products circulate or are
distributed in our society and we as individuals generally must choose from
what is available.
Thus if we are to have
opportunities to hear ourselves speak in our own voices, circumstances must
exist that will both foster the development of the talents of those among us
who have the abilities to create cultural expression, and ensure that some
“shelf-space” will be available for their expressions in our incredibly crowded
Culture and the Framework for
The framework for international
trade regulation is a collection of multilateral or regional intergovernmental
agreements that seek to place limits on the capacity of member governments to
interfere in the market place to achieve domestic objectives.
A common objective of
international trade agreements is to open markets – to increase competition.
All modern agreements are based on certain principles and exceptions. The
principles open markets and increase competition. The exceptions tend to close
markets or decrease competition.
For Canada, the most important
agreements are the World Trade Organization (WTO) agreements and the North
America Free Trade Agreement. The WTO agreements consist of an updated and
expanded General Agreement on Trade and Tariffs (GATT - which deals with trade
in goods), the General Agreement on Trade in Services (GATS - which deals with
trade in services) and TRIPS (which deals with trade-related aspects of
intellectual property rights).
It is important to remember that
these agreements are all inter-related. There are four basic GATT principles:
Most Favoured Nation (MFN), national treatment, prohibition of quotas and
transparency. There are a number of exceptions to these principles and the most
- the exception to national treatment that allows
domestic production subsidies; and
- general exceptions allowing derogations from MFN,
national treatment and the prohibition of quotas which allow imports to be
restricted if such restrictions are necessary to protect public morals; to
secure compliance with domestic regulations; and for the protection of
essential security interests.
But these exceptions are not
themselves without limitations. For example, restrictions put in place under
them must be necessary to achieve the objective – protecting public morals,
etc. This suggests the application of some test or standard – an obligation to
demonstrate, when challenged, that the action is necessary to achieve the
Also, there is a general
principle, that exceptions must generally be applied in the manner that is the
least possible trade restrictive. If the legitimate objective can be achieved
through another measure that is less trade-restrictive than a measure in place
or under consideration, then there is an obligation to take the less
The General Agreement on Trade
and Tariffs contains two culture-specific provisions: Trade restrictions may be
imposed for the protection of national treasures of artistic, historic or
archaeological value; and annual screen-time quotas may be established for the
screening of domestically produced movies in theatres.
The General Agreement on Trade
in Services. applies the basic GATT principles: MFN, national treatment,
transparency and market access. Market access is different for services than it
is for goods as in services trade there are no physical objects crossing a
border where they might be subject to tariffs and quotas. Services trade is not
controlled by tariffs, it is controlled by an enormous number of laws and
regulations at federal, provincial and municipal levels. Think, for example, of
business permits, professional qualifications, and so on. But the underlying
principle is the same.
Setting international standards
for the regulation of trade in services is a new venture. As the first
multilateral agreement of its kind, it tends to have more framework than
substance, at least for the time being.
But the framework has familiar
features. For example, it includes an unconditional MFN obligation. All WTO
members must treat the services and service providers from all other members
equally. There is, however, a major exception. When the GATS first enters into
force for a WTO member, the member may list specific MFN exemptions on a
one-time basis reflecting pre-existing circumstances. Such exemptions are to be
renewed after five years and should not exist beyond ten years.
The transparency principle is
more straightforward. Members must publish their laws and regulations and
administer them in a reasonable, objective and impartial manner, with means for
prompt review of administrative decisions such as the right to appeal.
The national treatment and
market access principles are a bit more difficult to understand. Basically,
each member lists, in its GATS schedule, those service sectors in which it is
prepared to permit foreign services to be supplied in its market and, if market
access is granted, whether it is prepared to treat foreign services and service
providers on an equal footing with domestic services and service providers.
Thus Canada can, for example, deny market access to foreign medical
practitioners by licencing only doctors who have qualified in Canada.
