Madam Speaker, we are debating today, at second reading, Bill C-55 respecting advertising services supplied by foreign periodical publishers.
This bill was made necessary after Sports Illustrated used electronic means to circumvent Tariff 9958, 1965, which prohibits the import of split-run magazines, that is foreign magazines containing advertising directed at the Canadian market. Sports Illustrated circumvented Canadian regulations by electronically importing its editorial content and printing its magazine in Canada.
In 1995, Canada enacted Bill C-103 providing for an 80% excise tax on the earnings from the sale of advertising in such magazines. Four measures including this one were declared contrary to the GATT agreements signed by Canada in 1947 and renewed in 1994.
As a result, Canada had to review its policy of support to magazines and its legislation providing for an 80% excise tax in particular.
Today, the heritage minister is putting forward a bill denying foreign magazines access to the Canadian advertising market. The government's position is that Canada has the right to protect its advertising market because advertising is a service and, under the General Agreement on Trade in Services, advertising is exempt.
Is exempt any industry not included in the list of industries covered by the agreement. There is a cultural exception when an agreement includes a text providing for the exclusion of part of that agreement.
The Bloc Quebecois agrees in principle with the bill at second reading. However, we will listen carefully to the representations that will be made to the committee on this issue. In 1995, former minister Michel Dupuy had assured us that his Bill C-103 was in compliance with international trade rules, and now the Minister of Canadian Heritage is making the same claim.
Let us take a look at the background of this legislation.
In 1990, Time-Warner received assurances from Revenue Canada that its plan to publish a Canadian edition of Sports Illustrated would not contravene tariff number 9958.
On August 15, 1990, Investment Canada confirmed that the magazine Sports Illustrated in Canada would not be subject to the Investment Canada Act.
Consequently, Time-Warner thought it was authorized to move into Canada.
On January 7, 1993, Time-Warner announced that it would publish a split run edition of Sports Illustrated .
Of course, since the Minister of Communication had not been informed of the decisions made by his colleague from industry, he objected, invoking tariff number 9958, to a split run edition of Sports Illustrated in Canada.
On April 5, 1993, Sports Illustrated published its first issue out of Richmond Hill. Since its publication did not extend across the border physically, tariff 9958 did not apply.
Rather than take immediate action, the government ordered a report on the magazine industry in April 1993.
In December 1993, Time Warner announced its intention of increasing the number of split runs from six to twelve a year.
On March 24, 1994, the task force published its report. It recommended applying an excise tax of 80% on split run magazines, but exempting Sports Illustrated on condition that it not publish more than six issues a year. The Canadian industry opposed the latter part of the recommendation, and rightly so.
In December 1995, Bill C-103 was passed.
On March 11, 1996, Mickey Kantor, the American trade secretary, announced that he was filing a complaint with the World Trade Organization to protest, first, the 80% excise tax on split run magazines under Bill C-103, second, the lower postal rates granted Canadian publications, third, the postal subsidy and, fourth, tariff 9958 making it illegal to import split runs into Canada.
On June 30, 1997, the WTO went along with the American arguments and outlawed the four measures for protecting Canadian magazines, stipulating that, since magazines were goods, Canadian policies to protect them had to be consistent with GATT rules on goods.
In August 1997, Canada advised the WTO that it would respect the ruling.
In July and October 1997, the Government of Canada announced a series of measures to comply with the decision of the WTO and promote the Canadian and Quebec magazine industry.
In order to comply with the decision of the WTO, Canada proposed the following, beginning with the tariff code 9958 measure. This code prevented the importing into Canada of split run magazines. It will be repealed by an order in council.
Second, Bill C-103 amended the Excise Act. This amendment authorized the government to levy an 80% excise tax on Canadian advertising revenues declared by periodical publishers. The act will be amended by a ways and means motion.
Third, the postal subsidy. With this measure, Heritage Canada paid Canada Post nearly $50 million to have it accord certain magazines reduced rates. This measure will be maintained, except that Heritage Canada will now put this money into accounts the magazines have with Canada Post.
Fourth, preferential postal rates. This measure would allow Canada Post to give Canadian magazines a preferential rate. The rates for foreign magazines will be reduced to the preferential Canadian rate. This measure will cost Canada Post $16 million.
I will now deal with reaction to the legislation so far.
Canadian publishers applauded the introduction of this legislation. The president of the Magazine Association of Canada, François de Gaspé Beaubien, even accompanied the Minister of Canadian Heritage during the briefing that followed the bill's introduction. For the association, the issue was to avoid having foreign publishers, who make their profits in foreign markets, competing with Canadian magazines by offering lower advertising rates than the Canadians could offer.
Canadian magazines get more than 60% of their revenues from advertising sales. The association also did not want the loss of advertising revenue made up by grants. Not only was this unrealistic—it would have taken hundreds of millions of dollars—but it also involved some ethical issues. What they wanted was a measure that would protect editorial independence.
