Canadian Culture: To Protect or Not to Protect?

A massive new study situates Canadian cultural industries in a world context.

Peter Grant and Chris Wood and their editor must have agonized over an appropriate title for Blockbusters and Trade Wars: Popular Culture in a Globalized World. They might have chosen “Blockbusters and the Cultural Tool Kit,” which would have covered the middle part of the book, comprising almost half of its 420 fine-type pages. Just within this portion, it would be hard to find among Canadian writings on public policy a more comprehensive description of the various regulatory measures employed by governments in Canada and other countries to support domestic culture against the pervasive United States entertainment juggernaut spewing American culture into export markets.

Or, focusing on the third part of the book, the authors might have entitled their work “The Rocky Road Toward a New International Instrument for Cultural Diversity.” Here Grant and Wood lay the groundwork toward a global solution, a new direction for protecting and promoting local culture under the auspices of UNESCO. The problem is that, notwithstanding the unbridled enthusiasm of at least 50 countries, the U.S. is unlikely to be persuaded to go along if the “instrument” (known as NIICD) would dilute international trade rules to the disadvantage of American cultural exports. The authors boldly suggest that there may be a basis for an NIICD proceeding without U.S. endorsement if it receives widespread support from other countries. They note that the U.S. did not support the Kyoto environmental accord, the nuclear test ban treaty, the landmines treaty or the proposed International Criminal Court. Protection of cultural diversity, they argue, should not be sidelined by U.S. unilateralism and disdain for world opinion.

Grant and Wood might have chosen to highlight the first part of their book with the title “Demystifying Culture from a Canadian Perspective.” With great perception, they have taken on the difficult and complex subject of “cultural economics,” developing the concepts of distinct voices, creative clusters and why big is best. Most important, they explain with clarity the principle of cultural creativity that operates in Hollywood, New York, Toronto, London, Paris, Sydney or any other locale where a cultural industry thrives. This is the “nobody knows” principle or “why hits are flukes.” Nobody knows what will produce a winner or result in failure: it is always a gamble. Take the Canadian-made winner among last year’s films, My Big Fat Greek Wedding. It was made for less than $5 million and has earned a North American box office of more than $200 million since its release. Or consider Gigli, the biggest loser of 2003, shot in Winnipeg with proven stars Jennifer Lopez and Ben Affleck at a cost of $54 million, but which grossed less than $7 million at the box office and went into home video only three weeks after its theatrical release. Grant and Wood brilliantly describe this unusual phenomenon over a broad range of entertainment products. One would be hard-pressed to find, among all the books written about the entertainment industry, a more perceptive insight into this intriguing business dominated by the U.S. majors, but in which Canadian cultural entities and artists are playing an increasingly significant role.

I suppose the dilemma of which title to choose may have resulted from the fact that Grant and Wood have written essentially three books, not one. There are more regulatory analyses, anecdotes, arguments, sources and conclusions in this work than can be found in any other Canadian book on popular culture I know of, making this an indispensable reference tool for any government policy advisor, academic, lawyer or cultural industry executive in the fields of filmed entertainment, broadcasting, book and magazine publishing or recorded music. Blockbusters and Trade Wars is challenging, fulsome and somewhat didactic, and is a book that could not possibly be read in its entirety on the flight between Toronto and Los Angeles.

Peter Grant’s law firm, McCarthy Tétrault LLP, generously facilitated a five-month sabbatical in 2002 to permit him to encapsulate in this book a professional lifetime of experience as a Canadian lawyer working in the trenches of culture and communications policy, almost always in opposition to Hollywood. Also in evidence is the research and writing of Chris Wood, a senior Maclean’s journalist with wide experience in covering economic and trade issues. This may account for the authors’ shrill, if not misguided, approach in their chapter on the Sports Illustrated Canada case: Grant provided legal and strategic advice to the Canadian Magazine Publishers Association and Wood was employed by Maclean’s, the principal Canadian complainant in that case. More on this later.

At both the beginning and the end of the book, Grant and Wood use the Canadian television series Degrassi: The Next Generation as a model for illustrating the six types of policy measures constituting “the cultural tool kit.” These are measures that governments in Canada and elsewhere have taken to sustain the diversity of thought and expression essential to their societies’ resilience, adaptation, regeneration and growth. The authors acknowledge that Canada’s track record is one of stunning success in some areas and disappointing results in others, and that these policy tools deserve more study.

