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<html> <head> <meta name="Generator" content="Corel WordPerfect 8"> <title>OTTAWA AND WASHINGTON AGREE ON ACCESS TO THE CANADIAN ADVERTISING SERVICES MARKET</title> </head> <body text="#000000" link="#0000ff" vlink="#551a8b" alink="#ff0000" bgcolor="#c0c0c0"> P-05/99-29 CC990205 OTTAWA AND WASHINGTON AGREE ON ACCESS TO THE CANADIAN ADVERTISING SERVICES MARKET OTTAWA, May 26, 1999 -- Canadian Heritage Minister Sheila Copps and International Trade Minister Sergio Marchi announced today that an agreement-in-principle has been reached between the Government of Canada and the Government of the United States with regard to the access of foreign periodicals to the Canadian advertising services market. "For the first time in its history, the American government has recognized the right of a country, Canada, to require a majority of Canadian content in one of its cultural instruments. Foreign publishers who wish to have greater access to the Canadian advertising services market will be required to produce majority Canadian content and create a new business here. The government has also made a commitment to provide additional support to our industry through the creation of a fund for Canadian periodicals," stated Minister Copps. "This agreement ends a long period of uncertainty and removes the shadow of trade retaliation from a wide range of Canadian industries. Everyone can go back to business with more security and confidence," said Minister Marchi. Under the terms of the agreement, Bill C-55, the Foreign Publishers Advertising Services Act, will be enacted, with amendments. The prohibition on foreign publishers selling advertising services aimed primarily at the Canadian market will be amended to allow two limited forms of access: a de minimis exemption which will allow foreign publishers to publish up to 12% of ads aimed at the Canadian market immediately, up to 15% in eighteen months and 18% thirty-six months after the date of enactment of the Foreign Publishers Services Act. an exemption which will enable foreign publishers to have access to a greater percentage of the Canadian advertising services market, providing they create majority Canadian content and establish a new periodicals business in Canada. Acquisitions of Canadian publishers will not be permitted. In addition, the rules governing tax deductibility available to advertisers will be changed to provide full deductibility in any periodical, regardless of the nationality of ownership, that produces at least 80% original or Canadian content. Canadian advertisers will receive half the deduction for ads placed in foreign magazines under the de minimis exemption, as well as ads placed in magazines created by foreign investors that include less than 80% original or Canadian content. Beginning today, authority for review and approval of investments related to all cultural industries, including periodicals, will be transferred to the Minister of Canadian Heritage. As a result, new investments that result in ownership and control by a foreign investor will be reviewed under the Investment Canada Act for net benefit to Canada using guidelines that will be made public. The federal government will provide a package of assistance to the Canadian magazine publishing industry, details of which will be announced by the Minister of Canadian Heritage following consultations on its design with the industry. As these measures are implemented over time, the Government will review their effects on the Canadian magazine publishing industry. The United States has given Canada written assurances that it will not take any trade action either under the World Trade Organization (WTO) agreements, NAFTA or section 301 of the U.S. Trade Act in response to Bill C-55. This agreement resolves a long-standing dispute with the U.S.A. concerning access to Canadian advertising revenues in the periodical publishing industry. - 30 - For further information, media representatives may contact: Jacques Lefebvre Senior Communications Advisor Office of the Minister of Canadian Heritage (819) 997-7788 Anne-Sophie Lawless Media Relations Department of Canadian Heritage (819) 997-9314 Leslie Swartman Office of the Minister for International Trade (613) 992-7332 This document is also available on the Web site of the Department of Canadian Heritage (<a href="https://bac-lac.wayback.archive-it.org/web/20070220205910/http://www.pch.gc.ca/">http://www.pch.gc.ca</a>) under News Releases. Backgrounder 1 CANADA-U.S. AGREEMENT ON MAGAZINES Bill C-55 Bill C-55 will proceed quickly to enactment, with amendments. The prohibition on foreign publishers selling advertising services aimed primarily at the Canadian market will be amended to allow two controlled forms of access to the Canadian advertising services market: an exemption that will allow foreign publishers to invest in Canada, create new businesses and produce a majority of Canadian content if they want to have greater access to advertising revenues. a de minimis exemption of up to 18% of the advertising in any foreign periodical. This exemption will be phased in over three years from the date of enactment of C-55 (12% immediately, 15% after eighteen months, 18% after thirty-six months). Investment A foreign publisher will not be able to sell more than 18% of advertising aimed at Canada unless it invests and creates new businesses, hires Canadians, and produces magazines containing majority Canadian content. New investments that result in ownership and control by a foreign investor will be reviewed under the Investment Canada Act for net benefit to Canada, using policy guidelines that will be made public. These guidelines will ensure that, in addition to any economic benefits, new businesses will have to generate majority Canadian content in their magazines. Authority for the review and approval of investments related to all