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This article was downloaded by: [Tufts University] On: 07 November 2014, At: 07:40 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Canadian Foreign Policy Journal Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rcfp20 Canada's cultural policies – you can't have it both ways Keith Acheson a & Christopher Maule b a Professor of economics , Carleton University b Professor of economics and international affairs , Carleton University Published online: 14 Mar 2011. To cite this article: Keith Acheson & Christopher Maule (1997) Canada's cultural policies – you can't have it both ways, Canadian Foreign Policy Journal, 4:3, 65-81, DOI: 10.1080/11926422.1997.9673105 To link to this article: http://dx.doi.org/10.1080/11926422.1997.9673105 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http:// www.tandfonline.com/page/terms-and-conditions

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Page 1: Canada's cultural policies – you can't have it both ways

This article was downloaded by: [Tufts University]On: 07 November 2014, At: 07:40Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK

Canadian Foreign Policy JournalPublication details, including instructions for authors and subscription information:http://www.tandfonline.com/loi/rcfp20

Canada's cultural policies – you can't have it both waysKeith Acheson a & Christopher Maule ba Professor of economics , Carleton Universityb Professor of economics and international affairs , Carleton UniversityPublished online: 14 Mar 2011.

To cite this article: Keith Acheson & Christopher Maule (1997) Canada's cultural policies – you can't have it both ways,Canadian Foreign Policy Journal, 4:3, 65-81, DOI: 10.1080/11926422.1997.9673105

To link to this article: http://dx.doi.org/10.1080/11926422.1997.9673105

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) containedin the publications on our platform. However, Taylor & Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of theContent. Any opinions and views expressed in this publication are the opinions and views of the authors, andare not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon andshould be independently verified with primary sources of information. Taylor and Francis shall not be liable forany losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoeveror howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use ofthe Content.

This article may be used for research, teaching, and private study purposes. Any substantial or systematicreproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in anyform to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Page 2: Canada's cultural policies – you can't have it both ways

65 CANADA’S CULTURAL POLICIES – YOU CAN’T HAVEIT BOTH WAYS

KEITH ACHESON AND

CHRISTOPHER MAULE 1

By switching to cable channel 43 in Ottawa, the viewer receives NCN, the New CountryNetwork, a service of country music videos. Most viewers and performers are probablyunaware that NCN has been the focus of a trade dispute between Canada and the UnitedStates, one of an increasing number of disputes affecting the cultural industries. In 1994, theCanadian Radio-Television and Telecommunications Commission (CRTC) removed theAmerican owned Country Music Television (CMT) service and replaced it with Canadian-owned NCN. Other existing or imminent disputes relate to periodical publishing, satellitedelivered television services, book distribution, film distribution, language dubbing of films,violence on television programs, establishment of performing rights, a blank tape levy andregulation of the Internet.2 Most of these cases arise from inconsistencies between Canadiandomestic policies and international commitments that are increasingly in line with the risingimportance of international commercial opportunities for the cultural industries. In this paper,we examine the implications for Canadian foreign economic policies arising out of a detailedexamination of one of these disputes. As background, we set out as fairly as we can the rationales for opposing views ofCanadian cultural policies—the nationalist view and the open view. We are more persuadedby the open view. Current domestic policies, on the other hand, reflect the nationalist view,which to-date has had wide political support in Canada. These policies have induced thecurrent trade disputes which in our view will create continuing foreign economic problemsfor both the cultural and other industries in Canada. We use the NCN/CMT case to illustratethe contradictions and difficulties that have arisen with the current policies and to argue thatthey are no longer sustainable in the light of changing technology and institutionalrelationships. Because of technological convergence, domestic policy must be moreconsistent across media. Greater transparency is also desirable as it will improve the standardof political debate and reduce the incidence of international disputes. The new technologiesare also enhancing the value of access to foreign markets for producers in the culturalindustries. Informed by our analysis of the effectiveness of current policy instruments

U

1.Keith Acheson is a professor of economics and Christopher Maule is a professor ofeconomics and international affairs at Carleton University. The authors would like to thankRichard Collins, Don McRae, Andrew Maule, Leslie Milton and Stephen Whitehead forcomments on earlier drafts of this paper and Killaine Sharman for research assistance. Theviews expressed are those of the authors. The research has been supported by a StrategicGrant from the Social Sciences and Humanities Research Council of Canada.

2.An initial overview of these cases can be found in Keith Acheson and Christopher Maule,“Canada’s Cultural Exemption: Insulator or Lightening Rod?” World Competition, 20, 1(September 1996), 67-89.

Canadian Foreign Policy, ISSN 1192-6422, Volume 4.3 (Winter 1997), 65-81

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66 CANADIAN FOREIGN POLICYas well as the lessons from the NCN/CMT case, we sketch an outline of an internationalframework at will support such a cultural policy.

Cultural Policy

Nationalist View and PoliciesCanadian policy has been based on the premise that commercial cultural products made byCanadians differ significantly from those made by foreigners. In the absence of supportivepolicy, distinctive Canadian products would not be available because their costs wouldexceed their commercial value. Such products are needed as they have special properties,such as promoting national identity, unity, and sovereignty as well as creating employmentin Canada. Relatedly, it is argued that Canadian content can be determined by using a pointsystem, based on the nationality of inputs and the proportion of expenditures made inCanada. These arguments have different significance in the French and English marketsbecause the former receives more protection from American productions for linguisticreasons. The importance of the unity question as a rationale for cultural policy also playsout differently in the two regions, but with respect to commercial interests that are servedby the nationalist argument, there are many similarities.

A second strand to the nationalist argument is that Canadians should have the option ofselecting such products. The claim is that when they are produced they are often notdistributed as a result of being squeezed out by imports. Geography and technologycombine to promote the inflow of American media products. Proximity reduces the cost ofshipping printed material and the airwaves facilitate the flow of audiovisual programs.Distribution of Canadian content in the United States is limited as American distributorsare biased against foreign productions. When American distributors are allowed to operatein Canada, the same bias crowds out Canadian content in the national market.

Added to this are the economics of production and distribution. For example, televisionprograms are made for the larger American market where their costs are recovered. Onceproduced, they can then be “dumped” into Canada and elsewhere and sold at low pricesproviding unfair competition to domestic producers which must cover their costs in smallermarkets. This is especially a problem for Canadian English language television productionswhere language does not provide the protection it does in the French language market.

Data show that even with the existing policy regime over 80 percent of Englishlanguage magazines sold in Canada are foreign, 70 percent of books sold, 70 percent ofradio and 64 percent of English language television aired, and 96 percent of screen time forfilms. Protectionist cultural policies are needed to assure Canadians the option of accessingCanadian content.

