Thursday, October 7, 2010

The NAFTA Cultural Industries Exception

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement (NAFTA), and represented Canada at the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University, and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Part V of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Part VI appears in a posting together with Part I. Parts II-IV appear in separate postings on this website.


Introduction

As a more than 76% English-speaking country of about thirty million people[208] adjacent to the nine times larger population of the United States, Canada has for many years considered itself in danger of having its indigenous cultural expression drowned in a flood of U.S. films, television programs, sound recordings, books, and magazines.

For example, the United States produces close to 94% of the films shown in Canadian theatres and 75% of the television shows viewed in Canada,[209] where United States programs generally attract larger audiences.[210]  Even in the almost 82% French-speaking Province of Quebec, United States films (1995) constituted 81.8% of theatre showings, attracting 84.5% of the film-going audience. Only 4.1% of the province's film-goers went to see Quebec films.[211]  In 1992, the United States was the source of 87% of the feature films and 80% of other comedy or drama programming seen by television viewers in Canada.[212]  Canadian films account for no more than 3-5% of domestic audiovisual cassette rentals.[213]

Although normally pressed in Canada, sound recordings first-fixed abroad are approximately 85% of total domestic annual sales of about CDN$ 1.3 billion.[214]  Averaged over 1991-1993, United States citizens were 52% of the artists on the "Top 100" Chart for English-language recordings in Canada.[215]  Even in Quebec, the francophone music industry generates only about 33% of the recordings sold in the province.[216] Although the Canadian Radio-Television and Telecommunications Commission (CRTC) requires that 30% of radio music programming be Canadian in content,[217] the United States is said to be the place of first-fixation of approximately 50% of the recordings broadcast by Canadian radio stations which prefer to play United States recordings during prime time.[218]  In 1993, foreign copyright owners received 55% of the performing-rights royalties distributed by the Society of Authors, Composers, and Music Publishers of Canada (SOCAN).[219]

Similarly, Canada is the largest export market for United States books which are 79% of all book imports, supplying 60% of the Ontario market.[220]  Total book sales in Canada are 57% by foreign-controlled companies constituting 12% of the country's English-language publishers.[221] United States magazines are 80% of English-language newsstand sales.[222]  Almost 50% of Quebec book sales are made by foreign-based publishers.[223]

Canadian Government Policy

During the October 1993 federal election, the about-to-be victorious Liberal Party released a manifesto which articulated the need to take special measures to protect Canadian culture: "A Liberal government will help Canadian books, films, and sound recordings to increase their share of the domestic market through the establishment of policies and legislation with respect to marketing, distribution, and exhibition."[224]

This same theme was expressed in the Liberal government's 1995 foreign-policy statement entitled Canada in the World which identifies the "protection of Canadian values and culture" as one of the pillars of Canadian foreign policy.[225]  According to Canada in the World:
The celebration of Canadian culture and the promotion of Canadian cultural and educational industries, so that they can continue to compete at home and abroad, are central tenets of Canadian policy . . . . The Government is convinced that we can and should manage our international economic relationships so that Canadian cultural industries are effectively supported. We will remain vigilant in protecting and promoting the capacity of our important cultural industries to flourish in the global environment.[226]

Protection or Discrimination?

What is seen by one country as legitimate protection for a domestic cultural industry may be viewed by another country as a measure discriminating against foreign intellectual property (IP) owners, exporters, or investors. Consider the example of neighbouring rights to compensate record producers and performers for the secondary use (i.e. broadcasting and performance in public) of their sound recordings. Although absent from the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), these neighbouring rights exist in the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, to which neither Canada nor the United States is Party.[227]  NAFTA does not require neighbouring rights which, nonetheless, feature as "related rights" in the NAFTA definition of "intellectual property rights."[228]  Absent the cultural industries exception, a Party opting to provide neighbouring rights owes record producers of another NAFTA Party at least national treatment and performers of another NAFTA Party what appears to be at least formal reciprocity.[229]

To support the domestic sound recording industry including local performing artists, Canada has for many years considered the possibility of introducing neighbouring rights. However, policy makers invariably concluded that it was not feasible to offer these neighbouring rights on a national treatment basis to United States record producers and performers. This assessment was partly based on the then absence of a corresponding right in United States law[230] and the calculation of the potential outflow of royalties to United States producers and performers who are responsible for first-fixation of approximately half the sound recordings broadcast in Canada.[231]

During the NAFTA talks, Canadian negotiators evaluated the United States demand for the application of a national treatment requirement to all the IPRs a Party might adopt or maintain inter alia in the light of the possibility that Canada might some day want to introduce neighbouring rights without offering national treatment to United States record producers and performers. Having a cultural industries exception to make room for such a derogation from national treatment was, therefore, one of the principal goals of Canada's IP negotiators. The United States negotiators clearly understood Canada's interest in possibly introducing neighbouring rights beyond the scope of NAFTA obligations. They conceded that the NAFTA cultural industries exception would excuse Canada from the obligation to provide United States record producers with national treatment inside NAFTA. However, with respect to neighbouring rights, they said the United States would always be free to press Canada for national treatment outside NAFTA.

