The American shakedown of Canadian cultural sovereignty is the real trade irritant.

The trilateral CUSMA deal is announced in July 2018

December 16, 2022

In the finest tradition of Parliamentary politics, the Official Opposition’s approach to the Online Streaming Act Bill C-11 and the Online News Act Bill C-18 is not unlike a game of paintball. A lot of wasted paint with the occasional messy hit.

One of the touchés claimed by the Conservatives is the potential for ‘trade irritants’ between Canada and the United States to result from the two Liberal Internet bills.

The possibility of American trade retaliation grabbed news-cycle attention on December 2nd when International Trade Minister Mary Ng emerged from a meeting with US trade representative Katherine Tai and acknowledged American grumbling about C-11 and C-18.

Tai later claimed that “pending legislation in the Canadian Parliament …could impact digital streaming services and online news sharing and discriminate against U.S. businesses,” repeating verbatim her statement from the previous July.

You may have noticed the ‘could.’

By coincidence, Parliamentary committees reviewing C-11 and C-18 were in session that week, so the Conservatives were all over it. Never mind the Party campaigned in the 2021 federal election on supporting legislation very similar to both Bills. [See pages 153-155 of their platform].

Let’s begin with the obvious. Most trade irritants are not trade violations. They are complaints. Or threats to have complaints. Or whining. And they are driven by the politics of American companies coveting the market share of Canadian firms, in the US or in Canada.

American companies, like the world’s biggest media and tech companies domiciled in the vote-rich Blue state of California, expect President Biden to go to bat for them.

Despite the three free trade deals between our two nations since 1988, we’ve endured American whining, irritants, complaints and even the occasional tariff touching upon many sectors of the economy: dairy, auto, softwood lumber, potatoes, you name it.

Oh, and there were the steel and aluminum tariffs Donald Trump levied on the grounds that Canada’s access to the American steel and aluminum markets represented a threat to US national security, a meritless sanction deployed as a cudgel during the 2018 CUSMA talks and only rescinded after the deal was signed. Last week the World Trade Organization retrospectively ruled the tariffs illegal while the Biden Administration stoutly defended them.

You get the picture.

For the most part, our federal government has been good at not freaking out. Global Affairs Minister Chrystia Freeland was decidedly not freaked out by the Trump administration’s attempt to bully Canada during the CUSMA negotiations.

Beginning with the 1988 Free Trade Agreement, Canada’s refusal to be bullied included winning recognition of our ‘cultural sovereignty’ as a special case within bilateral trade rules.

In the last trade talks the exemption of ‘cultural industries’ was renewed in CUSMA. It’s not complicated. CUSMA provides that American media or tech companies doing business in the US should not be treated in a “less favourable” manner in competition with Canadian companies. If they are, Canada may still justify the discrimination in the name of defending our cultural industries and there’s no treaty violation.

But if we do, the US can respond with countervailing trade sanctions of equivalent commercial value, in any trade sector it chooses.

It’s worth a brief summary of how we got there, recounted by the University of Calgary’s Hugh Stephens in a July blog post. (There’s a longer discussion in Garry Neil’s ‘Canadian Culture in a Globalized World.’)

The Harper government actually gave away the key elements of the 1988 cultural exemption during multilateral negotiations for the Trans Pacific Partnership (TPP). Annex II of that trade deal would have made it a treaty violation for Canada to establish “discriminatory requirements on service suppliers or investors to make financial contributions for Canadian content development …[or] measures that restrict access to on-line foreign audio-visual content.”

It was the former scenario that was more likely to occur one day under a Bill like C-11 —-the prospect of compelling foreign streamers to contribute to the Canadian Media Fund (CMF) without getting access to its funds on the same footing as Canadian broadcasting undertakings.

But, when Donald Trump pulled out of TPP on the third day of his Presidency, the Trudeau government was able to recover some of the ground lost through bilateral side letters in the rebooted ‘Comprehensive and Progressive TPP’ (CTTPP) trade deal with the remaining participants, a year later.

