The Department of Communications Under the Free Trade Regime

Edward Comor (York University)

Abstract: In this analysis of the FTA, the emerging "information economy" and their impact on the Department of Communications, the author argues that the FTA has institutionalized Canada's dependency on U.S. culture and information products. In so doing, the author shows how the FTA and related federal government activities directly contradict mandated Department policy.

Résumé: Dans cette analyse de l'ALE et son effet sur le Ministère des Communications, l'auteur soutient que l'ALE a institutionalisé la dépendence culturelle du Canada vis-à-vis les Etats-Unis en matière de produits d'information. Il est aussi demontré que certaines dispositions de l'ALE et d'autres activités du gouvernment fédéral dans le domaine de la communication contredisent directement les politiques du Ministère.

Canada's Department of Communications (DOC) was established in 1969 to promote the development of communication technologies. The inclusion of traditional arts and culture activities in 1980--involving everything from broadcasting to ballet--aimed to "ensure that communications policy...[be] conducted with the highest concern for the cultural content and cultural implications of communications technology" (Canada, 1982, p. 6). Ten years later, confidential interviews with DOC officials (conducted from November 1989 to March 1990) reveal the absence of a detailed vision of Canada's culture and communications future. Three reasons were given.The first had to do with the intensity and pace of technological change. Any attempt by the public sector to impose its vision of the future is seen by many DOC officials to be impractical and, for some, undesirable. A policy of public sector leadership rather than reaction would, it is believed, inhibit the ability of the private sector to adapt and take advantage of the rapidly changing socio-economic environment. The second explanation offered involves the structural constraints found in the DOC itself. Because of its size, diverse mandate, and the interdisciplinary and intersectoral nature of its activities--both between DOC branches and with other government departments and agencies (federal, provincial, territorial, and municipal)--the co-ordination of a long-term coherent national culture and communications policy is considered, by some, to be unattainable. The third reason, directly related to the second, involves the limited resources currently held by the DOC. This refers mainly to the DOC's limited budget, expressed, for example, in a general hiring freeze. As a result, inordinate time pressures are experienced by many DOC officials which translate into limitations on the time available for reflection and long-term planning. Interviews with some DOC officials left the impression of a general orientation toward day-to-day task completions to the exclusion of broader policy concerns.

But there are other more important reasons underlying the emergence of the relatively ad hoc nature of DOC attitudes and activities. Perhaps the most apparent is the general absence of the co-ordination of the Cultural Affairs and Broadcasting Sector with the rest of the Department, despite the articulating role mandated onto the shoulders of the Strategic Planning and Policy Coordination branch of the Corporate Policy Sector (a shortcoming confirmed in interviews). The 1980 inclusion of arts and culture programs--aimed at ensuring that communications policy is "conducted with the highest concern for cultural content and the cultural implications of communications technology" (Canada, 1982, p. 6)--was based on the logical conclusion that because of technological blurring and corporate integration tendencies the socio-economic trends stimulated by the emerging information economy required a comprehensive recasting of DOC perspectives. Unfortunately, the first step in meeting this goal--a co-ordinated intellectual environment within the Department--was never achieved.

Robert Babe's recently published history of Canadian telecommunications (Babe, 1990) suggests an approach in which these developments can be understood. Throughout his study, Babe found Canadian telecommunications policies to have been consistently formulated "after the fact, to justify or cope with what industrial power had already consummated" (1990, p. 20). Emphasizing that all laws and regulations (or lack thereof) enhance the rights of some at the expense of others, Babe argues that government policy can never, itself, be neutral. Because all economic activity takes place within a legal context, government moves to regulate or deregulate such activities denote a shift in political-economic power relations. Analysts, commentators and bureaucrats who point to the technological or economic "necessity" of government policy developments--a theme found throughout the text of the DOC's recent public discussion paper "about Canada's future and the roads that will lead us to it" (Canada, 1987a, p. 5), Communications for the Twenty-First Century--are thus divorcing public policy from public choice (see Taylor, 1988). Rather than viewing the "information revolution" as a kind of socio-economic tidal wave that governments must accommodate, Babe defines it as "the rapid development and application of new and increasingly powerful techniques of control" (1990, p. 250).

From this perspective, recent policy orientations of the Department of Communications should be analyzed in the context of the same forces that now inspire the federal government's commitment to deregulation and privatization. One document that embodies this development is the Canada-United States Free Trade Agreement (FTA). As will be discussed, glaring contradictions can be found in current federal government policy in relation to the DOC's publicly-stated mandate. In reviewing the Department's mandate and comparing it to DOC activities, as well as the views of a number of its senior staff members, this paper will argue that the FTA will itself have a detrimental effect on the federal government's capacity to develop and implement culture and communications policy in accordance with the DOC's raison d'etre. To do this, the section titled "Culture, Communications and the FTA" will situate the DOC within the context of the global information economy and relate both to the Canadian government's free trade/free market orientations. In "The DOC's Mission and Mandate," we will outline the DOC's mandate, its rationale and development. Next, in the section titled "What does the Free Trade Agreement say?," the text of the FTA will be examined with an eye on its substantive impact on domestic culture and communications. Finally, "Free Trade, the DOC and the Future" will critique the current federal government's policy orientations with the hope of gaining a more comprehensive understanding of the dynamics underlying late twentieth-century communications and culture policy in Canada. First, however, a brief explanation of the term "culture" is required in order to clarify the subject of this paper; contextualize the appropriateness of the DOC's mandate, and; enable us to evaluate the implications of the federal government's free trade/market-driven policies in the area.