In December 1994, there was an official announcement that Canada would soon introduce neighbouring rights as part of the upcoming copyright reform. This news prompted the United States Trade Representative (USTR) to signal strongly that "the U.S. Government and U.S. industry would be extremely concerned if U.S. performers and producers were denied national treatment under the proposed legislation."[232]

On April 25, 1996, the Minister of Canadian Heritage introduced Bill C-32. This Act to Amend the Copyright Act proposes giving Canadian record producers and performers a right to equitable remuneration for the broadcasting and performance in public of their sound recordings.[233]  The same right would extend to producers and performers of countries Party to the Rome Convention to which Canada would adhere.[234]  Canadian broadcasters, restauranteurs, etc., would not have to pay royalties for the secondary use of the sound recordings of non-Rome Convention countries whose producers and performers would remain outside the projected Canadian neighbouring-rights regime.[235] Significantly, the United States is not among the fifty Parties to the Rome Convention. However, Bill C-32 contains a provision that would permit giving reciprocal rights (full benefits) or material reciprocity (partial benefits) to record producers and performers of foreign countries not Party to the Rome Convention.[236]

In USTR's annual press release evaluating IP protection and enforcement by foreign countries round the world, notice was taken of Bill C-32 which USTR said "could discriminate against U.S. right holders." Canada was again placed on the USTR "watch list" in part because the "Administration wants to ensure that these amendments are not at the expense of U.S. copyright interests."[237]

Where Are Cultural Industries Exceptions Found?

Already a half-century old is the debate between the proponents of protecting domestic culture and the champions of national treatment for the world trading system. For example, the 1947 General Agreement on Tariffs and Trade (GATT) had special provisions permitting a derogation from national treatment for the cinema screening of motion pictures.[238]  In 1950, the U.S. State Department said the screening of motion pictures is distinguishable from other trade-in-goods issues because the "value is not in the film itself, but in its earning power" at the box office.[239]  GATT 1947, Article IV, permits a Contracting Party to require the exhibition of films of national origin during a specified minimum proportion of the total screen time utilized annually in the commercial exhibition of all films of whatever origin.[240]

More recently, Canadian trade policy has worked consistently to create the sophisticated device of the cultural industries exception as a general exception operating horizontally across a whole trade agreement. In this regard, NAFTA negotiators had the precedent of the cultural industries exemption which applied to almost every aspect of the 1989 Canada-United States Free Trade Agreement (FTA).[241]  FTA, NAFTA, and Canada's Foreign Investment Protection Agreements (FIPAs) are so far probably unique in employing this feature as a general exception.

The phenomenon is most complex in NAFTA where, outside Annex 2106: Cultural Industries, Canada has no substantive rights or obligations with respect to the "cultural industries" defined in NAFTA, Article 2107. This means that, under NAFTA, the cultural industries exception is better understood as a special regime or "carve out" rather than as a discretionary exception which a Party may elect to invoke.[242]

Under Annex 2106, Canada is simply free to adopt or maintain measures with respect to the cultural industries without regard to any other NAFTA obligations, including the requirements of the IP Chapter. However, with respect to most of the subject matter of NAFTA's IP Chapter, Canada is independently bound by treaty obligations set out in TRIPS, the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works -- all three of which lack a general cultural industries exception. Although the implications of the NAFTA cultural industries exception have yet to be elucidated by dispute settlement panels, the attempt will be made to explain how this author expects the exception to operate.

The NAFTA Cultural Industries Exception

The NAFTA cultural industries exception is an intricate and very compact text where every word must be read with great care. It is set out in NAFTA, Annex 2106:

Notwithstanding any other provision of this Agreement, as between Canada and the United States, any measure adopted or maintained with respect to the cultural industries, except as specifically provided in Article 302 (Tariff Elimination), and any measure of equivalent commercial effect taken in response, shall be governed under this Agreement exclusively in accordance with the provisions of the Canada-United States Free Trade Agreement. The rights and obligations between Canada and any other Party with respect to such measures shall be identical to those applying between Canada and the United States.
The practical effect of these words is that between Canada and the United States, measures with respect to the cultural industries, as defined by NAFTA, Article 2107, attract NAFTA rights and obligations which are identical to those prescribed for the cultural industries in the earlier FTA, which was suspended when NAFTA came into force on January 1, 1994.[243]  From an IP perspective, crucial is FTA's failure to include either an IP Chapter[244] or an "investment" definition broad enough to capture a pure or isolated intellectual property right (IPR) as opposed to an IPR figuring as an asset of a business enterprise.[245]  Apart from a requirement to protect the appellations "Bourbon Whiskey" and "Canadian Whiskey" as distinctive products of the United States and Canada respectively[246] and a "best efforts" clause referring to Canada-United States cooperation in the Uruguay Round and other international fora,[247] the only IP provision in FTA is the obligation to provide copyright holders with a right to equitable remuneration for the retransmission to the public of distant broadcast signals carrying their works.[248]

The NAFTA cultural industries exception applies between Canada and Mexico and would also apply between Canada and other countries acceding to NAFTA.[249]  For measures with respect to cultural industries, NAFTA rights and obligations between Canada and Mexico are identical to those applying between Canada and the United States. However, the NAFTA cultural industries exception does not apply between Mexico and the United States. Nor would the cultural industries exception apply between the United States and a fourth country (e.g., Chile) acceding to NAFTA.

NAFTA says the cultural industries exception applies "under this agreement", i.e. under NAFTA. This means that the NAFTA cultural industries exception does not apply outside NAFTA. International rights and obligations existing outside NAFTA are, therefore, unaffected by the NAFTA cultural industries exception. For example, the NAFTA cultural industries exception does not apply at the WTO.

