Debates of Oct. 31st, 1995

Excise Tax Act

[Some hon. members]

Nay.

[The Speaker]

In my opinion the nays have it.

I declare the motion lost on division. Therefore Motion No. 2 is defeated also.

Motion No. 1 negatived.

[Monte Solberg, Reform, Medicine Hat, AB]

moved:

Motion No. 3

That Bill C-103, in Clause 1, be amended by deleting lines 43 and 44, on page 5 and lines 1 to 6, on page 6.

While I have the chance, I want to pass on my congratulations to you, Mr. Speaker, and also the congratulations of many members of the Canadian Association of Broadcasters for the wonderful job he did in this Chamber last Saturday night of explaining the history of this place and also reminding broadcasters and through them, all Canadians of the value of this great country. I just want you to know how deeply people appreciated that.

Mr. Speaker, I am here to address Bill C-103. Specifically in Motion No. 3, we are asking that the imposition of the 80 per cent excise tax in Bill C-103 be deleted.

I want to speak to this bill in a larger way. I want to address some of the things which came from the hon. member for Don Valley West and the member for Rosedale. They were talking about how Canadians could not compete in the face of the overwhelming economic advantage the Americans have when it comes to certain sectors of the economy.

I guess we have to remind those hon. members that we have heard over and over again the debate on how Canadians cannot compete against the Americans. I am going to have to point out that for 128 years as a country we have faced competition from a much larger and much more powerful country to the south of us, but inevitably when the trade barriers are knocked down and we compete head to head, Canadians do extremely well.

I remind hon. members and I remind the Parliamentary Secretary to the Minister of Finance that it was not very long ago during the free trade debate when wine producers and grape growers were extremely concerned about the effect of free trade on their industry. It was going to be the end of the production of wine in Canada. An American juggernaut was going to roll across this country's wine producing regions, southern Ontario, the Okanagan and other areas.

For crying out loud, it was just a few weeks ago that the Calgary Herald ran a big edition about how successful the wineries are in the Okanagan region. A member across the way from the Niagara region has done extremely well with his winery despite the fact that we have free trade and despite the fact the Americans had all the advantages of the economy of scale which this government says it is so concerned about.

The government is using that economy of scale as an argument for preventing Sports Illustrated and other magazines from using split run technology, getting into Canada and going after advertisers in this country. Frankly, those arguments do not hold water. The economy of scale has always been there. Instead of complaining about it, let us use it to our advantage.

When we were talking about this legislation in the finance committee a gentleman came forward representing the interests of Quebec magazine publishers. He talked about the big bad Americans and how France was going to come in and roll over magazine publishers. He did not just talk about them, he talked about the big bad Swedes, the big bad people from Belgium and the Swiss. If my memory serves me correctly, I think we are at least as big as those countries. We are at least as economically powerful as those countries but he was worried about the effect those magazines would have on French publications in Quebec.

Instead of whining about this, instead of pretending or suggesting we are victims, why do we not simply turn the tables on them? Why do we not go after their markets? I would argue that the people of Quebec and the people of Canada can produce magazines and editorial content that can compete with the best in the world. There is no reason in the world we cannot be selling that product to the French speaking population in Switzerland. There is no reason we cannot go into Belgium. There is no reason we cannot go into French speaking and English speaking countries around the world. What are we afraid of?

I pointed out earlier today that I was at the broadcasters convention this weekend. The broadcasting entity CanWest Global is doing extremely well in New Zealand and Australia. Just the other day Power Corp. out of Quebec as a conglomerate won a bid for the fifth channel in the U.K. I am told that Power Corp. is the largest broadcaster in Europe. It is a Canadian company.

What are we afraid of? What is the parliamentary secretary and the government afraid of? Our magazine industry can compete. We do it in every other sector. Why in the world should this sector be any different? Let us forget about these phoney arguments which are old and have been proven to be false in every other sector. Why in the world can we not push ahead and compete freely? Certainly the Americans compete freely in the magazine publishing industry.

I heard these straw men being thrown up by the member for Rosedale about how the Americans are protectionist. I agree they are in many sectors but they are not in this one. Let us go head to head. Two wrongs have never made a right. No one agrees with protectionism in this House or at least members on our side do not.

Let us forget about those straw men arguments. Let us push ahead with real free trade. Let us approve this amendment and get on with the business of making sure Canadians can profit from their expertise in this industry.

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I thank the House for the opportunity to rise on Motion No. 3 put forward by the hon. critic from the third party, the member for Medicine Hat.

He asked a rhetorical question as to why the parliamentary secretary for finance was afraid of competition. I would like to set the record straight. Neither the parliamentary secretary nor his government are afraid of competition.

If you look at the question differently and ask what we are proud of, we are very proud of the Canadian magazine industry. We are very proud of the fact that we have within Canada a very strong and flourishing industry. In fact one of the associations involved, the Canadian Magazine Publishers' Association, has about 300 members. This gives you an idea of the strength being brought to the Canadian market by the Canadian industry.

This strength has not been there by a wish or by a magic wand. The strength of the Canadian magazine industry is in fact predicated upon 30 years of actions and 30 years of considerations by the federal government. It began with a study that is known as the O'Leary royal commission and went on to be studied later in the 1960s by Senator Davey, who is still of course in the upper chamber, who looked at the problems in the Canadian communication industry.

It is not simply a case of taking a look at one segment or the other. I was happy to see that the hon. member got a chance to meet the broadcasters and talk to them about some of their ambitions. He too probably heard from the Canadian Broadcasters' Association and how proud they are of the regulatory regime, which allowed companies like CanWest to grow and prosper.

