Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 24 - Evidence
OTTAWA, Thursday, April 22, 1999
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-55, respecting advertising services supplied by foreign periodical publishers, met this day at 11:52 a.m. to give consideration to the bill.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I call the meeting to order.
Our first witness is Dennis Browne, who is the Director of the Centre for Trade Policy and Law. Following Mr. Browne's presentation, we will hear from Mr. Gordon Ritchie, former negotiator of the Canada-U.S. Free Trade Agreement.
Welcome, Mr. Browne. Please proceed.
Mr. Dennis Browne: Senators, thank you for this opportunity to appear and to present my views to you.
The culture-trade nexus raises increasingly important issues for Canada. In my view, Bill C-55 has to be considered in this broader context. I would like to make two points very clear to all of you from the start.
First, I believe quite fervently that Bill C-55 is a wrong-headed approach and should not be passed. In my view, its approach will not be helpful to Canada's broader cultural policy objectives, nor will it be in the longer best-term interest of the magazines themselves.
Second, I would be highly offended if you took from my statement the impression that I am not supportive of Canadian cultural objectives. I sincerely believe that Canadians must have opportunities to hear themselves speak in their own voices in every segment of the broad cultural sector, including magazines. I believe government policies should foster cultural expression. I am committed to supporting that objective. In my view, however, Bill C-55 is a very good example of how not to go about it.
I have given the clerk 30 copies of an article entitled, "Our Flawed New Magazine Policy," which was published in the January/February edition of Policy Options. It sets outs my views and argumentation more extensively than I can do today.
Let us turn to the bill. In considering it, I would like to deal with it under two broad headings. The first is its trade law aspect. The second is its general unsuitability to its purpose.
With respect to its trade law aspects, the drafters of the bill went to some lengths to make it fully defensible under international trade law. With respect to the WTO, they believe they have drafted the bill in such a way that it must be exclusively considered under the General Agreement on Trade and Services rather than under the GATT and that it will stand up to such scrutiny.
With respect to NAFTA, my conversations with the drafters suggest that there is some confusion in their minds as to whether the bill is consistent or inconsistent with our NAFTA obligations. In my view, it is inconsistent. However, they are confident that the U.S. has no right of retaliation in any event.
Let us consider first the WTO. I believe our drafters are correct in their view that Bill C-55 is not inconsistent with Canada's obligations under the services agreement. Thus, if we could confine any challenge of the bill to its consideration under services obligations only, then it is probably fully defensible. However, WTO jurisprudence is not clear on the relationship between the services agreement, GATS, and the goods agreement, GATT.
The panel in our initial split-run case found that two agreements exist side by side with overlapping elements. They also found that the most important measure that was then under consideration, which was the excise tax on advertising in split runs, may have been ultimately aimed at advertising but it dealt with magazines. Therefore, the goods rules, that is, the GATT, applied, and it was contrary to the GATT. However, their finding was not clearly expressed with respect to the relationship between the two agreements.
A subsequent case, the bananas case, sought to clarify the situation. That decision has made it more clear that a government cannot hide behind the provisions of one WTO agreement in order to remove the benefits that should accrue to its trading partners under another WTO agreement. This case opens the way to arguments by the United States that, while Bill C-55 clearly deals only with advertising services, its effect is to change the nature of competitive circumstances in the Canadian magazine market and, therefore, the goods rules, that is, the GATT, can also be applied. That is an argument that is open to the U.S. side. I am not saying that it is correct, but it is open.
We cannot project how a panel would deal with such arguments. However, the current state of jurisprudence is such that the U.S. reasonably could bring such a case before the WTO and the burden would be on us to limit consideration to the services agreement.
The drafters of Bill C-55 will readily acknowledge, if you ask them directly, that if a panel were to apply GATT obligations, the goods trade obligations, to Bill C-55, it would be found to be inconsistent with our obligations. Thus, we are at risk.
While we might withstand a WTO challenge, Bill C-55 is vulnerable to such a challenge. Personally, I think a panel would be inclined to accept the U.S. interpretation. I would not bet a year's salary on our possibilities of prevailing in such a case because it is the clear intention of the Canadian government to exclude split-run magazines from the Canadian market.
Let us now turn to NAFTA very briefly. It is quite clear that, under the bilateral Free Trade Agreement, Canada has no obligation to allow market access for U.S. magazine advertisers, the sellers of advertising services. We have no obligation to allow them to sell advertising services in Canadian magazines under the bilateral Free Trade Agreement. However, it is also quite clear that, under the NAFTA, we have no right to exclude U.S. advertisers from the Canadian magazine market. Thus, Bill C-55 does not breach our bilateral Free Trade Agreement obligations but it does breach our NAFTA obligations -- and I will explain this difference later if anyone is interested in a further explanation.
In either event, Canada is, of course, permitted to rely on the cultural exemption to take the measures in Bill C-55, but the cultural exemption also permits the U.S. to retaliate with measures of equivalent commercial effect, and this is what they are now threatening to do, as we all know. It is Canada's view, however, that, in this particular instance, the U.S. does not have the right to retaliate. This difference of view arises from the fact that the cultural exemption appears in the bilateral Free Trade Agreement and is incorporated by reference in the NAFTA. The words used in incorporating it by reference are very peculiar. Again, I can explain this further if you like, but, for now, let me say that Canada's interpretation of the cultural exemption in NAFTA is that it permits Canada to take any measure relating to cultural industries but it limits the U.S. right of retaliation to measures that are inconsistent with the bilateral agreement.
Canada's view is that the scope of the exemption is broader than the scope of the right of retaliation. The U.S. view, on the other side, is that the exemption and the right of retaliation were carried over equally and reciprocally to the NAFTA. I quote those words "equally and reciprocally" from the official statement of interpretation of the NAFTA that was published by the U.S. administration when they presented it to Congress.
The cultural exemption and its right of retaliation have never been used. They have never been interpreted, never been tested. Thus, it is impossible to say, if they were tested before a panel, how the panel would interpret the issue. However, whether Canada's interpretation would ultimately be found to be correct or not, we are still in the weaker position because the U.S. interpretation does now give them sufficient credibility to go ahead and retaliate against Bill C-55 if we implement it, and to retaliate at a level that they themselves determine. If Canada disagrees with that action, as obviously we do, then we have the right to invoke the NAFTA dispute-settlement procedures with a view to having the U.S. action set aside.
If we were to do that, two questions would arise. The first is: Does the U.S. have the right to retaliate? The second is: If they do have the right, has the level of retaliation been appropriate?
For both these issues, since Canada is bringing the case, the burden of proof would be on Canada, and the process of dispute settlement under the NAFTA takes at least nine months, often up to a year. During that period, while the dispute-settlement procedures were going on, the retaliation would be in place and Canada would be suffering the commercial damage that it inflicts. If that retaliation is carefully targeted, it could have the effect of bankrupting certain Canadian firms which are dependent on trade with U.S. customers. Even if Canada won the dispute settlement by the end of a year, the firms that were bankrupted would not recover; the damage would be permanent.
That is the NAFTA.
I would now like to turn to the second heading, and that is the question of general unsuitability of the bill itself. In light of the limited time, I will make my arguments very brief. They are more extensive in my magazine article.
I would first like to deal with the key question, and that is: Does Bill C-55 actually promote the expression of Canadian values, or is it there simply to protect established commercial interests in Canada? When introducing Bill C-55, Sheila Copps and Sergio Marchi spoke eloquently of the need for Canadians to be able to tell their own stories. I agree passionately with this view. It is extremely important that Canadians have ready access to Canadian interpretations of national and international events, interests, and ideas, and magazines are vehicles that carry these sorts of stories. In my view, we cannot survive as a nation if we are totally dependent upon foreigners to interpret the world to us. That is the basis of the argument.
