BILL C-55: AN ACT
RESPECTING ADVERTISING SERVICES
LEGISLATIVE HISTORY OF BILL C-55
TABLE OF CONTENTS
BILL C-55: AN ACT RESPECTING
Bill C-55, which was tabled by the Hon. Sheila Copps, Minister of Canadian Heritage, and received first reading on 8 October 1998, is the latest in a long line of measures to protect the Canadian magazine industry. (The Appendix to this Legislative Summary is a brief chronology of these measures.) More immediately, the bill is a response to the 1993 attempt of Sports Illustrated to produce a "split-run" edition for Canada; that is, an edition with editorial content mainly from the foreign edition but with advertising aimed at the Canadian market.
From 1965 until 1993, the government was able to use Tariff Code 9958 to the Customs Tariff to stop the physical importation of split-runs at the border. In early 1993, however, Sports Illustrated began to use satellite technology to transmit editorial content from the U.S. to printing plants in Canada. Though the result Sports Illustrated Canada certainly violated the spirit of Tariff Code 9958, there was no physical product to be stopped at the border.
Parliament subsequently used Bill C-103, an Act to amend the Excise Tax Act and the Income Tax Act (which received Royal Assent in December 1995) to impose an 80% tax on the value of advertising in a split-run edition of a periodical and thereby put an end to split-run editions in Canada. Although there had been recommendations that Sports Illustrated Canada be grandfathered, this was not done.
In March 1996, the United States took the case to the World Trade Organization (WTO). Canada argued that Bill C-103 dealt with services (advertising) and not goods (magazines). Services are handled under the less restrictive General Agreement on Trade in Services (GATS); goods are handled by the WTO under the General Agreement on Tariffs and Trade (GATT).
The WTO final report, deciding in favour of the U.S., was received in the middle of March 1997. The WTO ruled on four Canadian measures relating to magazines. It ruled against Tariff Code 9958 to the Customs Tariff, against the 80% excise tax imposed on split-runs, and against postal rates that differentiated between domestic and foreign publications. The fourth ruling went in Canadas favour by accepting the Canadian postal subsidy program for domestic periodicals.
In September 1997, after the WTO Appellate Body had ruled against Canadas June 1997 appeal of this decision, Canada notified the Dispute Settlement Branch that it would implement the decision by the end of October 1998. During this fifteen-month transition period agreed upon by Canada and the U.S., Heritage Canada floated several "trial balloons" of policy alternatives for protecting the magazine industry. These led, ultimately, to the tabling of Bill C-55.
The short title of Bill C-55 is the Foreign Publishers Advertising Services Act (clause 1). The word "services" anticipates any action against the bill under international trade law: by title, at least, the bill purports to deal with services and not goods, although this will not preclude arguments about the substance of the bill.
Bill C-55 states: "No foreign publisher shall supply advertising services directed at the Canadian market to a Canadian advertiser or at a person acting on their behalf" (clause 3(1)). Clause 2 contains definitions of "Canadian," "Canadian advertiser," "Canadian corporation and foreign publisher," while sub-clauses (2) to (7) of clause 3 clarify that publishers are deemed to be "foreign publishers" in defined circumstances (licensees, organizations controlled by non-Canadians) and define who is considered non-Canadian in agency situations.
The Minister would be able to designate an investigator to look into a supply of advertising services alleged to be in contravention of clause 3 of the bill. The investigator, acting under a search warrant issued under section 487 of the Criminal Code, would have powers to enter premises; require that documents be provided, in physical or electronic form; and inquire into negotiations and transactions to supply advertising (clauses 4(2) and 5).
The Minister could demand that a foreign publisher stop supplying advertising services that contravened the bill or not execute a planned transaction that would contravene the bill. If a publisher did not comply with such a demand, the Minister would be able to seek a court order prohibiting the publisher from supplying advertising services. When satisfied that an urgent situation existed, the court could issue the order on an ex parte application; that is, without the presence of the foreign publisher. Such an order would be effective for only 10 days.
The bill would allow fines of up to $250,000 for a corporation and $100,000 for an individual; if the court decided that there had been a monetary gain from contravention of the bill, an additional fine equal to the gain could be levied. A foreign publisher who committed an act outside Canada that, if committed in Canada, would be an offence, would be deemed to have committed the act in Canada (clause 15(1)).
Bill C-55 was referred to the House of Commons Standing Committee on Canadian Heritage, which reported the bill back on 2 December 1998 with four amendments. Two were technical and definitional, while two made proposals responding to the concerns of certain major periodicals.
Since 1976, Readers Digest has, under section 19 of the Income Tax Act, been a Canadian periodical. It achieved this status by restructuring so that it had exactly 75% Canadian ownership. An amendment to Bill C-55 (clause 2) would replace all its original references to "more than 75%," with "at least 75%," thereby allowing Readers Digest to retain its status as a Canadian periodical without additional restructuring.
Time magazine has long been able to supply advertising services to the Canadian market, and the original version of Bill C-55 would have grandfathered this ability by specifying that such services could be supplied "to an extent no greater than that to which the foreign publisher [had] lawfully supplied such advertising services" in the year before 8 October 1998, the date Bill C-55 was introduced in the House of Commons. The amendment (clause 21) would allow the foreign publisher to continue "to supply advertising service by means of that periodical." This amendment would remove a possible cap on advertising by Time; if the market for advertising in Canadian magazines were to expand, for example, Time would be able to maintain its share.