As a matter of wise trade policy we avoid having to play our ace of spades, the cultural exemption, and instead try our best to keep on the right side of the ‘less favourable treatment’ line.

Ironically when we look at C-11 we find that in fact any discriminatory harm in C-11 flows north, not south.

The most blatant C-11 discrimination favours American media companies. It’s located in section 3(1)(f and f.1) which for the first time admits Hollywood studios as co-equals with Canadian media companies in making Canadian video content. That was the point of the Bill. But the surprise is that American companies are expressly excused from Canadian regulations on using Canadian actors, directors and writers:

3(1)(f) each Canadian broadcasting undertaking shall employ and make maximum use, and in no case less than predominant use, of Canadian creative and other human resources in the creation, production and presentation of programming, unless the nature of the service provided by the undertaking, such as specialized content or format or the use of languages other than French and English, renders that use impracticable, in which case the undertaking shall make the greatest practicable use of those resources;

(f.1) each foreign online undertaking shall make the greatest practicable use of Canadian creative and other human resources, and shall contribute in an equitable manner to strongly support the creation, production and presentation of Canadian programming, taking into account the linguistic duality of the market they serve;

There are two key points here.

First, the Americans have been accorded ‘equitable’ treatment with respect to supporting the creation of Canadian programming, whether it’s through financial contributions to the CMF or making their own Canadian movies. This non-discriminatory treatment satisfies the Americans’ key trade demand dating back to the abandoned TPP deal. If there is any fine tuning to be done, former CRTC Chair Konrad Von Finkenstein has offered advice to the Minister.

As for the employment of Canadian talent in making Canadian content, it will be up to the CRTC to measure how much less Canadian talent may be employed by the US studios when filming Hollywood versions of Canadian stories. But the text in section 3(1)(f.1)——“greatest practicable use” instead of “maximum” or “predominant”——makes it crystal clear it will be less.

Canadian Heritage officials don’t deny giving the the US studios a break on employing American instead of Canadian actors, writers and directors: Heritage officials acknowledged to Canadian Senators that Washington wanted it and even offered Senators the fatuous reasoning that Netflix and Disney deserve it because they ‘have a global business model.’

It’s unclear from the Parliamentary debates if the federal government also wrote section 3(1)(f.1) as a mandate to the CRTC to give Netflix and Disney what they insist upon: getting rid of the rule that intellectual property and re-sale rights in heavily subsidized Canadian video content must remain with Canadians. In fact to that end, sympathetic Conservative Senators backed two amendments requested by the US Motion Picture Association and one of them passed by a narrow majority.

That wasn’t the only cringing before the Americans.

Under C-11, the CRTC’s oversight of ‘section 9(1)(h)’ provisions governing the carriage and compensation of Canadian public service channels was stripped of all enforcement power, again because Washington didn’t want Amazon and other US online platforms to live up to the same regulatory obligations as Canadian cable companies. Heritage Minster Pablo Rodriguez admitted the American intervention to both Parliamentary committees. This is yet another case of discrimination in favour of American companies in C-11.

Maybe this page is too harsh on the federal government or too naive about the danger of trade conflict. But depending on your perspective, a government holding so many of the high poker cards in its hand is either very risk averse or needlessly intimidated.

Or ask this: why have Canadian trade negotiators made our cultural exemption a ‘dealbreaker’ in three historic trade deals, claiming political credit with the Canadian people for doing so, if not to use it when the chips are down?

A handful of Canadian commentators have alleged that Bills C-11 and C-18 constitute a ‘shakedown’ of Big Tech and Hollywood by a federal government pursuing an illegitimate transfer of wealth between American and Canadian companies.

The contrary is true. What is illegitimate is the American shakedown of Canadians’ solemnly ratified treaty rights to cultural sovereignty by concessions sought and obtained in Bill C-11.