The nationalist view contends that Canadian content can be achieved by a combinationof Canadian ownership requirements for carriers such as bookstores and broadcasters, inconjunction with a point system for determining Canadian content. These views arereiterated in federal and provincial inquiries into the cultural industries and have framed aseries of policies which have

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ACHESON/MAULE: CANADA’S CULTURAL POLICIES 67

evolved over time and been customized to the particular aspect of content and carriage ineach media.3 Below, we summarize the policy approaches providing selective examples ineach casePolicy Approaches Restriction of inflow—Policies have been introduced to restrict theinflow of media products by stopping material at the border as in the case of split-run editionsof magazines, or by reserving space or air time for Canadian material. Canadian contentpolicies require that certain parts of the broadcast and cablecast schedule be reserved forCanadian television programs and Canadian music.4

Regulation of ownership—Investment Canada, the CRTC, Telefilm, and Revenue Canadainterpret and enforce a set of different foreign ownership restrictions on publishing, bookretailing, periodicals, film, recording, and broadcasting. Advertisers in certain media are alsoaffected by ownership restrictions, which determine their eligibility for tax deductions. Thesepolicies restrict the amount of equity that foreigners can hold in a Canadian enterprise andsome of them require a separate test—that control remain in Canadian hands. Recent policieshave increased the level of permissible foreign investment in broadcast and cablecastcompanies, and retained the control qualification.5 Determining the locus of control isconceptually difficult and in practice is decided in a non-transparent manner. The issue hasarisen in the case of Reader’s Digest Canada and more recently with Borders Books and thereorganization of CMT/NCN.6

Promotion and subsidization of Canadian material—Federal and provincial governmentsubsidies and tax incentives are provided for the production of Canadian material. Forexample, Telefilm Canada administers several funds to aid production and distribution; eitheras part of their conditions of licence or as an attractive option under CRTC pricing regulation,Canadian cablecasters establish funds to support the production of Canadian programs; andCanadian periodical publishers have received preferential postal rates for the distribution oftheir publications. A more modest fund supports the record industry. Point schemes are usedto determine the “Canadianess” of films, television programs and music based on the“Canadianess” of the inputs used and the proportion of money spent in Canada. Provincialagencies often filter funding proposals based on provincial points systems and whether theapplying company is “provincial” or not.1 An evolving but generous set of federal andprovincial refundable tax credits are available for audio-visual works.

3. The interested reader can consult a large number of publications including the Royal Commission onNational Development in the Arts, Letters, and Sciences, (Massey) (Ottawa: Queen’s Printer, 1 9511;the Special Senate Committee on Mass Media, (Davey) (Ottawa: Queen’s Printer, 1970); Report of theFederal Cultural Policy Review Committee, Applebaum-Hebert (Ottawa: Supply and Services, 1982).Each of these reports leads to further reports on each sector. A recent comprehensive discussion ofbroadcasting is contained in the Report of the Task Force on Broadcasting Policy, (Caplan-Sauvageau(Ottawa: Supply and Services, 19861).4. An example of the requirements can be found in the Canadian content provisions for the newspecialty television services licenced on September 4, 1 996, CRTC ‘Fact sheet’ P16-09-96.5. In dealing with foreign ownership (see Direction to the CRTC [ineligibility of Non-Canadians) CanadaGazette Part II, 130, 9, SOR/96-1 92 (April 11, 1996)), the CRTC is instructed to determine whethereffective control is exercised by Canadians or non-Canadians, where control may be exercised bypersonal, financial, or contractual arrangements or on the basis of business relations. Thus the CRTCcan look behind the veil of equity ownership to determine how control may be exercised. A further set ofregulations, Specialty Services Regulations, 1990 as amended June 21, 1993 (Canada Gazette Part Il,127, 14 (July 14, 1993), 3092) set out the conditions for the transfer of ownership for a SpecialtyService.6. Aside from the CRTC’s concern with control in telecommunications and broadcasting undertakings,the issue is DFAIT with by investment Canada and the National Transportation Agency. For a detaileddiscussion, see Eileen E. Clarke and Lame P. Salzman, “Control In Reality, Identifying Principles ofControl in Canadian Communications Law,” (Ottawa: Law Society of Upper Canada, April 26, 1 996).7. Other policies concern tiering and linkage requirements imposed on broadcasting distributionundertakings, and requirements for licensed programming undertakings to commit funding for Canadiancontent production. A useful source of current information on Canadian policies and sources of fundingis Canadian Film and Television Production Association (CFTPA). The Guide 1996 (Toronto, 1996).

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Eviction of foreign firms from Canada—This possibility arose as a result of a CRTCdecision in the case of CMT, based on a policy of granting temporary market access tospecialty channels. De facto eviction occurred when the publication of a Canadian edition ofSports Illustrated closed down as a result of the federal government’s imposition of aprohibitive excise tax. The Canadian operations of the American owned Ginn Publishing Co.were acquired by the federal government before being returned to foreign ownership. Whenforeign ownership restrictions were introduced for cable companies, foreign companiesalready operating in Canada were not grandfathered and had to divest their holdings.Special treatment in trade agreements—Canada negotiated to exempt the culturalindustries from the trade liberalizing provisions of the Canada-United States Free TradeAgreement (CUSFTA) and the North American Free Trade Agreement (NAFTA).8 Treatmentof services under the General Agreement on Trade in Services of the GATT/WTO alsoprovides for their insulation.Establishment of government enterprises—The Canadian Broadcasting Corporation, theNational Film Board, and TV Ontario are examples of corporations for which the content ofprogramming can be controlled by governments through ownership. 9

These policy approaches are inward looking in that they try to protect the Canadian marketand reserve parts of it for Canadian firms and products. None motivate firms to seek foreignmarkets. An exception are the coproduction treaties which encourage Canadian film andtelevision producers to look for foreign partners so as to access outside funding and protectaccess to other markets. Coproduction treaties are a step in the direction of officialrecognition that selling into foreign markets is of benefit to Canadian producers andproductions, but it is a carefully managed trade policy reminiscent of Germany’s foreigncommercial policy in the 1930s. Another exception is Telefilm Canada’s funding of film andtelevision festivals in Canada, at which opportunities exist for Canadian programs to be soldin foreign markets, and Telefilm’s support of attendance by Canadian producers at foreignfestivals.Open ViewThe overall difference between the open and the nationalist view is that, while protectionistsupport may have been appropriate when the cultural industries could claim infant status, it isno longer justifiable. The Canadian industry is no longer an infant. In Canada and the rest ofthe world, technological changes have expanded trade and altered ownership and contractualrelationships among producers. With the greater wealth potential of the international marketfor cultural products, policies that pursue access abroad while restricting it at home spawntrade disputes and retaliation. In the end, Canada will have to choose between reciprocalaccess and being locked into the current inward-looking policies. The open view stresses thatthe best way to promote Canadian creativity and culture is to build firms that areinternationally competitive. Commenting on each of the nationalist arguments from the openperspective provides an economical means of describing that viewpoint.