If measures are necessary to foster such expression, then they must be taken by the government, but we must be sure that that is what we are doing. On its face, when you read Bill C-55, you will see that it has absolutely nothing to do with Canadian content. It does not mention it anywhere. It has everything to do with Canadian ownership and the protection of Canadian business interests. Its sole objective is to reserve a pool of money, estimated in the range of $400 million to $600 million a year, exclusively to Canadian magazine publishers. The assumption underpinning the bill is that only Canadian publishers will publish Canadian content. Therefore, the drafters say that the bill is all about content because, by protecting Canadian publishers, we are ensuring the availability of Canadian content. The definition of "Canadian publisher," however, is very draconian. How can we be sure that a magazine publisher with 75.1 per cent Canadian ownership will publish Canadian content and that a magazine publisher with only 74.9 per cent Canadian ownership will not? That is the assumption in Bill C-55 and, under Bill C-55, the former can have access to Canadian advertising but the latter cannot.
Maclean Hunter and Telemedia are both public companies, freely traded on the stock markets. There is no law to prevent foreign institutional investors to realize that here is a closely protected industry whose profitability is practically guaranteed by Bill C-55, and that perhaps they should buy some shares. They could inadvertently buy 25 per cent of the outstanding shares, not in one chunk but several of them. In that case, all the magazines they publish would become non-Canadian, and they would all be forbidden from carrying Canadian advertising. Is that the outcome the government seeks? I do not know.
Now we can go to the larger objective in the cultural sector, well beyond the concerns of magazines. Here, our policy objective -- the one that is of interest to me, at least -- is to have international trade law recognize the specificity of culture so that governments will be free to take measures to foster culture creators and to ensure the availability of domestic cultural expression to their citizens. This is an objective well worth pursuing and, in my view, it should be given a high priority on Canada's international trade agenda.
The difficulty that Canada faces in pursuing this objective is the contrary view, the view held by our opponents, that we tend to use very high-sounding arguments about cultural necessities and cultural principles simply as cover for measures that will distort the market in order to provide benefit and profitability to established Canadian commercial interests. Bill C-55, with its focus exclusively on a very draconian definition of Canadian content, plays directly into the hands of those who would oppose our gaining broader and more favourable international trade rules that treat trade in cultural products.
If Bill C-55 were content-based rather than ownership-based, it would support our broader objectives.
I mention the assumption. If the assumption is that only Canadian magazines will publish Canadian content, then any measure we put in place that is content-based will benefit only Canadian magazines -- if that assumption is correct. If the assumption is not correct, then it should not form the basis of Canadian policy because it will only mislead us in the longer run.
Thus, our focus in whatever measures we take in the cultural sector should clearly be on fostering content rather than on protecting owners. The difficulty that immediately arises with this is: What is Canadian content? What is Canadian culture? What is it that we want to foster and protect? We have no definition. I have never seen a definition of "Canadian content." If we are to have a coherent policy approach, then we must answer this question first.
Difficulties arise in dealing with this question, with concerns about freedom of expression, if our definition of Canadian culture is too restrictive. In the ongoing debate, some people have been causing difficulties, in my view, by insisting that Canadian content in magazines should consist of stories by Canadians, about Canadians, for Canadians. This is far too stringent. In my view, a Canadian interpretation of what is happening in Kosovo is just as much an expression of Canadian cultural values as is a Canadian interpretation of what is happening in British Columbia. I am not suggesting there is any similarity between the two places.
Therefore, a much simpler definition will be more suitable. I believe we could safely say, in the case of magazines, that any story written by a Canadian living in Canada is an expression of Canadian values because we know for sure that it is an expression of at least one Canadian's values.
If we are to adopt such a definition and then put in place incentives to ensure that such stories are included in magazines that are distributed in Canada, we could reach the objectives stated by Ministers Copps and Marchi when they introduced Bill C-55. We would ensure that Canadians have access to Canadian stories. We might even increase opportunities for Canadian writers to tell and to sell their stories.
What I have in mind -- and there may be other options -- is some sort of sliding-scale tax incentive that would reward advertisers for placing their ads in magazines that consist of, for example, 40-80 per cent Canadian content, irrespective of the ownership or nationality of the magazine. Then, it would not contravene the basic principle of international trade law that you must not discriminate between foreign and domestic product in your marketplace. It would achieve the objective of having Canadian stories available to Canadians. If only Canadian magazines could reach these content requirements, then all the benefit would go to Canadian magazines.
This leads me to the next question: Why is Bill C-55 not in the longer-term interest of Canadian magazine publishers? Quite frankly, because it does nothing but freeze the status quo. Any time you implement regulations that are backward looking rather than forward looking you do a disservice to Canada and to Canadians.
How long has it been since we have seen a new mainstream magazine in Canada? Is the Canadian market large enough to support new mainstream magazines capable of competing in Canada with the foreign glossy magazines that are already widely available in our marketplace? Will Bill C-55 foster the creation of new approaches to magazine publishing in Canada and the development of new vehicles to tell Canadian stories? To my mind the answer is no, I do not think it will.
In all likelihood, innovation in the Canadian magazine market, and in whatever new technologies will emerge that will change the nature of the magazine market, will require some form of international partnership, either through capital injections for Canadian publishers or through joint-venturing. Bill C-55 is intended to ensure that this never occurs. I will illustrate the point with one very brief example.
Canadians currently buy thousands, perhaps even millions, of copies of magazines that showcase American celebrities. They know practically nothing of Canadian celebrities such as they are. Would it make sense for a Canadian publisher to enter into a joint venture with a publisher of a U.S. glossy magazine that would initially attract Canadian readers by showcasing the American celebrities they are so interested in but also showcase Canadians and build Canadian interest in our own excellence? I think it would make sense, if it could be done. It would certainly contribute to a greater appreciation and broader development of Canadian culture creation. However, under Bill C-55, it will not happen. My question to you is: Is this a good policy approach? I think the answer is obvious, but it is a question that I put to you.
Let us now turn to the question of predatory pricing of advertising sold in split runs. This seems to be the basis of the whole thing. The argument is that letting split runs into the Canadian market will permit American publishers to undercut Canadian advertising services and, ultimately, put Canadian magazines out of business. In such circumstances, some split-run publishers may very well resort to predatory pricing.
Some foreign steel manufacturers also resort to unfair pricing in order to sell their product in the Canadian market. They dump it into Canada. Our response in the steel market is that we go after the dumpers, we push their prices up and we do not allow unfair pricing. We do not say, "We know some foreign steel producers will price unfairly in the Canadian market. Therefore, we will prohibit the import of any foreign steel into Canada." That is the approach we are taking in Bill C-55.
In Bill C-55, we are saying, "There is a very good possibility that some foreign publishers will dump their advertising services into Canada and will follow unfair pricing practices in Canada. Therefore, because some of them will do it, we will not let any of them in here."
To me, that is not a very bright way to proceed. It seems to me that we should examine our competition and our trade laws, with a view to coming up with more effective mechanisms to deal with unfair pricing practices in the services market, allowing trade to take place.
Finally, there is a question of extraterritoriality. The way the bill is set up, the illegal action under the bill will not take place in Canada. The bill does not say that it is illegal for Canadians to advertise in split runs. It says that it is illegal for foreign publishers to offer advertising services to Canadians aimed at the Canadian market. Thus, it is the foreign publisher who is in breach of the law. In all likelihood, the foreign publisher will be sitting in New York where he will accept the order, offer the service and receive the payment. Therefore, the transaction takes place completely outside Canada. The bill has a wonderful provision. It provides that any action taken in contravention of this bill, which takes place outside Canada, is deemed to have taken place inside Canada. It is very slick.
