Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 26 - Evidence
OTTAWA, Thursday, April 29, 1999
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-55, An Act respecting advertising services supplied by foreign periodical publishers, met this day at 12:13 p. m. to give consideration to the bill.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: Colleagues, welcome to our fifth meeting of the Standing Committee of Transport and Communications. Today we will be hearing from two witnesses. One is a group representing Time Canada Limited and the other is an individual, Professor Jamie Cameron from Osgoode Hall Law School.
I wish to welcome our first group of witnesses from Time Canada Ltd. -- Mr. George Russell, Editor-in-Chief, accompanied by Donald Brown, President, and the Honourable Ronald Atkey. I know you have a presentation, then we will proceed to questions and answers.
For your information, since this is the noon hour of Thursday, we must go back to the Senate chamber to sit at two o'clock. We must leave at quarter to two. With your agreement, we could make sure that you have 45 minutes for both your presentation and questions and answers.
Mr. George Russell, Editor-in-Chief, Time Canada Ltd.: Honourable senators, thank you for your welcome. My name is George Russell and I am appearing on behalf of Time Canada Ltd., which has its head office in Toronto. With me is Don Brown, the president of Time Canada for the past four years and the honourable Ron Atkey, a former member of the House of Commons and now a senior partner at Osler, Hoskin, and Harcourt.
Our detailed brief of some 32 pages and three appendices was submitted yesterday, in both official languages, to the clerk of the committee and I believe it has now been distributed to committee members. I have copies of my oral remarks and members may obtain copies from the clerk.
We are pleased to be appearing before you as the first, and perhaps the only, foreign magazine publisher, member of the group against which Bill C-55 is aimed. We were the publishers of Sports Illustrated Canada. Time Canada has been a major participant in the Canadian magazine industry for over 56 years, and we have seen a variety of governmental initiatives during this period, including royal commissions, special Senate committees, task forces and parliamentary committees. None of the government initiatives studied or recommended by these various bodies have so seriously and negatively affected foreign magazine publishing as Bill C-55. No initiative before this one is as destructive of some important Canadian values.
Before outlining our grave concerns, let me provide some background by way of a summary of detailed information from our brief. Time Canada has published a weekly Canadian edition of Time magazine since February 15, 1943. Currently, we have 315,000 subscribers, virtually all of whom are in Canada. We sell an additional 13,000 copies of the magazine on the newsstand each week. We are Canada's sixth largest magazine when measured by paid subscriptions and newsstand sales combined. Time Canada employs directly some 54 Canadians, involved in selling advertising services, soliciting subscriptions, supervising printing and coordinating circulation by mail and distribution to newsstands. Our president, Mr. Brown, is a U.S. citizen who resides in Toronto. He has had extensive experience with Time in similar posts in Hong Kong, Japan and regional centres of the U.S.
I am a Canadian residing in New York and I coordinate the work on the Canadian edition with other members of the senior editorial staff of Time in New York and abroad. I was born and raised in Canada, and graduated from the University of Calgary. I began my professional career in Ottawa as the national bureau chief of the Canadian University Press before joining the staff of The Globe and Mail. For a period in the early 1970s, I was a member of the parliamentary press gallery as a Globe and Mail reporter. I have worked for Time since 1974.
Editorial copy for Time Canada has always been a hybrid combination of locally written Canadian stories, photographs and features combined with material from Time's worldwide editorial pool produced in New York and elsewhere. The aim has been to produce Time for Canadians. Time has never presented itself to its readers as a Canadian magazine but as the Canadian edition of a U.S.-based magazine, with editorial perspectives and operations that range worldwide. In the same vein, various stories from the Canadian edition of Time have appeared in other editions of the magazine worldwide.
Permit me to address the grandfathered status of Time Canada under Bill C-55. The government introduced an amendment to clause 21 before the Standing Committee on Canadian Heritage prior to the return of Bill C-55 to the House of Commons at report stage on December 2, 1998. That amendment, for which Time Canada is grateful, states:
This Act does not apply so as to prevent a foreign publisher who lawfully supplied advertising services directed at the Canadian market by means of a periodical during the year before the day on which this Act was introduced in the House of Commons from continuing to supply advertising services directed at the Canadian market by means of that periodical.
The effect of this grandfathering provision will be to allow perhaps three publications -- Time Canada, The New England Journal of Medicine and Elle Quebec, published under licence by Elle France by Telemedia Inc. to continue doing what they were doing during the twelve-month period from October 8, 1997 to October 7, 1998, including increasing advertising sales in the split-run periodicals. However, what is often forgotten in assessing the grandfathered status of magazines like Time Canada is that other discriminatory provisions, which give significant economic advantage to Canadian-owned magazines, will continue. For over 30 years, section 19 of the Income Tax Act has restricted the deductibility by advertisers of expenses in respect to advertising in non-Canadian periodicals when the advertising is directed primarily at the Canadian market.
A strong anti-avoidance provision was added to this section in 1995. The result is that it will continue to be more expensive for Canadian businesses to place their advertisements in non- Canadian periodicals like Time Canada than in Canadian periodicals like Maclean's. If all other factors were equal, the grossed-up additional cost to the Canadian advertiser of advertising in a foreign publication would be an additional 45 per cent. This measure in and of itself should be sufficient to level the playing field between Canadian and U. S. magazines, which enjoy larger economies of scale.
In addition, Canadian magazines have had the benefit of a postal subsidy for almost 100 years. The amount committed by the government in the fiscal year ending March 31, 1999 was over $47 million dollars. It appears that this amount may continue or increase through the millennium. The government has never fully disclosed the amount that will apply in the current fiscal year. In practical terms, the postal subsidy means that it costs Time Canada over 30 cents to mail each issue to Canadian subscribers compared to the 8.2 cent, net rate, enjoyed by Maclean's. Is it any wonder that Time Canada must charge a rate of $77 for one year's subscription compared to Maclean's' annual rate of $51?
Finally, for those who are concerned that there are hundreds of U.S. magazines ready to establish a split-run edition in Canada if Bill C-55 does not proceed, remember that in July 1993 the government put in place new guidelines under the Investment Canada Act providing that each proposed new magazine should be established as a separate business, subject to review and possible rejection in the absence of significant undertakings benefiting Canada.