8. Articles 2005(1) and 2005(2) provide the general exemption and retaliation provisions ofthe CUSFTA which are carried over into the NAFTA by virtue of article 2106 and annex2106 for the cultural industries specified in article 2107 of NAFTA.

9. A recent review of the CBC and NFB is found in Mandate Review Committee CBC,NFB, Telefilm, Making Our Voices Heard, Canadian Broadcasting and Film far the 21stCentury, (Ottawa: Minister of Supply and Services, 1996).

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Is Canadian content different and does it promote unity?—One test is to ask viewerslisteners and readers whether they can identify the nationality of different products. Wesuggest that in most instances regarding literature, films, music and many the genres of radioand televised programs, this is not likely. Are the children’s television series Babar andMadeline Canadian? By Canadian public policy criteria yes, but not in a cultural sense. Thematerial has many roots and has become a part of international culture. The same is true inniche markets. An environmental documentary may not have as wide an audience as theseanimated series but, if well made, will be sold to appropriate distributors in a number ofcountries. It is difficult to think of any material that is of interest to all Canadians and no oneabroad.

Obviously a story that is set in Canada or one that deals with Canadian events, institutions,or issues, (such as the building of the Canadian Pacific Railway, the Halifax explosion, theMounties or Quebec nationalism), is likely to be Canadian. Similarly, a song by StompinTom Connors that has lyrics referring to Canada will be recognizably Canadian, as will be thenational news. However, there are numerous examples of films, television programs andmusic originating from Canada but difficult to brand as Canadian. Anne Murray, BruceCockburn and many other Canadian performers are international successes. Their songsspeak to many, but not all, in Canada and to proportionately fewer, but absolutely more,people in other countries. So it is with much of the content of the cultural industries. Bothmass and niche markets for successful products are international.

In our view, branding a product as Canadian or not Canadian is problematic. A moreselective policy of subsidizing the financing of some Canadian stories is preferable. Whenvery imperfect proxies are used to classify material as Canadian, is national unity or identityfurthered? We hesitate to tackle this tricky issue but note that in a bilingual and increasinglymulticultural society where government policy encourages the preservation of ethnicdifferences, a consensus over what is considered Canadian material will be difficult toachieve. Formulaic attempts to do so are likely to be counterproductive. Ensuring opendistribution systems and allowing each individual to make content decisions permit thedevelopment of a national pride in civility and tolerance. Such a policy can hardly contributeless to unity than debates on what is proper material for Canadians to read, hear and watch.Can a point system measure Canadianess?—Measuring content by the nationality ofinputs does not assure that Canadian stories get told, merely that stories get told by Canadiansand that Canadians get the jobs. This approach is fraught with problems requiring the use ofadministrative discretion in determining content to meet CRTC broadcasting regulations andthose of other content policy regimes such as the Canadian Audio-Visual Certification Officefor tax policy and Telefilm for coproductions. For example, news and sports reports areconsidered as Canadian content regardless of their origins even though a story may emanatefrom a foreign source or service. The CRTC rules for sporting events are complex andconcern who has production control, who provides the commentators, and whether Canadianteams or athletes participate.10 Many sporting events are considered Canadian regardless ofthe nationality of most of the participating players and teams. The criterion for sports seemsto be that if Canadians generally participate in the sport (though in a sport played throughoutthe world Canadians will represent a small proportion of world participation), a world classevent in that sport is likely to be considered as

10.See CRTC Public Notice 1984-94.

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Canadian content for the purposes of broadcast. This philosophy reflects a much more openperspective than that governing content rules for drama, children’s programming, and music.When applied to drama, the point system has to determine who is a Canadian—citizen, alanded immigrant, a Canadian living abroad and if so for how long? The nationality andcitizenship status of the lead actor or writer must also be determined. In fluid managerialsettings, the nationality constraints make it more costly to produce and adapt the productionteam if some personnel drop out because of illness or other commitments. The point systemalso has to be adapted to cover animation programs, official coproductions, dubbing, andtwinning arrangements. The basic rules were quite complicated to begin with. They are nowan obscure tangle. The many added refinements have reduced the transparency of the policiesand raised their costs of administration.11

Will Canadian stories get made?—The Canadian versus non-Canadian story conflict is partof the debate over mass versus more focused content. The argument that only those storiesget made that appeal to large audiences had some merit in the case of broadcasting whenthere were few commercial broadcasters who depended on selling audiences to advertisers. Itignored that books of specialized interest such as Greek history and 17th century Frenchpoetry were published, that specialized magazines existed, and that the government owned afilm board and a broadcasting outlet which could be directed to produce and distributeCanadian programming in both official languages. The argument is not valid today in broadcasting. Multiple radio and television channels, acomprehensive video distribution system and pay per view mechanisms allow producers tosell their programs inside and outside a rapidly expanding broadcasting system. Inside thebroadcasting system, specialty channels such as Bravo, the Discovery Channel, andMusiquePlus are required by licence to provide programming for specialized audiences.Between the early 1980s and 1996, forty-three specialty services were licenced to serve theFrench and English markets. Outside the broadcasting system, a rapidly expanding set ofinstructional materials, travelogues, plays, television programs, and “how to” videos areavailable through a number of retail and rental outlets. There is no reason why quality Canadian programming will not find an outlet in Canadaand in similar venues in other countries. If some market niches are still underserved, thegovernment can instruct the public broadcaster to provide programming for this segment.There is of course no assurance that viewers will select to watch these programs but that istrue for all media products. In addition, the Internet is evolving to provide a means for users to engage in vanitypublishing as well as to provide specialized audio and video material. The open view stressesthe opportunities that now exist for creative talent, which is more likely to develop to astandard that will attract audiences at home if it is able to compete in international markets. Inthis view Canadian creative talent is best nurtured in an open environment perhaps with thecontinuation of selected subsidies, as provided by agencies such as Telefilm Canada, withappropriate tax policy, and training programs for those who supply both the creative andbusiness inputs to the cultural industries.Is there a bias against distributing Canadian made programs?—This question has twoparts—is there a bias against Canadian programming in Canada and is there a bias abroad?The open view argues that commercially driven firms will distribute any material in anymarket that is likely to make money. American and other foreign distributors do notknowingly ignore profitable

11. See Keith Acheson and Christopher Maule, “Canadian Content Rules: A Time forReconsideration,” Canadian Public Policy 16, 3 (1990).

