Evaluación del miedo a caer

Before getting into the specifics of the WTO case over split-run magazines, it is useful to understand where the US is coming from on culture in general. American entertainment giants like Jack Valenti and Ted Turner believe that culture is really just a business like any other. In fact, entertainment is big business in the US, ranking second behind aerospace in terms of export activity. Not only do cultural exports generate lots of economic wealth in their own right but they are a vehicle for the promotion of a whole host of other US-produced goods and services, everything from Coca Cola to the Ford cars the X-Files stars drive around in. Some cynics even see cultural exports as part and parcel of the dissemination of American values and ideas

throughout the world.

Of course, the US cultural sector has a soft underbelly just like ours. The National Endowment for the Arts is only one of a long list of well-heeled public benefactors. Chances are that US public sponsors might even have the odd meat dress, Voice of Fire and rabbit carcass skeletons in their own cultural closets.

The point is that the United States has taken an ambitious and aggressive attitude towards trade and culture. It has displayed little patience towards the efforts of countries like Canada, France and Belgium to restrict access to American cultural exports, viewing such attempts as simple protectionism.

The Canadian magazine industry has long been concerned with split-run products entering from the United States. A split-run is a magazine with predominantly US editorial content that is supplemented with Canadian advertisements. Canadian publishers fear them because split-runs siphon off lucrative advertising revenue which is the source of the majority of their revenue. Moreover, the fact that most of the costs of the US publications is covered in the

larger American market means that they can offer cut-rate deals to Canadian advertisers and subscribers.

In December 1995, the United States launched a WTO challenge of three Canadian measures aimed at protecting our magazine industry from its split-run competitors. The first measure that the US challenged was a tariff code that prohibits imports of split-run magazines. The second measure attacked was an 80 per cent excise tax on advertising revenue earned by split-run publications Finally, the US challenged a postal subsidy programme, the effect of which was to allow Canadian publishers to put a cheaper stamp on magazines they mailed to subscribers than their split-run counterparts.

Canada lost conclusively on magazines. It was a bad sign when the WTO panel refused to accept our argument that magazines and their embodied advertising constitute a service as opposed to a good and should be governed by the more lenient GATS. With respect to the import prohibition on split-runs, the panel’s decision was straightforward: such prohibitions violate a number of trade provisions and are not permitted. The panel went on to decree that Canada’s excise tax discriminated against US imports, thereby violating the GATT’s national treatment provision.

Concerning the postal subsidy, the WTO ruled that any subsidy that is not granted directly as a payment to domestic producers violates the GATT rules. This was easy to fix in this

instance – Canada now gives postal subsidies directly to Canadian publishers – but the decision might have implications for other cultural industries that indirectly benefit from subsidies to others.

Of course, it could have been much worse for Canada. Luckily for us, the US chose not to challenge the provisions of our Income Tax Act that allow Canadian businesses to deduct the cost of advertising in Canadian, but not foreign, publications and television and radio stations. This was rather handy because by the time the WTO panel and Appellate Body had finished with us, the income tax provisions were the only policy we had left to support our magazine industry.

The panic that greeted the WTO decision caused a lot of flailing around in the Canadian culture and trade communities. Officials at Canadian Heritage proposed Bill C-55 which would have made it illegal for Canadian businesses to advertise in split runs. Their logic was that in focusing on advertising, a service, the policy would fall exclusively under the laxer GATS provisions and could avoid getting caught by the WTO. The US thought that we were trying to be too cute by a half. It saw the Bill as an outright attempt to avoid implementing the WTO’s determination. To turn up the heat, the US threatened to retaliate against a handful of very well connected industries including steel and textiles. An all-out trade war seemed imminent.

Cooler heads prevailed in the end. Canada and the United States entered into

negotiations over the amount of Canadian advertising a foreign publication should be allowed to have. The result was an agreement that up to 18 per cent of advertising revenue can be generated from Canadian sources without the magazine having to add any Canadian editorial content. The

agreement allows American publishers to establish wholly-owned subsidiaries in Canada to publish Canadian editions as long as the editions contain a majority or substantial amount of Canadian content. Canada also instituted a new subsidy scheme for magazines worth an

estimated $90 million per year. The subsidy provided to individual publishers will be based on a formula determined by lost advertising revenues and postal subsidies.

Many in the cultural community believed that Canada was unwise to capitulate to the US in the magazines dispute. They viewed it as part of a slippery slope towards total cultural domination by Washington. Canadian culture is something they consider worth standing up for notwithstanding the cost. At least we should not give up before the first shots are fired they say. Important as our cultural sector is, Canada cannot afford to flout international trade rules. The cultural sector cannot reasonably expect another Canadian industry to pay the price for its refusal to meet our international trade obligations. There are other ways to support our cultural sector that do not violate trade principles. We need to explore these.