We believe that Bill C-55, overall, will create a chilling effect on press freedom in Canada and should be carefully and cautiously considered by members of this committee before proceeding. The government and the minister made much of the fact that Bill C-55 is designed to promote Canadian content and to support culture. Asserting that advertising revenues are the backbone of Canadian magazines, they claim Bill C-55 will give Canadians a "chance to hear our own stories, to see our own creators, to watch our own talent, and to hear our own voices at home and abroad." These are laudable aims and we do not deny them, but we have already noted that in at least one specific case, that of sports, no magazine publisher <#0107> other than ourselves as the publisher of Sports Illustrated Canada between 1993 and 1995 <#0107> felt the need to tell those stories, even now, which hardly points to a need for escalated protection.
What is really under consideration here are the government's specific means to an end, not the end in itself. In that regard, careful consideration should be paid to some of the side effects of this draconian way of approaching the issue.
In its attempt to avoid subsidies or specific taxes in this bill in pursuit of cultural objectives, the government may have created an instrument that causes far more damage to the fabric of Canadian society and values. One of these values, we think, is press freedom. I would urge senators to consider the chilling effect on press freedom that may result from the cited provisions in our brief concerning Bill C-55, notably the issue of acquiescence in the publication of split-run magazines as an offence under clause 11; the sweeping investigative powers directed against allegedly offending publications under clauses 4 to 6; the potential for ministerial intimidation under clauses 7 and 8; and the notion of extraterritorial application of Canadian law under clause 15.
The cumulative effect of these investigative, ministerial, judicial and evidentiary powers supposedly in pursuit of Canadian content and Canadian culture is inherently harmful to the notion of a free and open press in Canada, however that press may be defined. No doubt a strong case will be made by Canadian Heritage and others that what is under attack here is not the press, but a series of business practices, and that the act aims to control those business practices.
We wish to emphasize that in most regimes where control of the press is systematically exercised, that control is precisely exercised through business practices, the better to avoid international opprobrium in violation of United Nations Charter obligations. We have observed that such pressures elsewhere can include, for example, selective taxes, control of newsprint supplies and import licences, distribution controls, control of government advertising, and the list goes on and on. Surely the Government of Canada is not aiming to join a less than distinguished roster of countries where freedom of the press is merely an option. Nevertheless, it is worth pointing out that countries that use pressure on independent publications they do not like by passing laws forbidding advertisement in the offending publication will be able to use Canada's actions here as a precedent for their own very different intentions. In other words, one of our points is that with the adoption of this draconian and intrusive measure, press freedom in general suffers as a consequence.
Today, the object of such legislation is magazines; tomorrow it could be newspapers. The criminalization of publishing activity is a hazardous enterprise at best and is hardly in keeping with the Canadian tradition of press freedom.
In our view, Bill C-55 seriously violates the freedom of the press. It tells the magazine press what sorts of advertisements they can and cannot permit. Canadian advertisers are categorically prohibited from advertising in certain magazines read by Canadians. It is no answer to say that restrictions on advertising do not infringe protected freedoms because the content of editorial commentary is not affected. As a practical matter, advertising and editorial content are part of an inseparable whole, a point asserted by the World Trade Organization Appellate Body in its 1997 decision on Canadian magazines.
I do not propose to go into a detailed analysis of Charter arguments or whether this violation of press freedom could be saved by section 1 of the Charter of Rights and Freedoms. This is the domain of the high priests of the legal profession. You heard from Professor Monahan on Tuesday evening, who gave you a detailed legal analysis on behalf of his client, the Canadian Magazine Publishers' Association. You will hear later today from his colleague, Professor Jamie Cameron, who may have different views, and you may wish to address questions to our counsel, Mr. Atkey, who has some experience with these matters, both as a law professor and as a legal practitioner.
Let me summarize some of the things that the government and the domestic magazine industry have not told you, but which are critical do a full and fair consideration of Bill C-55.
First, Bill C-55 does not address the issue of Canadian culture or Canadian content, but deals with Canadian ownership. Minister Copps told you in April that content is the heart and soul of culture, and Bill C-55 squarely addresses this issue of content. Canadian industry representatives told you on April 20 that Bill C-55 should be supported by Canadians because there is a belief in the importance of magazine content to the maintenance of Canada's identity and culture.
There is absolutely nothing in Bill C-55 relating to Canadian content of Canadian culture. It deals strictly with advertising services directed at the Canadian market and provides absolute protection for Canadian-owned publishers without affecting, in any way, what they may or may not do to contribute to Canadian content or Canadian culture. Dennis Browne, Director of the Centre for Trade Policy and Law at Carleton University, spoke eloquently on this point one week ago when appearing before your committee.
Second, split-run magazines exist throughout the world. Local advertising in split-run magazines appears regularly in more than 100 countries, including France, Germany, Australia, Pakistan, Indian, South Africa, Brazil and Mexico, and also in Hong Kong. On April 13, the minister's assistant deputy minister, Mr. Wernick, told you that the economics of split-run magazines can exist only on the North American continent, involving the recycling of U.S.-based or foreign-based content with ads targeted at the Canadian market. Representatives of the Canadian industry told you on April 20 that Canada is a unique situation and that no other country in the world faces the same sort of competition that Canada has in the magazine sector.
At Time Incorporated we know that this is not true. We can produce examples of split-run arrangements permitted in many countries. Time magazine alone, on a worldwide basis, has a weekly circulation of nearly 6 million in nearly 200 different countries. The ability to sell advertising without restrictions exists in virtually every one of those nearly 200 countries in which we circulate. No country in the free world, to our knowledge, has ever attempted to put the kind of protectionist restrictions on advertising that Bill C-55 embraces.
Third, neither Time Canada nor Sports Illustrated Canada provides unfair or discounted competition for Canadian advertising services revenues. Any allegations of dumping or discounting of advertising revenues are unfounded and not consistent with the facts. Allegations by the Chairman of the Canadian Business Press, Mr. Malden, that Sports Illustrated Canada was engaged in dumping by charging rates that were only 30 per cent of the rates charged by Sports Illustrated in the U.S. are simply false and not consistent with the facts. As a responsible competitor in the Canadian marketplace, we are outraged that this senior executive of Maclean Hunter Publishing should give erroneous and unfair evidence that is not based on adequate research to this committee as a basis for justifying Bill C-55.