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opportunities in Canada or abroad. If they did it would be a bonus for Canadian distributorswho could seize the opportunity. In the event that American distributors engage inexclusionary practices, these can be addressed by competition policy. 12

Nor is there a bias by American audiences against foreign material. In other sectors,American consumers have flocked to purchase Japanese cars and appliances, Scotch whiskeyand Italian designed clothes. If existing distributors fail to distribute desired goods andservices, new ones will enter to take advantage of their oversight. The reason why foreigncultural products do less well in the United States than vice versa is because Americanproducts have been relatively more appealing to audiences both inside and outside the UnitedStates. The system of production and distribution in the United States developed differentlythan in other countries and explains the success of American films and programs in foreignmarkets. Canadian cultural policy will be better informed by examining the reasons for thesuccess of the American film and television industry rather than accepting a view that relieson audiences being either stupid or continuously deceived. 13 Distribution is more likely to beaffected by new technologies providing additional delivery mechanisms. However, these willprovide opportunities for Canadian and other program producers.Does the economics of production and distribution lead to dumping of Americanproducts in Canada?—The allegation of ubiquitously unfair pricing of cultural productssold by American distributors in foreign markets, whether for periodical articles or televisionprograms, reflects a misunderstanding of how products are financed and priced. In arrangingfor film financing, a producer will consider the places in which distribution rights can besold—domestic and foreign markets, theatrical, first-run television, pay-television,syndication or second run markets, home video—and what opportunities exist for crossmarketing of books, t-shirts, sweaters, mugs, theme park rides and comics. For television andfilm products, presales of rights are an important source of revenue for producers and isrecognized as such by the Canadian Film and Television Production Association, which hasobserved that “The key to future film financing lies in investment by distributors, or in.private finance advanced on the basis of anticipated revenues.” 14

A producer who can raise finance from other sources may hold off selling some rights untilafter the production is completed. He or she does so because of an expectation that more notless money will be realized in the “off-the-shelf’ as compared to the presales market. Theproducer may also enhance the value of rights in total by maintaining control over some ofthem. Buyers of rights to the unfinished program or film are willing to pay more for the rightson sale if the producer’s

12. Along with other countries, both the United States and Canada have legislative provisionspermitting export agreements that may have exclusionary effects.

13. Keith Acheson and Christopher Maule, “Understanding Hollywood’s Organization andContinuing Success.” Journal of Cultural Economics, 18 (1995), 271-300.

14. Canadian Film and Television Production Association, The Canadian Film and TelevisionProduction Industry: A 1997 Profile (Toronto. February 1997), 8.

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ownership of the remaining rights provides incentives for him or her to maintain bettercontrol over the quality of the production. The role of presales and the choice of when tolicence different rights in financing production is at odds with the image of the financingprocess portrayed in the nationalist view of dumping, which sees the film being producedthen sold first in the American market where the costs are covered, and later in foreignmarkets where profits are earned. Films and television programs, like newspapers, magazinesand books are public goods in the sense that most of the costs are associated with producingthe first copy. Subsequent copies have low marginal costs of production and distribution. Thelevel of these costs provides a benchmark for dumping and a lower bound for the reservationprices of suppliers. These reservation prices for rights are only one factor determining themarket price. The other is demand. A clear message from the data on licensing is that pricesreflect the size and value of the viewing market. Canadian rights for an American-producedprogram cost less to licence than the American rights. Similarly, the New Zealand rights for aCanadian-made program cost less than the Canadian rights. Observing these relationsprovides no evidence that either the American or the Canadian owner are dumping.Are the cultural industries exempted from the trade agreements?—At the time, theCUSFTA was negotiated, the Canadian position was that the cultural industries wereexempted from the liberalizing provisions of the agreement, the terms of which have beencarried over to the NAFTA.15 American negotiators had a different view over the scope of theright to retaliate. Until a dispute arose it was unclear which view would prevail. Disputeshave now occurred in these industries. However none has tested the wording of NAFTAbecause the two sides have chosen to deal with them in the political arena, where theadvantage lies with the country having the most political and economic clout, or through thedispute resolution mechanism of the World Trade Organization (WTO).In a dispute involving Time Warner and Sports Illustrated, a WTO panel ruled in March 1997that Canada’s periodical policies involving import restrictions, a tax on advertisingexpenditures in split-runs and preferential postal rates for domestic publications werecontrary to Canada’s WTO obligations.16 The Canadian government has announced that itwill appeal the decision. 17 Another dispute involving Polygram may get referred to the WTO.It involves a European firm that is prevented from distributing in Canada films made byindependent producers, while the major American film producers have been grandfathered byCanadian film distribution policy.Do ownership rules work?—Canada has carefully developed rules which limit the foreignownership of bookstores, book publishers, magazine publishers, broadcasting andcablecasting firms. In some instances the argument is that Canadian ownership will assureCanadian content, in others, such as broadcasting, that content rules have to accompanyownership rules. The open view stresses that there is no necessary connection betweenownership and content. Canadian ownership of Cineplex-Odeon has not led to the screeningof large numbers of Canadian films which otherwise would have sat on the shelf nor willCanadian ownership of MCA alter the “nationality” of products emerging from the studio.Other major Hollywood firms are or have been controlled by Japanese, French and Australiancompanies. The type of product produced or distributed responds to international businessimperatives and is unlikely to reflect the nationality of the owners. It is more likely that theowner will change nationality, as Rupert Murdoch did when

15. See Note 7.16. World Trade Organization, “Canada—Certain Measures Concerning Periodicals.”Report of Panel, WT/DS31/R, 14 March 1997.17. The Globe and Mail, May 13, 1997, A1.

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buying American broadcasting entities, than that the portfolio of what is produced and shownwill be altered.

What do the data show?—In spite of the history of cultural policies, Canadianprogramming commands only a small share of the Canadian market. Does this mean thatwithout the policies this small share would be taken by imports? Does it mean that thepolicies have worked because Canadian programming has a hold on at least a part of themarket? Should the Canadian share be larger? The nationalist view would probably answeryes to all three questions.

