The preliminary decision issued last week on an American complaint about measures Canada has taken to block an edition of Sports Illustrated marks the first time the WTO has dealt with the issue of cultural protectionism.
Although the decision, which seemed to turn on the specifics of whether a magazine was considered goods or a service, can be appealed against, the Canadian government is now concerned that the US may try to use the WTO mechanism to get around the cultural exemption it had successfully inserted into the North America Free Trade Agreement (FTA) negotiations.
That exemption, which allows measures to protect Canadian film distributors, magazine publishers and radio and television programming, has rankled with US officials and the entertainment industry, led by Jack Valenti, president of the Motion Picture Association of America. There have been several attempts to reopen the clause.
Under the FTA, if Canada invokes the cultural exemption to the detriment of a particular company or industry, the US is entitled to retaliate with measures "of equivalent commercial effect".
The conflict reveals a fundamental difference in approach between the two countries. The US considers its film and other cultural industries as entertainment businesses that should be accorded the same "national treatment" as any other manufacturer. The Canadian position is that its film, broadcasting and publishing are crucial components of national identity and without some protection from its neighbour's huge spillover, will be squeezed out of business.
One of the US's objections to the cultural exemption was that it might serve as a precedent for other countries, and as it turned out, this was a prescient concern. In the final negotiations for Gatt, the trade and tariffs agreement which led to the creation of the WTO, France successfully cited the Canada-US exemption to keep its own cultural industries out of the treaty.
Mr Valenti was prompted to complain that "this negotiation has nothing to do with culture unless European soap operas and game shows are the equivalent of Moliere. This is all about the hard business of money".
The origin of the current dispute was a decision by Sports Illustrated, produced by the Time/Life communications conglomerate, to print a split run in Canada, with most of the editorial material the same as in the US domestic issue plus a few extra angles.
But the original advertisements were replaced with those sold in the second country. Canadian publishers say this gives an unfair subsidy since the editorial costs are spread over the much larger US edition.
The Canadian government retaliated by introducing an 80 per cent tax on the revenue of Sports Illustrated and any other magazine which attempted a similar venture. The split run was denied postal subsidies and advertisers were not allowed to deduct their costs from income tax.
The US edition of Sports Illustrated and hundreds of other titles circulate freely in Canada but they are not seen as a threat to domestic magazines' advertising revenue.
Magazines are only a small part of the cultural industry, however, and an even larger concern is what might happen to films. US studios are free to distribute their own proprietary films in Canada but all other foreign- made films must be imported through a Canadian-owned distributor. The assumption is that some of the distribution revenues are reinvested in making Canadian films.Reuse content