When Canada negotiated with the U.S. for the Canada-U.S. Free Trade Agreement (CUSFTA), Canada insisted on a cultural exemption—language in the agreement which allowed Canada to protect its cultural sector using policies that would otherwise violate free trade rules or be considered “protectionist.” This was contentious and one of the final issues resolved before the Agreement came into force in 1988.
The issues Canada argued with the U.S. in 1986 are ancient history. Digital technologies are now central to how artistic and cultural expressions are created, produced, distributed and made available to global audiences. This is not only a public policy challenge—there is a risk that the cultural policies Canada needs for the age of streaming may fall outside the cultural exemption from trade and investment agreements.
In order to continue protecting Canada’s cultural sector from encroachment from global—particularly United States—cultural dominance, it is essential for Canada to develop a new approach and relevant definitions. And Canada has an opportunity to do so, with the upcoming CUSMA review, where it should introduce new and stronger language into the agreement protecting the arts and cultural industries.
The origins and evolution of the cultural exemption
Like other countries, Canada needs policies and programs to encourage the creation and production of domestic arts and culture. Our policies are not exclusionary—Canadians continue to enjoy cultural expressions from everywhere. But we need to ensure that, in the plethora of content, there are Canadian choices available, in every genre. CUSFTA used this language to exempt these policies from the free trade rules.
Since 1988, the exemption and definition are virtually unchanged, and have been included in most trade and investment agreements Canada has concluded. Over the years, Canada has included changes to specific cultural policies in agreements, such as taking commitments for advertising services, amending book publishing ownership rules, agreeing to various changes to the Copyright Act, changing certain broadcasting policies, and limiting Canada’s ability to increase customs duties.
The cultural exemption was strengthened in CUSMA (Canada-United States-Mexico Agreement) in 2020, as it was included directly, rather than NAFTA’s reference back to CUSFTA provisions, albeit with the same language.
While the Comprehensive Economic and Trade Agreement between Canada and the EU has weaknesses, there is little concern since the culture provisions were driven by the EU side, not Canada. Both sides have an exemption, and corollary language is strong.
The significant exception to continuing the cultural exemption is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. CPTPP is problematic and will become more so if the U.S. accedes to it.
There is no cultural exemption in CPTPP—Canada has merely taken reservations for its cultural industries from certain commitments in various chapters. It has defined a cultural industry in the same way as CUSFTA. But, to be covered by the reservation, the policy must have a “cultural purpose,” a limitation that exists in no other agreement. Importantly, Canada did not take a reservation against the commitments in the electronic commerce chapter, relying instead on an exemption for “broadcasting.”
While Canadian courts have found that broadcasting includes making programs available at a time and place chosen by each viewer—as is the case with online streaming—most other States (and relevant treaties), consider broadcasting to be making a program available to many people simultaneously, as with traditional television or radio broadcasting.
CUSFTA came into force in 1988. The negotiating parties could not have predicted that today, most artistic expressions are digitally created, produced, distributed and made available to consumers. And now, that discrepancy could cause problems for the domestic cultural industries.
Old language, ongoing issues, new technologies
The current exemption definition (unchanged since 1988), does not include performing arts, visual arts and crafts. While they are clearly cultural “activities” that can and are done by an “enterprise,” this was inconsequential in the 1988 CUSFTA, since these sectors were not implicated (it was a bottom-up agreement and focussed primarily on trade in goods). Further, trade agreements generally permit direct financial support for domestic producers, which is how these sectors continue to be supported. This lack of an exemption is problematic if other policies are needed today to support Canadian artists and producers in these sectors. For example, imposing Canadian content rules in the performing arts would violate CUSMA.
More significantly, the current definition is hugely problematic in relation to digital technologies. The use of the antiquated term “machine-readable form” is tied directly to written documents and not included in relation to audio or audiovisual recordings. The existing definition insufficiently covers works that are digitally created and only available in the cloud.
Since the current definition is exhaustive, it cannot include any future medium artists will use to create cultural expressions. Particularly worrisome in this regard is Artificial Intelligence, which artists are slowly beginning to embrace as a tool for artistic creations.
Despite the shortcomings, the existing definition has served Canada reasonably well since it was first introduced. While measures introduced to discourage the importation of Canadian editions of U.S. magazines were overturned by WTO in the Canada periodicals case, potential challenges to several Canadian broadcasting policies under CUSFTA and NAFTA did not materialize, likely because they would have been unsuccessful.
Under the Online Streaming Act, Canada recently required streamers (both music and audiovisual) to contribute five per cent of gross Canadian revenues to Canadian content. Any U.S. challenge to measures imposed on Netflix, Disney+, Amazon Prime, et.al. under CUSMA is likely to fail, as these companies self-identify as film/television services, industries explicitly covered by the exemption. As well, the Canadian measures imposed are less onerous than those applying to Canadian broadcasters and cable companies. Were Sweden to challenge measures imposed on Spotify, it would certainly fail, given CETA’s comprehensive and mutually agreed exemption, and a strong right to regulate clause.
Canada has also, under the Online News Act, made a deal with Google for it to provide $100 million annually (tied to inflation) to Canadian news services. Google agreed that it provides a news-service as defined in the Act. Given this agreement and the fact that “news” in various media fall under the existing definition, Meta would be hard-pressed to challenge any measure imposed on it. To date, it has disabled links to Canadian new services putting it outside the Act.
But as we look further ahead in the digital future, it is highly likely the definition will be inadequate to protect policies necessary to support Canadian artists and cultural producers.
Possible new approaches
Some argue that, notwithstanding its growing inadequacy, Canada should not try to update the definition of cultural industry, as this would be taken as an admission that the current language does not cover these new “activities.” While this is a risk, the use of language such as the following should circumvent this risk:
Cultural industry means an enterprise engaged in any of the following activities: (Article 2012 “a” to “e”)…
For greater certainty, this includes all such goods and services regardless of the technologies used in their production, publication, distribution, sale, exhibition, communication or preservation.
While such a change may solve the challenge of covering current technologies and assist with respect to future technologies artists may use, it would still leave uncertainty. This revised definition also does not address performing arts, visual arts and crafts which remain outside the definition.
The concept of cultural/creative industries embraces industries that combine the creation, production, distribution, exhibition and commercialization of creative content. These may be ephemeral, or they may take the form of a good or a service. At the heart of this are the creative and interpretive artists, as well as those who add value to the works. The definition needs to be fluid as other and newer products and activities can increasingly exhibit aesthetic and symbolic meaning.
The more permanent approach to the problem of the exemption would be to use the concepts and definitions found in the UNESCO Convention on the protection and promotion of the diversity of cultural expressions, which has 155 member states as signatories. An approach based on the Convention would be to exempt Cultural Expressions (as defined in the Convention) from all of the trade/investment/other agreements, subject to this language:
Cultural Activities, Goods and Services
Cultural activities, goods and services are exempt from the provisions of this Agreement. These activities, goods and services have content with an artistic dimension, symbolic meaning or cultural values that originate from or express cultural identities, irrespective of the commercial value they may have. Cultural activities may be an end in themselves, or they may contribute to the production of cultural goods and services.
Such a definition is wide-ranging, and would "future-proof" the agreements against further encroachment from new technologies dominated by trading partners, particularly the United States.
The stakes are high and the need is urgent. Canada’s cultural industries are struggling with rising costs; increasing competition, particularly in film/video and music; and audiences that have not yet rebounded from the pandemic. These current challenges require different public policies. While existing policies are generally covered by the cultural exemption, the policies needed today and in the future may not be.
The Canadian government must act quickly to update the cultural exemption.