We look at the experience differently. For simplicity, consider two types of product. One islargely of local interest and the other is of international interest. Canadian producers shouldhave a natural advantage in providing locally oriented material—traffic reports, reviews oflocal production, public affairs programming, news, and the like. With respect to materialwith an international niche or mass audience, Canadians would be expected to have only arelatively small share if they were internationally competitive (i.e., if they were earning asmuch from foreigners as they were paying them for rights). To make the point moretransparent, consider only the North American market. Suppose that for a particular televisionseries that was successful in the North American market, American licensing rights cost$1,000,000 and Canadian $100,000. If Canada produced one of eleven international showsappearing on North American screens, Canadian broadcasters would pay American producersa total of $1,000,000 for the 10 American shows while American broadcasters would pay$1,000,000 to a Canadian production company. Only one eleventh of the Canadian televisionschedule for this type of program would carry Canadian-made “international” fare butinternational payments for program licensing fees would be balanced. Assuming theAmerican labour force to be 10 times as large as the Canadian, there would be the sameproportion of the labour force employed in program production in Canada as in the UnitedStates. This result reflects the size of the national markets. Other factors also influence thesuccess of television programs in different markets, but the size effect means that a smallcountry may have a small percent of international quality programs being shown on itstelevision screens and still be doing very well in the international industry.

There are many international markets for documentaries and educational films. From abusiness and creative perspective these are important markets, but much of the media andpolitical attention focuses on mass markets for records, television programs and film. Werestrict our attention to the rapidly growing audio-visual part of the Canadian industry.

Unfortunately, the published Statistics Canada data on the cultural industries areincomplete in coverage. Much of the information that is gathered in existing surveys is notpublished, although it would be useful for policy analysis. The Statistics Canada publicationFilm and Video (SC 87-204) provides information on the audio-visual production industry to1992-93. Statistics Canada has provided us with the figures for the following two years. Inthis publication production revenue is provided by client type (i.e., by the characteristics ofthe buyer). To isolate products with an international market, we have excluded productsbought by the government, advertising agencies, and industry. This leaves sales to filmdistributors, conventional and pay television channels, other producers and educationalinstitutions. We label this aggregate internationally saleable programming (ISP). Between1990-9 1 and 1994-95, total revenue from sales of ISP grew at a rate of 15 percent perannum—from $316 million to $544 million. Over the last two years of this period,

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growth rate was 27 percent per annum. An export figure is also provided by StatisticsCanada, which we assume is mainly for products of the ISP type. In 1994-95, there were$163.1 million of exports. The percentage of this export figure within the total revenue of ISPvaries from a low of 26 percent to 39 percent. A more detailed and accurate picture can be drawn by looking at the leading firms in theproduction industry. The top five firms in the industry are Alliance, Atlantis, Coscient, Cinarand Nelvana.’8 These companies have become significant producers and international playerswithin the last decade. The three Toronto-based firms-Alliance, Atlantis, and Nelvana—reported total revenues of $233.8, $136.6 and $56.5 million in their 1995 annual reports.These figures include revenue from distribution, broadcasting and financing activities. In thesame year, the revenue generated from foreign sources was reported as $105.6, $63.6 and$44.6 million respectively or stated as a percentage of total revenues, 45, 47 and 79 percent.The two Montreal firms, Coscient and Cinar, reported revenue of $69.7 and $42.1 million in1995. Coscient’s international sales account for over 30 percent of total sales. In its review ofoperations for 1995, the company states:“The results are conclusive: customers in about a hundred countries—thanks to programstranslated into some 20 languages Cinar had total revenue of $42.1 million in 1995 of which53.2 percent was generated from international sales. It is interesting that the total of foreignsales reported by these five companies alone exceeds by $94 million, the total 1994-5 exportfigure for audio-visual producers as reported by Statistics Canada. Yet the role of foreign sales in generating revenue is more important than its percentage oftotal revenues would suggest. A significant portion of Canadian revenues come from grantsand refundable tax credits. For example, $9.9 million of Cinar’s 1995 revenue was fromsubsidies and $9.8 million from sales to Canadian customers. Of Cinar’s total non-subsidyrevenue (i.e., revenue from commercial sales), 70 percent was received from abroad in 1995.For all five companies, the dependence on foreign sources for commercial revenue issubstantially greater than is indicated by the figures reported in the last paragraph. Thiscombination of significant subsidies and large foreign sales also promises to lead to reactionsfrom Canada’s trading partners. Almost without exception, Canadian production companies are integrated within theinternational market through production, distribution, and marketing. In addition to thefinance provided by presales to foreigners, the larger companies frequently tap into theinternational capital market. For example, Cinar and Alliance are listed on New York as wellas Canadian exchanges and have successfully raised capital from share offerings in theUnited States. Programming services are also being exported by Canadian companies. CanWest Globalhas an interest in Australia’s Network Ten and in New Zealand’s TV3. DirecTv in the UnitedStates offers three Canadian cable services—CBC Newsworld, MuchMusic and TrioCto itsAmerican subscribers. CHUM also supplies MuchaMusica in Argentina and is exporting theformat of its CITY-TV channel to Helsinki, Buenos Aires, Madrid and Cape Town. CineplexOdeon has one of the larger cinema chains operating in the United States. What is true for theaudio-visual industries is also true for print media. A book that has a wide audience inCanada is typically also popular in other countries.

18. These were the top five companies for 1996 in the annual survey carried Out byPlayback, April 21. 1997,28. In this listing. Playback lists Paragon Entertainment and Lacewood Productionsseparately, although the after is owned by the former. If they were consolidated, Paragonwould replace Nelvana as the fifth largest Canadian production house. The above trendswould not be affected as Paragon like Nelvana is internationally oriented. In its 1996 AnnualReport, President and COO, Richard Barchiver states “We shouldn’t be in the business ofapplying our resources to make $100,000 on a television production intended only fordomestic distribution when, For not very much extra effort and expenditure, we can make $1million or more from a feature film with international potential.”

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For example, the April 1997 edition of Quill & Quire reports that 175,000 copies of MargaretAtwood’s latest novel, Alias Grace, were shipped to the United States; 84,000 to the UnitedKingdom; and 60,000 to Germany.

Can we compete effectively internationally?—To an extent we already are. TheInformation Highway Advisory Council (IHAC) Report states that Canada is a majorexporter of films and programs)19 The Mandate Review Committee Report points to thesuccess of Canadian independent producers in foreign markets, but considers this to be aqualified success because it has been financed by American distributors and does not reflectCanadian values.20 In our opinion, technical changes are making the relative importance ofniche and mass market international products more important in all the cultural industries.Our ability to respond to this shift is threatened if our protectionist cultural policies lead toretaliation and harm the industries that the policies are aimed to support.

