NEWS RELEASES
CANADA TO APPEAL WTO RULINGIN MAGAZINE TRADE DISPUTE
March 14, 1997 No. 47
CANADA TO APPEAL WTO RULING
IN MAGAZINE TRADE DISPUTE
Minister for International Trade Art Eggleton and Deputy Prime Minister and
Minister of Canadian Heritage Sheila Copps today announced that Canada is
preparing to appeal the recent World Trade Organization (WTO) ruling on Canadian
measures that promote Canada's magazine industry. The WTO made public its ruling
on the case today, by circulating the final report to all WTO members. The report
supports three of four complaints made by the United States to the WTO.
"The Government remains committed in its support of this vital cultural industry,"
said Mr. Eggleton. "The trade law experts are examining very thoroughly the
details of the ruling. We continue to consult with the Canadian magazine
industry, the Canadian Business Press, Canadian Heritage, Finance Canada, Industry
Canada, Revenue Canada and Canada Post Corporation. We are working together to
plan our appeal strategy and to assess the full impact of this ruling on the
industry."
"The final report states very clearly that this decision does not take issue with
the ability of any WTO member to take measures to protect its cultural identity,"
said Ms. Copps. "Canada will continue to promote its cultural objectives and
ensure that Canadians have access to magazines that speak to us about our own
country."
The WTO ruled on U.S. complaints against four Canadian measures relating to
magazines:
Canada's Tariff Code 9958, which prohibits the importation of split-run
magazines;
Canada's Excise Tax Act, which places an 80 per cent excise tax on advertising
placed in split-run magazines circulating in Canada;
the postal subsidy program, which allows certain Canadian periodicals to reach
their subscribers at lower rates;
the commercial publications mail rates (differential between domestic and foreign
commercial publications mail rates).
Of these four disputed measures, the WTO has upheld Canada's right to maintain a
postal subsidy for eligible Canadian publications.
Both parties to the dispute may appeal legal aspects of the decision. The WTO
Dispute Settlement Understanding allows a maximum of 60 days for the parties to
file their appeal. The WTO Appellate Body is expected to reach a decision within
60 days after the formal Notice of Appeal has been filed.
Both ministers stressed that the WTO decision does not immediately change the
rules of business for our Canadian magazines.
"The laws, policies and programs of Canada remain as they are unless Canada
decides otherwise," added Mr. Eggleton.
- 30 -
A backgrounder on the U.S. challenge and a summary of the WTO Final Report are
attached.
For further information, media representatives may contact:
Nicole Bourget
Director of Communications
Office of the Minister for International Trade
(613) 992-7332
Media Relations Office
Department of Foreign Affairs and International Trade
(613) 995-1874
This document is also available on the Department of Foreign Affairs and
International Trade's Internet site: http://www.dfait-maeci.gc.ca
Backgrounder
U.S. CHALLENGE TO CANADIAN MEASURES
RESPECTING PERIODICALS
Overview
Since 1965, Canada has had a policy in place to ensure that magazines with
editorial content developed for the Canadian market can compete for the limited
advertising revenues available in the Canadian market.
Canadian measures to support the magazine publishing industry are designed to
ensure affordable postal rates for subscription sales, and to ensure that the
magazine advertising revenues available in Canada are channelled to Canadian
magazines. In order to be entitled to sell advertising in Canada, foreign-owned
magazines must contain at least 80 per cent editorial content produced
specifically for the Canadian market.
A regional edition of a magazine containing advertising directed at a specific
regional market is known as a "split-run" edition. Split-run editions of
magazines containing more than 5 per cent of advertising directed at the Canadian
market may not be imported into Canada. In 1993, Sports Illustrated circumvented
this import ban by electronically transmitting its magazines to a printer in
Canada, thereby avoiding the Canadian border.
In 1994, the Task Force on the Canadian Magazine Industry recommended new measures
to respond to this new challenge. As a result, in 1995 the Canadian government
imposed a new 80 per cent excise tax on advertising placed in split-runs. Sports
Illustrated then withdrew its split-run version from the Canadian market, and the
U.S. government launched a challenge before the World Trade Organization (WTO).
