MAGAZINES: GOC CUTS ITS MAGAZINE SUPPORT FUND,

UNCLAS SECTION 01 OF 02 OTTAWA 002062 SIPDIS SENSITIVE PASS USTR FOR MELLE, CHANDLER, BALASSA, BURCKY AND SCHNARE STATE FOR EB/TPP/BTA AND WHA/CAN DOC FOR ITA/MAC -- OFFICE OF NAFTA E.O. 12958: N/A TAGS: ETRD SCUL CA SUBJECT: MAGAZINES: GOC CUTS ITS MAGAZINE SUPPORT FUND, SAYS INDUSTRY IS "ON A SOLID FOOTING" SENSITIVE, BUT UNCLASSIFIED. PLEASE TREAT ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS. SUMMARY/INTRODUCTION -------------- ¶1. On July 8 the GOC announced cuts/changes to its funding programs in support of Canadian magazines. These programs were the key measures put in place in 1999 following resolution of a U.S.-Canada bilateral dispute concerning periodicals. In making the cuts, the GOC pronounced the magazine industry to be "on a solid footing and enjoying healthy growth" - a striking shift from predictions made in 1998-99 to the effect that any significant concession to the U.S. meant disaster for the Canadian industry. The GOC also adjusted its programs in order to reach more and smaller magazines - an open admission that its support measures have tended to benefit relatively large, profitable media firms. END SUMMARY/INTRODUCTION. BACKGROUND: THE MAGAZINES DISPUTE -------------- ¶2. Canada obtained exemptions from the 1989 FTA and 1994 NAFTA for "cultural industries" (media),and the GOC continues to maintain a range of policy measures to support Canadian-owned "cultural" enterprises and encourage/require the use of "Canadian content" in TV, radio and other media. In the mid-1990's the United States challenged various GOC measures to support Canadian magazines (the so-called "Sports Illustrated" dispute). Several of these measures were found to be WTO-inconsistent by WTO panels. Canada's proposed replacement regime, Bill C-55, which the USG did not consider adequate, became the focus of a highly politicized bilateral dispute in 1998-99. ¶3. The controversy around this dispute in 1998-99 was far out of proportion to the modest commercial interests at stake for two reasons. First, Canadian Heritage Minister Sheila Copps, who still holds the portfolio, indulged in considerable anti-U.S. rhetoric. She warned publicly of an impending "cultural onslaught" from U.S. publishers if they were to obtain greater access to the Canadian advertising market. Second, Canadian media, which had a direct interest in sustaining the GOC's cultural protections and subsidies, presented the U.S. case less objectively than they might have done. THE 1999 RESOLUTION -------------- ¶4. Under the terms of an agreement reached in mid-1999, U.S. magazines exported to Canada can now fill 18 percent of total advertising space with ads aimed at Canadians. Canada also committed to provide non-discriminatory tax treatment, and to permit foreign ownership of magazine businesses. Canada's magazine industry obtained a promise of substantial direct subsidies to compensate for their reduced level of trade protection. This was introduced in 2000 via the Canadian Magazine Fund and Publications Assistance Program, which allocated an average of roughly C$70 million (US$50 million) annually to the industry for three years. NO "CULTURAL ONSLAUGHT" -------------- ¶5. Following the dispute's resolution, Canadian media continued to suggest that "American" magazines were preparing a major drive into the Canadian market against which "Canadian" magazines were ill-equipped to compete. However, contrary to many expectations, there was little subsequent pressure from U.S.-based magazine publishers to enter the Canadian market. SUPPORT TRIMMED, SINCE INDUSTRY IS "SOLID" AND "HEALTHY" -------------- -------------- ¶6. On July 8, Canadian Heritage Minister Copps announced changes to the three-year-old direct subsidy programs, reducing GOC expenditures on these programs from C$78.1 million last year (FY 2002-03) to C$61.4 million in three years' time (FY 2005-06). Copps' office declared that "the Canadian periodical and magazine industry is now on a solid footing and enjoying healthy growth. Given these developments, the Canadian Magazine Fund has been evaluated and readjusted to a level that better reflects the Canadian industry's current situation." It also noted that more than 50 percent of the periodicals available in the Canadian marketplace are Canadian, as are 12 of the 20 most popular titles. Finally, the Ministry restructured its programs in order to deliver assistance to a larger number of smaller publications - an implicit concession to long-standing criticism (from both Canadian and U.S. observers) that, while Copps portrayed herself as the defender of small, struggling Canadian magazines, it was really large, financially sound publishing firms who benefited the most from both protection and subsidies. COMMENT -------------- ¶7. COMMENT: In retrospect, Minister Copps, and advocates for the Canadian magazine industry (and cultural policy more broadly),significantly overstated the menace posed by U.S. publications to the Canadian industry in 1998-99, and the announcement of cuts to GOC support for the industry is a virtual admission of this. Nevertheless, as a direct result of the magazines dispute, Copps concluded that WTO panels were likely to undermine Canadian cultural protections, and that Canada therefore required a "New International Treaty Instrument on Cultural Diversity" to buttress those protections against WTO trade liberalization. When commenting on the GOC's drive for such a treaty, we might wish to point out that it was originally sparked by fears that the GOC now admits were not realized. CELLUCCI