New Advertising Services Measure to Promote Canadian Culture
TORONTO, July 29, 1998 -- International Trade Minister Sergio Marchi and Canadian Heritage Minister Sheila Copps today confirmed details of actions Canada will take to comply with the 1997 World Trade Organization (WTO) ruling on Canadian periodicals."Canada has consistently promoted its culture while respecting its international trade obligations. The link between trade and culture is a vital one and we have highlighted the issue in international forums such as the WTO," said Minister Marchi. "Canada also benefits greatly from the WTO's trade rules," the Minister added, "and that is why we are taking four specific actions to comply with the 1997 ruling."
Canada will:
--remove the existing custom tariff prohibiting the importation of "split-run" magazines ("Canadian" editions of foreign magazines);
--eliminate the excise tax on "split-runs" distributed in Canada;
--restructure the administration of the postal subsidy program to conform to the rules on subsidies by making payments directly to magazine publishers; and
--harmonize the commercial postal rate for domestic and foreign publications.
The Ministers noted that the WTO decision did not challenge the ability of member states to take measures to protect their cultural identities. Canada will continue to promote its cultural policy objectives, so that we, as Canadians, can continue to express our sense of ourselves. Canada wants to participate fully in global culture, while ensuring that our unique voice is not drowned out in the process.
At the same time, Minister Copps announced the Government's intention to introduce a new measure to regulate advertising services in the magazine publishing industry.
"The new advertising services measure is in keeping with Canada's longstanding cultural policies. It will ensure that Canadian stories continue to be available to Canadian audiences. Advertising revenues are critical to the production of original Canadian stories that reflect our values, history and perspectives Ñ the stories that are central to our culture and identity as Canadians," said Ms. Copps. "Canada is, and will remain, the most open market in the world for foreign publications. Currently, over 80% of magazines sold at Canadian newsstands are foreign."
The proposed legislation, to be introduced this fall, will ensure that only Canadian publishers will be able to sell advertising services aimed at the Canadian market.
"Last month, Canada hosted an international meeting in Ottawa on cultural policies where culture ministers from 19 countries agreed that we must take steps to preserve cultural diversity. That is a fundamental aspect of Canada's cultural policies. Diversity includes access to Canadian stories in Canada. New legislation on advertising services will help us meet that goal," said Ms. Copps.
The new measure will not affect foreign publishers' ability to export to the Canadian market, nor will it affect their existing commercial operations in Canada.
Information:
Don Stephenson
Director General Cultural Industries
Department of Canadian Heritage
(819) 997-4455
Sophie Legendre
Media Relations Office
Foreign Affairs and International Trade
(613) 995-1874
BACKGROUNDER (1)
WORLD TRADE ORGANIZATION (WTO) PROCEEDINGS AND THEIR OUTCOME
Canada is the most open market in the world for foreign publications. Foreign magazines, most of which are from the U.S., occupy over 80% of our newsstand space, and constitute 89% of our newsstand sales. In fact, Canada imports $818 million worth of U.S. periodicals, accounting for about 80% of all U.S. magazine exports.
In view of this, it is essential that we have a Canadian magazine policy which ensures that Canadians have access to Canadian content in publications. To do so, Canadian publishers must be able to compete successfully for the advertising revenues available in the Canadian market.
Canada's magazine policy, put in place in 1965, has been very effective. In the 1950s, less than 25% of all magazines circulating in Canada (combined newsstand sales and subscription sales) were Canadian, while today, over 65% are Canadian. Forty years ago, 660 Canadian titles were published with an annual circulation of 28 million. Today, 1,400 Canadian titles are published with an annual circulation of 511 million.
Measures that supported this policy were challenged before the World Trade Organization (WTO) in 1996. The Canada-U.S. magazine case began over what is known as a "split-run," an edition of a magazine that contains editorial content created for a foreign market with advertising directed at the Canadian market. Canadian law prohibits the importation of split-run editions of foreign magazines. In 1993, Sports Illustrated circumvented the import prohibition by electronically transmitting its magazines to a printer in Canada.
In 1994, the Task Force on the Canadian Magazine Industry recommended that the federal government take action to respond to this situation. As a result, in 1995 the government imposed an 80 per cent excise tax on "split-run" magazines. Sports Illustrated then withdrew its split-run version from the Canadian market, and the U.S. government launched a challenge before the WTO.
