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<html> <head> <meta name="Generator" content="Corel WordPerfect 8"> <title>CANADA TO APPEAL WTO RULINGIN MAGAZINE TRADE DISPUTE</title> </head> <body text="#000000" link="#0000ff" vlink="#551a8b" alink="#ff0000" bgcolor="#c0c0c0"> 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. </body> </html>

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