[Recorded by Electronic Apparatus]
Tuesday, October 17, 1995
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[Translation]
The Chairman: We are now undertaking the examination of Bill C-103. We have with us the Parliamentary Secretary, Mr. Walker; he is accompanied by Patricia Malone and Susan Katz.Mr. Walker.
Mr. David Walker (Parliamentary Secretary to the Minister of Finance): I have a few preliminary remarks to make to the Standing Committee on Finance.
We are here today to examine Bill C-103. This bill would amend the Excise Tax Act and the Income Tax Act in ways which would be advantageous to Canadian publishers of periodicals.
Canada has a long standing policy aimed at channeling Canadian advertising income to Canadian periodicals. This advertising income is in fact essential to the survival of the Canadian periodical industry, given that it accounts for 65% of its total income.
[English]
More than 30 years ago, the Royal Commission on Publications, more commonly referred to as the O'Leary commission, examined the situation of the Canadian magazine publishing industry. After an in-depth study, they recommended the implementation of measures designed to encourage the flow of advertising revenue going to the Canadian magazine industry in order for the industry to operate on a more secure financial footing.
As a result, two legislative measures were put in place in 1965. First, section 19 of the Income Tax Act limits tax deductions of advertising expenditures to ads placed in Canadian magazines for ads directed at the Canadian market. Secondly, customs tariff code 9958 prohibits the physical importation into Canada of split-runs or special editions of periodicals whose editorial content is substantially the same as the original edition, except for the advertising that has been purchased especially to reach a Canadian audience.
These measures have been successful in developing a Canadian magazine industry. For over 30 years they have allowed the Canadian magazine industry to survive and expand.
In January 1993 Time Warner announced its intention to publish Sports Illustrated Canada. Since Sports Illustrated Canada would be transmitted electronically, instead of physically crossing the border, tariff code 9958 did not apply. Time Warner's initiative demonstrated that there was a loophole in tariff code 9958 and a need to update Canada's magazine policy. As a result, the Government of Canada established a task force on the Canadian magazine industry in March 1993. The task force was mandated to examine existing measures and propose any new measures that would ensure the continued effectiveness of federal policy in support of the Canadian magazine industry.
In submitting its final report, the task force presented eleven recommendations to the government, two of which are addressed in Bill C-103: an excise tax on split-run editions of periodicals distributed in Canada; secondly, an anti-avoidance rule relating to the deductibility of advertising expenses in non-Canadian newspapers and periodicals. The proposed excise tax will be levied on split-run editions on a per issue basis at a rate of 80% of the amount charged for all advertising appearing in that issue.
Without this measure, the task force noted that the Canadian periodical industry risked losing up to 40% of its advertising revenues over a five-year period.
The proposed amendment to the Income Tax Act will add an anti-avoidance rule to section 19 of the act. This will ensure that newspapers and periodicals that claim to be Canadian are in fact Canadian controlled for the purposes of the act.
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These proposed amendments to the Excise Tax Act and the Income Tax Act update our policy in support of the Canadian magazine industry. They maintain the government's long-standing policy respecting Canadian magazines and underscore the federal commitment to support the continued assistance of a viable and original Canadian magazine industry.
Mr. Chairman, those are my opening remarks. I welcome questions from members of the committee. Just before I start, there's a bill in the House of Commons that I might have to leave for. I apologize in advance for having to leave.
The Chair: I'm not sure we want you to leave, Mr. Walker.
Mr. Walker: I'm not sure I want to stay.
The Chair: Just so I understand this, this is our government's response to the issue that occurred in 1993 when Sports Illustrated breached, if not the letter, the intent of the law. They were able to do a split-run edition electronically composed in the States and send it to Canada simply for printing here, with no Canadian editorial content whatsoever.
Mr. Walker: That is correct.
The Chair: And Canadian advertisers were still, because of the loophole, entitled to deductions for advertising in that publication and would have been entitled to deductions for publication in any other similar foreign magazine that was electronically shipped into Canada and simply printed here for distribution.
Mr. Walker: Yes.
Do you want to clarify that?
[Translation]
The Chairman: We will now move on to questions.
[English]
Mr. Walker: I'm sorry.
Ms Susan Katz (Acting Director General, Cultural Industries, Department of Canadian Heritage): Perhaps I'll just make a clarification.
Ads that appear in a split-run edition are not deductible for tax purposes.
The Chair: Even if they're electronically shipped into Canada.
Ms Katz: That's correct.
The Chair: And have they never been deductible?
Ms Katz: No, they are not deductible for tax purposes. For an ad directed at the Canadian market, if the ad is going to be tax deductible, it must appear in a magazine that is 75% Canadian-owned and controlled and in which the editorial content is substantially different from the editorial content that appears in any other publication.