Against, this backdrop of policy approaches and the behaviour of actual companies. wenow examine the NCN/CMT case which illustrates a number of inconsistencies anddifficulties that arise as the policymakers attempt to micromanage the industry to conform tothe nationalist view at a time when parts of it are beginning to look outward.Case Study: Country Music TelevisionIn 1994, the CRTC announced the removal of the Country Music Television (CMT) channelfrom the list of American services that could be carried by Canadian cable companies, andthe licensing of the New Country Network (NCN), a Canadian owned specialty channelproviding similar programming. The changeover occurred on January 1, 1995. CMT appealedthe CRTC decision in the Canadian courts and lost. It then filed a 301 complaint to the UnitedStates Trade Representative (USTR).22 On June 21, 1995, the date on which the USTR wasdue to respond, possibly suggesting a list of retaliatory measures, the companies involvedproposed a commercial arrangement to resolve the dispute. However it was not until March1996 that agreement was reached leading to subsequent CRTC approval of the corporatereorganization. The journey of this dispute has been tortuous. It leaves behind a trail that hasimplications for Canadian cultural and international trade policies in this and other industries.

19. Final Report of the Information Highway Council, Connection Community Content, TheChallenges of the Information Highway (Ottawa: Supply and Services, 19951.

20. See Mandate Review Committee, Making Our Voices Heard..., 22, 35.

21. Examples of Canadian ability to compete abroad include Beaverbrook, Thomson andBlack in newspapers; Harrowsmith in periodicals; MacLean Hunter and Rogers in cabletelevision; the CBC and Power Broadcasting in supplying programming to DirecTv in theunited States. The foreign sales of independent production companies are discussed above.Other foreign sales relate to software firms involved in animation such as Alias/Wavefront,CORE. Digital Pictures, and BLT Productions.

22. Section 301 of the United States Trade Act of 1974 as amended by the Omnibus TradeAct of 1988 (Title Ill, Trade Act of 1974, 19USC. 2411, Supply. 1993) allows the government,firms or citizens to file a petition with the USTR alleging illegal or unfair actions bygovernments. If the USTR decides to initiate an investigation. it “must publish a summary ofthe petition, provide opportunity for public hearing, and request consultation with the foreigngovernment or instrumentality concerned. If the case involves a trade agreement and nomutually acceptable resolution is obtained, the United States must involve the disputeresolution procedures of the agreement.” John Jackson. The World Trading System(Cambridge: MIT Press, 19911, 105.

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The policy history begins with the licensing of Canadian specialty channels in 1983. In acomplementary initiative, the Commission outlined a linkage policy permitting cable to offerspecified American specialty channels in discretionary tiers with Canadian pay and specialtychannels. If a Canadian service was granted a licence and no American service covering thesame area appeared on the approved list for linkage, no competitive American service wouldbe subsequently added to that list. In 1984, the year that CMT was first authorized forCanadian cable carriage, the CRTC’s policy also called for terminating an American specialtychannel’s eligibility for linkage if a similar Canadian specialty service was subsequentlylicenced? 23 Changes to this policy were made on November 30, 1987, when the Commissionannounced that termination of an American channel’s eligibility for linkage upon thelicensing of a Canadian alternative would be discretionary rather than mandatory.24

The dispute arising out of the removal of CMT has been handled in several fora. First,CMT appealed the regulatory decision in the Federal Court of Appeal, lost, and was refusedthe right to appeal to the Supreme Court of Canada. The Federal Court appeal was made onthe grounds that the principles of natural justice had been violated because CMT was notallowed to participate in the oral hearing that preceded the decision by the CRTC. CMT then filed a 301 petition to the USTR complaining of its treatment in Canada. 25 TheUSTR responded on February 6, 1995, claiming that Canada had acted in an “unreasonableand discriminatory” manner and called for public comment within thirty days. In a letter tothe Canadian Trade Minister, the USTR indicated it would complete its investigation by June21, 1995. A news report stated that American officials were drawing up a list of targets forretaliation. The list included Teleglobe Inc., Cineplex Odeon Corp, and MuchMusic, andmention was made of imports of Canadian maple syrup, bacon, fur coats and phonographicrecordings. Retaliation was being considered inside and outside the cultural sector. 26

Two other actions occurred. The USTR wrote to the Canadian Minister of InternationalTrade requesting a review of Canadian policy. In effect, the USTR was asking whetherCanada was likely to make a practice of delisting foreign cable services. A second responsewas the announcement of discussions between the two firms providing the country musicservices regarding a solution to the dispute. CMT and NCN were at first reported to havebeen unable to reach a settlement. However on June 21, the formation of a businesspartnership was announced. CMT would acquire a minority interest from Rogers for anundisclosed amount and announced that it would no longer blacklist Canadian videos thusgiving wider distribution to Canadian artists in the United States. Difficulties arose in theformation of the partnership and CMT’s owners again lobbied the USTR to bring pressure tobear on Canada to resolve the issue. Threats of retaliation were repeated and a resolution wasachieved in March 1996. Subsequent to the agreement, the ownership of the licence wastransferred to a holding company. Shaw owns 90 percent of this holding company and CMT,10 percent. The latter is now wholly owned by Westinghouse. The name of the licencedservice has been23. In Public Notice 1984-81, p. 13. the CRTC stated: “should the Commission license, in thefuture, a Canadian service in a format competitive to an authorized non-Canadian service, thelatter will be replaced by the Canadian service.24. In Public Notice 1987.260, 85, the Commission wrote that if in the future a Canadian servicewas authorized, “the non-Canadian service could be terminated.”25. CMT argued that removal was requested on economic rather than cultural grounds. It alsoclaimed to be supportive of Canadian country music artists by distributing their works in Canada,the United States, Europe, Asia and Latin America. These artists were split in their, support andopposition to CMT.26. See The Wall Street Journal, May 19, 1995, B1 2. In a previous dispute concerning regulatoryactions affecting border broadcasters in the United States, retaliation had involved disallowing thedeductibility of convention expenses for income tax purposes when Americans attendedconventions in Canada.

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changed from NCN to that of the minority foreign investor, CMT . The corporatereorganization that led to this arrangement involved a number of players and can be tracedfrom CRTC Public Notices and Decisions:

• CRTC Public Notice 1996-6. 10 May 1996. A notice of publichearing is issued to consider the reorganization of the licenceeNCN, by the Canadian investors.

• CRTC Decision 96-287, 29 July 1996. Approval is given for theformation of two companies, a holding company owned 49percent by Rogers Communications and 51 percent by 566684Alberta Inc., and a wholly owned subsidiary of the holdingcompany. The subsidiary holds the licence.

