The Office of the U.S. Trade Representative is seriously weighing a plan to impose sanctions on Canada if it does not comply with a World Trade Organization ruling by the end of the month.
The WTO ruled last year that Canada's 80% excise tax on Canadian editions of U.S. magazines violated trade policies. Canada has tried to impose the tax on U.S. publishers who sell ad space in Canadian editions. The argument: American publishers are stealing ad revenue from their Canadian counterparts.
With the WTO's Oct. 31 deadline looming, Canada seems to be on the verge of adjusting its tax policy. Instead of taxing U.S. publishers, Canadian lawmakers earlier this month introduced legislation that would fine Canadian marketers that buy ads in Canadian editions of U.S. magazines.
$150 MIL IN SANCTIONS POSSIBLE
If Canadian lawmakers enact the legislation, the U.S. could impose sanctions worth $150 million or more on products exported to Canada, according to an executive familiar with the discussions.
Jay Ziegler, a spokesman for the Office of the U.S. Trade Representative, acknowledged trade sanctions are one retaliatory action the agency may pursue.
"We are reserving our full spectrum of trade options, including action in the WTO or the application of our domestic trade laws," which give the U.S. the right to enact retaliatory sanctions, said Mr. Ziegler.
The legislation recently introduced in Canada isn't the answer to the problem, he said, noting it is "no better and probably worse than its predecessor, which was already inconsistent with Canadian trade policy."
CUT-RATE AD PRICES?
Canadian publishers have argued that American publishers can afford to offer pages to Canadian advertisers at cut-rate prices since U.S. magazines are less dependent on that revenue for their overall health.
That, Canada argues, destabilizes the ad sales efforts of its publishers, who depend on advertising to support up to 70% of their operations.
Canadian Magazine Publishers Association Chairman Francois de Gaspe Beaubien said Canada has not closed its borders to U.S. magazines, since 50% of all titles sold in Canada are U.S. products.
"We welcome diversity for our readers but split-runs will decimate Canada's magazine publishers," he said.
George Green, president of Hearst Magazines International, said he's appalled that Canada is resisting complying with the WTO ruling, especially since the U.S. allows Canadian publishers to enter this market with no restrictions.
"We think we should have the same right to start a magazine in Canada that they do here, quid pro quo," he said.
MOST PUBLISHERS AMBIVALENT
The majority of U.S. publishers, however, are ambivalent about marching north. The Canadian ad market for consumer magazines is estimated at $250 million, compared to $7.9 billion for the U.S. market. It's hard for magazine groups to get worked up over such figures unless, like the Office of the U.S. Trade Representative, they're concerned about the broader issue of free trade for products other than magazines.
"We look at this as a matter of principle for trade policy," said Arthur B. Sackler, VP-law and public policy at Time Warner. "If Canada can get away with setting rules that exclude foreign publications, effectively that opens the door for that behavior in lot of other contexts and places around the globe, to limit trade with anyone in the cultural industries, including videogames, books and movies."
HAPPY WITH STATUS QUO
Some publishers, though, are happy with the status quo. That's because they now quietly count Canadian circulation of their U.S. editions in the rate bases guaranteed to U.S. advertisers. The revenue from U.S. advertisers paying for that circulation could, therefore, be greater than the potential incremental revenue from Canadian advertisers.
There's said to be talk among Canadian publishers about mounting a public relations effort to inform U.S. advertisers about the Canadian circulation that pads the rate bases of some American magazines.