[Monte Solberg, Reform, Medicine Hat, AB]

No, actually they are not.

[David Walker, Liberal, Winnipeg North Centre, MB]

I can tell you from many conversations with the people from CanWest that they would not exist if a licence had not been given to them by the Government of Canada.

The regulatory framework set up by this government in previous times is what makes it possible for that industry to get together on an annual basis. We are very proud as Liberals of the contribution we have made. Those people, because of the base they have in Canada, have gone off now to compete with the world. But you do not compete with the world until you have a company, and you do not have a company until you have a regulatory base. They did not have a regulatory base until they had a good Liberal government. It is as simple and as straightforward as that.

In the publishing industry the key thing to remember, which has not been pointed out perhaps enough in this debate, is that subject to questions of pornography and so forth, any magazine that wishes can enter the Canadian market and be circulated and read. It does not matter whether you are coming from the American market, from the European market, or anywhere else in the world. You can come into Canada, put it on the news-stand, set a price, and people read it. That is competition.

What Canadian publishers have worried about and we as a government have worried about for the last 30 years is the ability of larger companies to use the strength of their organization to undercut the advertising market within Canada. We were convinced originally, when we set out these measures, that certain protections were needed for the Canadian industry. As a result of the steps we took, we have seen an industry flourish. We have seen people have careers in writing. We have seen Canadian subjects come up. We have seen a great deal of research done. We have seen magazines make a profit and we have seen a whole new set of publications that simply were not available to the Canadian reader before that.

From time to time governments have to review their structure to make sure they are up to date with technology. The broadcasting industry is changing dramatically and quickly because of changes in technology dealing with direct broadcasting techniques, new uses of cable, new uses of the telephone system. We are working hard with the CRTC to keep up with these changes. In fact the government just appointed a commission to look at digital television to see the impact it may have on communication systems.

We have a change in technology, which made the regulatory framework we were involved with obsolete. I am not going to speak to the motivation and whether it was done by happenstance or whatever, but somebody saw an opportunity to come into the market and make use of a split run to affect negatively the advertising dollars available to the Canadian industry.

We did not move on this quickly. The last government set up a task force. The last government announced publicly that it was concerned about what had happened, that it was likely to make changes. That task force met, studied the issue for close to two years, and made public its recommendations. Perhaps later I will come to those recommendations. They suggested that the government update its regulatory framework to take into account the new technology. That is what the nature of Bill C-103 is. It is an updating of a strategy that has shown itself to be very positive, very influential, and supportive of the Canadian publishing industry. Those who know Canadian publishing know it is not an industry that creates tremendous wealth. It is not one in which there are moguls involved in huge companies. They are very much small shops in Canada, where people take a great deal of pride in their magazines.

I have a very close friend whose magazine unfortunately did not go as far as he would have liked it to have gone, but the love of that magazine captured his life for a couple years. He enjoyed trying to strike out a market and see it published. Among his friends there is a little club of people with failed magazines. It is a proposition that is enticing and daunting at the same time. People lose a lot of money in magazines. At the same time, the desire to nourish along a project and the desire to build something unique in the Canadian market is something we admire as a government. We did not want to see practices emerge that in fact make it more difficult to survive and make the publication industry more fragile.

I was struck by the arguments put forward by the Canadian Magazine Publishers' Association when they appeared, I believe

two weeks ago, in front of the finance committee. Their arguments were coherent and logical. They understood their responsibility in terms of a product people will read.

Everyone in the House probably goes by a news-stand on their way to the airport to go home for the weekend. They probably pick up some sort of magazine. I do not think any of us would stop and not buy something because it was from another country. I do not think we would say as a government we do not want to see these publications, not at all. If we look at the news-stands we see there is easy access to magazines from other countries right in front of us. I think we should remember that. We should not raise the spectre that somehow the government has arbitrarily taken away the right to distribute a magazine in Canada or the right to make profit out of this Canadian market.

I will bet there are many Canadians, including myself, who regularly buy magazines from other countries and do not think twice about it because of the news and perspectives they bring us.

Simply stated, without Canadian advertising there would not be a Canadian magazine industry. Therefore, we have to make sure there are opportunities for those advertising dollars to be accessed by the Canadian publisher. That is the intent of this act and will continue to be the intent of this government in support of the industry.

In speaking directly about the amendment to Bill C-103 as proposed by the member for Medicine Hat, let me make the following comment. Motion No. 3 would prevent the application of the proposed excise tax on split-run editions altogether. This motion is therefore inconsistent with the vote of this House to adopt the ways and means motion and the approval in principle given to the bill by the House at second reading.

By debating the imposition section of the tax on split-run editions, this motion fails to recognize the important objective the split-run tax is intended to achieve. In particular, the tax will update the government's policy instruments in support of the Canadian magazine industry and therefore allow the government to support the continued existence of a viable and original Canadian magazine industry. That is why we are sticking by our original intent in this and will not support this particular motion.

[Charlie Penson, Reform, Peace River, AB]

Mr. Speaker, I rise to speak to Motion No. 3, but I do want to comment on a couple of things that were said earlier this afternoon by the member for Don Valley West and the member for Rosedale. They both talked about how our Canadian magazine industry would not be able to compete if they did not have some type of protection. I reject that notion. They are talking about national security interests. They are talking about how we will be dominated by the United States because it is so much bigger and has so much more economy of scale.