Similarly, a member may grant
market access but deny national treatment, for example, Canada may permit
foreign bankers to establish subsidiaries (or branches) in Canada, but restrict
the scope of activities they can undertake.
The GATS does not contain
culture-specific provisions but the exceptions available to each member permits
considerable scope to avoid service trade disciplines in the cultural area. For
example, Canada took advantage of the one-time MFN exception to permit it to
discriminate against the USA (and others) in favour of countries with which it
has film co-production agreements. Thus a film produced in France under a
co-production agreement could qualify as a Canadian film for subsidies and
television national content requirements whereas an American film shot in
Canada also exempted most cultural
services from national treatments or market access commitments either by simply
leaving them out of the relevant GATS schedules or by stating an exception in
the schedule. An instance of the latter is Canada’s GATS schedule which
includes the right of foreign service providers to enter into “retail
distribution” in Canada, except for the distribution of cultural products
such as books, musical scores, etc. Thus we see Walmart, Home Depot,
McDonalds and other foreign retailers spreading across Canada, but so far there
is little evidence of foreign book stores.
The Split-Run Magazine Case
To understand the magazine case,
we must know a bit about the magazine industry. The most important point is
that the industry has two income streams and two cost streams. The income
streams are : (i) earnings from subscriptions and news stand sales; and (ii)
earnings from the sale of advertising included in the magazine. The cost
streams are: (i) the cost of the magazine’s editorial content – photos and
articles; and (ii) the costs of printing and distributing the magazine.
In the Sports Illustrated
case it appears the revenues generated from news stand sales and subscriptions
are more than adequate to cover the production and distribution costs of this
magazine. Prior to the case, Time Warner was selling about 140,000 copies of
each edition in Canada. The business had been going on for many years. I do not
think the company was losing money. The other big cost – editorial content –
was fully paid for by advertising sold to American advertisers.
Thus the content of the
magazines being sold in Canada was essentially a free good.
This case was brought to the WTO
by the United States to challenge Canadian measures that effectively denied
American magazines access to Canadian advertisers. Thus the case was not about
market access – or even about ordinary profits. It was about super profits.
When the editorial content is already paid for and the selling price fully
covers the production and distribution costs, practically every dollar paid for
Canadian advertising in Sports Illustrated will be pure profit for the
publisher. With their existing high levels of circulation in Canada they
already had the cake – they went for the icing.
The WTO decision is not going to
lead to sales of more copies of Sports Illustrated in Canada. It is just
going to make the business of selling the same number of copies much more
But what will be Time Warner’s
icing is the Canadian magazine publishers’ cake. The total amount of money
routinely spent by Canadian advertisers in the print media is not increasing.
Every Canadian dollar spent for advertising in American magazines will reduce
the revenue pool available to Canadian magazine publishers.
There should be no doubt about American
magazines being able to attract Canadian advertising. With their editorial
costs already paid, they can readily discount the price for advertising by as
much as 80% and still make money. Canadian publishers will not be able to
compete with this type of cut-throat competition.
Without their advertising
revenues, Canadian magazines will not be able to pay for good quality editorial
content. If that is the result, the magazines will appeal less and less to
consumers and Canada could lose one of its forums – a very important forum –
for cultural expression.
To protect the advertising
income stream for Canadian magazine publishers, Canada had put in place a
combination of measures, four of which were challenged in the WTO case. These
- an import ban on split-run magazines
- an excise tax on split-run magazines printed in Canada
- differential postage rates for Canadian and foreign
- a postal subsidy
The import ban on split-run magazines
is clearly a breach of the GATT principle calling for the elimination of
quotas. An import ban is the ultimate “quota” since imports are zero.
Canada sought to justify the ban
under the exception permitting quotas “necessary to secure compliance with
domestic regulations” – in this case an income tax regulation that disallows
business deductions for advertising placed in split-run editions. The WTO panel
found that an import ban was not “necessary” to enforce the provisions of the Income
Tax Act and, in any event, that a total ban was not the least trade
disruptive way to go.