On June 19, 1996, the WTO established a dispute-settlement panel to address the
U.S. complaint covering four Canadian measures related to magazines, namely:
Canada's Tariff Code 9958, which prohibits the importation of split-run
magazines;
the 80 per cent excise tax on advertising in split-run magazines (Part V.1. of
the Excise Tax Act);
the postal subsidy (publications assistance program), which allows certain
Canadian periodicals to reach their subscribers at lower costs;
the commercial publications mail rates (differential between domestic and foreign
commercial publications rates).
Another measure that the Canadian government uses to promote the Canadian magazine
industry is Section 19 of the Income Tax Act. For ads directed at the Canadian
market, Section 19 allows Canadian advertisers a tax deduction for the costs of
advertising in Canadian periodicals. This measure was not challenged at the WTO.
Chronology of Events
June 19, 1996: Further to the request of the United States, the WTO established a
dispute-settlement panel to address a U.S. complaint about Canadian measures that
promote Canada's magazine industry.
September 5: The U.S. submitted its first written argument.
September 26: Canada submitted its written rebuttal.
October 11: Both parties presented oral arguments before the WTO panel in Geneva.
November 1: Canada and the U.S. submitted further written arguments.
November 14: The WTO panel reconvened for a second hearing in Geneva.
December 6: The WTO panel provided its summary of the facts in the case.
January 16, 1997: Canada and the United States were given the opportunity to
comment on the panel's interim report.
February 21: The final report was released to both parties on a confidential
basis.
March 14: The final report is released to all WTO Members.
SUMMARY OF THE FINAL REPORT OF THE WTO PANEL
ON SPLIT-RUN MAGAZINES
The panel decided against Canada on three out of four of the measures contested by
the United States. The panel sided with Canada in respect of the postal subsidy.
1. The Tariff Code
Tariff Code 9958 prohibits the importation of split-run magazines into Canada.
Such a prohibition is inconsistent with our General Agreement on Tariffs and Trade
(GATT) obligations, however, Canada argued that we were entitled to the measure
under GATT Article XX, as it was "necessary to secure compliance with other GATT-consistent legislation" (i.e., with Section 19 of the Income Tax Act).
The panel is of the opinion that the measure is to secure "the attainment of the
objectives" of Section 19 of the Income Tax Act (to channel advertising to
Canadian magazines) and not "necessary to secure compliance" with the measure.
2. The Excise Tax
Canada argued that the 80 per cent excise tax is a measure to tax the advertising
in split-run magazines, and as such is a tax on a service, not a good, and that
GATT rules do not apply in this case.
The panel was "not fully convinced by Canada's characterization of the Excise Tax
as a measure intended to regulate trade in advertising services, in view of the
fact that there is no comparable regulation on advertisements through other media
and the fact that the tax is imposed on a 'per issue' basis." The panel
nonetheless found that the GATT does indeed apply to Canada's excise tax, and
found that the tax is inconsistent with our national treatment obligations.
3. Commercial Postal Rates
The United States claimed that Canada Post's practice of charging domestic
periodicals lower postal rates than imported periodicals is in violation of
Article III:4 of GATT 1994, in respect of our national treatment obligations.
Canada's argument was essentially that, since Canada Post is a Crown Corporation
with a legal personality distinct from the Canadian government, the "commercial
Canadian" or "commercial international" rates it charges for the delivery of
periodicals are established by Canada Post, based on commercial and marketing
practices, are not influenced by government policy, and therefore do not qualify
as "regulations" or "requirements" within the meaning of GATT Article III:4.
The panel rejected Canada's argument, saying that "it is clear that Canada Post
generally operates under governmental instructions," and if the Canadian
government considers Canada Post's pricing policy to be inappropriate, it can
instruct Canada Post to change the rates under its directive power based on
Section 22 of the Canada Post Corporation Act.
4. The Postal Subsidy
The United States claimed that Canada's postal rate assistance program is a
violation of our GATT obligations, because the subsidy is not directly payable to
the publisher of Canadian magazines. Article III:8(b) of GATT 1994 states that
"the provisions of this Article shall not prevent the payment of subsidies
exclusively to domestic producers." The United States claimed that this provision
is not applicable in the present case because the payment of subsidies by Canadian
Heritage is not made directly to Canadian publishers, but rather to Canada Post.
The panel decided that, if, as maintained by the United States, Canada Post is a
government agency, the payment of funds from Canadian Heritage to Canada Post is
merely an internal transfer of resources, and the payment of the subsidy is made
directly to Canadian publishers. The measure is allowable.
| 