Do we really want to extend the reach of Canadian law beyond our borders in this sort of instance? Can we imagine that the U.S. government would fail to intercede if the Canadian government seized the assets of a U.S. firm for conducting its business in the United States entirely within the law of the United States? I just cannot imagine it happening.
Will we stand to gain more through this extraterritorial application of Bill C-55 than we will lose? We could lose through the extraterritorial application of U.S. laws relating, for example, to anti-trust, trading with the enemy, extradition and dealings with Cuba. These have all been very real problems for Canada. If we reach out and seize the assets of U.S. publishers for acting legally in the U.S., can we then argue with the United States that they are prohibited from capturing Canadians who we do not want them to extradite, or restricting our business under their trading with the enemy legislation, or punishing Canadians under their anti-trust laws when we think they should not? I very much doubt it.
Those are my key points. I would be happy to answer any questions you care to ask.
Senator Lynch-Staunton: Thank you for a very provocative presentation. You are here as an individual?
Mr. Browne: Yes.
Senator Lynch-Staunton: You are stating your own views?
Mr. Browne: That is correct. I do not represent the university or anyone else.
Senator Lynch-Staunton: You have not given your views to anyone who has an interest in this bill?
Mr. Browne: No.
Senator Lynch-Staunton: I just wanted to clear that up in case there is any question. I want to first dispute one thing you said, and that is that Canadians do not know celebrities. You have to exclude Quebec from that. There is a very flourishing publishing industry in Quebec and I do not know of any Quebecer who is not aware of the celebrities in the entertainment, business and political fields. It is very flourishing and could be copied elsewhere but unfortunately is not.
I want to talk to you briefly about Canadian content. You say there is no definition of Canadian content, and yet there are discussions or negotiations that have been going on in Washington where this topic has come up. Are you familiar with what has been going on down there and what their definition of Canadian content might be?
Mr. Browne: I have been reading in the technical press what is going on in the United States. I gather, yes, they have been suggesting that they are prepared to accept a content-based rule. They would like the threshold much lower than we would like it, of course. I do not know how they define Canadian content. My concern would be if they define Canadian content as stories by Canadians living in New York or Los Angeles or wherever, because I think we should ensure that Canadian content relates to stories by Canadians living in Canada.
When I say there is no definition of content, what I should have said is that there is no definition of culture, Canadian culture. There are definitions in laws relating to films and television and music, and they define Canadian content in terms of who writes, who produces, who sings, who acts, who directs, those sorts of things, but there is no direct definition of what is Canadian cultural expression. It is always couched in terms of the actors, who are, generally speaking, producing and distributing. The creator plays a rather small role. I do not know what the definition there is.
The latest thing I have read is that those discussions have moved off the content base. I am sorry to hear that because I believe it was going in the right direction.
With respect to Quebec, I agree entirely with what you say. I should have prefaced my remarks by saying I am dealing only with English-language magazines, and I think the problem with the U.S. is always in the English-language culture market rather than in the French-language culture market.
Senator Lynch-Staunton: This is more a reflection than a question, but I was astounded to hear the other day that a Canadian publisher, identified as a Canadian publisher and benefiting from the Income Tax Act as a result -- section 19, I think -- does not have to publish Canadian content, as I would describe it, which means having a Canadian feature to it.
Mr. Browne: That is right. The same applies with this bill.
Senator Lynch-Staunton: So it really has nothing to do with culture or encouraging Canadian writers.
Mr. Browne: Absolutely.
Senator Lynch-Staunton: It is discriminatory, in the sense that it shuts out rather than includes, so it is a negative bill.
Mr. Browne: Yes.
Senator Callbeck: Continuing with that definition of Canadian content, you talk about stories by Canadians living in Canada. Would that not disqualify many people? For example, I read where you were Consul General in Los Angeles, so would you have been disqualified when you were living down there?
Mr. Browne: I suppose legally my residence was a part of Canada. Paul Anka has been living in the United States, in Los Angeles, for about 30 years, writing songs. Would you say that, because he is an expatriate Canadian, who still has family and connections here, his songs express Canadian culture? Would you say that, when he writes a song for Frank Sinatra to sing, saying, "I Did It My Way," it is an expression of Canadian culture? I do not think so. I think that is an expression of an expatriate Canadian's culture, which may be based in his childhood values but which is influenced by his milieu.
Senator Callbeck: So there would be a difference, then? You say he has been there for 30 years.
Mr. Browne: Thereabouts.
Senator Callbeck: I want to go on to something else here. The Canadian Parliamentary Review ran an article that you wrote on Bill C-55, in which you say that C-55 is carefully designed so that it is obvious that it addresses the sale of advertising services rather than the sale of magazines. You go on to say that, as a consequence, the WTO panel should be obliged to apply service trade rules and that, because Canada undertook no GATS obligations regarding international trade in advertising services, the measure is likely to withstand WTO challenge.
You said that Bill C-55 is likely to withstand a WTO challenge. In testimony, Minister Copps has said that the Canadian ambassador to Washington has told the Americans that we have no problem in taking Bill C-55 for a ruling by the WTO. The Americans have resisted. Do you feel they have resisted because they feel they will lose?
Mr. Browne: No. I might clarify something. You will notice that, in my testimony today, I said that it would likely not withstand the challenge. That is because, since writing that earlier article, the banana decision has come out, and I think it has changed the law a little bit. It has clarified the law, so that in all likelihood the bill would be considered under the GATT as well as the GATS. If it is considered under the GATT, it will be found to be inconsistent with our obligations. As to the two agreements, we would be consistent with one but inconsistent with the other.
Why are the Americans not challenging? I think that is because the dispute-settlement process under the WTO is even longer than under the NAFTA. There is no way we can obtain an advisory opinion from the WTO. There is no provision in WTO procedures for that to happen. The only way to do it is to bring a case and go through the whole process. That takes about 12 to 15 months, and then the losing party has another 15 months before it has to implement the finding. Thus, you are looking at well over two years before they would get a result. They do not want to wait that long. They want a result now.
They also do not want to establish the precedent where countries are encouraged to do what we have done, that is, have a regime in place that excludes split-run magazines, have the regime found to be quite inconsistent with our trade obligations, and then have us tinker with it slightly, and say: "We will continue to exclude the magazines but we are going to do it on a different basis. If you bring this case against us and we lose, then in a couple of years from now we will tinker with it a bit more and get another two and a half years of peace." That is what the problem is with the U.S.
Senator Callbeck: In other words, the length of time before there would be a result.
Mr. Browne: I think so, and there is a principle. The Americans are now having considerable difficulty with the Europeans, in getting them to implement findings against them. We have used some very clever, legalistic tricks to ensure that we have technically implemented the finding against us, but we have immediately put in place a new measure that would maintain the status quo. This whole thing is very distasteful to the Americans, and I do not think they like it. They can get immediate action. They can inflict damage upon us, under the NAFTA, and that is a better course for them.
Senator Kinsella: In your article, you alluded to the issue of free speech. You expressed the view that, under the Charter of Rights and Freedoms, the bill would be struck down by the Supreme Court.
Mr. Browne: It could be.
Senator Kinsella: I think it will be because I do not think it comes near to meeting the Oakes test, which would allow a law to be saved by section 1. You said that, on the face of it, Bill C-55 has nothing to do with Canadian content and everything to do with Canadian ownership. Will you elaborate on that?