On October 19 and 23, 1995, through counsel, we provided details of our advertising rights for Sports Illustrated Canada with comparison to other Canadian magazines to the House of Commons Standing Committee on Finance. This evidence was made available to the Standing Senate Committee on Banking, Trade and Commerce the following month, and it certainly has been available to Mr. Malden and his colleagues and advisers at Maclean Hunter Publishing. We attached it to the brief as Appendix C and urge you to read that, as well as pages 17 and 18 of the brief.
Fourth, U.S. magazines that now have significant Canadian circulation are not likely to create split-run advertising editions in Canada if Bill C-55 is not passed. The reason is that loss of Canadian circulation numbers could adversely affect U.S. advertising rates with little net financial gain resulting from the split-run advertising.
The Canadian industry representative, Mr. Malden, told you on April 20 that U.S. magazines that have Canadian circulation do not include their Canadian audiences as part of their measured audiences. Technically, this is true, but U.S. publishers set their advertising rates based on circulation, not on audience. Canadian circulation is indeed included in U.S. circulation figures for non-split-run magazines.
To create a Canadian split-run magazine, the publisher must separate Canadian circulation from U.S. circulation in order to set his advertising rates. This action, in all probability, will lower his U.S. advertising rights. To create a split-run, he or she must put that U.S. pricing structure at risk. It is highly unlikely that the gains from split-run advertising revenue will come close to making this worthwhile. Considering the exchange rate difference, the important impact of section 19 of the Income Tax Act and the added editorial printing and corporate staffing costs involved in setting up a separate Canadian edition, the split-run edition would have to generate 50 per cent more dollar volume for each dollar lost in the U.S. just to break even. This is far from the kind of scenario that would create a stampede of split-run magazines across the border that the Canadian Magazine Publishers' Association suggest would happen.
Fifth, in assessing the Canadian market for magazine advertising services and the extent of foreign ownership, you must take into account controlled or free circulation magazines. Of the top 11 Canadian magazines with circulations of over half a million -- and, this is found in Appendix A of our brief -- five are free to the consumer. Our best estimate is that over 50 per cent of all magazines read by Canadians have controlled circulation. They contain millions of dollars of advertising directed at the Canadian market. Most of them are Canadian-owned and controlled. Together with paid subscriptions, we estimate that the vast majority of magazines read by Canadians in the home are Canadian-owned and controlled. Why is it that neither the government nor the domestic industry will include controlled circulation advertising in their analysis when trying to make the case for Bill C-55? Could it be that the problem they are seeking to fix with an ownership solution would be appear to be somewhat less serious than the one they describe before you?
Sixth, the protectionist approach in Bill C-55 may be overtaken by technology, in particular, the Internet, where neither advertising nor content can be effectively regulated on a domestic basis. Bill C-55 covers only printed periodicals, which would not cover magazines received electronically. Senators raised this issue with representatives of the Canadian business press on April 20. Mr. Malden, an executive with Maclean Hunter, expressed some scepticism about the Internet. He said that, "I ...cannot foresee the business model of successful Internet Publishing ...I do not believe it is an issue today."
Curiously, Mr. Malden's company has now gone fully on line with Maclean's magazine. Its subscribers can now access all the articles featured in the current issue of the magazine on the Sunday night before the printed magazine hits the newsstand. All you have to do is key in the account number from the magazine label and you can retrieve every article and feature in Maclean's a full day or two before you can get it in the home. Time Canada is studying this market initiative very seriously. If this is not a successful business model, then why is Maclean's pushing it so aggressively in the marketplace?
For the next points in our brief, I wish to turn to Mr. Atkey, who is an expert on the area, to discuss them with you.
The Hon. Ronald G. Atkey, Osler, Hoskin & Harcourt, Counsel to Time Canada: As you have heard from others, the constitutional validity of Bill C-55 is open to serious question -- both under the Charter of Rights and Freedoms and under the division of powers under the Constitution Act, 1867. It is our view that this should be addressed by Parliament while the bill is still before it and not simply left to interpretation by the courts after the event.
Minister Copps told you, on April 13, that the Minister of Justice had advised that Bill C-55 is fully compliant with the Charter. She said that Canadian advertisers will continue to have the same opportunities they always had, including their right to advertise in U.S. editions of magazines. She refused to table her opinion from the Department of Justice before this committee.
The Canadian industry representatives, on April 20, supported this position and pointed out that the Charter allows the government to apply restrictions if the objective is in the interests of the country and if the restriction is the most reasonable means of achieving this objective. The CMPA's counsel, Professor Monahan, supported this position with his detailed analysis on Tuesday, April 27.
I suggest that the position misses the point on two counts. First, advertisers are effectively restricted by Bill C-55 to advertising in Canadian magazines when seeking to reach Canadian consumers. It is no answer as a practical matter to suggest that they can advertise in U.S. editions of magazines, given the economics involved. Moreover, Canadian advertisers are restricted by Bill C-55 from reaching Canadian consumers, leaving the field to multinational corporations who can afford the U.S. buy, which reaches into Canada as an incidental matter. As a result, Canadian consumers are denied the right to receive information from advertisers.
Second, in attempting to give a simplified interpretation to the limitations clause, which is section 1 of the Charter, both the minister and the industry representatives and counsel give short shrift to the proportionality test imposed by the courts and the Supreme Court of Canada. That is, to be reasonable, any restrictions must be the least intrusive measure to address the object of the legislation, which is to ensure that Canadian magazines have sufficient advertising revenues to produce Canadian editorial. I am talking about the test of minimal impairment. As is clear from the debates in the House of Commons on Bill C-55, there is a far less intrusive means of achieving the objective of the legislation, which would be a simple and direct federal subsidy to Canadian magazines through an enhanced postal subsidy. This subsidy has been in place as part of the Canadian fabric for almost 100 years and, properly structured, it could comply with Canada's international trade obligations. It has not been considered by the government to date.
Eighth, there are serious questions as to whether Bill C-55 is fully compliant with Canada's obligations under both the WTO and the Northern American Free Trade Agreement. Canada's previous legislation that imposes an 80 per cent excise tax on advertising in split-run magazines was found to be non-compliant at the WTO. What comfort can Canada take in an assurance that a total prohibition on split-run magazines would fare much better, given the consequences of being wrong again?