First, it was a public-service broadcaster—the Canadian Broadcasting Corporation—that commissioned the initial Degrassi series in 1979.

Second, it was content quotas that obliged CTV to air Canadian drama and other unrepresented programs for at least eight hours a week in prime time, later motivating CTV to acquire Degrassi to attract viewers in order to sell out its commercial slots.

Third, Degrassi obtained necessary financing through expenditure requirements imposed by the Canadian Radio-Television and Telecommunications Commission that obligated Canadian cable and satellite distributors to place money into an independent production fund to support Canadian drama.

Fourth, the series benefited from domestic ownership rules that favoured the broadcaster for which Canada was the home market, with CTV executives (all Canadians) in a position to grasp the show’s appeal to both Canadian and foreign viewers.

Fifth, competition values reflected in CTV’s licence conditions, imposed by the CRTC, required the network to buy at least 75 percent of its drama programming from independent producers, in this case Epitome Pictures Inc., headed by its dynamic president, Linda Schuyler.

Sixth, because Epitome lacked the cash to put on screen the glossy production values that let Degrassi stand up against more lavishly funded imported shows, it obtained subsidies from Telefilm Canada, an agency of the Canadian government.

Grant and Wood conclude: “In short, Degrassi got made because Canada used every tool in the policy kit to nourish its producers and secure their opportunity. It succeeds, however, not for any of those reasons but for the only one that matters to its viewers. It speaks to the heart with powerful stories rooted in the audience’s reality.”

The trouble with all of this is that the cultural tool kit comes at a considerable cost. For every Degrassi success story, there are many more failures that viewers, readers or listeners have clearly rejected. To their credit, the authors briefly acknowledge some of the frailties of various items in the cultural tool kit. While barely mentioning the lukewarm support of successive Canadian governments for maintaining CBC funding, they do acknowledge that content quotas are not sufficient in and of themselves to ensure a diverse choice of high-value cultural expression on television, and they need to be combined with other tools. They also candidly reveal some of the hypocrisy and limitations of expenditure requirements, featuring creative accounting or exploitation of other loopholes.

When it comes to domestic ownership, Grant and Wood don rose-coloured glasses: “We have seen that smaller companies in the cultural field—particularly those with owner-managers in place—have an admirable track record of supporting local cultural expression. These are by nature also most likely to be domestically owned. A policy that secures their vigour in the overall cultural ‘ecology’ will contribute significantly to a lively variety of creative diversity. A restriction on foreign ownership in domestic markets also serves to increase the total number of green lights available to creators globally.”

Then, the authors are hit with a dose of reality:

The larger and more successful a locally owned private company is, and the more it expands into other markets, the more indistinguishable its choices become from those of a giant multinational. Size can trump citizenship … Should the solitary “favoured son” fail, its collapse may threaten the viability of an entire sector. Canadian authors and small publishers have shivered through precisely this experience on more than one occasion in the past decade … In sum, statutory limits on foreign ownership may be of value to the extent that they preserve a greater number of local gatekeepers able to bring new cultural expression before their domestic publics. But in contrast to other available measures, such as content rules, mandatory expenditure requirements and … targeted subsidies, they are surely not the sharpest or surest tools in the kit.

Regarding competition policy, the authors offer a reasonably balanced approach suggesting that some measures can deter abusive dominance, but competition policy alone cannot do the job. One technical slip here is their assertion that competition regulators “see no problem” when a company in one medium market (such as newspapers) acquires assets in another medium market (such as television). This is not entirely accurate. In approving the CanWest/Hollinger transaction of 2000, the Competition Bureau required CanWest to divest its interest in ROB/TV. Also, it is a bit much for Grant and Wood to infer that cable and satellite companies make monopoly decisions as offstage gatekeepers inhibiting true consumer choice. They know full well the extent of CRTC powers over cable companies and satellite television distributors as to what they must or may carry, predominance and carriage rules, eligible lists and carriage restrictions based on channel ownership.