• CRTC Decision 96-701,21 October, 1996. Approval is given toamend the licence for CMT (formerly the New Country Network)to show advertising for ten as opposed to eight minutes per hour.

• CRTC Public Notice 1996-148,15 November 1996. Approval isgiven to transfer 90 percent of the shares of the holding companyto Show Communications Inc. whereby Shaw will assume effectivecontrol of the holding company and thereby the licencee. Shawcommits to spend $1.9 million over four years in addition to thecommitment in the original licence of $1.9 million in 1996 rising to$2.3 million in 1999.

If CMT increases its investment up to the allowable one-third in the holding company and20 percent in the licencee, the CRTC would have to be informed but a formal request forapproval would not be required. The issue of control by the minority foreign investor isexamined only if it arises in a licence application or if it is brought to the CRTC’s attention asa result of a change in investment. The CRTC would not otherwise initiate inquiries toexamine who controls the enterprise, assuming that the required ownership levels will ensureCanadian control.27

Policy Implications The CMT case highlights the different and inconsistent regulatorytreatment of broadcasting and cable services relative to the print media. For books,magazines and newspapers, the reader is able to select, purchase and borrow what she or hewants. No domestic content rules and virtually no import controls apply. Moreover,newspapers make money by printing material imported from abroad since there are nolimits on foreign content except with respect to advertising. 28 Material is reprinted fromforeign newspapers and news services as well as from foreign correspondents. Ifnewspaper owners or book publishers

27. Any change in investment, domestic or foreign affecting less than 20 percent of theinvestment in the licencee con take place without CRTC approval; between 20 percent and30 percent requires informin9 the CRTC; and over 30 percent requires CRTC approval.Ownership and control guidelines for eligible Canadian companies are set out in theCanada Gazette 130, 9 (May 1, 1996), 1296. Transfer of ownership and control isaddressed in “Specialty Services Regulations,” 1990 Canada Gazette Part II. 124, 4(February 14, 1990), 633 as amended 127, 14 (July 7, 1993), 3092.

28. Section 19 of the Income Tax Act indirectly bars foreign ownership of newspapers andperiodicals through limitations on deductions of advertising expenses for space in suchpublications.

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were subjected to the content rules that apply to broadcasting or the split-run policy thataffects periodicals, their revenues would be adversely affected and there would be predictablecries about freedom of the press. Even within the boundaries of cable regulation, othercases have arisen and been treated differently. CMT was the first American service to haveappeared on Canadian cable systems from the outset and to have had its eligibility terminated,but similar circumstances surrounded an application by the CBC for a new “all-news”channel. In 1987, when its Newsworld channel was licenced, CNN already had two newsservices listed as eligible services in Canada. The CBC did not ask for the removal of theseservices in part because the CBC and CNN had a partnership arrangement in which theyexchanged programming. The CBC used the arrangement to market its services abroad viaCNN and was aware that there would probably be a public outcry if viewers were preventedfrom accessing CNN. In the country music arena, another American-owned service, theNashville Network (TNN), with the same owners as CMT, continues to be available inCanada on the grounds that its program format is different (fewer videos supplied by recordcompanies and more original programming) from that of NCN. Determination of whatprogramming format provides a competing service requires fine judgments which are subjectto considerations of political convenience. The resolution of the CMT case results in CMT being transformed from an authorized (oreligible) non-Canadian satellite service to minority owner of a licenced Canadian specialtyservice using its brand name and format. It will then likely argue for the preservation ofCanadian policies since it will be on the inside relative to other actual or potential foreigncountry video music channels. A similar situation occurred in Quebec over film distributionpolicy. The major American distributors in Quebec became supporters of the policy whenthey were exempted from restrictive distribution legislation, while Ontario based companiesthat had been supplying Quebec from an Ontario base and new entrants received lessfavorable treatment. 29 Polygram, a Dutch distributor, faced the same situation, but at thefederal level, when it entered national distribution in 1997. Unlike other foreign distributorsthat had been grandfathered, Polygram could not distribute films for which it did not ownproprietary exhibition rights. It is likely that a complaint on this matter will be referred to theWTO. CMT will become established as a split-run type operation in cable by distributing itsprogramming in Canada with some Canadian content and with advertising aimed at theCanadian market. CMT makes a practice of using split-runs. For example, in Brazil it has apartnership with Televisao Abril (IVA) in which it transmits a Spanish signal by PanAmSat 3to all of Latin America. IVA downloads the signal and customizes it by adding Portuguesetitles and up to four hours of Brazilian country music. The signal is then uplinked to asatellite for delivery to cable operators and DTH viewers, thus providing a typical split-runarrangement? 30 Rather than being harmed by the operation of CMT, local Canadianperformers may benefit from this arrangement if their works are carried abroad as a result ofbeing part of the CMT operation. During the dispute, Canadian performers were adverselyaffected when CMT retaliated by excluding Canadian performers from its cable serviceselsewhere. While in a related medium, magazine publishing, split-runs are banned bygovernment policy, in cablecasting, arrangements with some of the characteristics of a splitrun have been approved.31 The regulators will claim that there is a difference as the televisionprogramming is controlled by

29. See Playback, October 29, 1990.30. See Broadcasting and Cable International, June 1996, 12.31. The branded specialty television services offered by Bravo arid the Discovery Channel are

examples.

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the majority Canadian partners, but this judgments depends on the ability to determine howcontrol is exercised, an issue that has arisen with periodical publishing and book retailing. Itis difficult to pierce the actual decision-making structure of an entity which knows that it hasto show regulators that Canadian control prevails regardless of what actually’ occurs. In a related case, the formation of Reader’s Digest Canada, a Canadian-owned foundation,was approved by the Canadian government. Reader’s Digest was thus deemed to have metownership restrictions, even though editorial control appears to have remained with theAmerican parent company.32 An opposite decision was reached in retail book selling whenBorders Books was kept out of Canada on the grounds that the minority foreign partnercontrolled the ordering system for books. Determination of ownership and control isbecoming increasingly difficult to establish as grounds for making consistent decisions withinand across media. It is further complicated in broadcasting with new regulations that increasethe permissible levels of foreign ownership. Canada is now signaling that it wants moreforeign investment but not the associated corporate control. Even if the limits on foreignownership and control are established to the satisfaction of the regulator, can the viewer-listener distinguish between Canadian and foreign country music performers? Identifying thenationality of country music for most compositions is, we suspect, difficult to undertake. Ifthis is so, then the Canadian content requirements for licenced Canadian cable services islittle more than protection for Canadian artists and their producers. Governments may decideto support country music performers in Canada but ownership rules for cablecasters areunlikely to result in the production of any more songs written about Canada. In the CMT case, as in other disputes, neither country has been anxious to test the meaningof the cultural exemption in NAFTA. The norm has been an escalating series of threats. In themagazine case, the United States successfully registered a WTO complaint and that path maybe walked more often in the future. The exemption has not meant the absence of disputes, butrather their settlement in an arena in which there are no clear rules. To the extent that therules are being defined by experience, they are not favorable to a continuation of currentCanadian policy. If Canada ignores the emerging rules, it will be costly. The United Statesoverall is a relatively more important export market for Canada than Canada is for the UnitedStates, providing the latter with more points of pressure in and outside the cultural industries.Within the cultural sector, the United States may demand reciprocal rather than most-favored-nation treatment, making it increasingly difficult for the preservation of current Canadiancultural policies. If retaliation occurs outside the cultural sector, then Canadian interests fromdifferent industries are pitted against each other. In the absence of a dispute resolution mechanism for the cultural industries, regulators andgovernment agencies on both sides of the border are drawn into the disputes, with each sideusing