The minister told you on April 13 that Bill C-55 is in full compliance but, again, no opinion was tabled. Later, during questions, she conceded that the matter was not free from doubt. The domestic industry representatives, on April 20, echoed the minister's position, indicating that the bill, in their opinion, falls under the GATS related to services and is not affected by the GATT deals dealing with goods. Last Thursday, Dennis Browne cast doubt on this conclusion, suggesting that Canada is at risk that GATT might also apply. What both the minister and the domestic industry neglected to tell you was that the WTO Appellate Body, in its 1997 decision on the 80 per cent excise tax on magazines, found that, as a practical matter, advertising and editorial content are part of an inseparable hole. Their judgment also stated that:
...a periodical is a good comprised of two components: editorial content and advertising content. Both components can be viewed as having service attributes, but they combine to form a physical product -- the periodical itself.
It is not at all clear that any future WTO panel would not regard Bill C-55 as applicable to both the GATT and the GATs, since "periodical" is a defined term in the bill and the thrust of the legislation is clearly "advertising services in a periodical," that is, a combination of goods and services.
Ninth, if Bill C-55 proceeds in its present form, the U.S. has the legal right to retaliate under article 2106 of NAFTA, which, in turn, incorporates article 2005 of the Canada-U.S. Free Trade Agreement. The U.S. right is "to take measures of equivalent commercial effect in response to [Canadian] actions that would have been inconsistent with the FTA or NAFTA but [for the cultural industry's exemption]."
This would not be illegal trade action or bullying by the U.S. but a legal right provided to the U.S. under bilateral treaty. It is in no way proscribed by the WTO process.
Both the minister and the domestic industry have asserted that the U.S. has no right to retaliate under NAFTA. They arrive at this conclusion through an unbalanced interpretation of language in article 2106 of NAFTA, which incorporates the cultural industry's exemption and retaliatory rights from the Canada-U.S. Free Trade Agreement, which became effective on January 1, 1989. In simple terms, they would have you accept an interpretation that would permit Canada to take any discriminatory measure to protect its cultural industries but would allow U.S. retaliation only in respect of measures inconsistent with the FTA but not NAFTA.
As Dennis Browne properly explained last week, this interpretation makes the scope of the exemption much broader than the right of retaliation. It stretches credulity that Canadian trade officials and the domestic industry professionals are still relying on this interpretation, which is flawed technically and just not credible in terms of logic. The drafters of NAFTA never intended that Canada should somehow escape the U.S. right of retaliation when it discriminates against a U.S. service or intellectual property owner on cultural grounds.
Apart from this, even if the U.S. right of retaliation is somehow technically restricted to violations by Canada of its FTA obligations, then there is still a strong case that Bill C-55 violates Chapter 14 of the FTA applicable to "covered services," which include certain advertising services, such as advertising agencies, which are listed under standard industrial classification no. 7741, and media representatives, which are covered under standard industrial classification no. 7742.
All witnesses, including the minister, who have addressed you on the NAFTA issues and the right of the U.S. to retaliate, have properly told you that such retaliation must be "measures of equivalent commercial effect" in response to discriminatory actions that would have violated the FTA or NAFTA but for the cultural industry's exemption. There has been some confusion about the size of the retaliation proposed, in particular by journalists who tend to tote up the value of the entire industry in the category speculated as possible targets. On this, we agree with the minister and the domestic industry that retaliation in the order of billions of dollars is not justifiable under this measure, given the size of the industry involved.
Press reports have confused the difference between the total value of the industries potentially targeted and the actual impact of the specific retaliatory measures, which must be of "equivalent commercial effect." Nonetheless, that effect would probably still amount to hundreds of millions of dollars.
Mr. Russell: In summary, Time Canada Limited believes that Bill C-55 is unnecessary for the following reasons. First, it is a blunt instrument that protects Canadian ownership with no apparent benefits for Canadian culture. Second, it sets an unfortunate precedent that will have a chilling effect on press freedom, and it may be unconstitutional. Third, Canadian magazines are adequately protected by section 19 of the Income Tax Act, by the postal subsidy and guidelines under the Investment Canada Act. Fourth, there is no compelling evidence of large numbers of foreign magazines that will enter Canada to compete unfairly against Canadian magazines if Bill C-55 is not enacted. Fifth, controlled circulation magazines are important participants in the Canadian market for magazine advertising services, and Bill C-55 will have little impact since most are Canadian owned.
Bill C-55 will soon be overtaken by technology, particularly through magazines that can be accessed through the Internet.
Finally, there are serious questions as to whether Bill C-55 is fully compliant with Canada's international trade obligations and whether its passage by the Senate will precipitate U.S. retaliatory trade action under NAFTA.
Thank you for your attention. We welcome your questions.
Senator Lynch-Staunton: I have two questions, one is for clarification and the other one for an opinion. I think it would be important to get in touch with the two witnesses whose testimony was seriously contradicted by Mr. Russell. He said that Mr. Wernick's testimony was not true, and that Mr. Malden gave erroneous and unfair evidence. In fairness to them and to this committee, they should be allowed to see this testimony and give us their reaction to it. It is quite a serious allegation. I am not challenging it or supporting it. I would like to hear their reaction.
The Chairman: We will leave that in the hands of our clerk, who can report to us at the next meeting.
Senator Lynch-Staunton: Thank you, Madam Chairman.
I understood that postal subsidies had been dropped as a result of the WTO agreement. Am I wrong?
Mr. Atkey: The postal subsidy was not dropped; it was restructured as of the end of October to comply with the WTO decision, which said that it must be given directly to the industry. At the beginning of November, the postal subsidy to Maclean's magazine began to be made by way of direct deposit into the account of Maclean's magazine at Canada Post. It is the same amount of money and the same criteria from the same source. Thus, the postal subsidy lives on. As of the fiscal year ended March 31, it was approximately $47.5 million. I believe it is at least the same amount of money, and it has perhaps increased.
Senator Lynch-Staunton: Is that in accordance with the WTO ruling?
Mr. Atkey: That now complies with the WTO ruling. The WTO said that the problem with the postal subsidy was twofold. First, there was some discrimination within rates relating to palletization and other technical issues. That discrimination has been removed. Secondly, the government has now put in place a situation where it purports to give the money directly to the publishers rather than as part of a government program.