It is in dealing with the supposedly transparent measure of subsidies that the authors deal head on with some of the ugly realities. First is the open invitation to fraud contained in Canada’s tax credit system for productions that score high on its Canadian content ratings. Cinar Corp. enjoyed incredible financial success as the beneficiary of this policy measure until it was revealed the Montreal animation house had paid Canadians to lend their names to scripts written by Americans. This caused the company’s stock and reputation to tumble to earth for a four-year period until recently rescued by a team of new buyers led by animation specialist Michael Hirsh.

Even more telling is the authors’ admission that a risk adheres to every sort of subsidy—the same sort of risk that traps generations of the same family and sometimes entire communities in the initiative- destroying grip of welfare dependency. “Anticipating exclusion from commercial contention, cinema auteurs turn instead to introverted themes that are of limited interest to anyone but their artistic peers on funding panels.”

In contrast, Grant and Wood extol the virtues of the Canadian government subsidy to book publishing—$50 million a year in 2002, the price of a single low-budget Hollywood movie. They note that the same granting government reaped taxes paid by Canadian publishers of about $100 million.Moreover, “Canadian readers and appreciative counterparts around the world harvested the rich works of Alice Munro, Carol Shields, Rohinton Mistry, Michael Ondaatje and hundreds of other talented minds. Doubling the public’s money is not bad. Expanding the human imagination beyond the measure of accountants might well be called truly priceless.”

In describing the tool kit at work, the authors quite rightly acknowledge that the track record for Canadian movies is most disappointing, with films that qualify as Canadian in terms of national origin garnering less than 3 percent of the cinema box office in Canada. But they remain optimistic, referencing the work of such Canadian film-making luminaries as Denys Arcand, David Cronenberg, Atom Egoyan, François Girard, Bruce McDonald and Don McKellar, or culturally specific Canadian films such as Atanarjuat (The Fast Runner), which enjoyed tremendous success at the Cannes Film Festival.

Grant and Wood assert that Canadian music performers and writers owe some of their success to the existence of content requirements for radio and television and that Canadian writers benefit from publishing subsidies. The question they do not address is what would happen to these mature and successful Canadian cultural industries if these aids were removed from the tool kit. My hunch is that success would continue.

In their final analysis, the authors are adamant: the need for the cultural tool kit will not change because the Canadian market will always remain too small for economies of scale to kick in and compete. Without the tool kit, the global forces of U.S. dominance present a threat to the symbolic and spiritual environment of cultural expression. The tool kit is part of the rocky road leading toward Grant and Wood’s ultimate goal—that new international instrument for cultural diversity. But before going there, let’s look at two other policy measures that they did not have the audacity to include in the tool kit— discriminatory taxes and criminal prohibitions. These were measures introduced by the Canadian government in the mid 1990s, precipitating the magazine war with the U.S.

The magazine case had its beginning in 1990 when Time Warner Inc. developed a plan to establish a Canadian edition of Sports Illustrated. The new magazine was to be printed and distributed in Canada with editorial content, both U.S. and Canadian, sent by satellite from New York using technology that had been around for almost ten years. Some advertisements purchased by Canadian companies were to be inserted digitally into the new Canadian edition, and it would be distributed through Time Canada Ltd.

Sports Illustrated Canada, like Time Canada, was at a significant economic disadvantage compared to Canadian-owned magazines because its advertisers could not deduct the cost of ads for Canadian business tax purposes. Also, it did not have access to the postal subsidy (it cost 8¢ to mail Maclean’s while Time Canada’s cost was in the order of 30¢). And it did not have access to other subsidies from the Department of Canadian Heritage. Nonetheless, when the launch of Sports Illustrated Canada was announced in January 1993 (with the approval of both Investment Canada and Revenue Canada), the Canadian Magazine Publishers Association (advised by Grant) went into high gear, asserting that many U.S. titles would follow the lead of Sports Illustrated Canada, draining off as much as 40 percent of the advertising and circulation revenue supporting Canadian magazines.

The Canadian government responded by introducing an 80 percent excise tax on Canadian advertising revenues from split-run editions. The U.S. government reacted swiftly by challenging both the new tax and two other Canadian measures, the old import prohibition and the postal subsidy, as having “nothing to do with culture, purely a matter of commercial interest” that violated Canada’s commitments under the General Agreement on Tariffs and Trade. The U.S. launched a trade challenge before a panel of the World Trade Organization, whose decision was later taken to a WTO appellate body, and was successful before both.

