In the wake of the flood: "Like products" and cultural products after the World Trade Organization's decision in Canada Certain Measures Concerning Periodicals.

• Author: Matheny, Richard L., III

A commodity is therefore a mysterious thing, simply because in it the social character of men's labour appears to them as an objective character stamped upon the product of that labour....(1)

[W]hat we have been calling postmodernism is inseparable from, and unthinkable without the hypothesis of, some fundamental mutation of the sphere of culture in the world of late capitalism, which includes a momentous modification of its social function....

What we must now ask ourselves is whether it is not precisely this semi-autonomy of the cultural sphere which has been destroyed by the logic of late capitalism.(2)

INTRODUCTION

In Canada Certain Measures Concerning Periodicals,(3) the panel ("Panel") and appellate body ("AB") of the World Trade Organization ("WTO") concluded that a Canadian excise tax on a certain type of periodical was inconsistent with Canada's obligations under the General Agreement on Tariffs and Trade ("GATT").(4) Like a well-placed sandbag in an elaborate levee of cultural legislation, the excise tax had been enacted to shore up Canada's defenses against the broadening northward flow of U.S. mass culture. In the aftermath of the decision, many predict that the Canadian periodical market will indeed be flooded,(5) as U.S.-produced magazines follow the example set by Sports Illustrated Canada, whose appearance on Canadian newsstands in 1993 rekindled this long-standing dispute.(6)

The dispute, which dates back as far as the 1920s,(7) centers on what one commentator has termed Canada's "most unambiguously protective cultural legislation."(8) Responding to political pressures from an outraged national intelligentsia and a beleaguered Canadian publishing industry, the Canadian government has enacted legislation that aims to preserve Canada's cultural identity.(9) More recently, the Canadian government successfully negotiated the "cultural industries" exemption from the Free Trade Agreement it entered into with the United States and Mexico.(10) Because the United States wisely pursued the magazine complaint through the WTO, however, the controlling law was the GATT and not the NAFTA.(11) Thus, Canada was left holding a worthless note in the NAFTA exemptions, which seems to have evaporated under the WTO trading regime.

In the Periodicals case, the Appellate Body of the WTO affirmed the Panel's finding of a violation of Canada's obligations under Article III of the GATT. Article III provides for national treatment of the imported good, requiring a GATT member ("Member") to treat goods imported from another Member just as it treats similar, or "like," domestic goods.(12) Thus, Article III seeks to eliminate any discriminatory internal taxes imposed by a Member nation on the goods imported from another Member nation. Among the discriminatory internal taxes found to violate Article III was an eighty percent excise tax on a certain type of magazine called a "split-run."(13)

The litigation of this dispute featured a U.S. campaign to define the GATT's national treatment obligations broadly so as to encourage international competition, contrasted with the Canadian argument that magazines be distinguished by their content--a position fundamental to Canada's array of cultural legislation. By all accounts, the Canadian government in Periodicals has suffered a great blow to its authority to legislate safeguards for its cultural industries. The Periodicals case could be disastrous in the short term for domestic magazine producers who, despite the benefits of the Canadian "cultural legislation," have clung tenuously to an 18.6% market share of English language publications.(14) If, as many predict, the WTO's Article III interpretation in Periodicals throws open the floodgates that were vital to the Canadian magazine industry's tenability,(15) then the Periodicals case seems an appropriate place from which to consider the various tensions between the globalization of free trade and the cultural industry, sovereignty, and identity of nations participating in that trade. As China contemplates membership in the GATT, and the WTO embraces both larger regions and more diverse sectors of a global economy, the issues raised in Periodicals are of unquestionable significance. This Comment anticipates that they will be posed again, in other contexts,(16) before panels of a different composition, adjudicating the relationship between goods (and services) of a distinct character.

Part I opens with an introduction to the WTO and Article III of the GATT. A short history of the "like products" clause, including the factors relevant to a "like products" inquiry, helps to establish the legal framework in which the Periodicals dispute developed.

