One of the most prominent conflicts with implications for cultural concerns that turned into a trade dispute concerned the selling of magazines in Canada.
Today, 89 percent of magazines sold in Canada are foreign, a high percentage of which are American. In spite of the low proportion of domestically produced magazines in Canada, the Canadian government has nonetheless identified the production of magazines as an important touchstone of Canadian national identity. In 1970, a special Canadian governmental Committee on Mass Media concluded that “Magazines constitute the only national press we possess in Canada….Magazines, because of their freedom from daily deadlines, can aspire to a level of excellence that is seldom attainable in other media. Magazines, in a different way from any other medium, can help foster in Canadians a sense of themselves.” (Davey et al, 1970)
Attempts to protect Canadian culture from domination by its much larger neighbor to the south are not new. As far back as the 1920s, the Canadian government imposed protective tariffs on foreign magazines. In 1965, Canada furthermore prohibited the importation of split-run editions of foreign-published magazines into their country. Many observers believed that these measures were quite effective in protecting the small remaining share of Canada’s domestically produced magazines.
What is a Domestic Periodical?
Up until a couple of decades ago it was a fairly simple matter to determine what was a foreign versus domestic periodical and to make policy decisions based on those determinations. In the case of the Canadian magazines, any magazine that was printed outside Canada’s border and imported into their country was considered foreign. Therefore a tariffTarrifs are a list of taxes or customs duties payable on imports or exports. or absolute prohibition could easily be applied or enforced at the port of entry. Further decisions such as preferential tax deductions for advertising could also be made on those same determinations at the border.
However, globalization has recently changed much of this calculus. Advances in technology have blurred the line between what can be considered foreign or domestic, and trade agreements have limited the options that governments may choose in giving preferential treatment to domestic goods.
In 1993, this question of domestic versus foreign production surfaced when Time Warner, the world’s largest communications company, started to produce a split-run version of one of its U.S. magazines, Sports Illustrated. Thanks to new technology, Time Warner was able to print a split-run Sports Illustrated Canada without it being stopped at the border. They produced the magazine in the United States and then transmitted the magazine’s content electronically to a Canadian printer via satellite.
The old standard for determining whether a magazine was foreign or domestic revolved around where it had been printed. As a result of the change, Time-Warner could now argue that their split-run magazine could genuinely be considered Canadian: it contained some Canadian content (mostly in the form of advertisements), was managed by Time-Canada–a division of Time Warner–and was printed and distributed within Canada.
By declaring Sports Illustrated Canada to be a Canadian periodical, its publisher could offer a tax deduction to Canadian advertisers and attract valuable ad revenue that would otherwise have been directed to Canadian periodicals. Concerns grew immediately for the implications of this development for the Canadian magazine industry.
Looking into this new way of producing magazines, a parliamentary task force in 1999 estimated that more than 100 U.S. magazines might establish successful split-run editions in Canada. Because these American-originating magazines serve a much larger market, they are able to take advantage of the principle of economy of scale, and to offer lower advertising prices. It was predicted that the diversion of advertising revenue would force many Canadian periodicals out of business.
|Questions for Discussion: The Canadian Magazine Dispute
Put yourself in the place of a Canadian government official trying to protect the domestic magazine market. You want to allow a tax deduction for a business expense to advertisers who purchase space in “Canadian” magazines. What kind of criteria would you establish to distinguish between a split-run and a domestic magazine:
Most magazines probably do fit neatly into one category of the other. But trade disputes typically erupt over issues that are on the margins of the categories.
And as you can see, the increasing integration of economic, political and cultural connections between countries is blurring the lines between definitions that used to be quite distinct.
The question of what constitutes a split-run magazine is apparently somewhat opaque within Canada. One set of researchers into the matter reported that they have never been able to locate within the Canadian government a list of what are deemed to be split-run magazines.
A Trade Dispute Is Born
In 1995, the Canadian federal government tried to protect its domestic magazine producers—in the name of culture—by adding a significant new tax on all advertising revenue for what it considered to be a split-run publication. This raised yet again the question of how to define a split-run publication. To avoid the new tax, a publisher would have to produce a magazine that was comprised of at least 80 percent Canadian content.
However, imposing a tax on only the foreign producers of magazines quickly raised the charge by American magazine producers that this measure constituted a discriminatory practice. Foreign magazines producers would be put at a significant disadvantage selling their magazines in Canada because of the tax. And since the principle of non-discrimination between foreign and domestic producers (“national treatmentThis has been a core element of most agreements on trade in goods and services, and is also a critical issue pertaining to international investment. Typically, these provisions ensure that foreign investors and their subsidiary companies are “treated at least as well as their domestic counterparts,” or “no less favorably” than domestic industries.”) is one of the core principles of the World Trade Organizationan international body dealing with the rules of trade between participating nations, the United States instituted a WTOan international body dealing with the rules of trade between participating nations dispute settlement case against the tax.
The WTOan international body dealing with the rules of trade between participating nations ruled in favor of the United States in 1997, concluding that the tax was indeed discriminatory and unfair to foreign producers. Since the WTOan international body dealing with the rules of trade between participating nations ruling, additional measures and severe counter-measures have been contemplated by Canada and the United States as further attempts were made to protect the Canadian magazine industry. At one point, the United States threatened to impose retaliatory measures against Canadian steel, textiles and apparel, wood products and plastics.
A dispute, essentially prompted by a desire to promote Canadian cultural uniqueness in magazine production, had escalated to the brink of inciting a wide-ranging trade war. Fortunately, as is often the case in these types of disputes, an agreement was finally reached that averted a trade crisis. Throughout the controversy, the Canadian ministers of trade and culture had taken opposing views on the matter. The trade minister’s arguments eventually won out, leading to a settlement in which Canada removed most of its barriers to split-run magazines.
For now, it is too early to tell what effect this resolution has had on Canada’s small domestic magazine industry.
As you can see from this example, the resolution of trade disputes is usually not like the resolution of a criminal dispute, where a judge and jury make a simple determination of guilt or innocence, and forces the perpetrator to pay the consequences. More often, trade disputes are settled by both sides coming to a compromise.
|Questions for Discussion
To what extent do you think the U.S.-Canadian magazine dispute was motivated by genuine desires to protect Canadian culture? To what extent do you think the government of Canada was pressured to seek to protect its market because of the financial interests of the Canadian magazine industry? Given that Canadian magazines constitute only 11 percent magazine sales in Canada, how important is this matter to Canadian culture?
And, if Canadians seem to prefer buying American magazines, shouldn’t they be allowed to “vote” with their purchasing habits? Is it fair to levy extra taxes against foreign magazines, if it has the effect of forcing Canadian purchasers of foreign magazines to subsidize local publications?
*Picture source: Canadian Flag and Moose]. Retrieved June 30, 2012, from http://blogs.bootsnall.com/Guy-Courchesne/canadians-in-mexico.html
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|A split-run edition of a magazine is one in which a foreign publisher puts some domestic advertising and domestic content in a magazine originally targeted at a foreign readership.|
|Producers are often able to enjoy considerable production cost savings by buying inputs in bulk, and mass-producing or mass-retailing their end products. These lower costs achieved through expanded production are called Economies of Scalesavings achieved because an initial investment is spread out over increasing numbers of produced units.|