In the end, Canada had to accept the WTO decision. We must rely on our status in the international trading arena and use the system to change the system. That means better rules for culture that will help us avoid the kind of mess we got into with magazines.

[Note to Kelvin: Insert Anthony Jenkins Cartoon from the Globe and Mail on magazine case. Camera ready art is available for scanning.]

Cartoon by Anthony Jenkins, Globe and Mail, May 22, 1999. Reprinted with permission of the

Globe and Mail.

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To Exempt or Not to Exempt?

Many in the cultural community steadfastly maintain that culture should be off the table in any trade negotiations. A blanket exemption for culture is the minimum deal they would find acceptable. Their belief is that had such an exemption been in the WTO Agreements, as it is in the NAFTA, we would never have lost the magazine dispute.

Is the exemption route the best strategy for promoting and protecting our cultural sector? Probably not.

The NAFTA’s supposed exemption for culture is not as good at it seems at first glance. What it allows is for Canada to pursue policies towards the cultural sector that might not be consistent with other aspects of the Agreement. They might violate the principle of national treatment, for example. However, in such situations, the United States is entitled to take

measures of equivalent commercial effect. This means that Canada must pay a price for cultural policies that violate the basic provisions of NAFTA. The price is usually paid in the form of trade retaliation against some other sector of the Canadian economy. And one can bet that a

favourite target for retaliation is an industry like steel that is based in the hometown of the minister responsible for Canadian culture.

Of course, this must sound rather familiar to those acquainted with the WTO case on magazines. The WTO rules allow a Member who has successfully challenged another to take “appropriate countermeasures,” to equivalent commercial effect, if the losing Member does not comply with the WTO panel and Appellate Body report. If Canada lost a challenge to one of our cultural policy measures and we refused to change the policy to comply with the WTO ruling, the challenger could retaliate against another of our industries.

Essentially then, the NAFTA exemption is worth little more than the WTO’s non-

exemption. In fact, it may be worth less. The WTO rules require the Dispute Settlement Body to formally authorize countermeasures and to determine what the appropriate level should be. The situation could get much messier under the NAFTA. The United States could decide on its own accord to retaliate against one of our cultural policies and could unilaterally decide on the

retaliatory action it wanted to take. In such circumstances, Canada could end up fighting with the US for years over whether our cultural policies violated the NAFTA in the first place and

whether the countermeasures implemented by the US were appropriate.

In truth, the NAFTA never really did exempt culture. The suggestion that it did was just slick marketing by those anxious to sell the deal and the FTA that preceded it. The NAFTA’s cultural exemption is little more than permission to break the rules on the understanding that the US could retaliate in kind against some other industry. This is more or less the same deal we have in the WTO.

Okay then, the cultural pundits might argue, we should seek an unconditional exemption for culture in the WTO. Canada has negotiated such provisions in the bilateral foreign

investment agreements that we have signed with various countries. They provide a carte blanche exemption for investment policies for the cultural sector and do not allow for retaliatory

countermeasures.

We might, however, want to think this through. The first question to ask is whether our cultural sector could live with the kind of restrictions that a blanket and unconditional exemption would impose. Consider that culture is an ubiquitous and expansive phenomenon. Countries could decide that a whole host of things impact negatively on their culture – things like processed cheese, polyester neck ties, or country music – and attempt to block their importation.

Alternatively, a country could determine that having a national aerospace industry or a world- class wine industry is essential to its national cultural identity and generously subsidize these ventures, distorting world trade in the process. While far-fetched, these examples underscore a critical point. Unless we put some limitations on what is and what is not considered culture, the very idea of an unconditional exemption should be out of the question.

It is also important to remember that if Canada were to get an unconditional exemption, so too would other WTO Members. That might not sit well with some elements of our cultural

sector, particularly those which depend on export markets. Canadian television shows sell all over the world. It’s a good thing too, since TV shows are dreadfully expensive to produce and foreign revenues make many of these productions possible. Our national pride swells at the thought that Margaret Atwood is enjoyed by readers in many foreign lands. Having her books restricted to our tiny market would take away much of our fun, not to mention our stature on the world cultural stage. But a cultural exemption is a cultural exemption. We would have no leg to stand on if our trading partners decided that our cultural products should be denied a place in their markets.

It does not take too long to see that a cultural exemption is an acceptable notion but only if we define culture precisely and provide some guidelines on the types of instruments that could be used to protect it. In fact, what we are talking about is rules for culture as opposed to

exemptions for culture.