Having failed at the WTO, the Canadian government, pushed by the CMPA, introduced in 1998 an even more draconian measure, Bill C-55, which would prohibit, through criminal sanctions, foreign publishers from selling advertising services directed at the Canadian market. The U.S. government was not amused. Instead of going back to the WTO, with its somewhat cumbersome and unpredictable process, it simply sought to invoke the cultural industries exemption under NAFTA, threatening trade retaliation with “measures of equivalent commercial effect.” U.S. trade representatives threatened retaliatory duties on Canadian exports to the U.S. of textiles, plastics, wood products and steel. Canadian industrial leaders from those industries were not amused either, and began to take a serious look at the thrust of Bill C-55.

In the spring of 1999, both sides pulled back from the brink, and compromise legislation was brought forward that really satisfied no one but nevertheless ended the magazine war. Foreign magazine publishers were given a small threshold for accessing Canadian advertising revenues (up to 18 percent). The CMPA received a promise from the Department of Canadian Heritage for a new subsidy program to alleviate any anticipated economic harm.

Almost five years after the truce, very few American magazines have entered Canada, largely because of the economic disadvantage of the postal subsidy and the non-deductibility of advertising costs. Maclean’s continues to thrive, having enjoyed a significant portion of the new magazine subsidy of the Department of Canadian Heritage until the subsidy was rejigged, as of this year, to favour smaller magazines. I believe that the fallout from the magazine war will ultimately do harm to the Canadian magazine sector.Moreover, the long-term effects of the government’s protectionism will be to deny Canadian readers and advertisers freedom of choice. It is no surprise that Grant and Wood did not see fit to include discriminatory taxes and criminal prohibitions in their cultural tool kit. In many ways, these measures were solutions in search of a problem.

Finally, the authors throw their support behind a new international instrument on cultural diversity, one which they hope will take shape under the auspices of UNESCO. They document a series of international meetings that have been speeding up since 1998 in an attempt to craft an instrument that will give governments the right “to secure their publics’ access to the means of cultural expression” in the face of market-driven cultural products, largely from the United States. (Clearly, the U.S. would not sign.) The idea of continuing to house cultural trade disputes at the WTO is a non-starter for Grant and Wood, who ask rhetorically, “Can a WTO dispute panel that cannot tell Time Canada from Maclean’s be trusted to distinguish between Degrassi: The Next Generation … and Friends …?” The authors infer that the WTO, on the basis of its decision in the periodicals case, would find these two programs indistinguishable for trade purposes.

An attempt to move outside the WTO rules is, in my view, both unwise and unnecessary. It could lead to an unravelling of our international trading system, constituting a possible exception for special interests. What precedent would this set? What other exceptions for sensitive sectors might follow in the realms of textiles (employment effects), steel (importance to defence) or agriculture (food security and safety)? The real benefit of sticking with the WTO, a body to which all the major trading nations belong, is to have a body with rules capable of resolving trade disputes, or at least moderating the inevitable conflicts.

For 56 years the GATT, the instrument administered by the WTO, has governed trade in films. In the Uruguay Round, new provisions were added to protect trade-related intellectual property (TRIPS) and to regulate trade in services (the General Agreement on Trades and Services, or GATS). While there are no cultural exceptions in any of these agreements, the rules are sufficiently flexible to accommodate cultural concerns. GATT Article IV provides a form of special treatment for cinematic films, and authorizes screen-time quotas. The service rules under the GATS permit governments the flexibility to meet national policy objectives (such as film production), and subsidies are not prohibited.

Over the last few years, U.S. government trade officials have signalled a more flexible approach to accommodating cultural concerns as part of the Doha Round of WTO trade negotiations. They have suggested that audiovisual subsidies should be largely off the table in these negotiations, and have indicated a willingness to green-light certain audiovisual subsidies in perpetuity. The U.S. wants fair trade in cultural products (goods and services) while allowing member states to preserve and promote cultural values and identity.

Grant and Wood will be quick to point out, and I would agree, that the U.S. trade negotiators were less than flexible on audiovisual issues prior to the commencement of the Doha Round in 1999. But cultural diversity is now clearly on the table, and a treaty that embraces this in the context of the rules-based approach to our world trading system (and not outside it) is surely preferable. Cultural diversity is too important to be banished from trade agreements and left to the vicissitudes of competing national laws.