Consider a hypothetical Canadian cultural industries measure[250] denying national treatment to United States and Mexican nationals with respect to the copyright owner's reproduction right in a literary work, e.g., a book. Under NAFTA, the United States and Mexico would not be entitled to respond with a counter-measure of equivalent commercial effect because the Canadian cultural industries measure would not be inconsistent with the FTA which lacks any provision with respect to reproduction rights. However, as WTO Members, the United States and Mexico would be entitled to bring a complaint to the WTO Dispute Settlement Body, because national treatment for the copyright owner's reproduction right also features in TRIPS.[251]

Cultural Industries Measures

The focus of the NAFTA cultural industries exception is a "measure" under NAFTA. According to NAFTA, a "measure" includes any law, regulation, procedure, requirement or practice.[252] The NAFTA cultural industries exception addresses a measure "with respect to cultural industries" which are defined as "persons" engaged in certain specified activities.[253] Under NAFTA, a "person" means a natural person or an enterprise, and an "enterprise" is any entity constituted or organized under applicable law, whether or not for profit, and whether privately owned or governmentally owned, including any corporation, trust, partnership, sole proprietorship, joint venture, or other association.[254] Under NAFTA, falling within the scope of the "cultural industries" are:
(a) publication, distribution or sale in print or machine-readable form of music, books, magazines, periodicals, and newspapers; (b) production, distribution, sale, or exhibition of films and other video recordings and audio and audio-video music recordings; (c) satellite programming; broadcast network services; radio, television, and cable broadcasting undertakings (e.g., activities, enterprises); and radio-communications intended for direct reception by the general public.[255]
However, the NAFTA cultural industries exception does not apply to the printing and typesetting of books, magazines, periodicals, and newspapers.[256]  Nor does the NAFTA cultural industries exception apply to tariff elimination. The NAFTA cultural industries exception, therefore, does not affect the tariff elimination obligations set out in NAFTA, Article 302.[257]

Notwithstanding any other NAFTA provision, a measure with respect to cultural industries is governed under NAFTA exclusively by FTA provisions.[258]  This is a significant feature because, with specific exceptions, cultural industries are also exempt from FTA provisions.[259]  The specific exceptions to the FTA cultural industries exemption are tariff elimination;[260] Canada's obligation to offer fair open-market value when requiring divestiture following a United States investor's indirect acquisition in a Canadian cultural industry;[261] each Party's obligation to provide copyright holders with a right to equitable remuneration for the retransmission to the public of distant broadcast signals carrying their works;[262] and the obligation to repeal the print-in-Canada requirement.[263]

Counter-measures

The other side of the coin is how NAFTA treats a counter-measure of equivalent commercial effect taken in response to a measure under the NAFTA cultural industries exception. Notwithstanding any other NAFTA provision, the counter-measure is governed under NAFTA exclusively by FTA provisions.[264]  With respect to a counter-measure of equivalent commercial effect taken in response to a cultural industries measure, FTA says that notwithstanding any other FTA provision, a Party may take measures of equivalent commercial effect in response to actions that would have been inconsistent with FTA, but for the cultural industries exemption.[265]

Here "inconsistent" must be construed narrowly according to the customary international law rules for interpreting treaties.[266] To be inconsistent with each other the cultural industries measure and the FTA provision must be mutually repugnant or contradictory, so that the one cannot stand alongside the other.[267]

For a proper understanding of the cultural industries exception's operation it must be understood that inconsistency with an FTA provision is the trigger for a counter-measure suspending NAFTA benefits. The day the Canadian, Mexican, and United States negotiators finished their work, they issued an agreed Description of the NAFTA. This August 12, 1992 trilateral Statement says: "Each country reserves the right to take measures of equivalent commercial effect in response to any action regarding cultural industries that would have been a violation of the Canada-U.S. Free Trade Agreement but for the cultural industries provisions." This view has been reiterated by the United States. In the 1993 NAFTA Statement of Administrative Action submitted to Congress, the United States government said:
The United States agreed to include the exemption only in return for an explicit agreement that any action by Canada that would have been inconsistent with the Canada/U.S. Free Trade Agreement in the absence of the exemption would be subject to immediate suspension of trade benefits by the United States.
A counter-measure suspending NAFTA benefits cannot be justified by a claim that a NAFTA cultural industries measure has caused non-violation nullification or impairment of an FTA benefit carried forward under NAFTA Annex 2106.[268]  In other words, a counter-measure under Annex 2106 cannot be characterized as a response to a cultural industries measure which is not inconsistent with FTA provisions. To be entitled to take a counter-measure under Annex 2106, the original cultural industries measure must be inconsistent with FTA provisions.

Under NAFTA, a cultural industries measure that is FTA inconsistent permits a counter-measure of "equivalent commercial effect."[269] This means that, in business terms, the value of the benefits suspended by the counter-measure must be proportional to the value of the benefits denied by reason of the original measure's inconsistency with FTA provisions. The policy aim is to re-establish between the Parties the balance of concessions under NAFTA, Annex 2106, which, with respect to cultural industries, carries forward FTA rights and obligations. If a NAFTA cultural industries measure is inconsistent with an FTA provision, there is no requirement to withdraw the inconsistent measure. However, the other Party is permitted to suspend NAFTA trade concessions or other NAFTA benefits because the cultural industries exception specifically says that, under NAFTA, a measure of equivalent commercial effect is justified notwithstanding any other NAFTA provision.