My colleague from Medicine Hat talked earlier about other experiences with free trade. When we entered into a free trade agreement with the United States we heard the argument over and over that many of our industries would take a mortal hit and not be able to compete.

We know that this government was not in favour of the free trade agreement. They did a flip-flop at the last minute. Now I really question their sincerity about their commitment to free trade.

What is the experience with other industries? My colleague spoke about the wine industry and how well they are doing. I can tell members about agriculture, the industry I have some knowledge of.

Our biggest fear is the destruction of an industry. If we have subsidies and protectionism, we are hurt far more from that than we are from making trade rules that let us compete internationally on a basis of fair play. We think we can compete a lot better on the basis of quality product than we can on the basis of having to subsidize, because we cannot compete with the treasuries of other countries. Canada is simply too small.

When we talk about security, what about agriculture, food supply security? Do we need regulations to protect that? We found that we do not. The cattle industry is a good example. There was a big fear that the cattle industry in Canada would be basically decimated with free trade. What is our experience? Since 1988 we have had something like a 40 per cent increase in cattle sales to the United States.

We can do very well on the basis of a level playing field and free trade. Our cultural industries can also do very well. They can compete head to head. We have to produce a quality product to do that, but we are up to it.

The amendment we are talking about today strikes out the section of the bill that would impose an excise tax on periodicals equal to 80 per cent of the value of their advertisements. Our amendment goes to the heart of the bill and strikes out its most offensive part. It is assumed that this excise tax will never be collected because it will effectively kill the Canadian edition of Sports Illustrated and any similar ventures that could be on the drawing board.

It is folly for this government to attempt to protect Canadian culture in this or any other manner. If our cultural industries produce quality products of interest to the Americans or any others around the world, let them go out and sell to those markets in whatever way they can based on the marketplace. I am confident they will be able to compete. If Canadians prefer to buy American culture products that have been spiced up with some Canadian content, by all means let them, but I do not think we should be using cultural protectionism here because it probably hurts our industry rather than helps it.

[The Speaker]

Is the House ready for the question?

[Some hon. members]

Question.

[The Speaker]

The question is on Motion No. 3. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Speaker]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Speaker]

All those opposed will please say yea.

[Some hon. members]

Nay.

[The Speaker]

In my opinion, the nays have it.

[An hon. member]

On division.

[The Speaker]

Motion No. 3 is negatived on division.

(Motion No. 3 negatived.)

[Monte Solberg, Reform, Medicine Hat, AB]

moved:

Motion No. 4

That Bill C-103, in Clause 1, be amended by replacing lines 18 and 19, on page 6, with the following:

"39. Where, before the date that this Act is assented to, a particular number of".

Mr. Speaker, it is a pleasure to rise and address Bill C-103, particularly this amendment.

This amendment is designed to delete the clause that really takes an arbitrary poke at one particular magazine, Sports Illustrated . The legislation is retroactive and most parliamentarians probably feel it is not a good way to approach these things.

I want to say a little more about the principle behind protectionism and whether or not we can all of a sudden set aside a particular sector on the basis that it is somehow different, even though the facts show that it ain't necessarily so. We have seen this over and over again in all kinds of sectors of the economy.

When we discussed it in committee we raised the issue of the retail industry. One thing I pointed out was that we had contradictory ways of doing business. We have the retail sector and all kinds of American companies coming into the country and doing well. By the way, Canadian companies also go into the United States and do well because they are able to provide some value to the consumers in those markets. It may create a situation where people can go into a store and perhaps get something for less than they had been paying because somebody has seen they can make a profit by offering products for less. When that happens consumers have more choice, better value and ultimately more money in their pockets as a result.

Let me apply the debate to what has happened with Sports Illustrated . Sports Illustrated was coming into the country. It was offering the advertisers a product that was at least competitive or perhaps at even a little less than what Canadian advertisers were charging. That was despite the fact that Sports Illustrated did not have access to the tax deductibility provisions available to magazines that carry 75 per cent Canadian content. It was still able to offer extremely good value.

People will ask what that does for Canada. It allows advertisers either to get more bang for their buck through their advertising, thereby increasing the reach of their advertising message, or it allows them to improve their bottom line, to have more profit. What does that do for the country? If there is more profit of course there is more disposable income that can be spent on other goods and services. That is basic economics, economics 101.

Even though cultural product is difficult to define, I do not buy the argument that just because it is a cultural product we can throw the economic arguments out the window. They apply in every other sector and they certainly apply in the area of culture.

I encourage my friends across the way to remember that although culture is important we cannot go around suggesting that it runs by a different set of economics. That is not the case at all.

I have pointed out with respect to other Canadian cultural industries that given a chance they will prosper. They do not need government intervention. They do not need government protection. We see it over and over again, certainly in the cultural industries but in other industries as well.

It is a very arbitrary move to go back, to pick out SI in particular and to say it is not allowed to do that. Even going beyond that I would say it is time we truly had free trade in the country and truly applied it to the cultural sector. Canadians would take advantage and turn the tables on the Americans and the rest of the world because we have a superior product. We have the best artists, the best actors and the best writers in the world. They could do battle with any country in the world and not only compete but win.

I am asking the House to adopt the measure and ultimately defeat Bill C-103.

[David Walker, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I appreciate the opportunity to speak on the last of the amendments proposed by the third party through the work done by the member for Medicine Hat.

The issue of split runs that we are talking about is very important to the country and, as I said earlier in the debate, has an historical context. One has to go back to the O'Leary royal commission in the early sixties and be familiar with the work of Senator Keith Davey. A decade later we dealt with the newspaper industry. Canada has constantly had to go back to look at the vehicles it should be using to promote its own culture.