Mr. Browne: Your first question was on freedom of expression. It is up to the advertiser to raise the issue. Should it arise, Canadians would be denied a platform that freely circulates in our society from which to express their views, while Americans could use that platform to express the view that it is better to buy American than Canadian.
The law is such that a case could be made. I try never to predict the outcome of cases absolutely, but a case could be made and the Supreme Court could very well find in favour of the advertisers and say, yes, Canadians do have the right to use the platform of U.S. magazines that circulate in the Canadian market.
The second question is whether the bill has everything to do with ownership and nothing to do with content. We have already touched on that a little bit. I do not have the bill before me, but clause 3 contains the whole thing. It simply says that it is illegal or prohibited for a foreign magazine publisher to offer advertising services to Canadians aimed at Canadians. Then you get into defining a foreign publisher, defining a Canadian, and so on. That is all you are dealing with.
I have a condo in California and many of my friends have condos in Florida. Two of us could get together and publish a Canadian magazine that does nothing except reprint and distribute local news articles from the communities in which our condos are located. We want to know what is going on in those communities and whether we are still safe, et cetera. This magazine would be aimed at snowbirds in Canada, to advise them how things are going around their foreign residences, and make no mention ever of anything Canadian nor anything to do with Canada. Yet under Bill C-55, we would be Canadian publishers of a magazine fully entitled to use Canadian advertising.
Senator Kinsella: On the latter point, clause 3 of the bill would never meet the test of minimum impairment, which is the test that must be met for the statute to be saved, if it can be saved, under section 1?
Mr. Browne: I will not disagree with you. That is possibly right. I am not an expert on constitutional law.
Senator Kinsella: Have you looked at this bill from the standpoint of making amendments to it? Do you think the bill in any form could obviate the problems you have articulated under the international rules? I would also be interested in it meeting our domestic standards. Do you think the bill can be fixed?
Mr. Browne: It could be fixed through extensive re-writing; however, it would be so extensive that you would even have to change the title. If the ownership test were removed, if the reference to foreign and Canadian publishers were removed, and if it simply dealt with Canadian magazines, it may survive, but it would likely have to be a tax bill.
Senator Kinsella: What went wrong in the department, in your view? What do you think went wrong in the Department of Canadian Heritage such that they came up with this model, this approach?
Mr. Browne: I think the Department of Canadian Heritage consulted very closely with magazine publishers in formulating the bill. Magazine publishers are identical to other businesses, in that when they have a preferential situation they would like to keep it. Therefore, the objective of the bill became maintaining the advertising revenues exclusively for Canadians and keeping split runs out of magazine market. That is the primary objective.
The officials should have sat back and taken a broader view, and ask how we can foster Canadian stories in Canada. I agree with their assumption that, in all likelihood, very few foreign magazines will carry 40 per cent Canadian content under any definition. They could have come at it from that kind of approach. They could have put it in a different context and come up with something that would be defensible internationally and that would meet the needs of Canadians and Canadian law.
Senator Rompkey: Like Senator Lynch-Staunton, I wanted to remind our witness that there are parts of Canada where we do have celebrities. Mary Walsh's name may now be recognized in Quebec, but she certainly has for a long time been recognized in the households of Newfoundland and Labrador. That was partly because there were magazines that carried stories about her and she was given some prominence on CBC television.
As to whether Paul Anka is still Canadian, that is very difficult issue to define. We have a saying in Newfoundland: You can take the boy out of the bay but you can never take the bay out of the boy. I think the same thing is true with Paul Anka to a degree because surely culture goes far beyond where you live. A person's values do not just manifest themselves in the latter stages of life. The things that influence a person views and values go back much earlier in time.
I am still prepared to accept that Paul Anka is Canadian, as is Dan Akroyd and, by the way, Wayne Gretzky, another prominent Canadian who lived abroad for some years, who made a contribution to U.S. culture but who is still very much a Canadian and admits such.
What is our definition of a Canadian? That is very difficult to pin down.
I want to ask you about your tax incentive. The government's position is revenue-neutral. It seems to me that yours is not. I want you to tell Canadians where you will find the money because you are suggesting a tax incentive on a sliding scale. Government money for magazines can be found in one of two places -- either by raising taxes or cutting programs. Would you raise taxes to provide the money, or would you cut programs and, if so, what programs you would cut?
Mr. Browne: Having been a public servant during time of great spending restraint, I know precisely what you are referencing. We were frequently faced with those sorts of issues. I feel strongly that the government should find ways to foster Canadian cultural expression. It is worth a subsidy, in my mind.
In this case, we are talking about relatively small amounts. The Minister of Heritage puts the value at about $600 million a year. The advertisers tell me that in fact it is only about $430 million a year. That is not a lot of money. The government is projecting a $8-billion to $10-billion surplus. I do not think we will have to cut programs to give that amount of money to magazines.
I do know cost that is a very real issue; I do not mean to be flippant. It is a value decision that we must take. Is this worth supporting; if so, are we willing to pay for it?
As General McKenzie says, if we are going to go to war, we have to be prepared to die.
Senator Rompkey: But we do not have to be prepared to raise taxes or to cut programs. As I said before, this particular measure is revenue-neutral. It neither raises taxes nor cuts programs.
Mr. Browne: It is also indefensible and wrong-headed.
Senator Rompkey: I wonder if it is. You talked about dumping. Is split-run activity not a form of dumping? Surely what we are talking about here is dumping by American firms of their product in Canada. Is this bill not an anti-dumping measure?
Mr. Browne: That is not technically so. Anti-dumping does not extend to services at the moment. In my longer article I suggest that maybe we should consider applying it to services, although my colleagues in the Department of Foreign Affairs will be aghast at such a proposal.
If that is what we are trying to do then the correct approach is to, as I said, put in place competition laws that will punish those who actually engage in predatory pricing and allow those who are willing to compete fairly for Canadian advertising to compete. We are saying that since one of 100, or 10 of 100, whatever it is, will compete unfairly, all 100 will be excluded. That is my problem.
If I could come back to the question about defining Canadian culture, Rohinton Mistry lives in Canada, writes extremely good books and wins international prizes. Michael Ondaatje, author of The English Patient, lives in Canada and is a Canadian citizen. We embrace them as creators of Canadian cultural expression. Under your definition are they not Indians? Are they not expressing Indian culture?
That is where you get into trouble. We cannot say that every Canadian who leaves Canada and lives somewhere else still expresses Canadian culture, but every foreigner who comes to Canada and lives here expresses Canadian culture, not their former culture.
Senator Rompkey: I would accept them as giving a Canadian point of view. They are here now living in this country. However, it is very difficult to define. If we are to start defining who is and who is not a Canadian and what is and what is not Canadian culture, and to try to put that into some form of legislation in lieu of what we have before us, it is a very difficult exercise. Indeed, I believe that is your main point. We can all have a definition of who is and who is not a Canadian, and what is and what is not Canadian culture, however, they are very difficult to define, you must admit.
Mr. Browne: I agree, and I know politicians are very averse to taking that step.
Senator Adams: Following up on Senator Rompkey's point, I am from a different culture than you, however, I am still Canadian. I have some difficulty with how you recognize Canadian culture. Most of the people here, or in Atlantic Canada, you can call immigrants. My people have lived here for 5,000 years.
You mentioned snowbirds. Most of the snowbirds migrate to the Arctic. The same is true of snow geese. All the birds migrate to the Arctic in the summertime and then leave again in the fall. That is part of our culture.