It would seem that, under Annex 2106, a counter-measure may be applied in the same sector or in other sectors because FTA, Article 2005(2), does not preclude the possibility of cross-retaliation which, within the NAFTA context, is consistent with both customary international law and Article 60 of the Vienna Convention on the Law of Treaties.[270] Under Annex 2106, a counter-measure may, therefore, respond in the same sector as the original cultural industries measure or against any other NAFTA benefits, e.g., equivalent benefits with respect to trade in goods and services.

Retorsion

If a NAFTA cultural industries measure is not inconsistent with an FTA provision, another Party is not entitled to suspend trade or other benefits under NAFTA. However, outside NAFTA, there are likely to be some purely discretionary trade or other benefits which might be suspended as the counter-measure of a NAFTA Party responding to a NAFTA cultural industries measure that is not inconsistent with an FTA provision. In this regard, the rationale is that customary international law does not require "a State . . . to allow trade with any country, let alone an unfriendly State."[271] Therefore, a State judging itself aggrieved by an unfriendly act is, after bilateral consultations and absent any contrary customary law or treaty requirement, generally free to deny equivalent trade or other benefits as a counter-measure characterized as retorsion. The aggrieved State may take this counter-measure even though the "offending" State has committed no wrongful act, i.e. no breach of treaty or other violation of international law.[272]

Effect on Rights and Obligations Under Other Treaties

A NAFTA cultural industries measure may be not inconsistent with an FTA provision, but nonetheless violate another treaty between two or more NAFTA Parties. Subject to any contrary provision in that other treaty, the Party in breach attracts international responsibility to restore things to their previous condition or to make reparation in an adequate form.[273]  In this case, the Party which has been wronged by breach of the treaty other than NAFTA should, in the first instance, follow any dispute settlement procedure set out in that other treaty.[274]  For example, the WTO Dispute Settlement Body should be used for breaches of the WTO agreements covered by the WTO Understanding on Rules and Procedures for the Settlement of Disputes.

If the other treaty lacks a dispute settlement procedure, the Party claiming to be wronged by the breach should first seek a remedy through consultations with the Party alleged to be in breach. If the matter is not settled through consultations, the Party claiming to be wronged by the breach may affirm its rights via a counter-measure having some degree of equivalence with the alleged breach.[275]  The aim of the counter-measure is to restore equality between the Parties and to encourage the negotiation of an acceptable solution.[276]

Effect on WTO Rights and Obligations

Many trade concessions are covered by both NAFTA and a WTO agreement. Therefore, specific benefits, suspended as a counter-measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions, may have the effect of suspending WTO concessions. If so, the NAFTA Party suffering the suspension of trade concessions would be entitled, as a WTO Member, to bring a complaint to the WTO Dispute Settlement Body. The complaint could be brought to the WTO because the NAFTA cultural industries exception operates only under NAFTA where the suspension is unilateral, i.e., not authorized by a NAFTA panel or other international tribunal. Consequently, the NAFTA Party suspending trade concessions as a NAFTA counter-measure could not use res judicata,[277] or a GATT-style argument tantamount thereto, to convince a WTO panel not to proceed with the dispute. Furthermore, because the Uruguay Round Final Act was adopted[278] in 1994 and NAFTA in 1992, NAFTA ranks as lex prior and thus cannot be said to constitute a subsequent inter se waiver of WTO rights.[279]

Recourse to NAFTA Panels

With some exceptions,[280] dispute settlement under NAFTA Chapter 20 applies with respect to the avoidance or settlement of all inter-Party disputes regarding NAFTA's interpretation or application.[281]  If NAFTA trade concessions or other benefits are wrongfully suspended in response to a NAFTA cultural industries measure which is not inconsistent with FTA provisions, the NAFTA Party suffering the suspension could probably have recourse to the NAFTA dispute settlement procedures.[282]  The NAFTA panel would have to determine whether or not the alleged counter-measure is indeed a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. The initial burden of proof would be on the complainant.[283] In other words, the Party suffering the wrongful suspension of NAFTA benefits would be expected to provide some evidence to convince the panel that the alleged counter-measure is not a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. Thereafter, the burden of proof would probably shift to the NAFTA Party claiming to have taken the responding measure of equivalent commercial effect under NAFTA Annex 2106. The burden might shift to the defendant because a Party invoking an exception must show that it meets all of the conditions of the exception which is to be construed narrowly.[284]  For example, there could be a requirement to establish that the counter-measure conforms with the proportionality (equivalent commercial effect) demanded both by NAFTA Annex 2106 and customary international law.[285]

The panel would have no jurisdiction to proceed with the complaint if the counter-measure is found to be a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. However, the panel could continue to deal with the complaint if the counter-measure is found not to be a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions.

No Cultural Industries Exception at the WTO

The October 1993 Francophonie summit in Mauritius adopted a resolution calling for the insertion into the Uruguay Round Final Act of a NAFTA-style cultural industries exception.[286] During the final months of the Uruguay Round, NAFTA Annex 2106, was being looked at very carefully as a possible model for the treatment of the audiovisual sector in the draft WTO General Agreement on Trade in Services (GATS).[287]  With the support of Canada, Brazil and some European countries outside the European Communities, the European Commission proposed (December 10, 1993) that GATS be equipped with a provision that would allow a WTO Member to rely on cultural reasons as an excuse for maintaining restrictions.[288]  However, when negotiations ended on December 15, 1993, a cultural industries exception featured neither generally in the Uruguay Round Final Act nor particularly in GATS or TRIPS.