32. See I. A. Litvak and C. J. Maule, “Bill C-58 and the regulation of periodicals in Canada,”International Journal, 1980, 70-90.

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whatever leverage it has to further its case. In Canada, actions by the CRTC triggered theCMT dispute. The American firm responded by appealing to legal provisions administered bythe USTR and requested the FCC to suggest areas where retaliation might bring pressure tobear on Canada. The American ambassador to Canada used quiet diplomacy to representAmerican interests, but also appeared on national radio to explain that while the United Stateswas sensitive to Canadian cultural interests, the CRTC’s actions were hurting Westinghouse,part owner of CMT, which was a significant employer in Canada.33

Without a private settlement of the CMT case, it is not clear what sequence of politicalactions would have occurred. Obligations of both countries under the CUSFTA, NAFTA andthe GATI”~ affect the likelihood of different sequences. The first step in a political resolutionis crucial in determining the sequence. Canada’s reaction would have depended on whetherthe United States retaliated in a culturally related area or elsewhere. The coherence of privateresponses in the respective countries would also have had a significant effect. In this regard,the response made by interested parties in the United States to the 301 process would havebeen important in shaping the case to which the Canadian government would have had torespond.35

There is little doubt that the dispute has been expensive in terms of the time expended byCanadian officials in Heritage Canada, the Department of Foreign Affairs and InternationalTrade and the CRTC, as well as by corporate officials. Administration of Canadian policieshas become arbitrary as discretion is exercised to determine which foreign channels aresufficiently similar to a new Canadian channel to warrant delisting and when contractualrelations transfer effective control to a minority shareholder.

ConclusionCanadian foreign economic policy towards the cultural industries has evolved on theassumption that Canada can pursue protectionist policies and shelter them from internationalagreements by negotiating special terms, while encouraging Canadian producers to seekforeign markets. As a result of the CMT case and the March 1997 decision of the WTO panelregarding Canada’s periodical policies, that assumption can no longer be made. Challengesare coming not just from the United States but also from Europe with Polygram’s complaintabout film distribution policies. These and other cultural trade disputes are the legacies ofpast policies, which have led to inconsistencies between the treatment of different culturalindustries and failure to adhere to most-favored-nation (MFN) treaty obligations. Canada nowhas to decide whether to pursue a policy of seeking exemption for the cultural sector, asectoral agreement for culture or a trade rules approach. While each has advantages anddisadvantages, it is our view that the trade rules approach is the preferred option.

33. American Ambassador James Blanchard in an interview with Peter Gzowslki on CBCRadio, January 26, 1995.34. A General Agreement on Trade in Services (GATS) affecting the cultural and otherservice industries is now part of the GATT/WTO—see Uruguay Round of Multilateral TradeNegotiations. General Agreement on Tariffs and Trade, Final Act, Marrakesh, April 15, 1994.Office of the United States Trade Representative, Washington, DC.35. Details of the principal arguments made on behalf of CMT can be found in the submissionmade by the Washington law firm Dewey, Ballantine to the USTR on March 6, 1995.Submissions were made by about ten other companies including Time Warner which tied itsconcerns to the Sports Illustrated issue.

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The CMT case illustrates some of the difficulties. Canada administers different contentrules for the various media, for example print versus audiovisual activities. Within the cableindustry, differential treatment has been applied by the CRTC to foreign owned services:CMT’s treatment is different from the treatment of TNN and CNN. In addition, as a result ofregulatory interpretation, CMT has become part owner of a licence whereby as an insider it isnow able to market a split-run type cablecast format. This is in contrast to the treatment ofsplit-runs in the periodical industry. Periodical split-runs have been addressed by tariff andtax policies. In this case, for another set of special conditions, Reader’s Digest and TimeCanada have been given privileged insider status.

In the film industry, policies have made some foreign firms insiders, such as member firmsof the Canadian Motion Picture Distributors Association, with respect to film distributionpolicy. Polygram, as a new entrant, remains an outsider, subject to more restrictive rules fordistributing films in Canada. Grandfathering of certain foreign firms for the purpose ofparticular policies creates the potential for further trade and investment disputes byundermining the principle of most-favoured nation treatment.

Policies prescribing maximum levels of foreign ownership are subject to opposing forces.Some want to raise the level so as to attract more investment to these sectors and to providemore purchasers for the assets they own. Others recognize that minority ownership can resultin commercial control through the use of contracting procedures. This has led to InvestmentCanada and the CRTC being instructed to examine the extent of control exercised byminority foreign investors. CMT, Reader’s Digest, and Barnes and Noble have had minoritypartnerships in cultural industry initiatives approved, while Borders Books did not. It is notclear to most observers what made the last initiative different from the others.

Technology is another factor weakening Canada’s traditional approach to cultural policies.Satellite delivery and the Internet undermine Canada’s ability to administer foreignownership and Canadian content policies. Despite the CRTC’s claim to have the power toregulate satellite delivered television services, grey market ownership of American satelliteservices is growing, with the service openly advertised to Canadians on the Internet.

Knowing that a growing number of disputes can overload Canadian government officials,foreign firms and governments can strategically increase the pressure. This problem isexacerbated by the tight response deadlines which are typical of many dispute resolutionprocesses. In international trade disputes, only government lawyers can represent countries.In sum, there are sufficient examples of difficulties to support the Minister’s proposal torethink Canadian policies affecting trade and investment in the cultural sector34

36. Notes for an address by the Honorable Art Eggleton, York University, January 27, 1997.Available at http://www.dfoit-maeci.gc.ca

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