Part II places the dispute in its historical context. After reviewing the success of U.S. cultural production on the Canadian markets, Part II examines the Canadian government's legislation in the area of domestic cultural industries. Part II also considers the historically novel qualities of the satellite-transmitted split-run magazine, which allowed Time Warner to circumvent the Canadian legislation.

Part III analyzes the litigation of this case at both the panel and appellate levels, with particular attention given to issues arising under Article III, paragraph 2 of the GATT. The analysis will focus on some of the interpretive tensions in Article III, paragraph 2 as a means of understanding how this provision is currently handled by the WTO.

Finally, Part IV attempts to assemble from Periodicals a vocabulary of trade-related concepts about culture. These concepts are used to discuss the case as symptomatic of a deeper contradiction between globalized trade in products and cultural identities that depend to some degree on those products for their expression and maintenance. Magazines, and similar cultural products, are hybrid in character: their content is a public good, but they are delivered to consumers in private-good form.(17) When hybrid cultural products are subjected to GATT obligations, the result is a negative externality--the underproduction of that product--the remedy of which is not easily reconciled with the logic of the free market. This Comment argues for an amendment to Article III of the GATT--or, alternatively, a different interpretation of the current Article III--to ensure that domestic legislation regarding cultural products is sheltered by a comprehensive "like products" analysis.

1. THE WORLD TRADE ORGANIZATION AND ARTICLE III

   1. The World Trade Organization

      The victorious allied nations negotiated the GATT following World War II, and, since 1947, the GATT has served as the "centerpiece of the international economic law system."(18) In this capacity, the GATT sets forth the obligations of Member nations with respect to the products of other Member nations with the general purpose of eliminating barriers to trade. In an effort to better adjudicate disputes arising from this system, GATT Member nations fashioned and signed into existence the WTO on April 15, 1994 as part of the "Uruguay Round Agreements."(19) In simple form, the WTO is composed of three-person panels and a standing appellate body of seven. The panels hear disputes and suggest resolutions, while the appellate body takes appeals on "`issues of law covered in the panel report and legal interpretations developed by the panel,'" and can uphold, modify, or reverse conclusions made by the panel.(20) International trade disputes arising under the GATT are litigated to a conclusion within this framework, which resembles a judicial body.(21)

   2. Article III: The National Treatment Provision

      The dispute litigated in Periodicals arose under GATT Article III, which generally guarantees that imported products receive national treatment in the importing market; that is, that the imported product will face no discriminatory taxes in the importing nation. Of course, the globalization of trade brings a great variety of products into competition with one another. The classification of these products for the purpose of trade regulation is an exercise in determining the competitive relationships that ought to exist between them, and constitutes, therefore, a political act of enormous economic consequence. The beneficial economic effects of trade liberalization can be registered with empirical clarity (indeed, the effects are even susceptible to accurate prediction, which is then rightly used to justify legislation). Regrettably, it is only in hindsight that the social and cultural after-affects of trade agreements are sought to be understood. In Part III, this Comment will examine more comprehensively the doctrinal mechanics of Article III in an effort to explain this marginalization of non-economic interests. In summary, however, the key issue under Article III is whether the domestic good and the differently taxed imported good are "like products."

      Because a finding of "likeness" among domestic and imported products requires the importing Member to afford national treatment to the product seeking entry, the concept is of no small consequence. Indeed, Article III--perhaps to a greater degree than any other article of the GATT--challenges national legislative sovereignty by calling into question the legality under the GATT of domestic policies and provisions.(22)

   3. The History of "Like Products"

      Past GATT panels have deliberated about the "likeness" of many different products, considering the qualities of, for instance, unroasted coffees,(23) tuna catches,(24) and alcoholic beverages of various types.(25) Periodicals proposes to answer the question whether domestic and imported split-run magazines are "like products." Before turning to this question, it is helpful to consider the evolution of the term "like products" within the GATT.

      Given the weighty consequences of the term "like products," one might imagine that its inclusion during the original drafting of the GATT would have been informed by a...