TPP imposes controversial limitations on Canada's cultural policy options

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Problems? Oh, the Trans-Pacific Partnership has a few! Read about them all in the new series The Trouble with the TPP.

The intersection between the TPP and Canadian cultural policies is likely to emerge as one of the more controversial aspects of the TPP, particularly given the government's emphasis on a stronger cultural policy in its election platform.

Earlier in the Trouble with the TPP series, I wrote that the TPP fails to protect Canadian cultural policy. I pointed to U.S. lobby pressure to limit Canadian protection of cultural policies as well as provisions that restrict Canada's ability to consider expanding Cancon contributions to entities currently exempt from payment. I have not been a supporter of mandating Cancon contributions to online video provides such as Netflix, but restricting Canada's right to do so in a trade agreement is shortsighted, bad policy.

Peter Grant has written a careful response to my post on Barry Sookman's blog. He argues that Canada can still "maintain or enhance our cultural policies." He opens by stating that "I am not entirely wrong" about the TPP being a departure from Canada's traditional approach to culture in trade agreements.

However, he argues that the TPP approach is not unique since the Canada-EU Trade Agreement adopts a similar approach. Yet CETA contains numerous cultural exceptions within the chapters for Cross-Border Trade in Services, Domestic Regulation, Government Procurement, Investment, and Subsidies.

In the TPP, the exception references seven provisions in the entire agreement and many of the issues addressed by CETA are not covered. Further, the TPP has exceptions to the cultural exception not found in CETA and (as Grant notes) Canada did not get an explicit exception to allow for measures to allow domestic audio-visual content to be reasonably available as did Australia.

More importantly, he raises two main points on the issue of legal restrictions on cultural policy in the TPP.

First, he points to Article 14.1 in the E-commerce chapter that mandates equal treatment for digital products. He notes that there is an exception for broadcasting and claims that this should be sufficient to cover online video services.

Second, he argues that the exception on Cancon payments applies "in like circumstances" and that Netflix would not be compared to other broadcasters or broadcast distributors, but rather to other online video services (he also confirms that Canada could still apply GST to Netflix under the TPP, but that was never in dispute).

With respect, I don't think either argument fully addresses the cultural policy implications of the TPP.

The applicability of equal treatment for digital products is an important provision that will be the subject of an upcoming post that examines further restrictions on Canadian cultural policy options. However, whether online video services fall outside the equal treatment provision because "broadcasting" can be broadly defined to include it is very much in question as Grant surely knows. Companies like Netflix have long maintained that they are not broadcasters as defined by the Broadcasting Act, a point emphasized in their appearance at the TalkTV hearing in 2014.

Indeed, both Netflix and Google have taken the position that they are not covered by the Act and both refused to comply with CRTC orders. It seems very unlikely that Canada could argue that activities not defined as broadcasting in its domestic legislation should be treated as broadcasting for the purposes of the TPP.

As for the exception to the cultural policy exception, it restricts "discriminatory requirements on services suppliers or investors to make financial contributions for Canadian content development." The key question will be whether a mandated financial contribution on online video providers is discriminatory. I stated in my initial post that:

"Assuming those services argue that any mandated Cancon contribution is discriminatory if they do not also receive the benefits accorded to established broadcasters or broadcast distributors, the TPP will effectively ban applying Cancon contributions to exempt entities."

Grant's response is that it won't be treated as discriminatory because the relevant test involves "like circumstances" which requires comparing treatment of all online video providers, not online video providers, broadcasters and BDUs. Yet it seems to me that the two most likely outcomes of the analysis lead to the same place: a finding of discriminatory payment requirements in violation of the TPP.

The "like circumstances" requirements can be found in Article 10.3 on National Treatment:

"Each Party shall accord to services and service suppliers of another Party treatment no less favourable than that it accords, in like circumstances, to its own services and service suppliers."

What does "like circumstances" mean? There is a footnote in the TPP that tries to provide a bit more context:

"For greater certainty, whether treatment is accorded in "like circumstances" under Article 10.3 (National Treatment) or Article 10.4 (Most-Favoured-Nation Treatment) depends on the totality of the circumstances, including whether the relevant treatment distinguishes between services or service suppliers on the basis of legitimate public welfare objectives."

In other words, there is a need to examine the "totality of the circumstances." One possibility would be to compare Netflix solely to Canadian online video providers such as Shomi or CraveTV as Grant suggests. However, the rules for even those services are different. The hybrid model recently adopted by the CRTC for the Canadian services would still leave room for argument that there are benefits differences between the services and that contribution requirements on Netflix would be discriminatory.

Even without the hybrid model, the links between the providers and the vertically integrated companies opens the door to a discrimination argument. Netflix flagged this issue in its TalkTV submission to the CRTC:

"Unlike vertically integrated carrier/BDU/broadcaster/ISPs that contribute to the CMF through their BDUs and VoD operations, and whose broadcaster affiliates have access to dedicated CMF funding envelopes in partnership with independent producers, Netflix, as a foreign entity, has no such access and cannot benefit from the CMF in a similar fashion. For Netflix, a contribution to the CMF would therefore amount to subsidizing productions made primarily for Bell, Rogers, Shaw/Corus and Videotron, who would acquire exclusive online streaming rights in addition to broadcast rights."

Given the direct link between the Canadian broadcasters/BDUs and Shomi/CraveTV, those concerns remain unchanged. Therefore, even limiting the comparison to online video services could result in a finding of discrimination.

Alternatively, the totality of the circumstances may mean comparing all the players that offer similar services to the public -- ie. broadcasters, BDUs and online video providers. Grant seems to want it both ways: when discussing equal treatment for digital products, he says Netflix is a broadcaster like any other. However, when it comes to national treatment, he says it isn't a broadcaster like other broadcasters.

If Netflix is a broadcaster (which I'm not convinced it is), the case for discrimination is clear. If it isn't, there is still a strong case that the totality of the circumstances are different for it when compared to Shomi and CraveTV.

Finally, there are provisions in the TPP that are not subject to the "like circumstances" rule that would still restrict potential Canadian cultural policies.

For example, the TPP includes a prohibition on local presence requirements in Article 10.6 not subject to like circumstances but covered by the exception to the Canadian cultural exception. The effect of this provision would be that even requiring a local presence in Canada as part of an effort to address online video providers would be out of bounds under the TPP.

While there is obviously room for interpretation, it seems certain that efforts to require online video providers to pay mandatory Cancon contributions would be challenged under the TPP.

In fact, the limitations on Canada's cultural policy options do not stop there. More on the cultural limits imposed by the TPP in an upcoming post.

This piece originally appeared on Michael Geist's blog and is reprinted with permission.

Photo: flickr/ Matthew Keys

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