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What’s at stake for Canada in NAFTA cultural exemptions Trudeau is vowing to protect

In Canada-U.S. trade talks that have been dominated by wrangling over the automotive and dairy sectors and a crucial dispute-settlement mechanism, culture is all of a sudden on the agenda.

The Globe and Mail reported earlier this week that the U.S. team wants to remove cultural exemptions from the North American free-trade agreement, which could pave the way for U.S. media companies, such as FOX News parent 21st Century Fox Inc., to buy majority stakes in Canadian newspapers and television and radio stations.

Prime Minister Justin Trudeau was adamant that Canada will not cede any ground on cultural issues, which are carved out from free-trade rules under the current agreement.

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"It is inconceivable to any Canadian that an American network might buy Canadian media affiliates, whether it is a newspaper or television stations or TV networks," Mr. Trudeau said on Tuesday. "It would be a giving up of our sovereignty and our identity, and that is something that we will not accept."

It's not clear exactly how wedded U.S. negotiators are to the cultural issue, with some speculating it could be a tactic to win other concessions from Canada and still others wondering if Mr. Trudeau simply took the chance to win points with the home audience when he made the statement in Surrey, B.C.

Either way, this week's developments have left many wondering exactly what free-trade rules have to do with Canadian culture.

What is the cultural exemption and why does it exist?

The genesis of the provision goes back to the original Canada-U.S. free-trade agreement (FTA), signed in 1988. Gilles LeVasseur, professor of business and law at the University of Ottawa, says that carving out a broad exemption from trade rules for cultural industries was one of a handful of concessions by the United States in exchange for Canada opening up its energy sector to foreign investment.

The ability to develop policies that protect unique cultural traditions amid a tide of U.S. music, movies, TV and magazines was particularly important at the time, Mr. LeVasseur says, as it came shortly after the divisive 1980 referendum on sovereignty in Quebec. "We were just coming out of a bloody political difficulty, and so that's where that cultural exemption originally came about."

The FTA's cultural exemption was later incorporated by reference into the 1994 NAFTA. Other countries have also raised concerns about the erosion of local identity in the face of trade liberalization and, in 2005, UNESCO (The United Nations Educational, Scientific and Cultural Organization) adopted a convention recognizing the rights of member states to protect and promote cultural expression; 145 countries as well as the European Union have ratified or accepted the convention, although the United States is a notable holdout.

What does it apply to?

The exemption permits a wide range of policies that might otherwise violate trade rules, including subsidies and tax credits for domestic productions and rules around the promotion of Canadian content on radio and TV.

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Mr. LeVasseur says it also permits linguistic rules such as Quebec's Bill 101, which makes French the official language of the province, as well as legislation that requires bilingual labels on packaging. And it could likewise support new legislation to protect and promote aboriginal languages.

What about media ownership?

Canadian rules limit foreign investment in or direct ownership of television and radio stations, telecom providers and periodicals such as newspapers and magazines. This has drawn the ire of powerful U.S. lobby groups such as the Motion Picture Association of America, which called the cultural exemption "inconsistent with the principles of free and fair trade" in a letter last year. The MPAA called for the "elimination of foreign direct investment limitations in the pay-television market."

Another controversial topic has been the long-standing Canadian rule permitting domestic broadcasters to substitute their own feed – including Canadian advertisements – over U.S. signals. Known as simultaneous substitution or "simsub," this practice has attracted complaints from border-state broadcasters in the United States, who argue they are being deprived of advertising revenue. The Globe and Mail has reported that U.S. negotiators are pushing to acquire more power for American broadcasters to prevent the removal of U.S. advertising from programs rebroadcast in Canada. But giving in on this would be tricky, as Canadian broadcasters have argued simsub generates an estimated $250-million in additional advertising revenue a year.

Are cultural protections still necessary?

Groups and unions representing creators and producers such the Coalition for the Diversity of Cultural Expressions (CDCE) say the loss of the cultural exemption "would have catastrophic effects on cultural ecosystems," arguing it would threaten industries that employ more than 650,000 people. "We've been nothing but reassured by various Canadian federal representatives that they would not agree on something that didn't include the general exemption," said Nathalie Guay, general co-ordinator of the CDCE.

Yet some say they could handle some loosening of protections, particularly around media ownership. Don Young, president of Those Canadians Media Group Inc., says his mid-size production company now pitches most of its documentaries not to Canadian networks, which are commissioning less material than in the past, but to online streaming services such as Amazon Prime and Netflix. He says the agencies that administer funding and credits for Canadian productions are increasingly accepting streaming services as "broadcasters," and not requiring the participation of a traditional Canadian player such as the CBC, CTV or Global. Mr. Young still relies on those funds and credits, but says, "if some of the protections went away, it would not be the end of the world for us."

What about the future?

Despite this week's talk of scaling back or scrapping the cultural exemption, Meredith Lilly, associate professor of international affairs at Carleton University and a former trade adviser to then-prime minister Stephen Harper, says the real challenge may not be maintaining the long-standing exemption but whether Canadian negotiators can actually expand the terms to include digital products. That could potentially give the federal government – which is currently reviewing the telecom and broadcast legislation – the flexibility to impose Canadian content or funding requirements on services such as Netflix and Spotify. "Certainly in the 21st century, most would agree the internet is the main way that cultural products are being distributed," Ms. Lilly said.

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With files from Robert Fife and Steven Chase in Ottawa

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