This will not be an exclusionary role. This will not push away other meaningful cultures. We are very involved, for example, with the American culture. They are our best neighbours, as they have shown in recent weeks, and perhaps our most important ally in the world. It will also put into context that which we have to do within Canada to promote Canadian culture.

In so doing we try to make sure people from around the world feel welcome in our markets. If they have products they would like to distribute in the Canadian market, whether it be films, television, magazines or books, they are readily available to all Canadians.

In my former life I was an academic. Nobody more than somebody trained as an academic can feel the pressure of censorship, the pressure of not having access to information to make sure they can contribute to the dialogue in their disciplines, in the public and with our students. It is essential to have access to information that no one else has filtered.

The approach of the government is not in any way, shape or form to prohibit access to materials of benefit to Canadian sports fans. I know the Speaker has probably picked up an occasional Sports Illustrated . I have looked at the New Yorker cartoons to pass the time on a flight back to Winnipeg. These things we love to do and would love to share with other countries.

The Canadian magazine industry has been a particularly vulnerable and difficult industry. We are proud of the way it has responded to measures in the past 30 years and we hope it will continue to do so.

The cornerstone of our current policy as embodied in Bill C-103 is not the work of a group of officials working secretly in a department or of an industry led group trying to push through some protectionist measures. Rather it is a function as a result of the work done by a task force set up in 1993 by another government to deal with the issue posed by a Canadian edition of Sports Illustrated .

In chapter VII the task force talks about a renewed framework of support. Because this report is pivotal to our understanding of what we are trying to do, I thought I would take some time in the House to read some key paragraphs into the record so that we allunderstand why the government is proposing what it is proposing. In part it states:

Free speech would lose much of its potency if there were no Canadian magazines. Without the means to express a distinctive voice speaking to a Canadian audience, cultural expression, social cohesion and a sense of national destiny would be impaired, if not irrevocably damaged.

As part of their heritage, Canadians are doubly fortunate to have unparalleled access to publications from around the world. It is the task force's desire to maintain this freedom of choice, and the measures it is proposing do nothing to deny Canadians the right to purchase the magazines of their choice. We cannot make our borders impenetrable even if we wanted to, which we decidedly do not.

The object of the task force recommendations is not to discourage readership of foreign magazines, but to maintain an environment in which Canadian magazines can grow and prosper in Canada alongside imported magazines. This is a high-wire balancing act that the task force is attempting to accomplish.

The measures we are recommending are consistent with the broad principles of the cultural and media policies of successive federal governments since the 1930s. These policies have been developed in response to the fact that the cultural industries in this country-film, television, sound recordings, books and magazines-are largely dominated by foreign products.

If left to market forces alone, a day could arrive when Canadians would no longer enjoy the choice that they have today between foreign cultural products and those developed for the Canadian market. There simply would be no Canadian product because of the relatively small size and the vulnerability of our cultural industries.

These are words of warning from a group that has spent a long time looking at the issue. It goes on to state:

The Government of Canada has adopted a variety of policies and measures to strengthen the viability of Canadian cultural producers: it promotes, for example, Canadian ownership and content in the broadcast media; it requires the review of investment by foreigners in businesses relating to Canada's cultural heritage and national identity; and it encourages Canadian ownership and original content in the newspaper and magazine industries.

The recommendations of the task force follow in this tradition, while at the same time seeking to ensure that Canada's rights and obligations under international trading arrangements, such as the GATT, the FTA and the NAFTA, are respected. We have also been careful to ensure that the measures we are proposing represent a proportionate response to the problems being faced by Canadian magazines, which have been outlined in detail in the body of this report. We are convinced that what is being proposed interferes as little as possible with freedom of expression or choice. Indeed, in the final analysis, we are seeking to expand choice by ensuring the continued availability of magazines with original content.

Later it concludes with the following:

Although favouring the development of original editorial content, regardless of country of origin, goes beyond the narrower focus of promoting only content of Canadian origin, the task force is of the view that, on balance, it is better to aim wide and comply with trade obligations by promoting original content than to target a narrow field and end up in protracted disputes with Canada's principal trading partners by promoting Canadian content alone. In other words, although it is quite obvious that the task force is concerned with the survival of magazines expressing a Canadian perspective and view of the world, it believes that the best way to achieve that objective is to promote original content, regardless of country of origin.

By promoting magazines with original content, we will meet the objectives and at the same time meet Canada's international trade obligations.

In conclusion I will spend a minute on the specifics of the motion proposed by the member for Medicine Hat on behalf of the Reform Party. Motion No. 4 would allow split run periodicals distributed in Canada to be exempted from the split run tax based on the number of split run issues distributed in Canada during the 12-month period prior to the day the bill receives royal assent. The motion would therefore fundamentally alter the limited grandfathering treatment of split run periodicals distributed in Canada that is proposed in the bill and is therefore inconsistent with the vote of the House to adopt the ways and means motion and the approval in principle given to the bill by the House at second reading.

The motion ignores the fact that on two occasions in 1993 the government clearly warned magazine publishers that should they decide during the work of the task force on the Canadian magazine industry to undertake any new publishing activity that would contravene or sidestep the government's policy objectives for the magazine industry, they would be doing so at their own risk. The motion would also send the wrong signal in that it would reward magazine publishers whose actions, while not directly contravening tariff code 9958, offend the spirit of the legislation. For this reason the government opposes the motion.