You mentioned Indians. If I were to say that your culture is Canadian, if you come up to the Arctic can you survive in an igloo? I had a little difficulty with Sheila Copps. When she appeared before our committee, she mentioned preserving Canadian culture for her daughter. We have the same thing. We have a different culture, however. Canada only recognizes two languages, and my language is not recognized.
Mr. Browne: I should clarify that when I mentioned "Indian" I was not referring to North American Indians, but to two individuals who grew up in India, then came to Canada as adults but who now express, in our view, Canadian culture. I believe it is equally appropriate to say that a Canadian who goes to the United States and lives there for 30 years then expresses American culture rather than Canadian culture. That is the point I was making.
I am a first-generation immigrant. I have lived my life in Canada, except for approximately 18 years of my adult life which I spent abroad representing Canada. I still feel that I am very much Canadian and that the values I express represent Canadian values.
The Chairman: I should like to invite Mr. Gordon Ritchie as our next witness.
Welcome, Mr. Ritchie, to the Standing Senate Committee on Transport and Communications. As you well know, we are reviewing Bill C-55, An Act respecting advertising services supplied by foreign periodical publishers. We thank you for appearing before us as the former negotiator of the Free Trade Agreement. We believe you have a presentation before we move on to questions.
Mr. Gordon Ritchie: If you wish, Madam Chair, I could make a few opening comments. I was asked to talk a bit about trade issues surrounding the bill.
The Chairman: That would be appreciated.
Mr. Ritchie: At the outset you should know that I did serve as a director of Telemedia Inc. for some 10 years while it was a public company. It, by the way, is no longer a public company, as Mr. Browne indicated, and that I am afraid is not the only factual point on which I will be disagreeing with my friend, Mr. Browne.
I did serve as a director and I did advise them on a number of issues, including trade issues, although I do not at present have any connection whatsoever with anyone involved in any aspect of this legislation. Needless to say, my views are my own, and I do not speak for anyone else.
That experience with Telemedia certainly does not make me an expert on the magazine industry. However, I do have some familiarity with dealing with the Americans on these issues. I thought it might be most helpful if I quickly tried to identify five of the key questions that if I were in your place I would be asking. In some cases I may be able to help with the answers and in others I cannot.
Those questions are these: First, why not simply let open markets decide? Second, if government must intervene, will Bill C-55 do the trick? Third, is it compatible with our international obligations? Fourth, if they do not like what we do, do the Americans have the right to retaliate? Fifth, how do we get out of this mess?
On the first issue, as many of you know, I believe that as a general rule open markets do produce the optimum outcome. However, like any rule, there are exceptions. In my view, the cultural industries are clearly such an exception, for reasons with which you are familiar, including the characteristics of the industry, the fact that it really sells advertising, not strictly publications, that the editorial cost is up front, whether you sell one copy or 100,000 or 1 million copies, and that the production costs are actually quite marginal.
As a result of the economics, if it were an open market, I believe that everyone accepts that the Canadian market would be flooded with magazines directed at the bigger American market in terms of their content. That would include unadulterated American magazines and magazines that we call split runs.
These magazines would offer themselves and their advertisements at marginal cost -- which would be the rational business thing to do -- which in any goods-producing industry would of course be known as dumping. With great respect to your previous witness, I believe Senator Rompkey was absolutely correct, this is dumping. In any economic terms this is dumping. In legal terms it is not dumping because we have not satisfied ourselves that we could enforce the application of these rules to the service sector, which is why we have used devices like Bill C-55 to try and fill the gap. We are talking here not about what would be called fair trade; we are clearly talking about dumping.
If I were advising Canadian publishers how to respond, as in the past I have, I would depend on their strength in the situation. Some of them clearly would fold. Others should merge or should sell themselves to American counterparts if they are permitted, as they would not now be. For the stronger ones, the rational response would be to strip out Canadian content in order to go after the American market, preferably a niche market.
Why strip out the Canadian content? Because it does not sell in the U.S. Again, we can discuss that, but the marketing analysis is very clear that if you have a Canadian flavour, if you talk about Toronto instead of Chicago, do not expect to sell your publication in the United States. The result of that reality is a significantly reduced Canadian content.
You must judge whether this is important. From your previous witness, I believe it is important. I believe we already have few enough avenues of communication among ourselves.
Will Bill C-55 do the trick? I am not at all clear on that. Two questions are embodied in that.
First, will it keep alive the Canadian magazine publishers? I believe they tell you that it will, and I defer to them because they will be putting their money on that judgment. They believe that Bill C-55, in combination with other measures including tax breaks and subsidies which they now enjoy, will be sufficient for them to survive. By the way, some will argue that subsidies would be enough. That simply fails to understand the nature of the industry. No amount of subsidy would make a magazine viable if you stripped out the advertising content.
The second issue underlying this question is whether it will achieve the level of Canadian content that we are seeking, and that is a very tough issue. I do not understate it for a moment. It is extremely difficult to define. We are reluctant to define it by having some board of censors determine what is acceptably Canadian and what is not, to make a qualitative, highly subjective, arbitrary decision. That is why we use proxies, which are inadequate and inefficient but are the best we have until something else comes along. One proxy is ownership. Another proxy is the kind of point system we use in broadcasting. There are other suggestions like the suggestion Mr. Browne put forward, which I personally must tell you I would find offensive. I would find it objectionable if the work of someone who is outside the country, or that of landed immigrants, who have contributed some of the best of our most recent literature, do not qualify as Canadian content. I do not believe that that is the magic bullet.
You are faced with the problem that you are making the bold leap of faith with this bill that Canadian ownership will produce Canadian content, and by and large that is true. However, in important respects, the two do not match perfectly.
There is a serious public policy issue here, not only in magazines but, as you know very well, Madam Chair, in all the other cultural industries.
The third question is, does this contravene our international obligations? First, what about the WTO decision? Canada is a major trading nation and obviously has a critical stake in the success of the WTO. We played a leading role in hammering out those rules. If we now insist that others play by those rules, we must play by them ourselves. There is no question about that at all, but let us be clear on what the rules and decisions of the WTO are.
That decision on split runs has been widely misunderstood, and indeed, actively misrepresented. It did not bar Canada from protecting our cultural industries. Indeed, it explicitly recognizes our right to do so. It challenged the specific excise taxes and inappropriate instrument. It did not bar Canada from adopting alternative measures. In fact, I find that logic, frankly, astonishing and naive. The point of that kind of WTO decision is to say, "Okay, your objective is legitimate, but the instrument is not right. Find an instrument that will do the job." That is exactly what are you engaged in right now -- determining whether Bill C-55 will do the job and conform to the WTO rules.
To suggest that somehow this is delay or foot dragging on Canada's part, or that it is an inappropriate response, is simply balderdash.
To be blunt about it, any comparisons between this and the banana case are naive and simply false. That is a very different set of issues where the Americans have legitimate grounds to believe that there have been games played on both sides of that issue.
If the Americans believe that this measure is contrary to the WTO, they have every opportunity and every right to make their case.
You have had analysis about it. Mr. Browne has given you his. I would disagree. I believe a very good case can be made for Bill C-55. The last time I checked, to put it in negotiators' terms, the Americans did not pay for access to our advertising services market either under the WTO or NAFTA. If you do not pay for it, you do not claim it as your right. The best evidence is in fact the very obvious American reluctance to abide by an appeal to the WTO on this.
Do they have the right to retaliate? Let us be very clear. The WTO did not authorize the Americans to take unilateral action against Canada. Unless and until the issue is taken to the WTO, unless and until those measures are found non-compliant, and unless and until the WTO authorizes retaliation of what is determined to be commensurate value, the Americans have no right to retaliate. Even if all those conditions were met, I can assure you the retaliation would not be of the magnitude they have been bandying around, this $4 billion on lumber and steel and plastics and what have you. That is simply nonsense. The Americans have no right to retaliate whatsoever under the WTO.
