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Cablegate: Magazines: Goc Cuts Its Magazine Support Fund,

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 OTTAWA 002062

SIPDIS

SENSITIVE

PASS USTR FOR MELLE, CHANDLER, BALASSA, BURCKY AND SCHNARE

STATE FOR EB/TPP/BTA AND WHA/CAN

DOC FOR ITA/MAC -- OFFICE OF NAFTA

E.O. 12958: N/A
TAGS: ETRD SCUL CA
SUBJECT: MAGAZINES: GOC CUTS ITS MAGAZINE SUPPORT FUND,
SAYS INDUSTRY IS "ON A SOLID FOOTING"


SENSITIVE, BUT UNCLASSIFIED. PLEASE TREAT ACCORDINGLY. NOT
FOR DISTRIBUTION OUTSIDE USG CHANNELS.


SUMMARY/INTRODUCTION
--------------------

1. On July 8 the GOC announced cuts/changes to its funding
programs in support of Canadian magazines. These programs
were the key measures put in place in 1999 following
resolution of a U.S.-Canada bilateral dispute concerning
periodicals. In making the cuts, the GOC pronounced the
magazine industry to be "on a solid footing and enjoying
healthy growth" - a striking shift from predictions made in
1998-99 to the effect that any significant concession to the
U.S. meant disaster for the Canadian industry. The GOC also
adjusted its programs in order to reach more and smaller
magazines - an open admission that its support measures have
tended to benefit relatively large, profitable media firms.
END SUMMARY/INTRODUCTION.


BACKGROUND: THE MAGAZINES DISPUTE
----------------------------------

2. Canada obtained exemptions from the 1989 FTA and 1994
NAFTA for "cultural industries" (media), and the GOC
continues to maintain a range of policy measures to support
Canadian-owned "cultural" enterprises and encourage/require
the use of "Canadian content" in TV, radio and other media.
In the mid-1990's the United States challenged various GOC
measures to support Canadian magazines (the so-called
"Sports Illustrated" dispute). Several of these measures
were found to be WTO-inconsistent by WTO panels. Canada's
proposed replacement regime, Bill C-55, which the USG did
not consider adequate, became the focus of a highly
politicized bilateral dispute in 1998-99.

3. The controversy around this dispute in 1998-99 was far
out of proportion to the modest commercial interests at
stake for two reasons. First, Canadian Heritage Minister
Sheila Copps, who still holds the portfolio, indulged in
considerable anti-U.S. rhetoric. She warned publicly of an
impending "cultural onslaught" from U.S. publishers if they
were to obtain greater access to the Canadian advertising
market. Second, Canadian media, which had a direct interest
in sustaining the GOC's cultural protections and subsidies,
presented the U.S. case less objectively than they might
have done.

THE 1999 RESOLUTION
-------------------

4. Under the terms of an agreement reached in mid-1999,
U.S. magazines exported to Canada can now fill 18 percent of
total advertising space with ads aimed at Canadians. Canada
also committed to provide non-discriminatory tax treatment,
and to permit foreign ownership of magazine businesses.
Canada's magazine industry obtained a promise of substantial
direct subsidies to compensate for their reduced level of
trade protection. This was introduced in 2000 via the
Canadian Magazine Fund and Publications Assistance Program,
which allocated an average of roughly C$70 million (US$50
million) annually to the industry for three years.


NO "CULTURAL ONSLAUGHT"
-----------------------

5. Following the dispute's resolution, Canadian media
continued to suggest that "American" magazines were
preparing a major drive into the Canadian market against
which "Canadian" magazines were ill-equipped to compete.
However, contrary to many expectations, there was little
subsequent pressure from U.S.-based magazine publishers to
enter the Canadian market.


SUPPORT TRIMMED, SINCE INDUSTRY IS "SOLID" AND "HEALTHY"
--------------------------------------------- -----------

6. On July 8, Canadian Heritage Minister Copps announced
changes to the three-year-old direct subsidy programs,
reducing GOC expenditures on these programs from C$78.1
million last year (FY 2002-03) to C$61.4 million in three
years' time (FY 2005-06). Copps' office declared that "the
Canadian periodical and magazine industry is now on a solid
footing and enjoying healthy growth. Given these
developments, the Canadian Magazine Fund has been evaluated
and readjusted to a level that better reflects the Canadian
industry's current situation." It also noted that more than
50 percent of the periodicals available in the Canadian
marketplace are Canadian, as are 12 of the 20 most popular
titles. Finally, the Ministry restructured its programs in
order to deliver assistance to a larger number of smaller
publications - an implicit concession to long-standing
criticism (from both Canadian and U.S. observers) that,
while Copps portrayed herself as the defender of small,
struggling Canadian magazines, it was really large,
financially sound publishing firms who benefited the most
from both protection and subsidies.

COMMENT
-------

7. COMMENT: In retrospect, Minister Copps, and advocates
for the Canadian magazine industry (and cultural policy more
broadly), significantly overstated the menace posed by U.S.
publications to the Canadian industry in 1998-99, and the
announcement of cuts to GOC support for the industry is a
virtual admission of this. Nevertheless, as a direct result
of the magazines dispute, Copps concluded that WTO panels
were likely to undermine Canadian cultural protections, and
that Canada therefore required a "New International Treaty
Instrument on Cultural Diversity" to buttress those
protections against WTO trade liberalization. When
commenting on the GOC's drive for such a treaty, we might
wish to point out that it was originally sparked by fears
that the GOC now admits were not realized.

CELLUCCI

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