The point on split-runs, however, is that the cost of the advertising can be priced such that the after-tax cost to the advertiser is the same as if the ad had been placed in a publication. In other words, the cost of the ad is substantially less -
The Chair: Even if not deductible to the Canadian advertiser, the costs are reduced sufficiently because there's no added cost in making this so-called ``Canadian'' publication, which is produced entirely outside the country.
Ms Katz: Precisely.
The Chair: Okay.
[Translation]
Mr. Brien (Témiscamingue): I would like some clarification on the way the excise tax is determined, at its present level of 80%. How was this percentage arrived at? What leads you to believe that this is the optimal rate which will give us a better balance?
Ms Katz: The 80% rate of tax was established to ensure that publishers of truly Canadian magazines would be in a position to sustain competition from split-run editions.
Mr. Brien: So, according to your analysis, the imbalance would be of that magnitude?
Ms Katz: Yes.
Mr. Brien: To your knowledge, are there similar measures elsewhere?
Ms Katz: Not as far as I know.
Mr. Brien: We are then the only place where this is done.
Ms Katz: Yes.
Mr. Brien: Very well. That will be all.
The Chairman: Thank you, Mr. Brien.
[English]
Mr. Solberg.
Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.
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I am following along the same line of questioning about the tax implications. It is my understanding that the principal purpose of taxation, of course, is to raise revenue, but when you have a tax that is as high as 80% of total revenues, some people might regard that as being a punitive tax. I wonder if perhaps Ms Malone could advise us on the legality of a tax like that, which may be regarded as punitive and may not be allowed under the Constitution.
Mr. Walker: I'll speak to that first.
The tax act is a combination of revenue measures and, for the lack of a better phrase, behavioural measures: you wish to see certain things accomplished. From time to time governments use the Income Tax Act in both a corporate and a personal way to seek certain objectives that have been agreed upon by Parliament. This would be seen as a particular tax measure to achieve the objectives in dealing with the magazine industry as outlined in the opening statement.
Mr. Solberg: Certainly there is precedent, though, so far as I understand, where high taxes aimed at a specific industry or company, in my understanding, have been ruled as unconstitutional. Is that correct?
Ms Patricia Malone (Chief, Excise Section, Department of Finance): I'm not aware of particular cases, but I'd like to say this is a valid exercise of federal taxing power. Furthermore, it's a measure of general application. It's not aimed at a specific company. It's aimed at all publishers or distributors of split-run editions distributed in Canada.
Mr. Solberg: That's a fairly narrow group of companies, of course.
Mr. Walker: At this time, but there's no saying what it would be in the future. That is to say, it's in response to a specific -
Mr. Solberg: There won't be now.
I'm not certain how long we can continue here, but I have a number of questions on the process that was in place. Of course we had the government task force on the Canadian magazine industry initially recommend that Sports Illustrated be grandfathered out of the legislation so they wouldn't be affected by this. I wonder if Ms Katz can comment on why there was a change, why we're ignoring that recommendation and are now going after Sports Illustrated retroactively, putting the date to a few days before Sports Illustrated actually started their split-run publishing.
Ms Katz: The task force did indeed recommend that the Canadian edition of Sports Illustrated should be grandfathered at seven issues per year. The decision the government took was indeed to establish the grandfathering date as March 26, 1993, which was the date of the establishment of the task force. The establishment of that date was to make it very clear that in establishing the task force the government was acknowledging that an important challenge had been put forward to its long-standing policy and that the concerns about split-runs in the Canadian market related to new entrants in the Canadian market. The date of the task force was chosen as an appropriate date on which to signal that the concerns about the presence of split-runs in the Canadian market dated as of the moment at which the task force was established.
Mr. Solberg: I want to switch gears for a moment. Isn't it true that now that this legislation is coming into place, Canadian magazines that wish to expand into the U.S., as Harrowsmith has done, to publish out of the U.S. and then run a split-run edition back into Canada, will really be denied the ability to do that, or they would face an 80% tax to do that? If so, aren't we really limiting the ability of the Canadian magazine industry to expand into the United States?
Ms Katz: I would say two things in response to that. Télémédia I believe has indicated they are supportive of the legislation -
Mr. Solberg: Well, sure; they're grandfathered in.
Ms Katz: I'm not in a position to comment on whether Harrowsmith is grandfathered in or not. I don't believe there's yet been a determination on their status under the legislation.
An important consideration in the task force's recommendations and in the government's deliberations was that this measure be consistent with our international trade obligations. On that basis the tax would apply equally to Canadian split-runs and split-runs entering from abroad.
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Mr. Solberg: But effectively it does not permit Canadian magazines to expand into the U.S. using split-run technology, correct?
Ms Katz: That's correct.