The Importance of Culture

Culture is inextricably bound to the concept of capacity. Our capacity to be aware of, sort out and understand information is directly shaped by day-to-day experiences which are themselves directly shaped by the characteristics of our collective social environment. This social environment (itself constantly affecting and affected by its constituent members) can usefully be referred to as "culture." Like language, culture is an intensely practical activity allowing people to engage in orderly, coherent and perhaps creative relations. Given its potential qualities, culture can either facilitate or hinder social and economic development.

To understand fully the Free Trade Agreement's impact on the DOC and Canadian culture and communications policy, it is essential to keep this broad definition of culture in mind. While a culture involves the health and dynamism of traditionally-defined culture producers and distributors (i.e., its film industry, its museums, the fine arts, etc.), it also includes activities involving the production and distribution of all forms of social information (i.e., computer data processing, telecommunications, public education, etc.). Given this broad and practical conception, we are compelled to go well beyond the narrow confines of the more traditional definitions of culture still prevalent in DOC and other federal government documents (for example, see Canada, 1987b). Despite the DOC's 1980 incorporation of both culture and communications, federal policy-making has remained divided. As we will explain, this division has been and still is facilitated by the federal government's general inability to define culture in its broad and practical context.

Culture, Communications, and the FTA

New technologies are now increasing the capacity of corporations and governments to control (and profit from) the production and distribution of culture commodities. Because of the high costs of producing the initial product, and the relatively minimal costs of reproducing it, knowledge is becoming, increasingly, the domain of those with the resources to produce it as well as those with the capacity to control its distribution after the initial point of production. As the costs of development and control get higher, specialized forms of information are tending to become more and more expensive to access. As a result, the capacity of the relatively small or medium size business to compete is directly limited by the expense and complexity of the information that is required. This, of course, places the large corporation at a relative advantage. Despite the mushrooming of desk-top technologies, economic power is becoming increasingly centralized and, in some respects, monopolized by corporate multinationals. Thus, in recent years, we have seen an extraordinary growth in large-scale mergers and acquisitions. While in the past it was quite proper to think of two autonomous domains--information products and transmission technologies, each with distinct features, institutional arrangements and applications, today the rapidly indistinguishable traits of culture products and transmission activities--their technological, institutional, and applicational blurring--has made the task of government far more difficult."The importance of this development," says the DOC's Communications for the Twenty-First Century, "cannot be overstated, since it means that all parts of the network--telephone transmission systems, computers, switches, and telephone sets--are merging into a single unified machine" (Canada, 1987a, p. 48).

While the predominance of U.S. corporate interests in Canadian culture and communications markets is rooted in rich comparative advantages, it is important to recognize that Canadian governments historically have done little to prevent the development of our current state of cultural and information dependency. We here refer to structural factors which have facilitated the flow, for example, of relatively inexpensive television programs (characterized by excellent production values) to Canadians and the advantageous development of a domestic Canadian cable industry (far more developed than its U.S. counterpart). In addition to cable, Canada's distribution networks and technologies constitute perhaps its most notable modern economic achievement--an achievement stimulated, in part, by the ready availability of U.S. culture products (see Staple, 1985; Hoskins & McFadyen, 1987; Canada, 1986a). Canadian government protection and encouragement of the advancement of the communications network, while generally ignoring the source of its prospective contents, constitutes an implicit subsidization of foreign producers while simultaneously cutting the throat of Canadian culture. Because of the need for a secure flow of information and data across the Canada-U.S. border--for reasons related to the need for stable financial flows, minimizing research and development costs, and maximizing economies of scale--electronic trans-border data flows have become essential prerequisites for almost all advanced production activities. The United States constitutes the international hub of this expanding wheel of information. As of 1986, 97% of Canada's data-carrying circuits terminated in the United States (Sauvant, 1986, p. 100).

The spillover effects of these developments have not provided Canadians with many opportunities in the area of culture and information production. In being tied to the U.S. market, both culturally and technically, with little concern for the development of domestic production capacities, Canadians face the information economy in a generally weak position. This was addressed in a confidential paper prepared by DOC officials for Canada's FTA negotiators which stated that "Canadian firms need access to lucrative parts of the domestic market to cross-subsidize original production costs" (Canada, 1986a). In stimulating the capacities of U.S.producers through an expanded market, and (more importantly) through the establishment of an international precedent in the unfettered flow of data and services across national borders as represented in the Canada-U.S. Free Trade Agreement, Canada's long-term capacity to produce its own culture has been severely handicapped (see Ian Parker in Parker, et al., 1988, pp. 76-81).

To achieve the economic potentials associated with new technologies, two interrelated reforms are being pursued by most multinational corporations. First, multinationals are pushing for the freedom to transmit anything at any time across international boundaries. Second, most multinationals want full control over the management and administration of communication networks both domestically and internationally. In essence, what many U.S.-based multinationals need is an extension of traditional property rights to include information and culture products and services within and between any country at any time. Since the early 1970s, the urgency of this priority has intensified due, in large part, to the relative decline of the domestic U.S. economy (still the economic centre of multinational enterprise). The global institutional-legal reforms promoted by these multinational interests have thus been matters of some urgency for U.S. public sector officials who recognize America's economic future to be intimately linked with the uninterrupted growth of its strongest economic area--its culture industries (see Sauvant, 1986, pp. 333-353). From 1966 to 1981, for each new U.S. job created in the production of a material commodity, ten new jobs emerged directly from service and information activities (Davis, 1984, pp. 23-24). This growth has been disproportionately high in three areas: the private health-care industry; the business, banking, and real estate sectors; and the fast food sector (Davis, 1984, pp. 24-25). As an indicator of these trends, as well as the leadership role played by U.S. companies in their development, approximately half of the world's production and consumption of database resources takes place in the United States (Canada, 1987a, p. 29). Significantly, Canada's electronic database industry makes just 2% of the revenues generated by U.S. producers (Canada, 1987a, p. 32).