Senator Lynch-Staunton: I do not think that as a committee we have looked into clause 15 as carefully as we should, and I hope we will. It states:
In a proceeding for a contravention of section 3, a foreign publisher who commits an act outside Canada that, if committed in Canada, would be an offence under that section is deemed to commit that act in Canada.
That is pretty clear. Is that new law or do we have such provisions in other Canadian statutes?
Mr. Russell: To the best of my knowledge, and I am not a legal expert, this is a very rare occurrence. Generally, it is considered to be a deplorable one.
Senator Lynch-Staunton: We have certainly complained when the United States passes something called a Helms-Burton.
Mr. Russell: Editorially, we have complained both in Canada and the U.S. about Helms-Burton. We think extraterritorial legal application is a dangerous area to get into, especially in trade law.
Mr. Atkey: There is a range of serious crimes dealing with crimes against humanity, conspiracies under the Competition Act, for instance, a conspiracy to fix prices where, in order to rein in the alleged conspirators, they must have an extraterritorial mechanism. Serious crime is the general criteria for provisions of this nature.
Senator Lynch-Staunton: The violation of this law, if it becomes law, is considered a crime.
Mr. Atkey: It is absolutely, which is why we have suggested that it is quite out of character for Canada to have a provision like that.
Senator Lynch-Staunton: I do not have any more questions because I think I support just about everything that Mr. Russell said, and he said it very well.
Senator Joyal: In your presentation, Mr. Russell, you mention the rates for advertising in Time magazine. Could you give us the percentage of Canadian content in the Canadian edition of Time? If it is possible, could you give us the figures for the last five or 10 years? How do you define Canadian content?
Mr. Russell: The percentage of Canadian content in Time probably varied from 5 per cent to 20 per cent over the years.
First, senator, I wish to note that one of the reasons for the relatively low numbers on Canadian content, which used to be higher, is that the Government of Canada passed laws in 1976 to drive our editorial operations out of Canada, a law with which we complied. I remember this all too well because I was a young staffer with that operation in Montreal at that time. We are not considered to be a Canadian magazine in any form under Canadian tax law, and we are treated accordingly.
On the issue of Canadian content, this is something I struggle with weekly as an editor. I have many problems with the definitions suggested. I publish a magazine called Time for Canadians. I do not publish a magazine called "Maclean's Magazine for Canadians," or Reader's Digest or anything else. The character of Time is that of a global news magazine. We edit for Canada by removing American content, for example, that we think is a waste of time for Canadian readers, and for which we substitute other things. We include foreign content, especially foreign news that does not appear in the U.S. edition of the magazine but was not produced in Canada because we think that Canadian readers are more interested in foreign affairs than are American readers. We commission Canadians abroad to write about foreign issues that we think Canadians are more concerned about than Americans. I also commission Americans, Australians and anyone else who I think has the appropriate information on an issue that I feel is of interest to Canadians.
Under the Canadian content definitions that currently apply in Canada, any story about Canada that appears in Time Canada. and that also appears simultaneously in another edition of Time magazine anywhere in the world, is not deemed to be Canadian content. For example, I sent our bureau chief to cover Nunavut, which is a very important story not only for Canada but for the world. That story appeared in our Latin American and European editions. It would have been automatically disqualified as Canadian content if we had been applying to have it so considered.
The definition we are looking at is highly amorphous. As an editor, my responsibility is to edit my magazine for Canadian readers and that is what I try to do.
Senator Joyal: My second question is about your statement that Bill C-55 might contravene the Charter regarding the division of power. In none of your comments did you refer specifically to which aspect. We have had previous witnesses, and Senator Beaudoin, my colleague from the opposite side, seems to be of the view that there is no problem in regard to the division of powers. Could you inform us of your stand on that?
Mr. Atkey: The object of the legislation is the regulation of advertising services in magazines and periodicals. Bill C-55 takes a broadcast type solution and applies it to the print medium. There is a body of law, supported by the cases, which suggest that the regulation of advertising is a matter subject to provincial, not federal jurisdiction. That is a matter of property and civil rights in the province. Similar to the law of libel and slander, or other forms of regulation of the print medium, it falls under provincial, not federal, jurisdiction.
It has not been clear to me what head of power under federal jurisdiction would sustain this. Senator Beaudoin, and I regret he is not here, would suggest that it is somehow the international trade aspect of the bill. I am not sure that I see the international trade aspect of the bill except for its unintended consequence. Foreign publishers direct it at advertising services in Canada. I am not sure that there is a demonstrated federal head of power.
I would refer you to the text of Dean Peter Hogg of Osgoode Hall Law School. I will quote from his constitutional text, which is in the brief, that:
advertising is within provincial jurisdiction, because it is part of the regulation of business and of consumer protection that is within provincial power.
Senator Joyal: If I understand the conviction that you hold on the freedom of the press, is it the intention of Time Canada to question the constitutionality of the bill in the court as soon as it passed. Are you giving us notice, just as the tobacco company did when the Parliament of Canada passed tobacco legislation, that you will take it to court. Are you telling us today that Time Canada thinks so deeply about the violation of the freedom of the press that you will be ready to take it to court the day after the bill is passed?
Mr. Atkey: I would advise my client never to speculate on hypothetical situations. We have every confidence that the Parliament of Canada, which includes the Senate, will be wise enough to do the right thing and see that this bill does not become law.
Senator Joyal: Mr. Russell, you have quoted extensively some witnesses who have questioned the legality of the bill under international trade agreements. You did not rebut the interpretation Mr. Gordon Ritchie, who has certain authority so far as the trade regulations and laws between U.S. and Canada are concerned. Could you comment on that?
Mr. Atkey: I read very carefully the transcript of both Professor Browne and Mr. Ritchie. They are reasonable people and credible trade specialists. They have agreed to disagree. There is reasonable ground for disagreement among well-meaning people on this subject. All we are saying to you is that the risk of being wrong is very great and the consequences are severe. I may say, Senator Joyal, that I sat in this room approximately three years ago and listened to representatives of the Government of Canada talk about the validity under international trade law of the previous 80 per cent excise trade legislation. We raised the question as to the legal viability under international trade law. The government said that we were wrong and they were right, and the rest is history, as you know.
Senator Joyal: Any government can have the strong conviction that it is right or wrong. The American government thought that they were right on the beer and soft wood issues, but the WTO said that they did not share our opinion. Just because a government decides to go in a certain direction and court action proves it wrong does not indicate that everything they do will be wrong. If we apply that test, there would not be many governments legislating on this or that side of the border.