cultural industries, including periodicals, will be transferred to the Minister of Canadian Heritage from the Minister of Industry. Acquisitions of Canadian publishers will continue to be not permitted. Canadian Content For the purposes of investment review, and for determining eligibility for tax deductibility, Canadian content is content that is original to the Canadian market or that has been authored by a Canadian. Editorial content is everything that is not advertising pages, such as stories, illustrations, graphics and photographs. Canadian means a citizen or permanent resident of Canada. Original means it does not also appear in other foreign editions of a magazine. There will not be any subjective assessment of themes or subject matter to determine what is Canadian content. Stories, illustrations and photographs created by Canadians will count, regardless of subject, even if they appear in foreign editions. Content created by non-Canadians will count only if it was created for the Canadian edition and is not reproduced in other editions. Tax Deductibility Tax deductibility is currently only available for ads placed in periodicals with a minimum of 75% Canadian ownership and that contain at least 80% original content. This will now be changed to provide full deductibility, regardless of the nationality of ownership, in any periodical that contains at least 80% original or Canadian content. Canadian advertisers will receive half the deduction for ads placed in foreign magazines under the de minimis exemption, as well as for ads placed in magazines created by foreign investors that include less than 80% original or Canadian content. Other Issues The federal government will provide a package of assistance to the Canadian magazine publishing industry, details of which will be announced by the Minister of Canadian Heritage, following consultations on its design with the industry. The agreement does not affect the Publications Assistance Program, operated by agreement between Canadian Heritage and Canada Post, that supports the mailing costs of paid circulation Canadian magazines and small community newspapers. Nothing in the agreement directly affects newspapers or electronic magazines, just as was the case with C-55. <table border="1" width="100%" cellpadding="1" cellspacing="1"> <tr valign="TOP"><td>% OF EDITORIAL CONTENT THAT IS CANADIAN</td> <td>ADS THAT CAN BE SOLD BY THE PUBLISHER THAT ARE AIMED AT THE CANADIAN MARKET</td> <td>TAX DEDUCTION TO THE ADVERTISER OF THE ADS</td></tr> <tr valign="TOP"><td>less than 50%</td> <td>up to 18% </td> <td>50% of deduction</td></tr> <tr valign="TOP"><td>between 50 and 79%*</td> <td>all of them</td> <td>50% of deduction</td></tr> <tr valign="TOP"><td>more than 80%</td> <td>all of them</td> <td>100% of deduction</td></tr></table> * Investment Canada review applies Backgrounder 2 CANADIAN CONTENT IN MAGAZINES: A POLICY ON INVESTMENT IN THE PERIODICAL PUBLISHING SECTOR The Investment Canada Act requires that foreign investments in the cultural industries, including the production, distribution and sale of periodicals, be compatible with national cultural policies in addition to being of "net benefit" to Canada. The Government of Canada is announcing a foreign investment policy for the periodicals publishing sector that will allow investment opportunities in the publication, distribution and sale of periodicals, provided that such investments result in the production of Canadian content in magazines. The following policy statement and investment review guidelines are intended to provide guidance to investors in respect of the application of the Investment Canada Act to the periodical publishing sector. I Policy Statement Canadian Content in Magazines: A Policy on Investment in the Periodical Publishing Sector The Government of Canada recognizes the importance of ensuring the availability to Canadians of periodicals that are relevant to Canadian life and culture, reflect an identifiably Canadian perspective and meet the information needs of Canadian readers. The Government of Canada has, therefore, maintained a longstanding cultural policy that has served to enhance the Canadian periodical publishing industry's capacity to produce and distribute domestic periodicals, published by viable Canadian publishers, in all genres and in all regions. This policy framework recognizes the importance of a strong Canadian-owned periodical publishing sector in order to maintain and increase the presence of distinct Canadian periodical titles. This framework also recognizes the relationship between the production of editorial content for the Canadian market and access to revenues from the Canadian advertising services market. Under the Investment Canada Act, investments in the cultural industries must be of "net benefit" to Canada, including compatibility with Canada's cultural policy objectives. In this regard, it is the policy of the Government of Canada to ensure a commitment to the production of majority Canadian editorial content in respect of foreign investments in the periodical publishing sector, including investments to establish or, directly or indirectly, acquire foreign businesses to produce and sell periodicals in Canada and to access the Canadian advertising services market. Further, it is the policy of the Government of Canada not to permit foreign acquisitions of Canadian-owned and Canadian-controlled periodical publishing businesses. II Investment Review Guidelines Foreign investments with respect to the publication, distribution and sale of periodicals are subject to review for net benefit to Canada pursuant to Part IV of the Investment Canada Act, including the investment's compatibility with Canada's cultural policies. i) Net benefit will include, inter alia, undertakings by foreign investors that result in a majority of original editorial content for the Canadian market in each issue of each