[Charlie Penson, Reform, Peace River, AB]

Mr. Speaker, Motion No. 4 deletes the cut off date which qualifies Sports Illustrated from issuing split run decisions in Canada but allows others like Reader's Digest to continue. It is ironic that the government is bringing in legislation to cut off Sports Illustrated but it is going to let Readers Digest continue with the same thing. Obviously Sports Illustrated is being unfairly targeted.

Changing the date of the grandfathering provision allows Sports Illustrated to escape the provisions of the bill and averts the trade war that could result if Sports Illustrated is suddenly prevented from issuing split run editions.

It is true that Canadian culture was exempted under NAFTA's trade rules, but the Americans did retain the right to retaliate in kind if they so wished. The government believes that the Americans cannot and will not do that because the bill uses a roundabout way to protect Canadian periodicals. I think the government is wrong. Americans can make life very miserable for Canadian exporters in all kinds of ways and we may see that retaliation. They can do that whether it is justified or not, but in this case they definitely have the right to retaliate. Some other industry is going to bear the brunt of this ill conceived policy.

This bill should raise a red flag for the government. Even if the government does not have problems with the idea of this bill, it should at least recognize it as a provocation for a trade dispute and realize that the timing is all wrong. All we need is to get hit in another industry with retaliation because of what is happening with this ill conceived bill.

I support my colleague's amendment.

[Réginald Bélair, Liberal, Parliamentary Secretary to Minister of Public Works and Government Services]

Mr. Speaker, it is a pleasure for me to take part in this report stage debate.

Bill C-103 is one element in the longstanding policy supported by various governments in Ottawa. Governments long ago recognized the importance of the Canadian magazine industry and the affirmation of the Canadian personality. Allow me to take this opportunity to describe the background of the various measures put forward by the Canadian government in an effort to support the development of this major sector of our cultural industries.

The Canadian government has been concerned about the status and survival of the Canadian magazine industry almost since the beginning of the 20th century. Government's original concern was simply to ensure that Canadians had access to periodicals from around the world. It was a question of communication, in other words, the possibility for Canadians to have reasonable access to periodicals wherever they live.

Another major concern of the government, editorial content, came later. Initially, the aim of federal policy was to give Canadians an opportunity to enjoy and appreciate the arts, so the Canada Council was founded in 1957.

The emphasis was on the quality and quantity of the cultural product in Canada. There was no specific attempt to find out whether Canadian interests were involved in the creation or production of this product. There was no concern for culture in the broader sense, only for the arts. Since 1957, the Canada Council has supported periodicals of an artistic or scientific nature with subsidies, modest though they may be.

A third concern arose sometime before the Canada Council was created and has become increasingly important in the past 30 years. I am referring to the issue of Canadian content and Canadian cultural identity in the broader sense.

While we were concerned with promoting Canadian ownership and content, we realized that we must not close the door to foreign

periodicals. We simply must prevent them from gaining too many advantages on the periodicals market in terms of economic advantages arising from intensive production, distribution, access to capital, or a well established reputation among Canadian readers. The key to this policy is advertising and postal distribution.

Thanks to legislative measures implemented progressively pursuant to the recommendations of the 1961 Royal Commission on Publications, commonly known as the O'Leary commission, and the 1970 Special Senate Committee on Mass Media, magazines printed in other countries were prevented from entering Canada when they contained advertising directed specifically at the Canadian market. Canadian advertisers were thus encouraged to place ads in Canadian magazines.

I would like to elaborate on the role played by the O'Leary commission in identifying measures to promote the development of the Canadian periodical industry. In 1961, only 25 per cent of the magazines distributed in Canada were Canadian. It became imperative for the Canadian government to do something about this situation. This led to the appointment of the Royal Commission of Inquiry on Publications.

Following a long series of hearings and extensive research, the commission was able to assemble all the elements it needed to establish the status of the Canadian periodical industry in the early sixties. It was clear that the industry was facing serious problems and that the government had to act. Members of the commission found that between the two sole sources of magazine revenue, circulation and advertising, there was a durable and mutually beneficial symbiosis which they defined as follows, and I quote:

"Behind all this is an important spiralling action, fundamental to periodical publishing; the larger a periodical's circulation, the more advertising it can attract; the greater its advertising revenue, the more it can afford to spend on editorial content; the more it can spend on editorial content, the better its chances of obtaining more circulation."

It became clear that advertising revenue was essential to the Canadian periodical industry. Consequently, the government decided to do what was necessary to channel Canadian advertising revenue to Canadian periodicals. The development of a policy for this purpose was instrumental in creating a strong financial basis for the industry.

Section 19 of the Income Tax Act was adopted in 1965 and became one of the main tools for implementing the federal government's policy on magazine publishing. According to this section, only purchases of advertising aimed at the Canadian market and inserted in Canadian periodicals were tax deductible. This section also provided that to be eligible for the tax deduction, the taxpayer had to advertise in a magazine with at least 75 per cent Canadian ownership and a ratio of original editorial content of at least 80 per cent.

Second, the members of the Royal Commission on Publications recommended that foreign periodicals containing advertising intended for the Canadian market should be denied entry. Customs tariff code 9958 was created in 1965 pursuant to this recommendation. Since these measures were implemented, Canadian magazines have multiplied and diversified.

In 1959, before the introduction of these two measures, Canadian magazines represented 23.3 per cent of the magazines distributed in Canada. The proportion rose to 29.9 per cent in 1971 and 39.4 per cent in 1981. In 1992 Canadian magazines represented 67.6 per cent of the magazines distributed in Canada.