It is in this context that the Canada-United States Free Trade Agreement may be most profitably assessed. As economist Ian Parker summarizes,

What the U.S. desperately needs, if it is to capitalize on its current strengths in the context of its severe balance of payments problems, is a significant reduction in barriers to international service and investment flows, and a substantial redefinition of international property rights in information. The former step would increase U.S. access to new markets in spheres where it has a competitive edge. The latter step would ensure higher rates of return--via patent and royalty payments, increased rates of remuneration to cultural producers, and the inclusion of new technological and cultural forms of information-processing in existing trade and international copyright conventions--to U.S. cultural producers. (Parker, et al., 1988, p. 74).

Canada's current federal government considers free trade with the United States to be a kind of industrial strategy in itself. Theoretically, free trade will unleash the free market forces required to speed up innovation, thereby accommodating the development of internationally-competitive operations within Canada. To do this, greater cross-border integration and specialization is viewed as a necessity. Larger pools of available capital for investment, greater co-operation with U.S. firms, and less waste in domestic operations, could all be accommodated through "freer" trade.

In November 1982, the Royal Commission on the Economic Union and Development Prospects for Canada--known as the Macdonald Commission--was launched with a focus on economic recovery and development. Its final report, issued in September 1985, urged the Canadian government to raise long-term productivity by opening up the domestic market to more competition. According to Richard Simeon, Director of the School of Public Administration at Queen's University and a Research Coordinator for the Commission, hearings and submissions were dominated by both large business interests and mainstream ("neo-classical") economists. Simeon reports that "for most of the economists, technology was simply not an issue. They denied that there was any evidence of a technological revolution, or any speed-up of technical change; and their model did not view technology as a prime engine of growth" (Simeon, 1987, p. 172). With the support of the C. D. Howe Institute, the Business Council on National Issues (BCNI) and the Canadian Manufacturers Association (CMA), as well as the support of resource-dependent provincial governments and a federal government looking to relieve hinterland provinces of the costs associated with protecting goods produced in Central Canada, Chairman Donald S. Macdonald announced a "leap of faith" to be necessary. But, according to Simeon, rather than a conclusion based on a rational or creative approach to the future, the Commissioners' decision ultimately boiled down to a choice between the neo-classical model "or no model at all" (Simeon, 1987, p. 173).

As the Macdonald Commission concluded, "Our enter into a free trade agreement with the United States reflect our general preference for market forces over state intervention as the appropriate means through which to generate incentives in the economy, from which growth will follow" (Canada, 1985, p. 66).

In Canadians' access to the knowledge and information needed to compete internationally and in the Canadian government's capacity to develop it, we thus see the emergence of contradictory developments. While the neo-classical perspective sees free market competition as the most efficient road for Canada to take in the global information economy, that same road will more likely lead Canada towards cultural and domestic information underdevelopment. To "let-the-market-decide" in an information economy not only stimulates such tendencies, it also makes any attempt at keeping track of (let alone controlling) domestic economic development an almost impossible task.

The DOC's Mission and Mandate

According to its most recent Annual Report, the DOC's mission "is expressed in one short phrase--Nation Building: helping Canadians share their ideas, information and dreams" (Canada, 1990, p. 4). To do this, the DOC is committed to ensuring that:

  • (1) Canada's communications systems evolve in an orderly fashion at the forefront of global developments while continuing to meet the needs of all Canadians at affordable costs, and that
  • (2) Canadians have the freedom to choose a wide selection of Canadian cultural products and information services among the broad international choices being carried on our communications systems (Canada, 1990, p. 3).
  • To achieve these goals, the Department is formally organized into five sectors: Corporate Management; Telecommunications and Technology; Spectrum Management and Regional Operations; Cultural Affairs and Broadcasting; and Corporate Policy. The Corporate Policy sector is itself subdivided into five branches: International Relations; Federal-Provincial Relations; Information Services; Program Evaluation; and Strategic Planning and Policy Coordination. As the DOC's co-ordinating branch, Strategic Planning and Policy Coordination occupies a pivotal position in the development of departmental priorities and perspectives. According to the Minister's 1986 Briefing Book (prepared by the DOC and acquired through the Access to Information Act),

The role of the International Relations Branch is to develop and implement policies, programs and strategies required at the international level to promote, protect and achieve national communications and cultural interests and objectives, and to ensure that significant international developments and factors are taken into account in the formulation of national communications and cultural policies. ("International Relations" section in Canada, 1986b, p. 1)

The 1986 Briefing Book goes on to list six key objectives for the branch. Two of these are of particular interest:

To ensure that the wide range of Canadian communications and cultural issues at play in the complex Canada/U.S.A communications and cultural relationship is managed so that general and specific Canadian objectives and results are achieved and so that any bilateral irritants do not disrupt the overall mutually beneficial relationship. It is essential to secure continued access to the large U.S. market for Canadian communications and cultural products. This, however, must be achieved while sustaining and increasing national measures to stimulate the continued viability of the Canadian telecommunications and broadcasting systems, and key cultural industries which are essential for Canadian sovereignty.