Canada Post’s differential
postage rates were found to treat imported magazines less favourably than
domestic magazines, which, on its face, appears to be a denial of national
Canada sought to defend the
practice by claiming it was not a government measure, but the measure of a
crown corporation acting independently of government. WTO rules apply to member
governments, not to private actors in member countries. But the panel found
that Canada Post does not operate independently of government direction and
treated the differential postage rates as a government measure in contravention
of Canada’s national treatment obligations.
The WTO panel found the postal
subsidy paid by the government to Canada Post to be a permissable domestic
production subsidy, but the appeals panel disallowed it by determining that for
any such subsidy to qualify as a domestic production subsidy, it should be paid
directly to the publishers rather than through Canada Post.
The most important issue in this
case was the excise tax on split-run magazines as that measure could have
effectively protected Canadian advertising revenues even in the absence of the
other measures. The panel found it to be a breach of National Treatment as it
is a tax applying differentially to split-run magazines and ordinary magazines.
Canada advanced two main
arguments. First, the tax is on advertising services, not on magazines per se
and thus, as it is a measure dealing with services, not goods, the panel should
apply the GATS, not the GATT. As Canada did not list advertising services in
its GATS schedule, it has no national treatment obligations with respect to
these services. Consequently, there is no breach of the rules.
Unfortunately for Canada, WTO
panels, like nature, appear to abhor a vacuum. In the absence of GATS
obligations, they decided that, as the advertising was embedded in a physical
good – the magazine – ordinary GATT rules would apply, including national
Canada then argued, under the
GATT, that they were not in breach of national treatment obligations because
the obligation applies to the treatment of “like” goods or to goods that are
interchangeable so far as the ultimate consumer is concerned. This argument was
based on the notion that the essential quality of a magazine is its content
rather than its physical form. In other words, what it actually expresses or
the point of view from which the expression is made is what distinguishes one
cultural product – in this case one magazine – from another.
In the eyes of the WTO,
magazines are not different than any other industrial good. Magazines should be
treated the same as widgets. This is the crux of the matter for Canada.
Canada argued that, in the case
of magazines, editorial content expressing a Canadian point of view is
fundamentally different from editorial content expressing an American point of
view. Thus, for Canadian consumers, an American magazine is not an equivalent
or directly substitutable product.
The panel was not convinced. In
their deliberations they considered the examples of split-runs published in
Canada by Time and Newsweek and concluded that a news magazine is
a news magazine irrespective of its source. If a consumer goes to a shop to buy
a news magazine, they will accept whatever is available without necessarily
differentiating between Maclean’s, Newsweek or Time.
Product differentiation between magazines will depend as much on their format, quality
of paper and other physical characteristics as it will on the nationality of
the writers and publishers.
If we believe Canadians must
have the opportunity to hear themselves speak in their own voices, we must get
recognition that the “voices” of Newsweek, Time, The Economist,
The Far Eastern Review, differ from the “voice” of Maclean’s. We
must get recognition that a Canadian description and interpretation of world
news differs in a culturally meaningful way from an American or British or
Singaporean interpretation of the same events.
This principle must be expanded
to all cultural products – all products of value-laden expressions. Otherwise
the trade rules will simply not fit Canada’s need to have vibrant cultural
industries that can make a real contribution to maintaining our distinctive
If international trade rules
deny us the capacity to foster Canadian creators and ensure their products have
access to at least some “shelf space” in Canada, those rules will not serve
Canada well and public confidence in the framework of rules that govern our
trading relations with the United States and the rest of the world may well
Canada has a broad mix of
measures in place to foster Canadian cultural expression and to provide some
“shelf space” in Canada for Canadian cultural products. The mix of measures
developed over time in response to the perceived needs of the various cultural
product sectors. There is no one set of measures that would fit all sectors.