These mechanisms must now be updated in response to the advent of new technology in recent years. The electronic transmission of proof pages produced in other countries for printing and distribution in Canada was not envisaged when these policy instruments were designed in 1965.

The need to modernize government structural measures became particularly clear in January 1993 when Time Warner officially announced its intention to publish Sports Illustrated in Canada. In an effort to avoid the application of tariff code 9958, Time Warner chose to print Sports Illustrated in Canada using editorial material transmitted electronically from the United States. This situation demonstrated the existence of a loophole in our structural measures and the urgent need to update the Canadian policy on magazine publishing.

On March 26, 1993, the government announced the creation of a task force responsible for reviewing the various issues affecting the Canadian magazine industry, including its trends and evolution, the Canadian advertising market, the impact of technological progress, the international aspects, the regulations, and the effectiveness of current policy implementation measures.

The government wanted to ensure that the measures taken to promote the development of this industry were up to date and effective. These measures included Customs Tariff Code 9958 and section 19 of the Income Tax Act mentioned earlier.

Barely two weeks after announcing the creation of the task force, the government said that this task force on the Canadian magazine industry would have two joint chairmen and would be composed of volunteer experts representing Canadian magazine publishers, advertisers, consumers and the legal community.

The joint chairmen of the task force on the Canadian magazine industry, Patrick O'Callaghan, journalist and former editor at Southam Press, and Roger Tassé, former deputy minister of justice, carried out their mandate with the help of a group of seven volunteer consultants representing all regions of the country. They came from the advertising industry, consumer associations and the Canadian magazine industry; some even had some experience in international trade.

This review of the measures in place to help the Canadian magazine industry was aimed at proposing other measures that would enable the government to meet its political objective of making Canadian information and ideas accessible to Canadians through truly Canadian magazines.

In March 1994 when the task force on the Canadian magazine industry submitted its final report, the government again acknowledged the valuable contribution the Canadian magazine industry makes to our economy, our culture and our heritage. On December 22, 1994 the government announced its response to the recommendations contained in the final report of the task force on the Canadian magazine industry. The government indicated then that it would address all of the task force's recommendations, including the recommendation for a new excise tax on all split run magazines containing advertising directed at Canadians.

The government then stated that an excise tax would be imposed on each copy of a split run edition at the rate of 80 per cent of the value of all the advertisements contained in the edition. Periodicals that would otherwise be subject to the tax are exempted from the tax based on the number of split run editions that were distributed in Canada before March 26, 1993, when the creation of the task force was announced.

Finally, this bill demonstrates the federal government's continued commitment to promote the growth of a Canadian magazine industry that is viable, original and dynamic.

[John O'Reilly, Liberal, Victoria—Haliburton, ON]

Mr. Speaker, it is a pleasure to speak on Bill C-103.

Bill C-103 will play a major role in maintaining a vibrant and flourishing Canadian magazine industry. I would like to present the House with the broader perspective of the government's ongoing commitment to this industry. This bill should be understood in the context of the long established tradition of government support to the Canadian magazine industry as well as the industry's contribution to the economy.

Most important, in a country where natural geography makes communications difficult, magazines play a key unifying role. Canadian periodicals are an essential medium of cultural expression for Canadians. They serve as channels for conveying Canadian ideas, information and values. They are an integral part of the process whereby Canadians define themselves as a nation. Moreover, beyond the direct social and cultural impact of the Canadian magazine industry there are sizeable indirect effects which contribute to the smooth functioning of the Canadian economy.

Canadian publications, both consumer and business, inform, educate and entertain but they also are an important advertising vehicle for Canadian products and services. While it is true there are other mass media which can reach consumers, the Canadian trade press fills a unique role in the economy by providing an affordable marketing tool for Canadian business and industrial suppliers.

These producers and services often face stiff competition from foreign companies which reach Canadian customers through spill-over advertising in American trade periodicals. In the absence of an active Canadian trade press reaching Canadian customers, an important segment of our economy would be left without a major communications and advertising vehicle.

Unfortunately Canadian magazines are confronted with a series of unique challenges: massive penetration of the Canadian market by imported magazines; the relatively small size of the Canadian population and its dispersion over a vast territory; the openness of Canadians to foreign cultural products; the effect of cover prices of imported magazines on the Canadian price structure; the impact of overflow advertising on the potential advertising market in Canada.

Even if the magazine industry had flourished culturally with over 1,300 titles, its financial position is fragile, with overall pretax profits of less than 6 per cent on revenues of $795 million in 1993-94.

In my opening remarks I mentioned the Canadian government has supported the domestic magazine industry and will continue to do so for many reasons. The principal reason is the importance Canadians place on having a means of expressing their unique identity and the difficult and challenging environment which the Canadian magazine industry faces.

The need for structural measures of support for the Canadian magazine industry has long been recognized by successive Canadian governments. Over the years a number of policy and program instruments have been designed and put into place which help to ensure the development of the Canadian magazine industry while not restricting the sale of imported periodicals in Canada.

Among them, the publications distribution assistance program, better known as the postal subsidy program, is one of the earliest nation building programs. It is designed to unify a country where natural geography makes communication difficult. Its main objec-

tives are to support Canadian cultural identity and sovereignty, to ensure affordable access to subscriptions for Canadian periodicals and to provide stability in the level of distribution costs for Canadian periodicals in order to permit publishers to develop and implement long term business plans.