Since the domestic Canadian market is not large enough to sustain dynamic cultural and high technology communications sectors, it is essential to ensure through Government action that substantial new markets for Canadian communications and cultural products are developed in key developed and developing countries. It is essential to ensure that the Government takes positions, in the Canada/U.S. trade negotiations and GATT MTN round, which sustain and strengthen Canada's communications and cultural industries. ("International Relations" section in Canada, 1986b, p. )

Not surprisingly, the International Relations branch is inordinately concerned with Canada-U.S. relations. Recognizing that "the U.S. Administration, pressured by important parts of the U.S. cultural industries, continues to regard as non-tariff barriers some of the Canadian measures introduced or contemplated to strengthen Canadian cultural industries," the branch considers the maintenance of Canada's ability to strengthen "the viability of Canada's telecommunications, informatics and cultural industries and services" to be an essential priority ("International Relations" section in Canada, 1986b, p. 5). To do these things, the Briefing Book emphasizes the importance of taking into account "the changing international environment. The economic stakes," it continues, "are enormous" ("International Relations" section in Canada, 1986b, p. 9).

The mandate of the Cultural Affairs and Broadcasting sector is "to formulate policies, propose legislation and design and administer programs in the fields of broadcasting (radio, television, cable and specialty services), film and video, sound recording and publishing" ("Broadcasting..." section in Canada, 1986b, p. 1). In this task, the sector's objectives are threefold:

  • (1) to ensure that the Canadian broadcasting system contributes to the realization of Canadian social, cultural and economic objectives;
  • (2) to enhance the production and distribution of Canadian films, video programs, sound recordings, books and periodicals and their availability to Canadians;
  • (3) to provide advice to the Minister on the implementation of programs by the cultural agencies consistent with cultural policy objectives. ("Broadcasting..." section in Canada, 1986b, p. 1)

As the Briefing Book reveals, the DOC, at least until 1986, fully recognized the precarious position of Canadian culture and information producers relative to the United States. Indeed, its mandate in 1980 was designed with this in mind. Linking technological developments with the production and distribution of culture and information, the federal government appreciated its responsibility in protecting cultural sovereignty and encouraging domestic economic development in the emerging information economy. Because new information technologies enable previously compartmentalized business activities to be extended into traditionally restricted areas, many of Canada's basic regulatory, jurisdictional and institutional assumptions had generally become obsolete. For example, if a telephone company becomes the first telecommunications carrier to wire its communication network with optical fibre, the high costs of such an undertaking would stimulate attempts to control as many potentially profitable information and entertainment services as possible (i.e., video-conferencing, pay-as-you-view television, electronic mail, etc.). As a result of these developments, the interests of other carriers, such as a television cable company, would be challenged. Indeed, this pattern is now well underway. Not only have Canadian information and entertainment carriers become more and more indistinguishable from service providers, established interests in the field of telecommunications are becoming extraordinarily competitive. The 1986 Briefing Book summarizes these developments:

Products and services provided by these industries embrace virtually every citizen of Canada and profoundly influence the social and cultural climate of the country. These industries are facing unprecedented challenges and opportunities in the face of an increasingly international competitive environment brought on by technological developments. At the global level, the cultural industries are undergoing a period of rapid transformation in terms of industrial structure and corporate behavior. The evolving situation exacerbates the extreme disadvantages under which Canadian cultural industries operate. ("Broadcasting..." section in Canada, 1986b, p. 1. Emphases added)

With the election of a new government in 1984, the DOC undertook a full review of its mandate, mission and organizational structure. Minister of Communications Marcel Masse claims that this review was initiated under the auspices of the new government's general "mandate for change" (Masse, 1986, p. 8). More fundamentally, there has been a political re-evaluation of traditional "big government" policies toward free market principles. At least until the beginning of the Canada-U.S. Free Trade negotiations, the DOC had stood solidly behind a policy of balanced public-private sector development. Indeed, its 1988-89 Annual Report implicitly reiterates this commitment. But a policy re-orientation has taken place. With this in mind, one DOC official considers the Free Trade Agreement to be a kind of "philosophical watershed," essentially affirming on paper what had been evolving before it. This same official concedes that protectionist policies have, essentially, now been set aside. Concerns about transborder data flows, for example, which in the very recent past were of primary concern to federal officials, are now more or less ignored. Neither the DOC's 1988-89 Annual Report or Communications for the Twenty-First Century or even the 1986 Ministerial Briefing Book make more than passing references to transborder data flows. The reason for this shift stems, at least partially, from the intangible quality of electronic communications and its conceptualization within the broader embracement of free flow of information principles. In essence, because it cannot be traced (or even theoretically fully understood) transborder data flows have become a "non-issue"--a non-issue conveniently accommodated by a new found faith in the free market.

The absence of the co-ordination of the DOC's technological and cultural halves--despite its ten-year-old mandate--itself reflects the general failure of the federal government to conceptualize Canadian culture and communications in a way that anticipates socio-economic behavior in an information economy. What has instead developed is an ad hoc approach to policy problems and a related dependency on the market-place for "rational" solutions. Of course it would be a mistake to say that the present federal government has ignored the importance of the DOC. Without a doubt, the past six years have seen some extremely significant changes take place in federal communications and culture policy. The new Broadcasting Act, Copyright Act and the Telecommunications Act all reflect a significant policy shift towards a market-driven strategy. In his address to the Standing Committee on Culture and Communications, in May 1989, Minister of Communications Marcel Masse stated that he has "two main priorities." The first "is to establish a fair and equitable regulatory and policy framework..." while the second "is the convergence of Canada's cultural industries and telecommunications infrastructure" (Masse, 1989, p. 23). It should be noted that these priorities aim, primarily, (1) to accommodate the current productivity and cost demands of most large-scale information users and service suppliers, and (2) to stimulate cultural products as influential businesses (both as profit-making entities and as producers of positive economic spillovers for other sectors) rather than as key components in a broader long-term vision of culture, communications and the Canadian economy.

What Does the Free Trade Agreement Say?