Mr. Russell: I agree with you. Our opposition to this bill is not based merely on the one question of whether the crapshoot in front of the WTO will go the other way. We think this is a bad law for a number of reasons.
Senator Joyal: Why do you think the American government did not accept the Minister of Canadian Heritage's proposal to go for a court interpretation? If they had, we would be waiting for interpretation to make this easier for you and for us.
Mr. Russell: I cannot plumb the mind of the American government. I can tell you what they said in the American press. The U.S. government is highly concerned about people resubmitting matters to the WTO that have been litigated already by simply changing the form in which the prohibited injunction is framed, and this is not a concern merely with Canada.
Senator Joyal: I wish to return to the topic of extraterritoriality -- clause 15. What was the position of Time U.S. when the Helms-Burton legislation was introduced in the U.S. Congress? I am asking Time Inc., not Time Canada.
Mr. Russell: Time Incorporated did not submit a formal brief to the U.S. government. Our editorial position in Time magazine was that we thought it was dreadful legislation and we continue to think it is as such.
Senator Joyal: In your opinion, any aspects of legislation that would try to legislate about activities of a company in Canadian territory, even though the head office of that company is located in any other country in the world, is something that should be totally set aside.
Mr. Russell: That is a somewhat leading question. There are many agreements and treaties between countries that I do not know about. I would hate to speculate on such a sweeping matter.
The Chairman: As you know, colleagues, it has been 45 minutes. There is a request from all colleagues that we continue with our witnesses because of the importance of their testimony.
Some Hon. Senators: Agreed.
Senator Kinsella: I have, with my colleagues, come from a joint session of the House of Commons and the Senate where we listened to an excellent address to Parliament by the president of the Czech Republic, Vaclev Havel. I am having some difficulty now in reconciling his vision of the world of the 21st century with these kinds of nationalistic, inwardly looking pieces of legislation. However, I shall reflect further on that.
Let me ask a practical question. A very important Canadian hockey equipment manufacturer is CCM. If this bill were to become law, could you give me some examples where CCM would be allowed to advertise and where CCM would not be allowed to advertise Canadian hockey equipment?
Mr. Russell: They would not be able to advertise in Sports Illustrated Canada. They could, if they wanted to, buy an ad in Sports Illustrated, but it would cost them more money.
Mr. Donald F. Brown, President, Time Canada Ltd.: If it becomes law, nothing will have changed on the landscape. The forms of media available to them now will continue to be available. They could advertise in The Hockey News and Canadian Geographic, if they felt there were the proper demographics and the appropriate environment. There is really nothing else.
Senator Kinsella: I was interested in your presentation and its focus on the question of whether this legislation, if approved and if challenged by virtue of the Charter of Rights and Freedoms, could be saved by section 1 of the Charter. On page 10 of your brief, you said that:
Minister Copps told you --
-- meaning us --
-- on April 13th that "the Minister of Justice advised that Bill C-55 is fully compliant with the Charter."
Of course, we have much experience with Ministers of Justice advising us that legislation, including the tobacco bill, is compliant, and then the Supreme Court has a contrary view. That argument, in and of itself, must be tempered, whether it is an argument from authority or not.
We heard testimony from Professor Monahan. I said to him that if this bill is to be saved by section 1 of the Charter, the objective test of Oakes must be met. Where in the bill do you find the statement as to the objective of the bill?
Mr. Atkey: Senator, it is not there, obviously. If I had been a lawyer employed as a draftsman in the Department of Justice and was asked by my political masters to create a vehicle for achieving what they are seeking to achieve here, I would have added a purposes clause. We have wonderful examples of interpretation clauses in Canadian law that have been very helpful to the courts. I cite the Broadcasting Act, for example, which has been challenged time and time again in the courts, and the courts turn consistently to broadcasting objectives for Canada. There is nothing like that in this bill. There is nothing about culture and nothing about content. It is all about ownership. The bill is lacking, and I think the Supreme Court will be severely hamstrung if it is charged with the responsibility of providing an interpretation under section 1 of the Charter in looking at the objective of the legislation. The onus on the government to put forth evidence of the objective purpose of this legislation will be heavy indeed.
Senator Kinsella: Does it follow, mutatis mutandis, that if the objective is not explicit, it will be rather difficult to determine the rational connection between this measure and the infringement that is perpetrated?
Mr. Atkey: There will be difficulty.
I did enjoy reading the discussion you had with Professor Monahan on Tuesday evening. You had a full discussion of issues that are not often before Parliament, and that is healthy.
Where I depart from his analysis is with his interpretation of minimal impairment as part of proportionality. This is very aggressive and perhaps the maximum impairment of the industry and of the objective. Even if he is right on the pressing of substantial and deleterious effects under the Oakes definition, I would challenge his conclusion on minimal impairment. There are far lesser ways to achieve the same objective of the government than the criminal matter you have before you today.
Senator Kinsella: We have been somewhat concerned that this legislation may be overtaken by negotiations that are taking place. We were advised that negotiations are taking place today or tomorrow as part of a series of negotiations at the level of officials. The Minister of International Trade, Mr. Marchi, stated on television in the company of the American trade minister that the bill would be kicked upstairs as of today or tomorrow. What do you think these negotiations could achieve and what ought they to achieve? What do you think the results of these negotiations will mean in terms of the progress of this bill through the Senate?
Mr. Atkey: It is very difficult for Time Canada Ltd. to take a view on that issue. These negotiations are the responsibility of respective governments. They are done in confidence.
There has been a lot of speculation in the press. I do not know how informed it is. All I know is that you have a serious legislative proposal before you today in Bill C-55. It is sponsored by the Minister of Canadian Heritage, and I have not heard a word from her, either in public or on television, suggesting anything other than that this bill is going straight ahead in its present form.
The Chairman: Mr. Atkey, I could not have said it better.
Senator Rompkey: My question regards subsidies. The postal subsidy exists and is alive and well. On the part of rural members of Parliament, as I read them, there is a very strong lobby for it to continue. The fear is that Canada Post will increase it. The reason that lobby is there is because regional weekly newspapers would not survive without it. In my own area, we would have no Labrador newspapers if it were not for the postal subsidy, in the same way that the Inuit in the Arctic would not have food at a reasonable cost if it were not for the postal subsidy. These subsidies exist because we are a diverse country with many people living in remote and rural areas who need that kind of support from the federal government.