The Association of Canadian Advertisers declared its intent to challenge the legislation under the charter. However, the legal experts involved in drafting the legislation are of the opinion that the association has little chance of success, because it is merely confirming a practice that has been in existence for several decades in Canada.
The American Secretary of State for Commerce has indicated, however, that he will again challenge these provisions for protecting the Canadian advertising market.
The Financial Post of Saturday, October 10, 1998 reported on page 4 that the United States wants to wage another battle with Canada to block the bill we have before us today, because in their opinion it contains protectionist and discriminatory provisions.
Yet those provisions have but one objective: to prevent U.S. competition with the Canadian magazine industry. The Americans feel that Canada is trying to find some new ploys for getting out of its obligations under GATT. However, the U.S. government has yet to follow up on its original statements.
In its dispute against the United States concerning Sports Illustrated , Canada lost, because it was established, under the WTO dispute settlement mechanism, that the magazine was a good and that the 1997 GATT rules did apply, since the advertising must use this good as a vehicle. And, as we all know, there is no cultural exemption clause in the GATT.
By entitling the bill an Act respecting advertising services supplied by foreign periodical publishers, and by prohibiting in clause 3 foreign publishers from supplying advertising services directed at the Canadian market, the government wants to ensure that the legislation before us today deals with advertising and therefore falls under the General Agreement of Tariffs and Trade. Since Canada did not include advertising in the list of services subject to the Agreement, the Department of Canadian Heritage believes that its bill, if challenged, will stand up scrutiny at the WTO.
The Bloc Quebecois hopes that the government is right in this case. Even if importation of split run editions has a lesser impact in Quebec, the Bloc Quebecois does not have the slightest interest in seeing the Canadian cultural industry weakened, since several of our magazines are published in symbiosis with Canadian periodicals and would thus be affected by a policy which would open the Canadian advertising market to foreign publishers.
We need to be reminded however that the WTO decision regarding Sports Illustrated shed some light on the weakness of the Canadian vision in terms of protecting our cultural industry in international trade agreements. The WTO decided that advertizing—a service—needing a magazine as a vehicle—a good—a good that could be replaced by other imported goods—the WTO had even compared the content of various magazines—Canada could not exempt these goods from its obligations under the 1994 GATT, a better and improved version of the 1947 GATT.
Thus experts were of the opinion that several measures aimed at protecting culture using a tangible vehicle could lead to complaints to the WTO under the 1994 GATT. The Americans could then circumvent the cultural exemption provided for by NAFTA.
Experts who appeared before the heritage committee and the Canadian Conference of the Arts have urged the Canadian government to take more proactive steps to protect Canadian and Quebec cultural interests under international trade agreements.
As the multilateral agreement on investment, the now infamous MAI, which was being negotiated at the OECD, just hit a major stumbling block, it is timely for the government to adopt a real strategy to defend cultural exemption under every international trade agreement. Of course, in this case, we are talking about a home made cultural exemption protecting the current and future capacity of Canada and Quebec to take measures promoting their respective cultures.
Negotiations are planned for the turn of the century. They are supposed to deal with services and maybe investments. The 1994 GATT contains a major flaw in that it does not provide for cultural exemption. Neither does the General Agreement on Trade in Services. At most, it provides for exemptions for services not on the list of services to which the agreement applies.
The Bloc Quebecois is therefore calling on the government to give some thought to the experts' and artists' proposal for a real team to be constituted, which would include artists and representatives from Quebec, with a view to raising awareness across the country of the importance of obtaining a cultural exception.
In this connection, Canada could play the same role as the Minister of Foreign Affairs did in the land mine issue.
This multifaceted team, on which Quebec would play a full role, must be given the expertise and financial resources required for it to do a proper lobbying job. The tools are in place. Now what is needed is the political desire to make use of them, and to get to work.
In Statistic Canada's 1997 edition, in the chapter entitled “Canada, its culture, heritage and identity”, we learn that, in 1994, Canada had 1,400 periodicals, that industry revenues totalled $867 million with $520 million coming from advertising, and that the profit margin was 6% in the anglophone markets and 13% in the francophone markets. In English Canada, 80% of magazines at newsstands are foreign, whereas in Quebec the proportion is 20%, according to the February 26, 1997 issue of La Presse .
The report by the task force on the periodical industry entitled “A matter of balance” indicates, at page 40, that Canadians buy $700 million worth of American magazines, while Americans buy $60 million worth of Canadian magazines. Canada imports from the States 25 times more magazines than it exports there.
Some 95% of Canadian French language periodicals are sold within the province, and Canadian publishers draw only 25% of their circulation revenues within their own market.
According to The Citizen , a Heritage Canada study, which we were unfortunately unable to obtain a copy of, even under the Access to Information Act—and I could even mention that the case is being appealed to the information commissioner—concluded that 40 American magazines were selling well enough in Canada, over 50,000 copies, to make a split run worthwhile; that 40 Canadian magazines were on the point of going bankrupt; and that the American magazines would take over 40% of the advertising revenue invested by Canadians in Canadian magazines, which would be disastrous for this cultural sector if allowed to continue unchecked, unless we take steps to come to its assistance.