With these factors in mind, as well as the DOC's traditionally cautious approach to U.S. trade relations, we now turn to the text of the FTA itself. Chapter One of Article 102 outlines the Agreement's five "objectives":

  • a) eliminate barriers to trade in goods and services between the territories of the Parties;
  • b) facilitate conditions of fair competition within the free-trade area;
  • c) liberalize significantly conditions for investment within this free-trade area;
  • d) establish effective procedures for the joint administration of this Agreement and the resolution of disputes; and
  • e) lay the foundation for further bilateral and multilateral co-operation to expand and enhance the benefits of this Agreement.

While these five FTA "objectives" emphasize the liberalization of trade, they also imply a particular conception of government power. It is this implicit objective that compels economist Fred Lazar to write that "The fundamental controversy surrounding the Canada-U.S. Free Trade Agreement...involves the role of government in economic development, not the issue of more liberalized trade" (Lazar, in Gold, et al., 1988, p. 434. Emphasis added). This is perhaps most apparent in Article 105 which states that "Each Party shall, to the extent provided in this Agreement, accord national treatment with respect to investment and trade in goods and services." The implications of the FTA's national treatment provisions are extensive. In general, the Canadian government no longer has the power to mount new policies which directly or indirectly affect U.S. commercial interests in an adverse way.

Article 2010 on "Monopolies" begins with the assurance that "nothing in this Agreement shall prevent a Party from maintaining or designating a monopoly." Paragraph two, however, requires advanced notification of the designation of a monopoly and to "engage in consultations prior to the designation." What this means is that while "legally" the Government of Canada maintains the right to establish public (or private) monopolies, the consequences of such an attempt would likely deter implementation. If the monopoly is interpreted as an "anticompetitive" practice (i.e., a Crown corporation's interference with the activities of a U.S. corporation), the monopoly would not be permitted. Moreover, in requiring notification and consultation prior to the establishment of a monopoly, there is little to prevent some form of economic retaliation from taking place before it is introduced in Parliament.

Article 1603 prevents either Party from imposing production or performance requirements on the other's firm(s). This effectively prevents the federal or provincial governments from establishing an economic strategy that requires any form of prejudicial production targeting. Government intervention, support and assistance to "strategic" companies will now be limited to areas in which U.S. corporate ownership rights are not disrupted. While governments can still negotiate performance requirements with investors, the national treatment requirement forces most of these requirements to be imposed equally on both U.S. and Canadian firms.

Article 1605 on "Expropriation" (or, in Canadian terms, "nationalization") states that

Neither Party shall directly or indirectly nationalize or expropriate an investment in its territory by an investor of the other Party or take any measure or series of measures tantamount to an expropriation of such an investment, except:
a) for a public purpose;
b) in accordance with due process of law;
c) on a non-discriminatory basis; and
d) upon payment of prompt, adequate and effective compensation at fair market value.

While exceptions (a) and (b) are essentially in keeping with pre-FTA practices, (c) and (d) constitute extraordinary deterrents to future nationalization schemes. Because the Article requires all four criteria to be satisfied, any goal of "Canadianizing" the ownership of an economic activity would either run afoul of non-discriminatory national treatment provisions or would, in effect, be an impractical undertaking as "adequate and effective compensation at fair market value" itself constitutes a chilling effect to any future nationalization program (see Daniel P. Drache, in Gold, et al., 1988, pp. 82-83).

While national treatment does not require that foreign firms receive the same treatment in the domestic market that they receive in their home market, national treatment does create direct and indirect spillover effects on government policy-making. National treatment provisions involve direct and indirect constraints on the public sector to act in any way that is offensive to the other Party's economic interests. By treating U.S.-owned enterprises the same as Canadians in Canada, national treatment, as the core concept underlying the FTA, seeks to prevent the erection of new barriers to the free flow of capital by placing unprecedented limitations on government power.

The core of the FTA's investment provisions are found in Chapter Sixteen. Article 1602 guarantees national treatment for all new business undertakings. Article 1602 also liberalizes rules restricting business acquisitions in Canada. Article 1607 revises the Investment Canada Act, restricting Canadian government investment reviews to businesses worth at least $150 million (Cdn) by 1992. For "indirect" acquisitions, the Canadian government's right to review will be completely eliminated (with the exceptions of the oil, gas, and uranium sectors) by 1992.

Under Article 1607.4, the Canadian government is required to "purchase" any U.S.-owned culture industry operating in Canada if it orders that industry to be repatriated. The word "purchase" in the Article may well require the Canadian government to buy the whole business rather than just acquire a controlling share. The Article also lacks any compelling reason for a U.S. firm to seek out a Canadian buyer, especially when a "fair open market" price is assured from the Canadian government. All in all, Article 1607.4 will likely have a bone-chilling effect on future government plans for the repatriation of culture industries (see Johnson, et al., 1988, p. 14).

