When Prime Minister Brian Mulroney was making the argument to President Ronald Reagan for a cultural industries exemption during the negotiations for the original Canada-United States Free Trade Agreement, he was persuading the former head of the Screen Actors Guild in a Washington in which the Motion Picture Association of America and other lobby groups held considerable sway. Mulroney’s case that Canada’s culture — French and English — needed protection from the asymmetrical influence of its cultural-behemoth neighbour prevailed. Since then, the internet has changed how we produce culture, how we consume it and how it is commodified across borders globally. Longtime communications, media and cultural industries lawyer Peter Grant explores that evolution, and what legislators and regulators are doing to close the disruption gap.

Peter S. Grant

While the exemption for Canadian cultural industries has been a deal-breaker for Canada throughout the Canada-United States Free Trade Agreement (FTA) of 1988, the North American Free Trade Agreement (NAFTA) of 1994 and the re-negotiated Canada-United States-Mexico Agreement (CUSMA) of 2020, the history of measures taken by Canada to protect its cultural industries from foreign competition dates back to 1965.  

At that time, Canada banned the import of so-called “split run” editions of foreign magazines. Canada also amended its Income Tax Act to provide that Canadian advertisers could no longer deduct expenses for ads placed to reach Canadian audiences in publications not owned by Canadians. More than a half-century later, that tax legislation has produced the status quo that all newspapers and magazines that sell print ads to Canadians are now owned by Canadians. But as with so many status quos disrupted by the internet, the existing regulatory framework has not protected them from online competition.    

First, a quick tutorial in the backstory of cultural protections as a bilateral irritant. In the 1970s, US border TV stations in markets such as Buffalo and Bellingham were aggressively targeting Canadian advertisers and making millions from Canada without contributing a dime to Canadian content (Cancon). In 1976, the Canadian government enacted Bill C-58, which applied the same tax measures to disallow ad expenses placed by Canadian advertisers on the US border stations to reach Canada. This time, the border stations complained to Congress, which retaliated with mirror legislation in 1981 but it only affected a Windsor radio station that was selling ads to Detroit advertisers.

When discussions about a broad Free Trade Agreement between Canada and the US began in the 1980s, it was clear to those in the Canadian cultural community that such an agreement would need to exempt measures put in place to protect Canadian cultural policies. The Canada-US FTA, signed in 1988, did include an exemption for measures affecting so-called “cultural industries”. However, the exemption also enshrined the right to copyright royalties from Canadian cable companies for distant (mostly US) TV signals. The agreement also permitted Investment Canada rules to protect Canadian owned companies in the cultural sector from foreign takeovers. Apart from the cultural exemption, the FTA also exempted Canada’s cultural funding arrangements from trade disputes targeting them as subsidies.  

A major limitation in the FTA became clear in 1993 when Sports Illustrated, owned by Time Warner, proposed to avoid the prohibition of the importation of split-run editions by beaming the content of the edition to a printing plant in Canada. When Canada passed legislation to impose an 80 percent tax on Canadian ad revenue for any such publication, the US did not bother with the FTA. Instead, it brought its complaint under the 1948 GATT agreement which dealt with goods, not services. The only cultural exemption in GATT allowed quotas for national films in theatres. Canada lost its case and negotiated a compromise. In the end, for a variety of reasons, the compromise did not give rise to any split-run competition to Canadian publications. However, the case demonstrated that under GATT, Canada had little room to impose discriminatory rules on cultural goods as opposed to services. 

Throughout the FTA, NAFTA and CUSMA, the language of the cultural exemption has stayed the same. And there continues to be an exemption for subsidies.  

To secure the CUSMA agreement, Canada agreed to two policy changes sought by the US. One of these was to require simultaneous substitution of the Super Bowl game on Canadian cable, so that Canadian TV stations could garner the ad revenue from the game. This change was sought by the National Football League and it ironically supported Canadian cultural policy. Bell Media, the owner of the Canadian rights to the Super Bowl, had sought a reversal of the much-criticized Canadian Radio-Television and Telecommunications Commission (CRTC) decision undermining its Super Bowl revenue, a portion of which would otherwise have supported Canadian production. (Apart from the reversal through CUSMA, Bell Media later succeeded in overturning the CRTC decision in the Supreme Court of Canada on legal grounds.) 

The CRTC has had Cancon expenditure requirements for Canadian TV broadcasters since 2011.  It could easily impose similar rules on Canadian online undertakings like Crave, GEM or Club Illico, as well as on foreign streaming services like Netflix, Disney+

The second policy change required by CUSMA was to allow US Home Shopping services to be carried by cable in Canada, a disappointment to the Rogers-owned Shopping Channel, but of negligible concern to the broader culture.

Which brings us to the key issue that is now front and centre in a cultural policy context that has evolved from its 20^th-century focus on fragility and foreign cultural influence to a 21^st-century debate about fairness. Namely, what to do about foreign streaming services sending programming to Canadians and making millions in advertising and subscription revenue. Since 1999, the CRTC has exempted all internet programming services from regulation, and no Canadian content rules apply to them.  

Bill C-11, called the Online Streaming Act, which has received third reading and is now before the Senate, would require the CRTC to regulate so-called “online undertakings.” Unlike traditional broadcasting undertakings, they would not need to be Canadian owned. However, for the first time, they would be subject to a requirement that they “contribute in an equitable manner to… the production and presentation of Canadian programming.” They could also be subject to a requirement that they contribute to the “discoverability” of Canadian programming.  

If a digital streaming service like Netflix was made subject to a Cancon expenditure requirement, or to a Cancon discoverability requirement, could it complain under CUSMA?   