Mr. Solberg: Further on that line, I wonder if you can comment on the trade implications with the United States in some of the cultural areas. Lately, in other cultural areas, Canada has been expanding into the United States, and all of a sudden we introduce this legislation. If the remarks of the American trade minister are any indication, this is going to have implications for Canada's cultural industries that want to expand into the U.S. to become stronger.
I wonder if you can comment on what the department has to say about the implications for those types of Canadian cultural industries.
Ms Katz: I believe all I can do is essentially reiterate what I said in answer to your previous question, which is that it is the view of the government that the measure is indeed consistent with our international trade obligation and that it provides national treatment, and in that regard it treats Canadian and international publishers on an equal basis.
Mr. Solberg: Sports Illustrated reaches a particular demographic in Canada. If you were, for instance, an advertiser in downtown Toronto using Sports Illustrated's Canadian version to reach advertisers to compete against maybe Americans who have a dominant market share in Toronto, it would no longer be possible to use Sports Illustrated to reach that Toronto audience unless you wanted to buy the whole North American circulation.
Don't you see this as a measure that is going to penalize those types of businesses that use Sports Illustrated as an advertising vehicle? It is a unique magazine in Canada. There is no other sports magazine.
Ms Katz: That's true; there is no other magazine like Sports Illustrated published in Canada.
One of the important factors, however, is that magazines compete for readers with certain demographics. The particular reader profile for Sports Illustrated Canada is men over the age of eighteen. That is a reader profile that can be reached by any number of Canadian magazines. The advertisers have any number of other advertising vehicles in Canada by which to reach readers of that particular profile.
There is also a number of other sports-related publications on the Canadian market. They may not be of the exact kind of publication as Sports Illustrated, but there are indeed other sports-related magazines on the Canadian market.
I think the more important point is the fact that advertisers compete for readers within a certain profile and will make their advertising buys based on reaching readers in that particular profile.
Mr. Solberg: I think we agree that there is no other magazine like Sports Illustrated in Canada, so it does reach a very unique audience. If people can't get that audience through the magazine industry in Canada because there is no other magazine like it, isn't it true they may be forced to go into other technologies and actually drive business away from the magazine industry, which ends up defeating the very purpose of this bill?
You'll have people pursuing advertising in other technologies, perhaps through the U.S., such as the Internet, television, radio or satellite services. Isn't it true it's quite possible this could backfire on the magazine industry and actually drive advertisers out of that so they can reach the audience they were reaching with Sports Illustrated?
Mr. Walker: Advertisers have a number of options. There's a number of American-based publications in the sports field already in Canada that haven't had to seek this route for getting into the advertising area. There are baseball magazines, hockey magazines and a whole number of magazines for other sports.
Mr. Solberg: But you would have to buy the whole North American circulation to get your own domestic audience. That's ridiculous. No one would do that.
Mr. Walker: There's a number of options. There are options in the weeklies like Maclean's, if you wanted to target it, and so forth.
Mr. Solberg: Maclean's isn't a sports magazine.
Mr. Walker: There are lots of sports magazines out of North America too.
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Mr. Solberg: Yes. But if you were trying, for instance, to get the Canadian market, does it make sense that you would have to buy the whole North American market; for instance, go and purchase advertising from a media buyer in New York? Your ad would go all over the United States, where it would do you no good, because you're targeting the Canadian market. Isn't it true that that is a rather unlikely scenario?
Mr. Walker: I guess the policy question is the opposite. We don't want to provide opportunities to have the Canadian market creamed. We want to see opportunities for Canadian magazines to emerge and to flourish.
The split-run strategy is to come in and provide very low-cost services to advertisers. We'd like to provide the opportunity for the magazines. We feel that advertisers have a great deal of choice in the Canadian market.
Mr. Solberg: What about consumers? What about advertisers?
If a Canadian company wants to start a service such as Sports Illustrated, then it can certainly do that. But no one has until now.
Canadian readers and Canadian advertisers enjoy the service very much, which is obviously why they're successful here and why they were prepared to start seeking advertisers in this market.
I understand your concern for Canadian magazines, but what about Canadian consumers and advertisers?
Mr. Walker: I venture to say that Canadian consumers have a great deal of choice and have been well serviced by American magazines coming into the Canadian market. There's no difficulty, from the consumer point of view, in getting access to American editorial content. For example, if you're reading Atlantic Monthly, Time, or The New Yorker every week, these magazines are readily available in every airport and newsstand.
Mr. Solberg: But the advertisers are consumers, I guess.
Mr. Walker: If you're concerned about the access of the Canadian advertisers in local markets with an international company coming in and trying to take advantage of a loophole in the law, I think our policy focus is somewhat different.
Mr. Solberg: I appreciate that.