Canadian consumer magazines have limited access to Canadian news stands. Less than one-quarter of Canadian magazine circulation revenue is derived from news stand sales. As a result, the industry relies on subscriptions to reach its audience. The postal subsidy, which finances concessionary postal rates for Canadian magazines, has been an important instrument in helping the industry to reach its market.

In 1989 this program was subjected to a cut of 50 per cent, from $220 million to $110 million, as part of a larger government-wide exercise to reduce public expenditures. I am pleased to say that in developing a plan for the implementation of the cut, a decision was made to focus support on subscriber paid periodicals versus non-paid or free publications. Furthermore, it was believed that periodicals, which typically have a national or regional focus and rely exclusively on mail distribution, should take priority over local publications which have alternative means of distribution.

As a result, the most vulnerable component of the industry was protected then and also more recently when the government had to reduce once again the amount of available funding. For the past two years we have limited the increase of the subsidized rates to 5 per cent a year. Therefore the postal program still enables Canadian magazines to reach rural or remote readers at a reasonable cost.

Fiscal measures provide another useful tool to support the magazine publishing industry without investing a considerable amount of money. Two fiscal measures encourage Canadian advertisers to use Canadian magazines to reach Canadian readers. The first measure, section 19 of the Income Tax Act, has been in place since 1965. For advertisements aimed directly at the Canadian market section 19 limits tax deductions of advertising expenditures to advertisements placed in Canadian magazines. A Canadian magazine is defined as one which is 75 per cent Canadian owned and controlled and whose editorial content is 80 per cent different from the editorial content of any other periodical.

The second measures is customs tariff code 9958. Tariff code 9958 prohibits the physical importation into Canada of split runs or special editions of periodicals whose editorial content is substantially the same as the original edition except for the advertising which has been purchased especially to reach a Canadian audience.

Until recently the tariff code dissuaded offshore magazines from soliciting advertising in the Canadian market. Moreover, it succeeded in doing so through voluntary compliance. These fiscal measures were put in place to ensure that the Canadian magazine industry had access to Canadian advertising revenues. There is no evidence that our current policy has made the Canadian industry any less efficient or less profit conscious than its foreign counterparts.

Financial support is provided to a number of cultural and scholarly publications through the Canada Council, the Social Science and Humanities Research Council and through a modest distribution program administered directly by the Department of Canadian Heritage.

Another initiative is the cultural industries development fund which was established in 1990 with a budget allocation of $33 million. Its mandate is to provide Canadian owned and controlled firms within the cultural industries with a range of flexible financing services with an emphasis on investment loans.

The CIDF was created in order to make loan money available to Canadian owned and Canadian controlled cultural firms to compensate for the shortage of capital available to Canadian cultural businesses and improve their financial situation, the intention being that these firms will achieve a sound financial base through the fund and thereby be eligible at some later date for conventional bank financing. The fund was established to reinforce and stimulate the growth of Canadian cultural enterprises which have proven to be dynamic and which have demonstrated their ability to improve their competitive position in the marketplace.

The magazine industry is an active user of the cultural industries development fund, having set up a travelling consultant program in addition to accessing loans through the fund.

The reluctance on the part of financial institutions to create a new financing instrument, the degree of risk involved and the perceived low earning potential of the magazine industry justify the government's establishment of mechanisms such as the CIDF. With more than 20 per cent of the loans awarded and a repayment rate of more than 90 per cent, the magazine industry has demonstrated its professionalism and its managerial expertise.

We can conclude that all of these federal measures have served the industry well. However, with the arrival of the new technological contribution to an increasingly competitive marketplace Canadian businesses must adapt to those market changes and secure and invest new capital in order to bring themselves up to date with modern technology. It is the government's role to review its initiatives and to make sure they still correspond to the new market realities.

Technology has progressed far beyond what could have been foreseen in 1965 when the tariff code 9958 was introduced as a measure of the government's support for the Canadian periodical industry. New technological developments have changed the dynamics of the publication industry. For example, it is now possible to transmit information electronically. Thus it is now possible to bypass international borders and circumvent tariff code 9958.

The proposed amendments to the Excise Tax Act will contribute to maintaining the integrity of Canada's longstanding policy on split runs. The proposed amendment to the Income Tax Act will add an anti-avoidance rule to section 19 of the act. The purpose of this provision is to ensure that newspapers and periodicals that claim to be Canadian are Canadian owned and controlled for the purposes of the act.

The Canadian government has been consistent. Its magazine policy has not changed. What the federal government is doing with these amendments to the Excise Tax Act and the Income Tax Act is modernizing its policy instruments. In this way the entire range of government policy and program instruments can better achieve the overall objective of a vital and flourishing Canadian magazine industry.

[Mary Clancy, Liberal, Parliamentary Secretary to Minister of Citizenship and Immigration]

Mr. Speaker, I am very happy to take part in this debate today because Bill C-103 is one of the many measures the government has over time designed to assist in the development of Canada's cultural industries.

It is very important that we ensure Canada's cultural industries develop to their fullest. This is an area I have had a great deal of interest in since I became a member of Parliament seven years ago.

In the last Parliament as deputy critic for Canadian culture, I sat on the relevant committee and worked with the hon. member for Mount Royal, now the Secretary of State for Multiculturalism and Status of Women, in these areas and with other members on a number of reports that talked about safeguarding our cultural industries.

It is interesting to note with our colleagues from the Bloc today that whatever our differences may be, all Canadians, within and outside Quebec, agree that with our linguistic, regional and geographic differences it is very important that our very special culture in French and English be protected and that our federal government do everything possible to protect that culture.