You have opposed the postal subsidy, as I understand it, but, on the other hand, you are in favour of a subsidy for Canadian magazines. As I read the text, I gather that one alternative you would propose is a subsidy. Correct me if I am wrong.
Mr. Russell: I do not think that I would characterize our position as being against the postal subsidy. The postal subsidy was litigated before the World Trade Organization by the U.S. government in respect to its form. That has been corrected by the Canadian government. In fact, we are very much struck by a contradiction in the testimony of the domestic magazine industry that on the one hand they reject the notion of subsidies because they would look bad, and on the other hand they take a subsidy now. They take a subsidy at a level of $47 million, which is a nice chunk of change in the magazine business. We have never said anything about that. The difficulty we have is understanding how they can be for and against subsidies at the same time.
Senator Rompkey: Is it true that the alternative you are proposing to this legislation is a subsidy for Canadian magazines?
Mr. Atkey: The allegation has been made that Bill C-55 is necessary to level the playing field because of the economies of scale enjoyed by the American magazines. We are suggesting that the playing field is already levelled through a combination of section 19 of the Income Tax Act and the postal subsidy. That is a fair amount of protection for the Canadian magazine industry now. Even if Bill C-55 goes away, that will continue. How much more protection does the domestic magazine industry really need?
If you are worried about the Charter or World Trade Organization, why do you not take a simple measure, such as continuing or increasing the postal subsidy? I speak not for Time Canada Ltd. when I say that; rather, I speak personally, as a constitutional lawyer. Simply increase the postal subsidy. It is there and has been for 100 years. It is evenly applied. It has a market condition to it. That could have been introduced by the Minister of Canadian Heritage two years ago and we would not be sitting around this table today. However, for reasons advanced by the domestic industry, they do not want it -- yet, they take it.
Mr. Russell: I would like to add one point on the level playing field situation, which I do not think has been widely remarked upon. I was in Montreal in 1976 when we went through this with Bill C-58, which is now section 19 of the Income Tax Act. At that point, the publishers of Maclean's demanded that Time Canada shut down its editorial edition, otherwise they would not produce a weekly magazine at all.
Bill C-58 was passed. We shut down our edition. Time Canada did not cease to exist as an economic entity, which may have been the intention of the publishers of Maclean's magazine at the time. However, for the past 23 years, Maclean's magazine and Time magazine have co-existed in Canada under current protection. That is to say, the playing field certainly seems to have been levelled for the only magazine in Canada that faces split-run competition. I continue to find it puzzling that this fact is not more widely noted.
Senator Rompkey: Is it fair to say that your alternative to the present measure is a monetary one? You feel that there are other methods for the government to deal with this, and one would be a monetary one.
Mr. Russell: It would, if damages were shown.
Senator Rompkey: We have heard from Mr. Ritchie that this is a terrible measure, that it is an odious way of going about business. However, he compared it to Winston Churchill's definition of democracy, which was that it was a terrible system, except for all the rest. Having been a negotiator for Canada, Mr. Ritchie has testified that he knows of no other alternative, that this is the only alternative available to the Government of Canada to protect Canadian magazines.
Mr. Atkey: Mr. Ritchie also addressed the issue of subsidies and said he hated subsidies if they were export subsidies. There is a matter of an export subsidy on airplanes, certainly going back to the WTO, in which Canada is directly involved.
A subsidy to magazines in the form of a postal subsidy is not an export subsidy at all because they do not export Canadian magazines. It is a domestic subsidy, which is perfectly legal under the Charter or NAFTA, or at the WTO.
If we are dealing with culture, ask yourself how much the government and the taxpayers of Canada pour into the film and television industry. It is not $100 million; it is closer to $200 million in direct subsidies. That seems to be justifiable, and we are building a film and television industry of which we can be proud. If we are proud of our magazines, and we want to sustain them, why not take the same approach? It is $47 million now. They go to one-half of what the subsidy would be in film and television. That might be all they actually need. We could argue that the level playing field is there now with section 19 of the Income Tax Act and the small postal subsidy. However, if they feel like increasing the subsidy for policy reasons or because of damage shown, which we suggest has not been shown, then they should do so.
Mr. Russell: I would like to refer again to the empirical evidence, as opposed to definitions of democracy, which I do not think travel well to export policy. The evidence is that Maclean's and Time Canada have both existed in Canada for 23 years. Maclean's magazine in that period has not demanded Bill C-55.
Senator Rompkey: You have testified that split-run magazines exist throughout the world, and you have given some examples. Is it not true that Canada is in a unique position in that there is no other country in the world situated on the North American continent next to the most powerful nation in the world, which exports culture not only to Canada but throughout the world. Do you know of any reasonable comparison among the countries that you have identified on page 7 of your comments?
Mr. Russell: As a matter of fact, I do. However, the first thing I will say is that Canada is in a unique position in North America in the way you have described in almost precisely the same way that I am in a unique position by living at my address in Brooklyn. The real issue involved is whether it is thereby damaged in the way that this legislation attempts to redress. We publish in Australia and New Zealand. We publish a split-run edition in English that covers much of Europe and to which advertising is targeted. In Australia, where there is a relatively small domestic magazine industry and where many of the magazines are imported, we are welcome. Our presence has been encouraged. Interestingly enough, from Australia we publish a South Pacific edition of Time, which also goes to New Zealand, a small country which chafes more than we know under the domination of Australia. We are welcome there and have no problems.
A case I have often used myself to think about this issue, however, is the case of Austria, which is in almost an identical position to Canada, except for the fact that the United States has over the years shown itself to be much friendlier. There are no laws whatsoever governing the Austrian case that would remotely approach this.
Senator Spivak: I would be interested in hearing you explain how postal subsidies are less intrusive, that is, both logically and constitutionally, but not today. I would also like to know whether the WTO Appellate Body in its 1977 decision used the words "inseparable whole" because hydrogen and oxygen are very different from water. Therefore, you can separate services from goods.