The first question would be to see if the company was engaged in a “cultural industry” as defined in Article 32.6.  That includes any “television and cable broadcasting undertaking”.  Since 1991, Canada has defined the term “broadcasting” in its domestic legislation to include transmission of programs “by radio waves or other means of telecommunication” thereby including the internet.  However, both the United States and Mexico currently define the term “broadcasting” in their domestic legislation to be limited to transmission by the use of radio frequency spectrum. So, Netflix might argue that when it is distributed to the home by fibre, it is not technically broadcasting at least as those two countries see it. This does not end the matter, however, because Netflix would arguably be caught by a different part of the definition of “cultural industry”, namely, any person engaged in the distribution of film or video recordings.  

Accordingly, the cultural exemption is likely to apply and Canada is free to take measures to support Canadian content on foreign internet programming services. However, the US could still take a “measure of equivalent commercial effect” if that Canadian measure would otherwise be inconsistent with the Agreement. So, the real question is whether what is contemplated in Bill C-11 would be inconsistent with CUSMA but for the cultural exemption.  

The key provision in CUSMA is the “national treatment” requirement in Article 19.4 which prohibits discriminatory treatment of “digital products”, a term wide enough to embrace a service streaming programming on the internet. But would measures taken under Bill C-11 be inconsistent with Article 19.4?  Not at all. It is clear that what is contemplated is to impose Cancon requirements that are no different than those imposed on equivalent Canadian programming services. The Broadcasting and Telecommunications Legislative Review Panel made this clear in Recommendation 60:

We recommend that all media content undertakings that benefit from the Canadian media communications sector contribute to it in an equitable manner. Undertakings that carry out like activities should have like obligations, regardless of where they are located.

The CRTC has had Cancon expenditure requirements for Canadian TV broadcasters since 2011.It could easily impose similar rules on Canadian online undertakings like Crave, GEM or Club Illico, as well as on foreign streaming services like Netflix, Disney+, Amazon Prime and the like. And as long as the foreign streaming services are treated no differently than the equivalent Canadian streaming service, they should have no cause for complaint under CUSMA. 

That being said, there could be a concern arising from the definition of Canadian content. The current definition requires the producer of the program to be Canadian-owned. Since under these rules, Canadian online broadcasters can produce and own the Cancon programs they carry, foreign online undertakings may argue that they, too, should be able to produce and own Cancon. If not, they might argue that Article 19.4 of CUSMA gives them a right to object. This is a very weak basis for complaint, since foreign online undertakings can acquire all the Cancon programming rights they need from Canadian independent producers and their profit as streamers would be unaffected. (Even Netflix originals such as The Crown were produced by independent companies.)  Moreover, the CRTC could avoid the problem by limiting the Cancon requirements of the digital streamers — whether Canadian or foreign — to independently produced productions. And under Bill C-11, the CRTC is required to review its current Cancon definition, so this issue could also be addressed through that process.

Predictably, Google and Meta have opposed the legislation and have attempted to ward it off by making deals with selected Canadian news media. But if the bill passes, could they convince the US to complain under CUSMA?

Canada can also take comfort in the fact that European countries are taking similar steps. In December 2018 the European Union adopted a new Audiovisual Media Services Directive. Under the Directive, Member States may require media service providers of on-demand audiovisual media services to contribute financially to the production of European works. As of May 2022, according to the European Audiovisual Observatory, most member states of the EU have done so, with Italy and France imposing the highest obligations of the various member states.

Meanwhile, Bill C-18, the Online News Act, was tabled for first reading on April 4, 2022. The impetus for the bill came from Australia, which enacted similar legislation in March 2021. The legislation addresses the need of local news media for remuneration from Google and Meta (formerly Facebook), with negotiations to be backed up by binding arbitration. Local news media in Canada have been hard hit by the migration of ad dollars to Google and Meta, who now have an 80 percent share of online ad revenues. The bill attempts to redress the imbalance of negotiating power between the hundreds of news outlets and the two dominant platforms who make their content available.  

Bill C-18 does not actually name Google or Meta. Under the legislation, the CRTC would be required to name any “digital news intermediary” to which the Act applies. The criteria simply require that there be a “significant bargaining power imbalance” between the intermediary and the news businesses, a test that clearly applies to the operations of Google and Meta in Canada. Once named, Google and Meta would then be subject to the duty to bargain with “eligible news businesses” and this bargaining would be subject to binding, final-offer arbitration.  

Under the bill, Google and Meta can apply to be exempted from being named if they have entered into agreements with news businesses and the commission is satisfied that the agreements provide fair compensation, that they ensure that an appropriate portion of the compensation will be used by the news business to support news production, and that the agreements cover a significant portion of independent news businesses involving a diversity of news outlets.  

Predictably, Google and Meta have opposed the legislation and have attempted to ward it off by making deals with selected Canadian news media. But if the bill passes, could they convince the US to complain under CUSMA?

Again, this appears unlikely. Chapter 21 of CUSMA deals with competition policy, and nothing in Bill C-18 appears to offend any of its provisions. It should also be noted that US news media have expressed the same concerns about the domination of Google and Meta. In fact, tech companies who’ve lobbied pre-emptively for nearly two decades to consolidate excessive market power are, increasingly, being viewed unsympathetically by governments around the world.  

Requiring internet content providers to make a contribution to local content is not just Canada’s issue. It is an issue that resonates around the world.    

Peter S. Grant retired from McCarthy Tétrault LLP in 2020 after heading its communications law group for many years. He was one of six experts appointed to the Broadcasting and Telecommunications Legislative Review Panel, which tabled its report in January 2020.