It is important here to point out that a multinational corporation--a company engaged in business activities within more than one country's borders--is not merely a large-scale body whose loyalties are oriented solely to the maximizing of short-term profits. Multinationals also have host countries where head offices are located. These headquarters rarely move due to factors such as fixed material and non-material capital investments, as well as the need for financial, political and military security. As a result, a government and the multinationals based in its country are often engaged in a reciprocally supportive relationship, co-operating whenever possible in order to maximize potential benefits. U.S.-based multinationals, therefore, acting with at least one eye on U.S. foreign policy, will likely stimulate an advancement in the so-called "Americanization" of domestic Canadian policy decisions. Indeed, the structural bases for such an advance are already well established. The Business Council on National Issues (BCNI), made up of the chief executive officers of the largest one hundred and fifty corporations operating in Canada (including executives from IBM, Imperial Oil, Kodak, Ford, Southam, Alcan, and Canada's chartered banks, whose collective assets total $900 billion), has, since its formation in 1976, developed into perhaps the most influential lobbying organization in Canada. According to its president, Thomas d'Aquino, "major business leaders wanted to be able to move quickly on issues and address them at the highest level" (Langille, 1987, pp. 53-54). As a result, the BCNI's focus has been on the elaboration of its members' favoured solutions to anticipated public policy problems. In defining these issues (often before they even get on the public policy agenda) BCNI lobbyists are able to provide government with a remarkably comprehensive policy package enabling them to shape political decision-making from start to finish. Not surprisingly, the Business Council was a powerful force behind the FTA. From 1982, BCNI personnel met with key U.S.officials and discussed free trade with both Brian Mulroney and John Turner before the election of 1984 (Langille, 1987, p. 67). Having secured federal government support, the Business Council turned its resources to promoting the FTA to the public (Langille, 1987, p. 69).

The predominance of the BCNI aside, significant discrepancies in relative corporate scale, scope and economic influence translate into the reality that Canadian-based corporations are unlikely to have anything resembling a balancing impact on the domestic U.S. political process (see Robert A. Young, in Gold, et al., 1988, pp. 24-27). Because the Canadian economy is far more dependent on U.S. corporate activities than vice versa, policy harmonization means the persistent and rapid levelling of the North American economic, social and political--the cultural--environment in keeping with the emerging model favoured by both U.S.-based multinationals and the United States government.

Proponents of the FTA consistently point to Article 2005.1 which explicitly exempts "cultural industries" from the provisions of the Agreement. This is what the Article says:

Cultural industries are exempt from the provisions of this Agreement, except as specifically provided in Article 401 (Tariff Elimination), paragraph 4 of Article 1607 (divestiture of an indirect acquisition) and Articles 2006 and 2007 of this Chapter.

The definition of "cultural industries" is provided in Article 2012:

"cultural industry" means an enterprise engaged in any of the following activities:

(a) the publication, distribution, or sale of books, magazines, periodicals, or newspapers in print or machine readable form but not including the sole activity of printing or typesetting any of the foregoing,

(b) the production, distribution, sale or exhibition of film or video recordings,

(c) the production, distribution, sale or exhibition of audio or video music recordings,

(d) the publication, distribution, or sale of music inprint or machine readable form, or

(e) radio communication in which the transmissions are intended for direct reception by the general public,and all radio, television and cable television broadcasting undertakings and all satellite programming and broadcast network services.

Although the inclusion of these five business activities (note the absence of performing and fine arts) represent perhaps the most comprehensive listing of culture industries by a Canadian government in any single legal document (a point emphasized by a senior official at the DOC in response to questions regarding the scope of the FTA's definition of culture), the fact that the Agreement formally identifies culture with publishing, film, audio and visual recording, as well as broadcasting is itself revealing--revealing in both practical terms and in reflecting how DOC officials (at least those directly involved in the FTA negotiations) think about the subject. As in Communications for the Twenty-First Century, culture is segregated from the flow of communication. The free movement of information and capital across the Canada-United States border is ignored despite the presence of DOC papers warning trade negotiators of Canada's relative vulnerability.

Article 2005 on Cultural Industries contains two paragraphs. Having reviewed paragraph one, we turn to paragraph two:

Notwithstanding any other provision of this Agreement, a Party may take measures of equivalent commercial effect in response to actions that would have been inconsistent with this Agreement but for paragraph 1.

Here we find what is perhaps the single most worrisome clause in the FTA. According to Jon R. Johnson and Joel S. Schachter of the law firm Goodman & Goodman, "2005.2 is the only provision of the FTA which expressly authorizes a Party to take unilateral retaliatory measures against the other Party. Several commentators have suggested that this paragraph is a "sleeper" provision with potentially dramatic effects on the FTA as a whole" (Johnson & Schachter, 1988, p. 145. Emphasis added). Article 2005.2, often referred to as the "Notwithstanding Clause," says that if Canada chooses to act on behalf of a cultural industry under the exemptions outlined in 2005.1, the United States has the right to retaliate ("take measures of equivalent commercial effect") if the Canadian action contravenes any other provision in the text of the FTA. In opening with the words, "Notwithstanding any other provision of this Agreement..." an aggrieved Party has been given the right to bypass the dispute settlement mechanism outlined in Article 1806. It is completely in the hands of the aggrieved Party to determine whether or not the other Party, in acting under 2005.1, has contravened another part of the Agreement. It is also up to the aggrieved to determine what retaliatory measure is "equivalent." Moreover, the aggrieved is under no obligation to notify or consult with the other Party before implementing the retaliation. The FTA's dispute settlement mechanism could only be invoked after the fact of retaliation for the purpose of resolving the question of whether or not the original action, under 2005.1, was or was not in violation of another part of the FTA. Dispute settlement could also be applied to determine if the aggrieved Party's retaliation was, in fact, of "equivalent commercial effect."

Article 2005.2 provides no guide as to the means of quantifying either "equivalent commercial effect" or the damage caused by a given policy invoked under 2005.1. The end of paragraph two constitutes the first test for a Party to meet when invoking 2005.2 (" response to actions that would have been inconsistent with this Agreement but for paragraph 1"). Before retaliatory measures are conceived, the aggrieved would have to be satisfied that the other Party's action was in violation of some other part of the FTA with the exception of 2005.1. The culture industries explicitly exempted under 2005.1 are also governed under the investment obligations of Chapter Sixteen. In other words, if the Canadian government blocked the acquisition of a domestic culture industry (a film studio, perhaps) and that interference contravened Article 1603 (which prevents prejudicial production or performance requirements), the U.S. could retaliate under 2005.2. Similarly, Article 2012 defines the distribution of books, periodicals and newspapers as a culture industry protected by 2005.1. Yet, under Annex 1408, this area is included as a service industry whose free trade is guaranteed. And while 2005.1 allows the Canadian government to override Chapter Fourteen, Chapter Fourteen also empowers the United States to retaliate under 2005.2.