My major question is about the retaliation issue. We were told by Mr. Ritchie that the whole thing was smoke and mirrors because, first, the U.S. would need to go to the WTO in order to retaliate; they could not retaliate illegally. Second, you seem to question the objective of Canada maintaining its cultural autonomy when you said that the drafters of NAFTA never intended that Canada should somehow escape the U.S. right of retaliation when it discriminated against a U.S. service or intellectual property owner on cultural grounds. This is putting things on their head because the WTO decision obviously recognized that Canada had a right to do that. It seems to me that even several hundreds of millions of dollars, which is all it would be, is not a heavy price to pay for the cultural sovereignty of a nation such as Canada. Could you comment, please?
Mr. Atkey: The postal subsidy is fairer than the criminal sanctions in Bill C-55.
Senator Spivak: It is less intrusive.
Mr. Atkey: A criminal sanction by its nature, involving investigative powers, ministerial investigations and extraterritoriality are extremely intrusive compared with a postal subsidy in the form of a grant as a simple direct deposit into the account at Canada Post.
Regarding the WTO and the retaliation right, this is an area in which experts will agree to disagree. I happen to believe that Mr. Ritchie is wrong and Professor Browne is right. In this case, at this stage of the bill, you are the judges. I am submitting a position. However, I urge you to carefully read the language of both NAFTA and FTA. I suggest that the language of NAFTA in some respects trumps the WTO and not the other way around. We have an important bilateral arrangement with our largest trading partner. The language of FTA and NAFTA and how they hang together is extremely important.
Senator Callbeck: My first question pertains to a section in your brief on page 9 where you talk about the controlled or free circulation magazines. You say that five of the top 11 magazines in Canada are free.
What is the situation in the United States regarding free magazines? Mr. Russell, I understand that you have indicated in the past that this is a factor that contributes to making our magazine industry very weak.
The second question is on advertising rights. You mention that you have provided details in your brief. I have not had time to analyze it as I received them half an hour ago. However, I am told that you have indicated in the past that the advertising rights for Time Canada are higher than our major magazines -- Maclean's, for example. I have problems understanding that because I would think that the production costs for a Canadian edition would certainly be much lower.
Mr. Russell: If I may, I will address the second point first and would ask Mr. Brown to talk about it. We are not the only ones who said that our advertising rates are higher than Maclean's: they told the House of Commons that our rates are higher, too. The reason is fairly well outlined in elements of our brief, in which we refer you to section 19 of the Income Tax Act, which was specifically designed to raise our costs. We estimate that increase to be roughly 45 per cent, all things being equal. The whole point of section 19 of the Income Tax Act is to deal with this issue, and it has done so.
Mr. Brown: In fact our rates in Canada are 11 per cent higher than Maclean's. They are set to make a profit, and that profit is eroded by section 19 as well as the 30-cent postal charge versus the 8.2-cent postal charge of the competitor. There is lack of advertising support because people avoid us due to section 19. Those are three combinations.
Regarding your question of controlled circulation magazines, having worked for Time for 33 years in different parts of the world, I can tell you that Canada is very unique in having so much controlled circulation. It is been given so much credence here in Canada. I have worked in Asia, Europe, Latin America and the U.S. To find magazines like Canadian Business, Saturday Night, Financial Post, which come free to newspaper subscribers, is unique. All these magazines are what we would call controlled circulation magazines.
Senator Callbeck: Do you feel that weakens the Canadian magazine industry?
Mr. Russell: Yes, it weakens them in two ways. One way is through advertiser preference. The other way, which has not been noted here, is that they enjoy the equivalent of a vast economy of scale to any magazine that must build circulation in a normal fashion. The costs for a magazine to solicit circulation are higher than a controlled circulation magazine.
My personal opinion is that, on an historical basis, there is a weakness of certain elements of the Canadian magazine category, especially weekly magazines, in which Canada is singularly deficient. It would not be unwise to take a good look at controlled circulation-driven magazines and the unfair competition they offer to circulation-driven magazines.
The Chairman: Thank you, witnesses.
I will now invite our next witness, Professor Jamie Cameron from Osgoode Hall Law School. Thank you for appearing before our committee to give your views on Bill C-55, an act respecting advertising services supplied by foreign periodical publishers. We have until approximately 1:50 because we must walk over to the chamber. We thank you for your understanding.
Professor Jamie Cameron, Osgoode Hall Law School: As always, I thank the members of the committee for inviting me to appear before you today. Given the time constraints, I will pass over most of my introductory remarks and essentially offer to answer questions.
First, I want to let members of the committee know that I have not been retained by any of the interested parties in this matter. I am completely independent. My views are purely academic and that is in part why I do not have a written brief for you today -- perhaps you are grateful for that.
Senator Forrestall: I have a point of order. Given the nature and the importance of the remarks that I had expected to hear in full from the professor, perhaps the committee might take them as having been read and append them to today's edition of Hansard.
The Chairman: If there is agreement; we will append them.
Some Hon. Senators: Agreed.
Ms Cameron: I did not prepare a formal presentation but what I could do, if it is the committee's wish, is transcribe my notes and put it in a brief written presentation. They would not be ready until the middle or toward the end of next week.
The Chairman: That would be appreciated.
Senator Spivak: Madam Chair, would it be too difficult to have the witness come back? There is really very little time to devote to this important witness.
The Chairman: I leave that to Professor Cameron. Would you prefer to have 20 minutes today or would you prefer to return?
Ms Cameron: My preference, as a matter of constitutional duty, would be to come back and to do this properly. I might then have my written remarks ready. That might be better from all points of view, but if it is the committee's wish to continue today, I am happy with that.
The Chairman: There is a consensus around the table that you be invited to return. We would advise you to find the appropriate time with our clerk.
Senator Joyal: Professor Cameron published an article on November 30, 1998. Is that article an honest summary of the point of view that you wish to share with us?
Ms Cameron: Yes, but that is not a summary. In my written presentation to the committee I will be more academic and less political. I will address some of the points about section 1 of the Charter and questions about proportionality. If the committee wishes to direct me to consider anything in particular, I would address it.
The Chairman: Are there any specific directions to suggest?
Senator Kinsella: I have a special interest in the section 1 test. We should, if we have not already, make available Mr. Monahan's presentation, in order to zero in on the issues.
Senator Spivak: I am interested in discussing the possible intrusiveness of the minimal impairment test.
The Chairman: Thank you colleagues. Thank you so much Ms Cameron.
The committee adjourned.