The mix is not perfect. Some of
the measures may well be misguided. Some almost certainly need to be dropped or
updated in the face of rapid technological change and the general forces of
need to re-examine all measures to assess their effectiveness and suitability
in today’s and tomorrow’s world.
The current mix of measures,
however imperfect it may be, is not exclusionary. The intent is to give
Canadians a choice which includes Canadian cultural products – not in any way
to actually exclude foreign cultural products. In fact, Canada is probably the
most open market in the world to foreign cultural products. The breadth of
choice available in Canada undoubtedly enriches us all. But if the strict
application of trade rules has the effect of crowding out Canadian expressions
of cultural values from the Canadian marketplace, each of us will be
The challenge to Canada is to
gain international recognition that cultural products differ from other
industrial products – from widgets – and then get a domestic and international
framework that permits both Canadian and foreign cultural expression to
flourish in Canada and around the world.
Postscript: Reaction to the
On July 29, Heritage Minister
Sheila Copps and Trade Minister Sergio Marchi announced Canada’s response to
the WTO decision on split-runs. The intent of the response is to do two things:
bring Canada’s regulations fully into compliance with WTO requirements; and
maintain that status quo to the fullest possible extent.
As requested by the WTO, Canada
will remove the import prohibition on split-runs, eliminate the excise tax,
harmonize the commercial postal rate for domestic and foreign publications, and
restructure the postal subsidy so that it is paid to magazine publishers rather
than to the post office. These steps will bring Canada fully into compliance
with the WTO ruling. But if this were Canada’s total response, it would leave
Canadian magazine publishers fully exposed to unfair competition from American
publishers for advertising dollars. Thus there is an additional step.
In addition to the above four
steps, Canada will also introduce a new measure to regulate advertising
services in the magazine publishing industry, a measure to prohibit foreign
publishers from selling magazine advertising directed at the Canadian market.
Foreign publishers contravening the measure will be subject to fines ranging
from $50,000 to $250,000.
As was undoubtedly anticipated,
the Americans reacted quickly to condemn the announced measure. Consultation
were immediately requested and they took place in Ottawa during the first week
of August. The content of such consultations is not public, but one can be sure
the Americans threatened further WTO action.
As noted in the article, the
initial WTO ruling on the excise tax went against Canada because the panel
applied the rules relating to trade in goods rather than those relating to
trade in services. The proposed measure is carefully designed so that it is clear
it addresses the sale of advertising services rather than the sale of
magazines. Consequently, the panel should be obliged to apply services trade
rules and, as Canada undertook no GATS obligations concerning international
trade in advertising services, the measure is likely to withstand a WTO
Nonetheless, this particular
choice of measure is, in my view, unfortunate as it will reinforce American
arguments against cultural exceptions and thus may undermine Canada’s efforts
to build international consensus that cultural goods should be treated
differently than other goods.
The American allegation has
generally been that while Canada speaks in principled terms about the need to
foster domestic cultural expression, these so-called principles are little more
than an excuse to protect established commercial interests. The July 29
announcement will strengthen this allegation because, while it speaks of the
need to “ensure that Canadian stories continue to be available to Canadian
audiences ... Stories that reflect our values, history and perspectives – the
stories that are central to our culture and identity as Canadians”, the measure
is based solely on magazine ownership. It has no direct connection to magazine
It is unfortunate that Canadian
Heritage and DFAIT officials were not able to craft a measure based on Canadian
content rather than Canadian ownership. Then the measures would be tied
directly to the cultural content we are determined to foster and make available
to Canadians. The assumption behind the proposed measure is that foreign owned
magazines will not carry Canadian stories and Canadian magazines will. If this
assumption is correct, a content-based measure would have the same effect as
the proposed measure, but it could not be attacked as disguised protectionism
on Canada’s part. If the assumption is not correct, it should not form the
basis of Canadian policy. In any event, while the measure will achieve the
desired result in this case, it is more likely to hurt than help Canada’s
longer term goals in seeking to deal with the culture/trade nexus.