As I entered the House, one of my colleagues, the member for Repentigny, handed me the fall 1998 issue of the Canadian Parliamentary Review , volume 21, No. 3, the magazine of the Commonwealth Parliamentary Association, Canada section, which contains a wonderful article by Dennis Browne about Canadian culture's uphill battle with international trade and split runs.
I will, since I have the time, quote from this absolutely extraordinary article, which I urge my Reform Party colleagues to read. Naturally, in a parliamentary democracy, everyone is entitled to one's opinion, and one might be the only one to hold a particular opinion and still be right, but I think it important that the Reform Party members give more thought to the interests of Canadian culture than to party ideology, which sometimes keeps us from seeing clearly.
Here is what Mr. Browne had to say. He writes, on page 21:
To understand the magazine case, we must know a bit about the magazine industry. Following the hon. member's speech, it seems to me he needs to learn a thing or two about the magazine industry. The most important point is that the industry has two income streams and two cost streams. The income streams are earnings from subscriptions and news stand sales, and earnings from the sale of advertising included in the magazine.
The cost streams streams are the cost of the magazine's editorial content, including photos and articles, and the costs of printing and distributing the magazine. In the Sports Illustrated case, it appears the revenues generated from news stand sales and subscriptions are more than adequate to cover the production and distribution costs of this magazine. Prior to the case, Time Warner was selling about 140,000 copies of each edition in Canada. The business had been going on for many years and I do not think the company was losing money.
The other big cost, editorial content, was fully paid for by advertising sold to American advertisers. This case was brought to the WTO by the United States to challenge Canadian measures that effectively denied American magazines access to Canadian advertisers.
Thus the case was not about market access, or even about ordinary profits. It was about super profits. When the editorial content is already paid for and the selling price fully covers the production and distribution costs, practically every dollar paid for Canadian advertising in Sports Illustrated will be pure profit for the publisher. With their existing high levels of circulation in Canada, they already had the cake; so they went for the icing.
The WTO decision is not going to lead to sales of more copies of Sports Illustrated in Canada. It is just going to make the business of selling the same number of copies much more profitable. But what will be the Time Warner's icing is the Canadian magazine publishers' cake. The total amount of money routinely spent by Canadian advertisers in the print media is not increasing. Every Canadian dollar spent for advertising in American magazines will reduce the revenue pool available to Canadian magazine publishers.
There should be no doubt about American magazines being able to attract Canadian advertising. With their editorial costs already being paid, they can readily discount the price for advertising by as much as 80% and still make money.
Canadian publishers will not be able to compete with this type of cut-throat competition. Without their advertising revenues, Canadian magazines will not be able to pay for good quality editorial content. If that is the result, the magazines will appeal less and less to consumers and Canada could lose one of its forums—a very important forum—for cultural expression. To protect the advertising income stream for Canadian magazine publishers, Canada had put in place a combination of measures, four of which were challenged in the WTO case.
The import ban on split-run magazines is clearly a breach of the GATT principle calling for the elimination of quotas. An import ban is the ultimate “quota” since imports are zero. Canada sought to justify the ban under the exception permitting quotas “necessary to secure compliance with domestic regulations”—in this case an income tax regulation that disallows business deductions for advertising placed in split-run editions.
I could read another excerpt from the article which would show that the important thing is, above all, to defend Canada's cultural industry, which is something the Bloc Quebecois has always done with great determination since coming here, for a simple, good and single reason. We in the Bloc Quebecois feel it is important for Canada to have a very strong culture, a very strong identity, because when we are sovereign we want to have as our neighbour a country that is capable of separating its identity from that of its American neighbours, its culture from the American entertainment industry.
Finally, however, the Bloc Quebecois does regret that the Liberals have themselves been responsible for some measures that have been counter-productive to the development of the magazine industry. First of all, they made a substantial reduction in the postal subsidy. In 1989, this was $220 million, and when the Liberals came into power it was $77 million. The previous government had, of course, already drastically cut subsidies, but the Liberals were no more capable of protecting this sector of our cultural industry, for between 1994 and 1998 they reduced the subsidy considerably again, by 40%, so the $77 million of subsidies ended up at $47.3 million.
Second, during the election campaign, the Liberal government, the present Prime Minister at its head, travelled across Canada promising to abolish the GST on all reading material. Yet, as we speak that has still not happened.
With these two counterproductive measures, the Liberal government itself did enormous damage to the cultural industry. Since surpluses are appearing in the Canadian government's budget, I hope that the Liberals will remember their promises to the Canadian people and take measures to promote literacy in Canada and in Quebec by abolishing the GST, at least on reading material, and by increasing subsidies as required, so that the cultural industry of magazines and publishing can do more than just survive.