Public policy for cultural industries has always operated on two premises. The first is that cultural products are important as a transmitter of social identity. The second is that it is difficult for the Canadian market to generate economically viable cultural enterprises.

Nobody knows this better than I. I once said I was going to have a sign made that said "pariah: do not appoint to arts boards". In my small region of Atlantic Canada I have served over the years on practically every arts endeavour and cultural endeavour that has gone belly up because we did not have the people or the money to keep it going.

It is terribly important that the federal government take a hand and ensure cultural industries do not die aborning because of regional disparity, small population, small markets, et cetera.

Policy is focused on supplementing the domestic markets' internal capacity to generate revenues with financial and institutional tools. These tools are an attempt to ensure a minimum choice of indigenous cultural works alongside the overwhelming presence of foreign ones.

In the area of magazine selection, in any store that sells periodicals and magazines Canadian periodicals are overwhelmed by sheer numbers of those that come from our neighbour to the south. It is a fine statement that they are not overwhelmed in content or in standard but merely in numbers.

As our cultural enterprises matured and in many cases became more self-sufficient, the government developed and refined the legislative and regulatory framework, the third set of tools within which these enterprises could further prosper and compete at home and abroad.

The challenge for all of us is for government to monitor and review its policies and make amendments or realignments when these are required. Today clearly, as the explosion of technology takes place all around us here in Canada and around the world, characteristics that define the current environment are challenges that confront our cultural sector.

First, the removal of international barriers to trade generates increased competition in production and distribution of cultural goods and services and global markets.

Second, the vertical and horizontal integration of conglomerates operating on a world scale is having a profound impact on the content of cultural products made available to consumers.

Third, the convergence between information transmitters and the producers of the content they transmit is leading to an explosion of new types of goods and services available to a an ever increasing number of consumers.

Take the first challenge as an example, the removal of trade barriers and increased international competition. In this area the impact cannot be underestimated. Access to production and dis-

tribution networks is paradoxically becoming both easier and more challenging at the same time.

Technological innovation has rendered electronic distribution of content available to increasing number of creators but the costs associated with marketing, promotion and distribution both in domestic and international markets challenged the ability of creators to exploit their new market potential. We cannot underestimate the impact of such issues as control over technology, control over access to distribution networks and the capacity of governments to regulate the flow into domestic markets of cultural products distributed electronically from abroad. Most of us are fully aware of this in our own homes on a daily basis. Sports Illustrated Canada is a case in point. I am sorry my hon. colleague from Prince Edward Island cannot agree with me on this. We talked about Sports Illustrated a few minutes ago. For almost 30 years the policy tool designed to regulate the importation of magazines containing advertising aimed at Canadians worked well but it is technologically specific in that it addresses the physical importation of foreign magazines today. Sports Illustrated is not physically imported but beamed across the border to a printing plant in Ontario.

Our cultural sector has reached a level of economic maturity that will allow it to compete in domestic and international markets but only if it can operate within a legislative and regulatory framework that will encourage its continued development. That is why we have Bill C-103.

The government has reached the point at which it has to update its policy for the magazine industry because of such developments as the beaming of Sports Illustrated to a printing plant in Ontario. It is a logical evolution in our policy instruments and it is a necessity to protect our investment in cultural industry.

The bill demonstrates the federal government's continued commitment to the development of the Canadian magazine industry that is viable, original and dynamic.

Since 1965 there have been two legislative measures in place, section 19 of the Income Tax Act and Customs Tariff code 9958. The objective of both measures was to ensure an adequate flow of advertising revenues to support a vibrant Canadian periodical industry. We need to make sure Canadians have the opportunity to read their own magazines at home, to reflect upon them the ideas that are home grown and home developed in this country, to ensure our culture remains strong, our sense of Canadianism and Canadian identity remains viable.

Until the Sports Illustrated case, the instruments put in place by the federal government were not as successful. However, we have a loophole that needs to be plugged. This loophole has been exploited by Sports Illustrated over the last two years. Tariff code 9958 applies only in cases in which split run editions are physically imported into Canada. As I mentioned before, Sports Illustrated got around this by electronically beaming the magazine to a Canadian printing plant.

I suppose this is a case in which the letter of the law may have been upheld but the spirit of the law was being violated. Fortunately the federal government has made a concerted effort and come forward with these amendments to change the situation so that Sports Illustrated can no longer circumvent the true spirit as well as the letter of the law.

The amendments to the Excise Tax Act take into consideration that the task force on the Excise Tax Act issued its final report in March. Its main recommendation was that excise taxes be imposed on split run editions and periodicals. The tax is designed to encourage original editorial content in magazines containing advertisements primarily directed at Canadians. It will impose a tax of 80 per cent of the value of all advertisements contained in split run editions of magazines circulating in Canada. That encourages Canadian advertisers to place advertisements in magazines which have original content. It reiterates the government's longstanding policy objectives in a manner consistent with our international trade obligations.

The amendment to the Income Tax Act will add an anti-avoidance rule. The purpose of the anti-avoidance rule is to ensure newspapers and periodicals that profess to be Canadian are controlled by Canadians.

Canadians throughout history have formed their own identity, that mosaic unique to this land and its people. In their periodic re-examination of cultural policies, Canadians are continually discovering and defining what Robertson Davies has called our national soul.

In the past couple of days our national soul has gone through quite an experiment but has come through and come out the other side. As we stand here today reaching out to each other and remembering what a joy and a benefit it is to be a Canadian, I am proud that our government is doing the nuts and bolts as well as the emotions to make that possible.