What about NAFTA? I was frankly astonished by Mr. Browne's presentation. I am afraid it misunderstands the cultural exemption, with which I have some familiarity since I negotiated the thing. Let us be clear. Mr. Browne is right in that that we undertook absolutely no obligations with respect to advertising services. Anything we did with respect to advertising services would not contravene NAFTA. The cultural exemption says very clearly, as clearly as we could find language to say it, that Canada may take any measures it chooses with respect to the cultural industries, and if those measures would otherwise offend against NAFTA, as this clearly does not, then and only then would the Americans have the right to seek authorization to retaliate with equivalent commercial value.
If you accept Mr. Browne's premise that the Americans do not have a right to gain access to our advertising services market, you must then also accept that they have no right of retaliation.
By the way, I must say that it does strike me as very Canadian to take the view that somehow, if the Americans do not like what we do, they are free to attack us, and, if they attack us, our response should be to take them to court. If I were advising the government, the day that the Americans introduced any measures purporting to be retaliation, I would retaliate with equivalent value on industries of particular sensitivity to them. I would be fully within my rights to do that, or at least I would be as much of an outlaw as the Americans would have been.
I find it a little awkward to have to say to you that the Americans' threats are illegitimate. They amount to the threat of unilateral action against their biggest and best partner because we will not roll over and play dead and insist on following WTO rules.
That does not mean that I do not take these threats seriously. In my view, the Clinton administration has a much broader agenda. Part of it is to show Congress, here and in other fields, that it is a tough defender of American interests around the world. It is intended as a warning to other trading partners and other industries that the Americans are prepared to play hard ball. It is designed to help influence the agenda for the upcoming round of WTO negotiations in which they know Canada and other countries will be seeking, as Mr. Browne indicated, to recognize the special status of cultural industries, and they are seeking right now to pre-empt that with a strike of their own.
I must say also that based on their track record and their experience, they may well believe that Canada will cave under pressure if it is properly applied. That, in my view, is why they are playing this game of divide and conquer, and it has worked to a T. When the Canadian steel producers come in to say, "Please, please, accommodate the Americans on this issue so we do not get hurt," their strategy is working much as they thought it would.
Those few of you who have read my book will know that I am not surprised by these tactics. I do not blame them. They are pursuing self-interest. So far, so long as these are only threats and not actions, they are playing within the rules, and I do not blame them.
I do not take these threats lightly. In my view, they are premature, grossly exaggerated and unfounded. However, stranger things have happened in Clinton's Washington. This thing could get very messy indeed.
The final question is how we get out of this mess. I have no magic solutions, however, I would suggest that in these cases generally we find that when there is fundamental disagreement over the policy objectives, we nonetheless achieve agreement by working on the means used.
I believe that Canada should hold firm to the basic policy goal of ensuring that Canadians have substantial access to magazines that speak to them. End runs and split runs need not apply; they do not meet that requirement.
I believe that is the fundamental objective on which Canada must be unyielding. If the Americans take the position that their unyielding requirement is that they be allowed 100 per cent of this market, then we are in for a trade war. However, I do not believe that they are that foolish. Therefore, if they are prepared to show reason, I believe that Canada must be highly flexible about the means to achieve its goal.
Bill C-55 may do the job. It is the proposal before you until something better comes along. My concern is that it takes two parties to negotiate. My understanding is that, to this point, the Americans have not been prepared to come forward with constructive proposals of their own and, therefore, I understand the frustration of Canadian officials and ministers.
In the longer term, I believe the only solution is to recognize in the WTO rules, as we do in the NAFTA rules, and did in the original FTA, that cultural industries are different and are governed by different rules. However, I must say that the likelihood of getting the Americans to agree to that proposition is not very high.
Therefore, both in the short term, over this particular dispute, and in the long term, in terms of the way cultural industries are treated in the future, I am afraid we are in for some tough times. It will be essential to be pretty cool-headed, while being tough-minded about our purposes.
Senator Lynch-Staunton: I have just one question. It is the same one I have been asking and Mr. Browne was quite precise on the matter. I will read to you what he told us. He said that on its face Bill C-55 has nothing do with Canadian content and everything to do with Canadian ownership and business interests. Do you agree with that statement? You did touch on it in your preliminary remarks.
If that is a reasonably accurate statement, we must get away from this Canadian identity, Canadian culture, Canadian content business and get down to the hard facts that this is a trade issue we are talking about. The rest is really fluff and just distracts from the real issue by putting some emotion around it.
Mr. Ritchie: This is an extremely difficult issue. It is not limited to this field. We have used proxies. With respect to Mr. Browne's proxy, the moment you looked at it, it fell apart as well.
Therefore, in a sense, the answer would be, as Churchill said about democracy, that it is a lousy system, but it is better than the alternatives currently before us. You must satisfy yourself that is the case. There may be other alternatives that are better, but I have not seen them yet.
Whenever in my professional career I have been confronted with this issue, I have always looked behind the flag to find lurking the commercial interest. Where the commercial interests were using the flag strictly as a reason to advance their own interests, I have tried to weed them out and chase them from the temple.
In this case, you must judge whether that is true. I can tell you that if I were advising a company like Rogers or Telemedia, I would not be advising them that this would be the end of the world for their companies. I would be telling them that they have business strategies they could follow which might well make their companies profitable and saleable. Those strategies unfortunately, would involve stripping the magazines of Canadian content.
Therefore, a good business decision might not be in the national interest. In order to promote a national interest, you may have to do something that would induce them to maintain a level of Canadian content in the magazines to continue to serve a Canadian market. That is what this bill is intended to do.
However, you may choose to categorically refuse to allow the commercial interests to cloak themselves in the flag in coming before you. I do not believe that to be the case in this instance, however, I lived with Telemedia for 10 years and that may very well colour my view on this particular issue.
Senator Spivak: You said that it is not clear whether Bill C-55 is the best alternative. We have heard that the discussions in the United States concern the amount of Canadian content. Mr. Browne said they have moved from that.
Do you think that that is an alternative approach? Ultimately, we may be confronted with a compromise arising from the negotiations, or if there are amendments to this bill. What do you think of an alternative? What is your view?
Mr. Ritchie: I wish them Godspeed.
Senator Spivak: Do you think it would be as good as this?
Mr. Ritchie: I must tell you candidly that I have spent 30 years defending the right of Canada to maintain policies of cultural promotion and protection. I have not liked any of those policies. However, I have liked them better than the alternatives.
That, unfortunately, is where I come out. I have tried in the past. I have gone back to the heritage ministry or its predecessors when I was in government and said, "Look, what you are doing is a protectionist thing. Can you not find some better way to do it, to ensure that there is Canadian content on our airwaves and in our magazines?"
They have tried and I have never much liked any of those answers. The only thing that makes this solution look good is the alternative. That is what you must judge. It is the perpetual problem. Political decision making is not utopia; it is a matter of choosing among better alternatives or lesser evils.
Senator Spivak: I have asked this question of other people who have been here to present before us. You have made it very clear that if the Americans were to retaliate, if they were to make good on their threats, they would be acting illegally. Is that correct?
Mr. Ritchie: Absolutely.
Senator Spivak: The procedure would be that if they were going to retaliate, they would have to go to the WTO first to get permission, would they not? I am not sure I understand the procedure.
Mr. Ritchie: If they are to act within the rules, then once this bill is enacted, if it is, they would need to take the case to the WTO and the WTO would determine whether it was compliant or not and indicate whether it was fixable.