On June 19, 1996, the WTO established a dispute-settlement panel to address the U.S. complaint, which centred around several Canadian measures relating to periodicals. The U.S. asserted that
these measures were inconsistent with Canada's obligations under the GATT.
These included: 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 "split-run" magazines; the postal subsidy program, which allows certain Canadian periodicals to reach their subscribers at lower rates; and the commercial publications mail rates, which differentiate between domestic and foreign periodicals.
On March 14, 1997, the panel established by the Dispute Settlement Body of the World Trade Organization released its report. The panel decided against Canada on three out of the four measures contested by the U.S, but ruled in favour of Canada on the matter of postal subsidies. Despite the ruling, the WTO panel report stated that "the ability of any WTO member to take measures to protect its cultural identity was not at issue in the present case."
Canada launched an appeal of the ruling on the Excise Tax, while the U.S. responded by appealing the decision on postal subsidies.
On June 30, 1997, the WTO Appellate Body issued its final report. The Appellate Body ruled against Canada on its appeal of the Excise Tax measure, on the grounds that foreign and domestic magazines constitute "directly competitive" or "substitutable" products which must be treated equally in terms of taxes. In addition, the WTO supported the United States in its arguments against the postal subsidy. The Appellate Body found that the postal subsidy did not comply with WTO rules with respect to permissible subsidies, since it involves a payment from one government department to another.
On July 27, 1997, Canada stated that it accepted the outcome of the WTO dispute-settlement procedure and would implement the decision before the WTO deadline of October 30, 1998.
ANNEX TO BACKGROUNDER (1)
IMPLEMENTING THE 1997 WTO DECISION*: ACTIONS TO BE TAKEN
Tariff Code 9958
The Tariff code prohibits the importation into Canada of foreign split-run magazines and foreign magazines with more than 5% of their ads directed at the Canadian market.
It will be repealed by way of Executive Order which will require the approval of Cabinet.
Part V.1 of the Excise Tax Act
Part V.1 of the Excise Tax Act imposes an 80% excise tax on the value of all advertisements directed at the Canadian market contained in split-run editions of magazines distributed in Canada.
Amendments to the Excise Tax Act must receive Parliamentary approval through the legislative process for bills. The Government will table a bill this autumn through a Ways and Means motion.
Administration of the Postal Subsidy
The existing postal subsidy provides eligible Canadian paid circulation periodicals with a subsidy to offset the cost of commercial postal rates.
In future, the postal subsidy will be paid directly to publishers' accounts at Canada Post Corporation for each eligible magazine mailed. Publishers will be billed by Canada Post for the full cost of mailing minus the subsidy they receive. The subsidy will no longer be a payment from one part of government to another, and thus will comply with WTO rules with respect to permissible subsidies.
Harmonizing Commercial Postal Rates
Canada Post Corporation maintains the following postal rate structure:
--domestic commercial rate: 38 cents
--international commercial rate: 43 cents
There will no longer be different postal rates for foreign and Canadian periodicals. The foreign rate will be reduced to the Canadian rate and in future the rates will be equal.
All currently eligible Canadian publishers will continue to receive a subsidy. Canadian publishers will not face any rate increases.
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* The complete text of the 1997 WTO panel decision "Canada - Certain Measures Concerning Periodicals" is available at the following website: http://www.wto.org/dispute/distab.htm.
BACKGROUNDER (2)
NEW ADVERTISING SERVICES MEASURE
The Government of Canada will regulate the sale of advertising services by foreign magazine publishers in Canada.
Legislation will be introduced in autumn 1998 and, if it is passed after debate in Parliament, it will take effect on October 30, 1998.
The new Government measure will require legislation that will limit the sale of advertising services to Canadian publishers. The legislation will apply to the transaction of selling advertising.
Only Canadian publishers will be permitted to sell advertising directed at the Canadian market.
Canadian publishers will be determined on the basis of nationality of ownership and based on definitions similar to those contained in the Income Tax Act.
Foreign publishers that contravene the legislation will be subject to fines. The rate structure of such fines will be sufficiently high to enforce the measure.
The legislation will be drafted so that foreign commercial operations currently in the market will not be affected.
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