If one Party acts in prejudicial support of a domestic culture industry not covered in Article 2012, the aggrieved Party does not have the right to retaliate. Instead, the aggrieved must use the FTA's dispute settlement mechanism. And while amendments to the Investment Canada Act, as prescribed in Annex 1607.3, are not relevant to the culture industries listed in 2012 (thereby maintaining Canada's right to review relevant U.S. culture industry acquisitions and new activities), the fact that the Investment Canada Act's definition of "cultural industry" differs from the FTA's is a point of concern. While the Investment Canada Act defines cultural industries as activities "related to Canada's cultural heritage or national identity," the FTA's definition which names specific industries is far more explicit. The Canadian government's review of those U.S. investments not covered in 2012 but permissible under the more generalized Investment Canada Act definition, could well enable the United States to retaliate under Article 2005.2 if a culture investment is blocked by the Investment Canada Act.

Before proceeding, we are compelled here to address the status of telecommunications and computer services as detailed in Annex 1404(C). According to the Annex's first article,

The objective of this Sectoral Annex is to maintain and support the further development of an open and competitive market for the provision of enhanced services and computer services within or into the territories of the Parties. The provisions of this Sectoral Annex shall be construed in accordance with this objective.

The distinction made between "enhanced" services and "basic" services is important. By "basic" the FTA means "any service, as defined and classified by measures of the regulator having jurisdiction, that is limited to the offering of transmission capacity for the movement of information." By "enhanced" the FTA refers to "any service offering over the basic telecommunications network that is more than a basic telecommunications transport service as defined and classified by measures of the regulator having jurisdiction." What this means is that the distinction between basic and enhanced telecommunications services depends on how officials in each country classify them. This, however, does not mean that Canada (for example) could stick by its own definitions in order to maximize domestic benefits. In limiting basic services to the offering of "transmission capacity for the movement of information," regulators on both sides of the border are circumscribed in their ability to make arbitrary definitions. Annex 1404(C), Article 4, enables each Party to regulate access into basic networks but requires that national treatment be provided. And, while Article 6b entrenches the right of monopolies to participate in basic services, Article 4 guarantees that equal access will be provided to U.S. and Canadian enhanced service providers. As Hudson Janisch points out, "the objective [of Annex 1404(C)] is not merely to maintain and support an open and competitive market, but to maintain and support the further development of such an open and competitive market" (Janisch, 1989, p. 101). This is supported by Article 5 which states that "the monopoly shall not engage in anti-competitive conduct in the enhanced services market" and that each Party "shall maintain or introduce effective measures to prevent...anti-competitive conduct...." The implications of Annex 1404(C) are fairly straightforward. Canadian concerns regarding the United States' comparative advantages in enhanced services are warranted given the recognition that future significant growth in the telecommunications field lies primarily in the enhanced service area rather than in basic services. Certainly, from the perspective of businesses currently dependent on access to U.S. information services, the FTA's free flow of information provisions are viewed favourably. But for those interested in the significant development of domestic information products, the Agreement represents another troublesome barrier. With the exception of the Canada Bank Act's requirement that domestic data banks be maintained in Canada (as well as potential provincial restrictions), Annex 1404(C) entrenches the free movement of data across the Canada-U.S. border.

Free Trade, the DOC and the Future

As discussed above, the entrenchment of national treatment principles represents the essence of the Canada-U.S. Free Trade Agreement's orientation in regard to the "legitimate" role of the public sector in economic development. Article 1605, in essentially prohibiting either Party from expropriating the investments of the other, severely limits the development of new Crown corporations and future attempts to repatriate the culture area. Article 2005.1 exempts from the FTA a defined range of culture industries but is in many ways contradicted by Article 2005.2. As explained, the Notwithstanding Clause--especially with key definitions that still need to be worked out (such as what is a "subsidy"?) as well as the diverging definitions of "cultural industry" under the FTA and the Investment Canada Act--constitutes a detrimental provision for the development of future public sector policies. These are especially worrisome given the FTA's simultaneous entrenchment of an unfettered flow of electronic information products and services into Canada as a result of Annex 1404(C). While Article 1603 prevents economic development strategies that involve prejudicial performance requirements, by not specifically listing areas such as research and development or technology transfer requirements, these, apparently, are permissible government activities under the Agreement where national treatment provisions are observed. Not yet discussed here is Article 2006 which compels both Parties to co-ordinate their copyright and retransmission laws ensuring that payments for the use of recognized intellectual property take place across the Canada-U.S. border. As a result, the new Canadian Copyright Act has effectively extended copyright's applicability to Canadian and American computer software, home copying activities, literary works, etc. Article 2006, in providing U.S. producers with retransmission payments, effectively channels culture and information dollars out of Canada rather than recirculating cable television profits directly into the hands of domestic producers (see Robert Babe, in Parker, et al., 1988, pp. 57-65). All in all, the FTA, by institutionalizing the free flow of information and culture into Canada advances the DOC's mandate to develop "Canada's communications the forefront of global developments" (Canada, 1990, p. 4). In so doing, however, the Agreement has undercut the Department's commitment to providing Canadians with "the freedom to choose a wide selection of Canadian cultural products and information services among the broad international choices being carried on our communications systems" (Canada, 1990, p. 4). The view that an unrestricted Canada-U.S. border is viable only if the federal government actively pursues the development of domestic culture industries has now been buried (see "International Relations" section in Canada, 1986b, p. 1).