Under GATS, a cultural industries exception was ultimately deemed to be unnecessary because Canada made no market-access or national-treatment commitments with respect to cultural services. Similarly, European negotiators understood that the Uruguay Round Final Act's "bottom up" architecture did not require a cultural industries exception to limit the impact of GATS on their audiovisual sector. Under GATS, the European Communities made no commitment on audiovisual services[289] and along with Canada and some other countries took MFN exemptions for certain cultural services, e.g., to accommodate bilateral film co-production agreements.[290]

TRIPS is expected to manage very well without a cultural industries exception because TRIPS does not include the "top down" NAFTA national treatment obligation which generally applies to all the IPRs a Party adopts or maintains.[291]  Furthermore, with respect to substantive obligations, TRIPS carefully omits certain key rights. For example, absent from TRIPS are almost all performers' rights, and record producers' neighbouring rights with respect to broadcasting and performance in public. Moreover, TRIPS incorporates, from the Rome Convention and elsewhere, a series of specific exceptions which together are expected to do much of the IP work of the NAFTA cultural industries exception.[292]

For example, consider the record producer's reproduction right which features in both NAFTA and TRIPS.[293] The hypothesis is a levy on blank tapes as a royalty to compensate only domestic[294] record producers for the private copying of their sound recordings. A NAFTA Party which is also a WTO Member would need NAFTA Annex 2106 to deny national treatment to record producers of another NAFTA Party[295] and the problematic TRIPS "private use" exception drawn from the Rome Convention[296] to withhold national treatment from record producers of WTO Member countries.

[Part VI: Conclusion appears together in a posting with Part I.]

NOTES

208. Alanna Mitchell, "Population to Hit 30 Million in '96," Globe & Mail, (Toronto), Jan. 10, 1996, at A1, A6.

209. Ontario, Ministry of Culture, Tourism, and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy 90 (Aug. 1994). However, Statistics Canada informs the author that Canadians spent only 63.6% of their Fall 1994 television viewing time, watching foreign programs, whether broadcast by domestic or foreign stations.

210. Nordicity Group Ltd., Economic Impact of Home Taping on Audio-Visual Works, Report for Departments of Industry and Canadian Heritage 91 (Sept. 1994).

211. Ray Conlogue, "Quebec's Movies Are Stars," Globe & Mail, (Toronto), Jan. 11, 1996, at A14.

212. Nordicity Group Ltd., supra note 210, at 92.

213. Etude Economique Conseil, Evaluation des impacts economiques et non-economiques d'une legislation concernant l'introduction d'un droit de location dans le cadre de la revision de la Loi sur le droit d'auteur. Report for Department of Canadian Heritage (Aug. 1994), at iv, xiii, 34-35.

214. Written submission of Canadian Independent Record Production Association (CIRPA) to Department of Foreign Affairs and International Trade Cultural Advocacy Seminar, Ottawa, Feb. 19-20, 1996. According to Ontario's Ministry of Culture, 84% of sound recording sales in Canada are made by six multinational corporations, with only 16% by Canadian-owned independent record labels. See Ontario, Ministry of Culture, Tourism and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy 87-88 (Aug. 1994).

215. Arthur Donner & Fred Lazar, Neighbouring Rights: A Financial and Economic Analysis, Report for Department of Canadian Heritage (Oct. 1994), at Table 60.

216. Andrew McIntosh, "Minister Proposes Mexico-Quebec Cultural Alliance Against U.S," Gazette, (Montreal), Mar. 8, 1996, at D3.

217. Some say content rules have been essential in creating a "space" for Canadian music in domestic broadcast schedules and for the last 25 years' growth of a Canadian-controlled sector of the domestic sound recording industry. The Canadian-controlled production companies are said to be responsible for first fixation of approximately 70% of the sound recordings with Canadian content. However, with more than a hundred Canadian groups signed to multinational labels, foreign-controlled firms are said also to play an important role in developing an indigenous music industry. Claiming that Canadian radio stations are not playing enough Canadian music during key time periods, Canadian record producers are now calling for stricter "Cancon" requirements. See H.J. Kirchhoff, "Review Cancon Rules, Group Says," Globe & Mail, (Toronto), Mar. 6, 1996, at A12-13.

218. Donner & Lazar, supra note 215, at 45, 63, 66.

219. Id., at 20.

220. Ontario, Ministry of Culture, Tourism and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy (Aug. 1994), at 83.

221. Id., at 82.

222. Id., at 85. Canadian periodicals even up the score in subscription sales.

223. McIntosh, supra note 216, at D3.

224. Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada 88-89 (1993).

225. Canada in the World: Government Statement, i-iii, 10-11, 22, 34-39 (1995).

226. Id., at 39.

227. Rome Convention, art. 12. With respect to secondary use, Rome, Article 16(1)(a), permits a Party the possibility of: (i) not providing the rights; (ii) only providing the rights with respect to certain uses [e.g., for broadcasting but not for performance in public]; (iii) not applying the rights to sound recordings made by a producer who is a national of a country not Party to Rome; (iv) using material reciprocity in applying the rights to sound recordings made by a producer who is a national of a country Party to Rome.