If it was not fixable, then Canada would need to remove the offending measure or face the prospect that the WTO would authorize the U.S. to retaliate at some equivalent commercial value.
Retaliation in this circumstance is completely inappropriate. There is nothing for the Americans to retaliate against. They could take unilateral and illegal action. However, you then get what I find to be the ludicrous suggestion that if the Americans acted illegally and unilaterally, we should then take them to the WTO. In my view, this is outside the rules and we have no choice but to respond also outside the rules, also.
Senator Spivak: You said that you thought that the Americans were not foolish enough to want 100 per cent of this market. I do not know if I agree with your statement. What do you think about the Time Warner business? The argument is that this is not the publishing industry, this is Time Warner wanting 100 per cent of the market not just in Canada, but everywhere.
Mr. Ritchie: You will have to ask Time Warner what their views are. You may be surprised by their lack of enthusiasm for this whole bonfire. I believe this has been driven by a broader agenda. Perhaps the gentleman you mentioned may be part of that broader agenda.
I live in hope. If the Americans take the view that they are entitled to 100 per cent of our cultural industries, then I think the answer to them is very blunt and direct.
Senator Moore: We have been told, Mr. Ritchie, that the total annual value of magazine advertising sales in Canada is between $400 million and $600 million. Is that close to what you understand from your experience with Telemedia, and so on?
Mr. Ritchie: Yes.
Senator Moore: Also, the split-run market represents about $150 million of that. Is that figure high or low?
Mr. Ritchie: I read the same numbers that you do. For direct testimony on that, you would have to have someone who is an expert in the magazine industry.
Senator Moore: Do you think that the Americans view that $150 million market as substantial, or is it something that they are working at now for future negotiations, for example, in the upcoming WTO, to try to move this culture item on to the agenda where it may now be excluded?
Mr. Ritchie: I believe this is almost entirely a Trojan horse. There is quite a different agenda at play here.
The direct economic interest involved is trivial. As you will recall, Sports Illustrated triggered the situation with half a dozen issues on which I suspect they lost money and have no interest to continue. The commercial value of this to them is trivial, which is also why it becomes rather funny to talk about $4 billion worth of retaliation. The commensurate effect would be equally trivial.
Senator Oliver: First, I should like to congratulate Mr. Ritchie for his excellent, challenging and stimulating comments on this important bill.
Your presentation was made based on five questions. I should like to talk about your second question. I am looking for something more concrete and specific.
That question was: Will Bill C-55 do the job? You said that it is not clear. The magazine publishers think it will, but what will it really do for Canadian content? In relation to the last question that you pose, namely, Canadian content, do you have any specific advice for this committee on amendments, wording changes or anything else that could be done to strengthen the Canadian content provisions of Bill C-55 where it is presently deficient?
Mr. Ritchie: No. The proposition underlying this bill is a troublesome proposition, but I have no better alternative to offer. That proposition is that if you look at Canadian magazine publishers and look at the content of their product, any objective person will find that there is enormously more Canadian content in those magazines, however you define it, than exists in publications from other countries. By protecting and promoting those publishers, you will encourage a higher level of Canadian content than would otherwise be the case. That is the basic proposition underpinning this legislation.
The alternative would be to try to define "Canadian content" directly. As I have indicated, I have enormous trouble with a point system in broadcasting where Bryan Adams is not considered a Canadian. I have enormous problems with Mr. Browne's suggestion that Mavis Gallant and Paul Anka are not Canadians. I have tremendous difficulty with some board of censors set up to determine when a publication is Canadian and when it is not.
I have nothing to offer you in terms of a direct definition of "Canadian content." I told you at the beginning that I would tell you on what questions I could help you and on what questions I could not. I find it very uncomfortable, but I have no alternative that I regard as more compelling.
Senator Oliver: In terms of other ways of looking at the problem, you have given us your views on Mr. Browne's suggestion of "subsidies," et cetera. One of the things that Minister Copps indicated that her department had looked at and discarded when she was here -- however, she did not elaborate on it -- was some kind of licensing regime. Do you have any comments on that?
Mr. Ritchie: There are a number of problems with that. First, as a free trader, I hate subsidies. This is particularly true when you will be involved in exporting. The Canadian magazine business is not an export business. As long as you are subsidizing strictly for domestic consumption, it does not offend international rules or my principles.
The difficulty is somewhat different. The first and, perhaps, most serious difficulty is that if you take the advertisements out of a magazine, you take the heart and soul of it. Newspapers would be a classic example. You would sell fewer newspapers if you took out the ads and kept the editorial content than if you did the opposite. If you were to take out the advertisements from a number of magazines in this country, you would not have magazines that would reach a raw base of subscribers. You might keep the publisher financially solvent, but if you are going to do that, why not give the publishers the money and tell them not to produce the magazines? That would save them all the costs. If your objective is to reach the broader audience and if they were, as they claim, likely to lose their advertising content, that would leave them unable to reach a broader audience.
There are other problems as well. There is the question of cost and how to raise the money. The amounts could be sizeable. There is also the issue of who decides and what happens when government determines who benefits and who does not from these things. There are many difficult administrative problems.
I should also point out that the industry is a recipient of financial assistance and of tax breaks. For example, the deductibility of advertising is a significant tax break. They also receive reduced subsidies in the form of a postal subsidy. It is not an either/or situation. My understanding of the industry is that those other measures, even strengthened and enriched, would not, in themselves, be sufficient to achieve your objectives.
Senator Oliver: Finally, did you want to comment on questions raised by Senator Perrault and others at previous meetings about the Internet implications of the whole concept? That is, if you can go to the Internet and read what is in an American magazine and not have to worry about the advertising, what effect will this have down the road and what, if anything, should we be doing about it now?
Mr. Ritchie: I think that is the subject of another series of hearings.
Senator Oliver: The CRTC has already held a series on it.
Mr. Ritchie: Yes, and they have struggled to find any real conclusions.
The Internet is transforming the present but we do not have any clear map to the future.
About 10 years ago, I had real doubt as to whether printed publications would occupy a substantial place even today. However, they have proved to be extremely resilient. In fact, by some measures their share of audience actually increased.
The Internet may be going to another whole stage and there may be a radical transformation. When new technologies come into place their effect is usually greater than we anticipate, but come about much later. It could be that the forecast, as with all economists' forecasts, is one whereupon you should not hold me to the timing but I will tell you the result.
Senator Callbeck: There is a magazine in the United States called Folio, which is the magazine for magazine management. Last November, there was an article entitled, "Canada Again Seeks Limits on U.S. Magazines." That article noted that U.S. publishers are really not upset about Bill C-55.
It quoted Mr. Crosland, the director of AdMedia Partners; a New York City based media industry investment bank. This man says that the U.S. trade office cannot even get publishers to come to Washington and testify on Bill C-55. It sounds to me as if everyone in the magazine industry is prepared to accept this bill. I would like to get your comments on that.
Mr. Ritchie: I am not sure that everyone is unconcerned, but it is certainly not a fight that the magazine industry in the U.S. aggressively wanted to pursue. In fact, to tell you the truth, senator, I believe that, both on the Canadian and American side, we all wish that the Sports Illustrated incident had never happened and that the government had not responded in the rather half-handed way that it did without any retroactivity.
It is a fight I do not think any of us wants to have. In these situations, there is some concern in an industry, then it moves on to other things. Somehow, in Washington it resonates and it builds and it builds and it gains other legitimate and illegitimate allies and it takes on a life of its own. I believe that is what has taken place here.