periodical title. The amount of original content for the Canadian market will be determined as a percentage of the total space occupied by the total editorial content contained in the periodical. Original editorial content means non-advertising content that is: (a) authored by Canadians, including, but not limited to, writers, journalists, illustrators and photographers; or (b) created for the Canadian market and does not appear in any other edition of one or more periodicals published outside Canada. ii) Net benefit may also include undertakings by the foreign investor such as: creating an employment infrastructure by directly employing an editorial and support staff composed of persons resident in Canada with respect to the investment and to establish or expand a place of business in Canada. supporting the infrastructure in the publishing sector by having their titles edited, typeset and printed in Canada. III Administrative Guidelines i) All foreign investments will be reviewed consistent with the Related Business Guidelines of the Investment Canada Act, whereby an investment by a non-Canadian in a periodical title is deemed to be a new Canadian business and is subject to notification under the Act. However, investors may submit a single application under the Investment Canada Act covering one or more periodical titles. ii) Investors will normally be required to make undertakings in perpetuity. Investors will be required to report quarterly on their performance in relation to their undertakings, which will be reviewed on an annual basis. Backgrounder 3 CHRONOLOGY OF CANADIAN MAGAZINE POLICY AND THE CANADA-U.S. TRADE DISPUTE 1960 Recommendations of the O'Leary Commission form the basis of federal periodical publishing policy. 1965 Customs tariff is introduced to prevent the importation into Canada of split-run magazines. Income Tax Act (sec.19) is amended to limit tax deductions to advertisements placed in Canadian periodicals and newspapers. Time and Reader's Digest are grandfathered. 1976 Income Tax Act provisions are amended to eliminate grandfathering provision. Bill C-58 is introduced to apply section 19 to Time and Reader's Digest. Reader's Digest continues to benefit from the tax deduction, through the establishment of a Canadian foundation to hold 75% of shares. 1993 Time-Warner announces plans for a Canadian split-run edition of Sports Illustrated, to be printed in Canada (January). Government announces creation of the Task Force on the Magazine Industry (March). The first split-run issue of Sports Illustrated is beamed via the Internet from New York to a Richmond Hill printing plant. Since it did not cross the border in physical form, Tariff Item 9958 is not triggered (April). The Government responds to the interim report of the Task Force. It reaffirms its policy objectives and amends the Related Business Guidelines of the Investment Canada Act to ensure that all new magazine titles published or printed in Canada by a foreign publisher are to be reviewed under the Investment Canada Act (July). Time-Warner announces intentions to move from 6 split-run issues per year to 12 in 1994, with the eventual intention of producing 51 issues per year (December). 1994 The final report of the Task Force recommends an excise tax measure designed to tax back split-run profits, which would effectively put an end to such editions. 1995 Bill C-103, a bill to amend the Excise Tax Act and the Income Tax Act, is introduced into the House of Commons (June). Excise Tax Act is amended to impose a tax on split-run editions of magazines (December). Income Tax Act provisions are amended to strengthen Canadian ownership provisions. 1996 The administration of the postal subsidy (Publications Assistance Program) is transferred from the Canada Post Corporation to the Department of Canadian Heritage. Access to program is now limited to paid circulation periodicals, small community ethnic newspapers and libraries. Mickey Kantor, U.S. Trade Representative, announces that the U.S. will challenge Canada before the World Trade Organization (March). The WTO Dispute Settlement Body establishes a dispute settlement panel to receive submissions from both sides (June). 1997 The WTO Dispute Settlement panel rules that three of the four policy instruments challenged are inconsistent with international trade commitments (March). Canada appeals the ruling. The Canadian appeal consists of arguments on the points of law related to the 80% excise tax on advertising revenues in split-run magazines (May). The U.S. counter-appeals the WTO's ruling in respect of Canada's postal subsidy (May). A WTO Appellate Body upholds the panel's original ruling against Canada's excise tax measure. In addition, the Appellate Body finds the postal subsidy is inconsistent with Canada's international trade commitments. The WTO process allows a period of up to 15 months to adhere to the ruling (June). Canada informs the WTO that it will comply with the ruling, while pursuing its cultural policy objectives (August). 1998 Announcement by International Trade Minister outlining steps Canada will take to comply with the WTO ruling: removal of the tariff item and the excise tax on split-runs; the restructuring of the postal subsidy program; harmonization of commercial postal rates for foreign and domestic publications (July). Minister of Canadian Heritage announces the Government's intention to introduce a new measure regulating advertising services in the Canadian periodical sector (July). The Foreign Publishers Advertising Services Act (Bill C-55) is tabled in the House of Commons (October). The Government repeals the tariff item prohibiting split-runs by an Order in Council and suspends the application of the provisions of the Excise Tax Act dealing with split-runs, which will be amended retroactive to October 30,1998 (October). </body> </html>

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