228. NAFTA, art. 1721: Definitions.

229. NAFTA, art. 1703(1).

230. On November 1, 1995, President Clinton signed the Digital Performance Rights in Sound Recordings Act which, with respect to all sound recordings distributed in the United States, gives record performers and producers rights covering the transmission of their sound recordings via digital audio specialty subscription services.

231. Donner & Lazar, supra note 215, at 45, 63, 66.

232. United States Trade Representative, 1995 National Trade Estimate Report on Foreign Trade Barriers (Washington, 1995), at 36. The same language is repeated in USTR's 1996 National Trade Estimate Report on Foreign Trade Barriers (Washington, 1996), at 35-36.

233. Sec. 19.

234. Secs. 20 and 91(b).

235. Sec. 68(2)(a)(i).

236. The possibility of reciprocal rights is set out in Section 22(1) and of material reciprocity in Section 22(2).

237. United States Trade Representative. USTR Announces Two Decisions: Title VII and Special 301, (Washington, D.C.) Apr. 30, 1996, at 12.

238. See 1 GATT Index, supra note 148, at 209-11.

239. See Jackson, supra note 119, at § 12.6, 293, n. 1.

240. The same provision has been carried forward into GATT 1994 which incorporates GATT 1947. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Annex 1A: Multilateral Agreements on Trade in Goods, General Agreement on Tariffs and Trade 1994, paragraph 1(a).

241. FTA, art. 2005: Cultural Industries, Ivan Bernier, "La dimension culturelle dans le commerce international: quelques reflexions en marge de l'accord de libre-echange Canada/EtatsUnis du 2 janvier 1988," 25 Can. Y. B. Int'l L. 243-62 (1987). See also Michael Hart, Decision at Midnight: Inside the Canada-U.S. Free Trade Negotiations 384 (1994). Hart is incorrect in saying that the FTA cultural industries exemption provides for "offsetting action under the dispute settlement provisions." FTA, Article 2011(2), clearly indicates that the dispute settlement procedures in FTA, Chapter 18: Institutional Provisions, do not apply to the cultural industries as covered in FTA, Article 2005.

242. The distinction between a "carve out" like NAFTA, Annex 2106, and a discretionary exception which a Party may elect to invoke can be illustrated by comparing Annex 2106 with, e.g., Rome Convention, Article 15(1)(a), which stipulates: "Any Contracting State may, in its domestic laws and regulations, provide for exceptions to the protection guaranteed by this Convention as regards private use." For the relevant Parties, NAFTA rights and obligations with respect to the cultural industries are limited to Annex 2106. However, under the Rome Convention, the exception permitted by Article 15(1)(a) appears not to apply until a Party chooses the option, in its domestic laws and regulations, of providing for exceptions to the protection otherwise required by the treaty. The distinction between a carve out and a discretionary exception could be relevant in assessing whether a requirement of Rome national treatment (Article 5) applies to a Rome Party volunteering to enact a right of equitable remuneration to compensate record producers for the private copying of their sound recordings. In this connection, some would argue that Rome, Article 15(1)(a), permits a Party to withhold protection as regards the private use of sound recordings, but would nonetheless require Rome national treatment if a Party volunteers protection with respect to private use, e.g., home taping (private copying) of sound recordings.

243. Canada and the United States exchanged two sets of letters (Jan. 19 and Dec. 30, 1993) explicitly constituting a bilateral understanding that FTA be suspended for such time as the two countries are NAFTA Parties. This means that FTA would resume if either country leaves NAFTA. See Johnson, supra note 157, at 16.

244. For FTA's omission of an IP Chapter, see Hart, supra note 241, at 382-83: "The United States had sought a major chapter that would significantly improve the protection of U.S. IP in Canada and establish a general body of rules that could act as a starting point in developing a multilateral code of conduct for the protection of IPRs. No such chapter was agreed upon. In the end, the United States was not prepared to compromise on its demand that Canada dismantle compulsory licensing of pharmaceuticals. Canada was similarly not prepared to give in to the United States on this issue and insisted that the price of any chapter was United States willingness to give up its section 337 proceedings for Canadian products. This the United States was not prepared to do. As a result, the whole chapter disappeared. Canada was not unhappy to see the end of the IP chapter. Stronger protection of IP was not a high priority, although the government would have been prepared to live with it in return for greater and more secure access to advanced technology, another concession the United States found difficult."

245. Compare the definition of "investment" in FTA, art. 1611: Definitions, with the corresponding definition in NAFTA, art. 1139: Definitions.

246. FTA, art. 806: Distinctive Products.

247. FTA, art. 2004: Intellectual Property.

248. FTA, art. 2006.

249. NAFTA, Annex 2106: Cultural Industries: "the rights and obligations between Canada and any other Party with respect to such measures shall be identical to those applying between Canada and the United States."

250. Here, a "cultural industries measure" or a "NAFTA cultural industries measure" should be understood to mean "any measure adopted or maintained with respect to cultural industries" under NAFTA, Annex 2106: Cultural Industries.

251. TRIPS protects the author's reproduction right by requiring WTO Members to comply with the substantive provisions of the 1971 Paris Act of the Berne Convention. See TRIPS, art. 9(1).