The difficulty is that it is tough for the Americans to back down after the kind of rhetoric in which they have engaged. You also have some real sensitivity in the dynamic of Washington. A special trade representative is a very special creature. I am not talking only about Ambassador Barshevsky, who is a friend of mine and with whom I have worked in the past. That post is very much a creature of Congress, not strictly of the administration. It is sensitive to various congressional pressures and their log rolling comes into play with a vengeance. That may be a contributing factor to the noisy sabre rattling we have had here.
I remind you of one thing, senator. Despite all the rhetoric, much of which was behind closed doors and then leaked, the Americans have not yet acted in an unfavourable, illegitimate or illegal way.
Senator Forrestall: I have never heard that phrase "log rolling" before applied to this industry. Did I mishear you?
Mr. Ritchie: Sir, I was applying it to your industry, not to the magazine industry.
Senator Forrestall: That clarifies it.
Senator Callbeck: I want to return to a matter we were talking about before. It was brought up here that the amount of advertising that Canadian advertisers would lose if Bill C-55 did not go through would be $150 million to $200 million. We were told that the other night. Senator Moore referred to that a minute ago. The United States is threatening retaliatory measures in terms of billions of dollars. How can they do that?
Mr. Ritchie: There is nothing, senator, that keeps them from threatening anything. You may recall a while back that there was a flap over Country Music Television. It was a very small value speciality station, which was bumped by an independent regulatory agency, the CRTC. Mr. Kantor, the predecessor to Ambassador Barshevsky, published a retaliation list of over $1 billion in response to this minor little commercial enterprise. Of course, he did not act on it.
Again, I would make the distinction between the announcements of a $4 billion retaliation list for domestic consumption back home in Washington and what the Americans actually do. If they were to actually move on anything -- on one-tenth of that -- that would be tantamount to a unilateral declaration of trade war.
It would be a very serious matter indeed. In my experience -- I know this is an experience that is totally strange to this place -- but in the United States, on occasion, the political rhetoric does outrun judgment. When it comes to the final judgment, I anticipate that the American administration will act responsibly, and that certainly would be nothing remotely resembling what has been suggested in the press. Threats are cheap, senator, but action is expensive.
Senator Roberge: Mr. Ritchie, you have answered two of my questions clearly. Last week, when the minister was here with officials, I asked the officials whether it would seem to be deemed unusual for a statute to be an offence if committed outside Canada compared with inside Canada. The bill has unusual phraseology. They said it is not, and it is quite current. I did some checking on this and the only area I found related to crimes against humanity. What would be your opinion on the propriety of using such phraseology as it pertains to a business enterprise.
Mr. Ritchie: I do not pretend to be an expert in international law, nor constitutional law for that matter. As a businessman, it is not at all clear to me that this has any extraterritorial element whatsoever. My understanding is that the decision would be made by a Canadian firm resident in Canada to purchase advertising services. That decision would seem to be a decision that, arguably under normal contract law, could be considered as falling under Canadian jurisdiction as much as under New York jurisdiction.
Again, that is something on which perhaps you could have direct testimony from someone versed in the intricacies of international jurisprudence. It is often the case, as you know in these transactions, that the issue can be handled at either end of the transaction. That is not considered to be extraterritoriality; it is a matter of standing.
Senator Kinsella: I want to return to the first question of my colleague, Senator Callbeck, about the genie getting out of the bottle prior to 1997. Do you think it would be possible, or feasible, to explore at these negotiation sessions that are going on at the officials' level, and hopefully also at the ministerial level, with the Americans, the possibility of turning back the clock and doing some grandfathering. Is it your view that it would have been better to have kept the genie in the bottle, and now that it is out, is it possible to put it back in?
Mr. Ritchie: No. When Sports Illustrated vaulted the border, it clearly created a problem. The government set up a task force, which advised it to go to the excise tax. As I recall, it was also advised to grandfather those companies that operated in that manner. In my view, and this is sort of a retroactive forecast, that would have greatly lessened the pressures -- and the legitimacy of pressures -- in Washington to take Canada to the WTO. In my view, that was an error in judgment by the Canadian authorities, which dramatically changed the dynamics in Washington and played into the hands of the American hawks. As we were discussing earlier, that magnified and drew other allies.
Yes, that was a mistake. Can we go back there? No. The WTO is determined that that measure does not conform. I must tell you that that did not come as a surprise to me. There are, in both countries, measures which, if challenged, would not survive the challenge in the WTO, but there is sort of a gentleman's agreement not to rock the boat. We rocked the boat and we are paying the price now.
[Translation]
Senator Robichaud: You said a number of times that the Americans do not have no basis on which to threaten us with retaliation. These threats have had a certain effect in Canada. People in the steel industry and other people have reacted.
According to some very revealing testimony, this could mean to the Americans that we might be reflecting and are not as certain of our position. Or perhaps we are being intimidated by their threats because, when it comes to culture, they also want to intimidate the other countries involved in negotiations.
Would it not be in our interest to act quickly to show that we are serious? Some things are negotiable, others are not. This position would strengthen the position of our negotiators at the next round.
Mr. Ritchie: I entirely agree with your view. This is not exceptional and the same pattern is constantly repeated. It must be recognized that Washington is not making any noise. These people could have said that Canada is a good partner and a good friend, but they have kept quiet.
They let their negotiators and ambassadors make threats and form a common front against Canada in trade negotiations. We, on the other hand, allow ourselves to be divided and conquered and the Americans know this perfectly well.
They exploit broken ranks and alleged divisions. This happens in Cabinet, in industrial associations and even among provinces. They are also guaranteed that they will be heard and their remarks amplified by our media. When they seek to intimidate and divide Canadians, they have all the means at their disposal. This does not happen on both sides at all, but it is a reality we have had to live with.
At the outset, the government should have taken a position and said there is absolutely no compromise on the principle. We are going to maintain the possibility for Canadians to speak out through their own media and say on this point, "We do not want negotiations; if you want a trade war, go ahead."
As for terms and conditions, we are Canadians and we are reasonable, but negotiate on the principles? Absolutely not. Unfortunately, the system is biased in favour of the Americans, who speak with one voice, as compared to Canadians who are more diversified.
[English]
Senator Rompkey: I should like to ask a question that I asked the other day. It is with regard to international comparisons, which are always useful when discussing Canadian policy.
Are we alone in the world in the situation in which we find ourselves? I asked the publishers that the other day and they said that we are. Is there any other country in the world that finds itself in the situation in which Canada finds itself, or is this simply a function of sleeping next to the elephant?
Mr. Ritchie: There are other somewhat similar situations. Even within Canada, one must distinguish between English Canada and French Canada. French Canada is much less threatened. Further to some earlier discussion, there is still a threat, as in the case of movies. American movies occupy a significant place on the TV screens, even in Quebec, as you well know, but the risk is much less. English Canada is quite uniquely exposed, by virtue of both the proximity and the strength of that American giant next to us, but there are times when the French-speaking Belgians feel pretty vulnerable, too. There are times when a number of other countries in Europe feel that they are exposed. The French find some parallels. We are not alone, but we are undoubtedly the most extreme case.
We are also remarkable in that we are so open. Despite all this talk, I do not think any of you will have any difficulty picking up an American magazine on a newsstand here. In fact, you may have some difficulty finding Canadian magazines on that newsstand. We are remarkable in that we so cherish our openness and diversity that we have been prepared to respond much less defensively and protectively than other countries in much less aggravated situations, and some would say much less so than we should.
The Chairman: Thank you, Mr. Ritchie. We appreciated your presentation and your answers to our questions.
The committee adjourned.