The same ‘trade irritant’ trope has been mooted about the Online News Act C-18.

Trade Representative Tai’s allegation of Canadian discrimination against Facebook and Google is risible. That’s because C-18’s designation of ‘digital intermediaries’ would apply equally to similar Canadian platforms, if only one actually existed in defiance of the global monopolies in Search and Social. The University of Calgary’s Stephens has also written about this in depth.

Then there is the copyright issue in Bill C-18 sticking out like a sore thumb because the legislation includes a “greater certainty” clause stating:

S.24 For greater certainty, limitations and exceptions to copyright under the Copyright Act do not limit the scope of the bargaining process.

As a ‘greater certainty’ clause, the text clarifies the government’s interpretation of the federal Copyright Act as meaning that Facebook and Google cannot avail themselves of statutory ‘fair use’ exemptions to intellectual property rights to stymie bargaining over the value of news content made available on their platforms.

For the drafters of C-18 to claim section 24 clarifies rather than amends our existing copyright law is both true and false at the same time. Canadian copyright law is blurry when asked to draw a bright line between intellectual property and its flip side, ‘fair’ use without permission or compensation. That’s especially true for content posted to online platforms.

Indeed one Canadian expert has described the general principles in the Copyright Act purporting to draw the line between intellectual property and free use as ‘intentionally ambiguous.’ The point of section 24 in C-18 is to make it unambiguous in its application to Facebook and Google republishing ‘news content’ from ‘eligible news outlets.’

The fussing about C-18’s impact on copyright is understandable coming from folks like University of Ottawa law professor Michael Geist, a lifelong advocate of expanding fair use of copyrighted intellectual property, an expansion that the Supreme Court has favoured in principle but in a different context than C-18.

As for how other nations have parried the copyright and fair use issues, Australian legislators simply ignored them in drafting the News Media Mandatory Bargaining Code, the model for C-18.

European legislators were more direct in their 2019 Directive on Copyright, affirming news outlets’ copyright ownership of their content republished by search engines or social media platforms. That included republishing by hyperlinks only (which Australia and Canada have done as well).

The EU approach was embraced in 2021 by Canadian Conservative Senator Claude Carnighan in tabling Bill S-225 which died on the order table prior to the federal election. His Bill confirmed publishers’ copyright on content posted to Facebook, Google and even smaller platforms. On the face of the Bill, news content linked by hyperlinks was exempt but during debate the Senator backed away from that position.

When Erin O’Toole’s Conservatives addressed all of this in their 2021 election program, they appeared to take their cue from S-225 and positively referenced both the pro-copyright EU approach in France and the copyright-agnostic Australian model.

But back to Geist’s claim, he goes on to say that if C-18 deprives Facebook and Google of the ‘fair use’ defence against copyright infringement, then Canada ‘may’ ——note the careful choice of ‘may’—- be in violation of its international copyright obligations under the Berne Convention.

The Convention has no legal effect in Canada other than committing signatory nations to a ‘minimum standards’ approach when legislating their national copyright regimes. One of those standards is article 10(B) respecting the right to create news summaries without restriction by copyright.

The University of Calgary’s Stephens, a copyright expert, told Heritage MPs on September 27th that C-18 did not violate the Berne Convention and, in his blog post two days later, said a US complaint “would almost certainly fail.”

Even if Stephens was wrong —-and the United States as a self described ‘minimal’ signatory to the Convention has a plausible trade complaint against Canada—- presumably the Trump or Biden administrations would have filed against European and Australian signatories to the Convention when they legislated in 2019 and 2021.

They didn’t. And they haven’t.

So perhaps Geist’s ‘may’ was the right choice of words after all.

And perhaps we should take this lesson to heart: claims of trade violations are just claims, whether they are made by law professors, American trade representatives, or anyone else.

Unless the facts say the claims are more than the typical threats we get all of the time, Canadian legislators and commentators might stop repeating them and let the Americans make them instead.

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