252. NAFTA, art. 201: Definitions of General Application.

253. NAFTA, art. 2107: Definitions.

254. NAFTA, art. 201: Definitions of General Application.

255. NAFTA, art. 2107: Definitions.

256. Id.

257. NAFTA, Annex 2106: Cultural Industries.

258. Id.

259. FTA, art. 2005: Cultural Industries.

260. FTA, art. 401: Tariff Elimination.

261. FTA, art. 1607(4): "In the event that Canada requires the divestiture of a business enterprise located in Canada in a cultural industry pursuant to its review of an indirect acquisition of such business enterprise by an investor of the USA, Canada shall offer to purchase the business enterprise from the investor of the USA at fair open market value, as determined by an independent, impartial assessment."

262. FTA, art. 2006: Retransmission Rights.

263. FTA, art. 2007: Print-in-Canada Requirement.

264. NAFTA, Annex 2106: Cultural Industries.

265. FTA, art. 2005(2).

266. See Jenks, supra note 163, at 428: "The presumption against an interpretation which involves a conflict between law-making treaties is simply a detailed application of such fundamental principles of treaty interpretation as the principle of reasonableness, the principle of good faith, and the presumption of consistency with international law."

267. In terms of interpretative technique, the problem of inconsistency between a domestic measure and a treaty is analogous to the problem of inconsistency between two treaties. See Karl, supra note 207: "incompatibility of contents is an essential condition of conflict . . . ." According to Black's Law Dictionary, 689 (5th ed. 1979): inconsistent means "mutually repugnant or contradictory; contrary the one to the other, so that both cannot stand, but the acceptance or establishment of the one implies the abrogation or abandonment of the other . . . ."

268. Certain is the exclusion of a complaint alleging non-violation nullification or impairment of benefits from the scope of a counter-measure justifiable under NAFTA, Annex 2106: Cultural Industries, because of the reference to "inconsistent" in FTA, Article 2005(2), and FTA, Article 2011: Nullification and Impairment, where paragraph 2 specifically says that FTA, Article 2011(1), shall not apply to FTA, Article 2005: Cultural Industries.

269. For the requirement of proportionality, including measures of equivalent commercial effect, see Laurence Boisson de Chazournes, Les contre-mesures dans les relations internationales economiques 39, 45, 52, 187-200 (1992).

270. Vienna Convention on the Law of Treaties, Article 60, deals with "termination or suspension of the operation of a treaty as a consequence of its breach". Article 60(1) and (2) refer to "suspending the operation of the treaty in whole or in part" without any specification as to which particular part of the treaty would be subject to suspension.

271. Oscar Schachter, International Law in Theory and Practice: General Course in Public International Law, 178 Recueil des Cours, pt. V, 185 (1985).

272. See also id. at 167-87. See Boisson de Chazournes, supra note 269, at 24, 54-55.; Henkin et al., supra note 173, at 579-83.

273. Manuel Diez de Velasco, 1 Instituciones de derecho international publico, 652-53 (9th ed. 1991).

274. For the legitimacy of counter-measures to bring the offending State to arbitration or to provide the complainant State necessary interim protection not otherwise available. See Boisson de Chazournes, supra note 269, at 46-47; Rosenne, supra note 46, at 168; Schachter, supra note 271, at 172-75.

275. See Rosenne, supra note 48, at 184: "In the modern law of treaties, a breach, even when fully established, . . does not possess the character of an implied reservation nor does it operate in itself to terminate the treaty. The new legal relationship between the parties to the treaty brought about by the breach entitles the injured party to invoke various remedies, including the right to terminate the treaty through appropriate procedures in order to redress the injury caused by the breach as an internationally wrongful act."

276. See Schachter, supra note 271, at 170.

277. See Fitzmaurice, supra note 205, at 158-60. "Res judicata is a general principle of international law." See Lauterpacht, supra note 92, at 325-26; Rosenne, supra note 90, at 84. In Effect of Awards of Compensation Made by the United Nations Administrative Tribunal (1954) I.C.J. Rep., at p.53: The Court said that it is a "well-established and generally recognized principle of law" that "a judgment rendered by a judicial body is res judicata and has binding force between the parties to the dispute."

278. Sinclair, supra note 68, at 98: "It seems clear that, in determining which treaty is the 'earlier' and which the 'later,' the relevant date is that of the adoption of the text and not that of its entry into force. Adoption of the second treaty manifests the new legislative intent."

279. NAFTA, art. 103: Relation to Other Agreements, affirms existing rights and obligations under GATT and other agreements. The reference to GATT does not embrace the subsequent Uruguay Round Final Act, but rather refers to GATT 1947 as it was when NAFTA was adopted. This interpretation is supported by comparing Article 103 with NAFTA, Article 2005: GATT Dispute Settlement. Article 2005 specifically refers to the "General Agreement on Tariffs and Trade, any agreement negotiated thereunder, or any successor agreement (GATT) . . . ." Similarly, NAFTA, Article 2101(1), refers to "GATT Article XX and its interpretative notes, or any equivalent provision of a successor agreement . . . ."

280. For example, excluded from the scope of dispute settlement under Chapter 20 are review and dispute settlement in anti-dumping and countervailing duty matters which are handled under the procedures in Chapter 19.