Soon after the bill was tabled, U.S. Trade Representative Charlene Barshefsky issued a press release that was highly critical of the Canadian action. She asserted that the bill perpetuates "longstanding anti-competitive policies" and is "protectionist and discriminatory." She added that "we are reviewing all options and intend to defend our trade interests vigorously in this matter." These options could include returning to the WTO or invoking NAFTA.
The U.S. position is that the bill would place continued restrictions on market access for magazines; that is, that the substance of the bill is still about goods and not services.
There is also opposition to the bill in Canada on the grounds that it would deny some Canadian businesses an opportunity to use attractive and new ways to reach a domestic audience. The Canadian advertising industry may challenge the bill under the Canadian Charter of Rights and Freedoms as a suppression of freedom of expression.
The Canadian magazine industry naturally supports the bill, as it would protect domestic sources of advertising revenue. Canadian arts groups also endorse the legislation, seeing it as part of the battle to protect Canadian culture from an American onslaught. As Minister Copps put it: "We must insist upon our own cultural space where we can express our ideas, our values and identity. This Act is consistent with Canadas longstanding cultural policies and respects our international trade obligations" (Canadian Heritage, News Release, "New Advertising Services Legislation Tabled," 8 October 1998). The Minister noted that, "We are not blocking foreign magazines from entering Canada. On the contrary, Canada will continue to have one of the most open markets in the world for foreign publications. More than 80% of magazines sold at Canadian newsstands are foreign, most from the United States." With respect to Canadian advertisers, Minister Copps noted that "they will have exactly the same opportunities to advertise as they have always had."
Again, whether the bill will be seen as respecting current international trade obligations will depend on whether the substance of the bill is deemed to be goods or services. Whatever the outcome of the battle, the bill is certainly being promoted in this country as part of Canadian cultural policy, while in the U.S. it is being seen as restrictive commercial policy.
There was considerable speculation in the Canadian press about how the U.S. would respond to the bill. One scenario had the U.S. introducing retaliatory measures with effects of commercial value equal to the effects of Bill C-55 on the magazine industry. In January 1999, Canadian newspapers reported that the U.S. planned to retaliate by blocking Canadian products from four sectors (steel, textiles and apparel, wood, and plastics). Estimates of the cost to Canada of such measures have ranged from $350 million (or less) to $4 billion.
As of the beginning of 1999, the situation can best be described as a "phony war." The U.S. has put nothing in writing and has said it will wait until Bill C-55 is enacted before deciding how to respond. Thus, how the U.S. will respond or the cost of this response is unknown. What is known is that the U.S. vehemently opposes Bill C-55.
CHRONOLOGY OF KEY EVENTS
1944: TIME Canada commences publication.
1960: Government of Canada establishes Royal Commission on Publications.
1961: Report of the Royal Commission (the OLeary Report) forms the foundation of federal policy regarding periodical publishing.
1965: Government of Canada adds: (i) section 19 of the Income Tax Act to restrict the ability of advertisers to deduct expenses for advertising in non-Canadian periodicals where the advertising is directed primarily at the Canadian market; and (ii) Tariff Code 9958 to the Customs Tariff which prohibits the importation into Canada of split-run editions of periodicals.
11 January 1993: TIME Canada Ltd. announces plans to publish Sports Illustrated Canada after confirming with the Government of Canada that this would not contravene Canadian law.
26 March 1993: Government of Canada announces establishment of Task Force on the Canadian magazine industry, five days before the first issues of Sports Illustrated Canada appear on the news-stands.
1 April 1993: Inaugural edition of Sports Illustrated Canada is available on newsstands.
8 April 1993: Letter from Deputy Minister, Revenue Canada to TIME Canada Ltd. states that the Tariff Code 9958 does not apply to Sports Illustrated Canada, which is printed in Canada.
July 1993: Guidelines under the Investment Canada Act are published in the Canada Gazette providing that an investment by a non-Canadian to publish a periodical in Canada is subject to notification, thereby making such an investment reviewable by Investment Canada.
24 March 1994: Task Force on the Canadian Magazine Industry delivers its final report which calls for the 80% excise tax but which would permit Sports Illustrated Canada to be grandfathered to the extent of seven issues per year (the number actually published in 1993).
22 December 1994: Canadian Heritage Minister Dupuy announces the governments intention to implement the Task Force Report, but without any grandfathering for Sports Illustrated Canada respecting the 80% excise tax.
22 June 1995: Bill C-103 receives first reading in the House of Commons.
25 September 1995: Bill C-103 receives second reading in the House of Commons and is referred to the House of Commons Standing Committee on Finance.
2 November 1995: Bill C-103 receives third reading in the House of Commons.
2 November 1995: Bill C-103 receives first reading in Senate.
7 November 1995: Bill C-103 receives second reading in Senate and is referred to Senate Banking Committee.
14 November 1995: Bill C-103 receives third reading in Senate.
15 December 1995: Bill C-103 receives Royal Assent.
March 1996: U.S. takes case to World Trade Organization (WTO).
January 1997: WTO gives preliminary decision in favour of U.S.
14 March 1997: WTO presents final report, in favour of U.S.; Canada announces that it will appeal the decision.
30 June 1997: WTO Appellate Body rules against Canada; Canada has 15 months, until 30 October 1998, to implement the decision.
September 1997: Canada notifies the Dispute Settlement Branch that it will abide by the ruling and implement the decision by 30 October 1998.
8 October 1998: Bill C-55 receives first reading in the House of Commons.
3 November 1998: Bill C-55 receives second reading in the House of Commons.
2 December 1998: Bill C-55 is reported back to the House of Commons by the Standing Committee on Canadian Heritage.
Sources: Sports Illustrated Canada, Information Sheet, 18 October 1995 and Parliamentary Research Branch, Library of Parliament.