The DOC, in becoming more directly responsive to the established communications sector and less oriented to the needs of domestic culture and information production, has exhibited the split between the Department's technological and cultural sides in both thought and practice. For example, the phasing out of the ERDA (Economic and Regional Development Agreements) programs--with the exception of Quebec's--because (according to one key official in the Federal-Provincial Relations Branch) the government considers them to be "cultural" rather than "technological," reflects a general inability even to think in a manner that is in keeping with the DOC's mandate. The official explained this to be a reflection of the federal government's current emphasis on the technological-communications transmission infrastructure while largely ignoring the broader relationship between economic development and cultural production. The official also considered the current government's political agenda to be an important factor. Funds previously available to the ERDA program are now being reallocated to new regional industrial and technological development agencies. And while the ERDAs represented an example of the DOC taking a leadership role in co-ordinating governments, educational bodies and businesses with the goal of furthering cultural development, their dissolution seems to reflect the subtle disassembling of the DOC's mandated function.

Although the FTA has been welcomed by some DOC officials as a defensive mechanism--in effect "freezing" the cultural status quo--this paper has argued that such a perspective is both dangerously naive and, given the current state of Canada's declining capacity to produce its own culture and information, constitutes a direct repudiation of the Department's mandate. Moreover, the FTA also represents the institutionalization of a number of cultural dependencies which, if not redressed through alternate public sector activities, will likely perpetuate Canada's current state of economic dependency and regional vulnerability.

As tools of control, new technologies represent new capacities. How they are used is largely a function of government-created laws and institutions. The rationale underlying the push by large and established corporations already positioned in the global market for fewer barriers in international culture and information trade and property rights is understandable. Less comprehensible is the logic underlying the federal government's push to facilitate these corporate interests at the direct expense of Canada's capacity to produce its own information and culture resources. As we have suggested, part of the explanation seems to lie in the relationship between large corporate interests, the federal government and the Canadian public sector through existing institutional structures (such as the DOC's unco-ordinated structure), interest groups (such as the BCNI), and the intellectual poverty of key federal politicians, advisors and public sector officials as reflected in a religious faith in the free market as well as the anti-government mandate underlying the FTA itself.

In general terms, the goal of the political process is power, not responsibility. Given the current government's policy orientations, perhaps it is understandable why capable DOC officials avoid the untidy task of de-mystifying the information revolution. As Robert Babe puts it, "mythologizing "technology" sweeps aside debate concerning the distribution of power domestically and internationally and the utilization of communication media towards those ends" (Babe, 1990, p. 257). Failure in the DOC's co-ordination of its technological and cultural elements since their theoretical fusion in 1980 has, primarily, not been a problem rooted in the mandate itself. Rather, there has been a remarkable absence in the required political will to see the 1980 project through. Those few DOC officials frustrated by this ongoing and implicit denial of the Department's mandate have expressed little hope that the practical necessities of the mandate ("the creation of the conditions" which enable " express themselves socially, culturally and economically through the communication of information and the sharing of cultural values" [Canada, 1989, p. 4]) will ever be adequately appreciated. This pessimism seems to be warranted. As outlined, the Free Trade Agreement, as a reflection of the political and intellectual environment, has itself institutionalized the conditions of Canada's cultural and information dependency on U.S.-based producers.


When using the term "culture industries" this paper will be referring to those activities directly involved in the production and distribution of entertainment and information products and services. Their collective predominance will be referred to as the "information economy." "Culture commodities" include goods and services produced and distributed by culture industries.
In contrast to this perspective, U.S. corporate success in the international market relative to most Canadian companies may be more usefully seen as a result of factors implying the capacity to control rather than compete and not the result of the relative smallness of the domestic (and more "sheltered") Canadian market. Because of the influences of new technologies (whose development can be seen as a direct or indirect response to the need to expand profits through the development of innovations and/or market control capacities), the integrative tendencies of large corporations, and the economic peculiarities of culture products (in which the bulk of the production costs go into the initial unit or prototype and the subsequent costs for reproduction are relatively minimal), control over the production and distribution of knowledge is becoming more and more centralized in the hands of corporate entities not necessarily interested in the socio-economic development or prosperity of any particular country.
In 1983, the "Final Report" of the federal Interdepartmental Task Force on Transborder Data Flows affirmed that "The basis of today's corporate environment is a rapidly growing dependency on ready access to electronic data and information delivered by the latest technologies" (pp. 8-9). The Report goes on to point out that "In any new policies...electronic information goods and services will need to receive similar consideration to traditional cultural products such as film, television programming, recordings and books. Developmental support...will be vital if increasing reliance on is to be averted." See Canada, 1983, p. 9 (Emphases added.)
The exceptions listed in Article 2005.1 are the following:
- Article 401 eliminates tariffs on certain products related to cultural industries, including cassettes, film, recording tape, records, cameras and musical instruments.
- Article 1607.4 deals with acquisitions. If the Canadian government, in reviewing an American company's acquisition of a Canadian cultural industry, orders the divestiture of the U.S. firm, the Canadian government is required (as with other industries under the FTA) to offer to "purchase" the business "at fair open market value, as determined by an independent, impartial assessment."
- Article 2006 compels the co-ordination of Canadian and U.S. copyright laws to protect and remunerate copyright holders in the case of the retransmission of signals originally intended for free over-the-air reception by the public.
- Article 2007 requires the repeal of parts of Canada's Income Tax Act that require a "Canadian" magazine or periodical to be typeset and printed in Canada in order for Canadian advertisers to deduct their expenses.


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