Cultural exemption's sudden arrival as NAFTA obstacle leads to head scratching

The sudden emergence of Canada's exemption for its cultural industries as a late-stage NAFTA snag is being met by skepticism from trade experts who have closely followed the deal's year-long renegotiation.

There are also doubts whether the matter could ever become a deal-breaker for U.S. President Donald Trump.

Prime Minister Justin Trudeau pushed the issue into the NAFTA spotlight this week by suggesting American negotiators wanted Canada to put the cultural exclusion on the bargaining table.

Trudeau said Tuesday he would refuse to sign a new NAFTA unless it preserved the exemptions that have protected Canada's cultural sectors, including broadcasting, publishing and music, for decades.

"It's weird that Canada would be re-stating this so publicly as a red line at this point ... because it's not something that has figured prominently in American discussions over trade priorities," said Mark Warner, a Canada-U.S. trade expert based in Toronto.

"The fact that it's come back up with this intensity at the 11th hour — the timing just seems off to me."

In making his argument, Trudeau warned that abandoning the cultural exemption would be tantamount to surrendering Canada's sovereignty and identity because it could enable, for example, an American network to buy Canadian newspapers or TV networks.

Sources familiar with Canada's bargaining position insist Ottawa's push to maintain the cultural exemption has remained unresolved between the two neighbours.

Until now, the issue had largely remained in the background over the past year.

Foreign Affairs Minister Chrystia Freeland did reference the need to uphold the NAFTA exception to "preserve Canadian culture" in a speech before negotiations began 13 months ago.

But the issue has been overshadowed by higher-profile obstacles, such as U.S. access to Canada's dairy market, dispute-settlement mechanisms and the proposal that NAFTA 2.0 contain a sunset clause.

U.S. Trade czar Robert Lighthizer has argued there's a legitimate case for some cultural exceptions, but that "the cultural exemption is very often just cultural protectionism."

Canada's cultural exemption was absent from the Trump administration's list of negotiating objectives released before the start of the talks. Nor had it made much of a ripple in public discussions on NAFTA, except during some testimony at a few U.S. hearings, experts say.

Warner said Ottawa could be trying to stress that it's defending a popular issue with Canadians — particularly in Quebec — because it will have to eventually make concessions elsewhere if it hopes to strike a deal.

He added it's possible, however, that the U.S. is raising the issue to pressure Canada into accepting changes on intellectual property for biologics and copyrights.

Either way, Warner is convinced the cultural exemption will survive.

"It's not going to be the deal-breaker," he said.

Dan Ujczo, an Ohio-based trade lawyer with Dickinson Wright, said while getting rid of the cultural exemption seems to fit with Lighthizer's philosophy, he can't see Trump holding up an otherwise good deal because of it.

It's a perennial issue for some U.S. industry groups, but Ujczo said they're not the type that typically make up Trump's blue-collar base of support.

For the Canadian government, he thinks that stressing the cultural exemption's importance makes for good politics.

"I think there are strong constituencies for the cultural exemption, particularly in Quebec... and I think it's something that they can bring home as a likely win," Ujczo said.

"To me, I think that's why we're seeing more noise around it."

In the past, Trudeau has connected the issue to bilingualism — as an important tool to protect culture, languages, creative sectors and artists. Quebec has insisted it's crucial to maintain protections in this area in order for it to maintain its francophone culture.

Securing the cultural exemption was a major objective for Ottawa during the negotiations for the original 1988 Canada-U.S. free trade deal.

Lawrence Herman, an international trade counsel, said it prevents U.S. takeovers, restricts U.S. ownership and ensures Canadian artists — such as authors, actors and musicians — get certain preferences.

With the "U.S. entertainment juggernaut" next door, Herman said Canada has little choice but to defend what he called a vitally important part of NAFTA.

"As a small country, with a small population, up against a giant south of the border, it would be extremely difficult for Canadian artists, authors, publishers, etcetera to withstand the onslaught of the American entertainment industry," he said.

— with files from Mike Blanchfield in Washington