281. NAFTA, art. 2004: Recourse to Dispute Settlement Procedures.

282. Annex 2106 measures and counter-measures remain "under this Agreement" (i.e. under NAFTA) where they operate (notwithstanding any other NAFTA provision) exclusively in accordance with FTA provisions. For dispute settlement jurisdiction over measures under NAFTA, Annex 2106, relevant are the arguments for jurisdiction over disputes arising from the unilateral denunciation of a treaty with a compromissory clause. See D. W. Greig, supra note 34, at 511: "If the denunciation is legally valid, then the Court has no jurisdiction, because the clause forming part of the treaty is also invalid. On the other hand, if the Court is to rely upon the clause as a basis for its jurisdiction, is it not pre-judging the dispute in favour of the treaty's validity? The dilemma is more apparent than real. A dispute arising out of an act of termination, withdrawal, etc., is as much a dispute relating to the interpretation or application of the treaty as would arise from any other alleged breach of its provisions. It would be most unsatisfactory to countenance the possibility that, by contending that a treaty was terminated, a party could destroy the jurisdiction bestowed by the treaty for resolving disputes arising thereunder. The Court must have what might be called a provisional jurisdiction to decide whether the purported termination is effective." Similarly, a NAFTA panel must have a provisional jurisdiction to decide the status of the alleged Annex 2106 counter-measure. This conclusion in favour of recourse to a NAFTA panel is supported by the impossibility of constituting a panel under the FTA which was suspended on January 1, 1994.

283. According to the July 13, 1995 Model Rules of Procedure for Chapter 20 of the North American Free Trade Agreement, Rule 33, "A Party asserting that a measure of another Party is inconsistent with the provisions of the Agreement shall have the burden of establishing such inconsistency."

284. Id., Rule 34, "A Party asserting that a measure is subject to an exception under the Agreement shall have the burden of establishing that the exception applies." A Party invoking a provision providing for an exception must demonstrate the conformity of its actions with the provision. See 2 GATT Index, supra note 55, at 750-51.

285. For the requirement of proportionality, including measures of equivalent commercial effect, see Boisson de Chazournes, supra note 269, at 39, 45, 52, 187-200.

286. Le Monde, (Paris), Oct. 19, 1993, at 9.

287. "GATT/Audio Visual: Mitterrand Calls for Cultural Exemption Clause," Eur. Rep., 1888, at V; External Relations, (Brussels), Sept. 25, 1993, at 10-11; "EC Movie Protection Sought," Wall St. J., (New York), Oct. 5, 1993, at A13; Jamie Portman, "Europeans Battle American Cultural Juggernaut in Trade Talks," Gazette, (Montreal), Oct. 6, 1993, at B3; Jack Ralite, "Le vol du public," Le Monde, (Paris), Oct. 15, 1993; "Bill Clinton rejette l'idee d'un traitement specifique pour l'audiovisuel," Le Monde, (Paris), Oct. 16, 1993; "Le nouveau defi americain" and "M. Sutherland s'emploie a rassurer les professionels europeens du cinema et de l'audiovisuel," Le Monde, (Paris), Oct. 17-18, 1993, at 1; Mario Vargas Llosa, "De l'exception culturelle francaise" Liberation, (Paris), Oct. 19, 1993, at 6; "From 'Fast Track' to French Films, Making Sense of the World Trade Talks," Wall St. J., (New York), Dec. 13, 1993, at A6.

288. See Croome, supra note 13, at 372.

289. Id., at 376.

290. Canada, Dept. Foreign Aff. & Int'l Trade, Agreement Establishing the World Trade Organization: Canadian Statement on Implementation, Canada Gazette pt. I, Dec. 31, 1994, at 4933. Id., at 4924: "Under the GATS, market access and national treatment are not automatic. They flow from the result of specific commitments entered into by a member on particular sectors or sub-sectors, in light of negotiations, and which are recorded in each member's national schedule, appended to and fully part of the GATS."

291. Compare TRIPS, Article 3: National Treatment, with NAFTA, Article 1703: National Treatment.

292. For example, TRIPS, Article 3(1), refers to the exceptions already provided in the Paris, Berne, and Rome Conventions and to the Washington Treaty on Intellectual Property in Respect of Integrated Circuits. Some Berne and Rome Convention exceptions are also applied with regard to TRIPS, Article 4: Most-Favoured-Nation Treatment. See paragraph (b).

293. NAFTA, art. 1706(1)(a), and TRIPS, art. 14(2).

294. Here, the hypothesis sidesteps the entirely separate question of MFN. Some say the TRIPS, Article 4, MFN requirement does not apply to domestic regimes to compensate record producers for the private copying of their sound recordings. As one of the justifications for denying MFN to all WTO record producers, there is a not entirely plausible argument that the producer's domestic remuneration right with respect to private reproduction is something entirely distinct from the TRIPS right to authorize or prohibit the direct or indirect reproduction of the sound recording. More convincing is the contrary argument that, both economically and legally, the larger TRIPS right to "authorize or prohibit" in logic already contains the lesser right to receive equitable remuneration. In this connection and in other respects, there is a probability that WTO panels will soon have to answer a number of significant questions touching private-copying regimes.

295. NAFTA, art. and Annex 2106: Cultural Industries.

296. TRIPS, arts. 3(1) and 14(6), are thought to apply the "private use" exception in Rome Convention, art. 15(1)(a), to the record producer's exclusive reproduction right in TRIPS, Article 14(2).

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