What I'm getting at is that obviously the Canadian magazine lobby have gone to the government and suggested that their rights and their livelihood are far more important than those of people who want to advertise in Sports Illustrated.
If we have a situation where we have never established a sports magazine in this country, over many years, it makes me wonder why we would not want to permit a sports magazine, in particular, into this country - especially when we have new national basketball franchises here, the Toronto Blue Jays, National Hockey League sports, and all these various sports groups, who couldn't even promote themselves in Sports Illustrated any more because they would have to go after the whole North American market.
Mr. Walker: I would say that it's the same issue of a small, regional advertiser faced by somebody in a New York, St. Louis, Cleveland, or New Orleans market. You find a target niche.
If you're talking about the promotion of Canadian sports, I would think the regulatory framework that provided for TSN to evolve, if you're looking at a sports market and a place to advertise and so forth.... Canadian policy has been very supportive of the development of a Canadian sports framework for advertisers.
Mr. Solberg: I can certainly ask some more questions. How much longer do I have, Mr. Chairman?
The Chair: You have until your questions become either irrelevant or boring.
Some hon. members: Oh, oh!
Mr. Solberg: Am I pushing it? Is that what you're saying?
The Chair: What about one more, and then we'll go across the table, and we'll come back to you if you have any more.
Mr. Solberg: I will defer now so I can regroup.
The Chair: Ms Brushett.
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman. You are being very generous today.
I want to get clear in my mind what a split-run is. Is it the mechanical processing of a magazine, the editorializing of a magazine, in a large volume, and then you send the American edition to the U.S. and in another chute shuffle off the Canadian edition, and there isn't enough variation to satisfy Canadian content so you can see this difference, and therefore it's called a split-run? Am I clear on that?
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Ms Katz: Yes, I think that is essentially what it is: a magazine that is published in its home market, with editorial developed for its home market and advertising purchased for that home market. The magazine has already paid for itself in its home market. A split-run is a new version or a new edition of that magazine in which the editorial is maintained but the publisher brings the magazine into a new market and purchases advertising specifically to reach that market.
Mrs. Brushett: And there is sufficient difference in the editorial content to distinguish it as a new magazine.
Ms Katz: Precisely. The editorial may be entirely the same, or there may be some modification, 15% or 20% new editorial, for that new market. But it would be a marginal difference.
Mrs. Brushett: You're saying that although the cost of the advertising is not tax deductible in a split-run, it is of sufficiently low cost that it is beneficial to the advertiser to have his advertisement placed in that numerous volume of that edition.
Ms Katz: That's right. The actual cost of the advertisement would be either... it would have to be at least equivalent to the cost of advertising in a Canadian publication, or it could indeed be less.
Mrs. Brushett: How do you determine what is a split-run? Do you have a regulatory process where you scan every magazine coming into this country to determine that through regulatory process?
Ms Katz: The definition in Bill C-103 is that an advertisement appears in an edition of a magazine on the Canadian market but that advertisement did not appear in an edition of that magazine in another market. It's simply that there is a different advertisement. That's your test.
Mrs. Brushett: And that is sufficient?
Ms Katz: Yes.
Mrs. Brushett: As we talk about sports magazines, we talk about the ski magazines. This is very specific to people who ski. You have ski hills across North America, whether Canadian or American... People who ski probably ski internationally, if they are reading ski magazines. How does that affect, for example, all of our great ski hills: Whistler, the Quebec hills, and so on? Can someone comment on that? Are we going to be beneficial there, or are we losing out?
Mr. Walker: It would be beneficial, because people would be able to buy into the specialized market they wish to, internationally. If it was ski, for example, whether they do it by zone or by whatever, these companies would just target on that. It really doesn't affect the ability of an advertiser to work within the framework of a specialized magazine.
Mr. Solberg: I just want to summarize here. From what I can gather from this bill, there seem to be a lot of down-sides and really only one up-side, for a small protected group in Canada, a special interest group, the magazine lobby. This legislation, in my understanding, will possibly tweak the nose of the Americans - quite possibly, from what we have heard - and of course they are our largest trading partner and there are all kinds of implications to that. We see that it could possibly be punitive, in the form that it taxes Sports Illustrated, so it may not be constitutional. It penalizes advertisers who would like to advertise in a lower-cost magazine and reach a particular audience. It may actually not allow Canadian magazines that want to expand into the United States... because they would not be allowed to have a split-run back without an 80% tax on them. It would also probably not permit... and it's certainly not in alignment with the spirit of the -
Mr. Campbell (St. Paul's): A point of clarification. Those are your opinions. You are stating them as if that is what the witnesses have said.
Mr. Walker: Let him do his damage.
Mr. Solberg: It is contrary to the spirit that has allowed major league sports teams to come to Canada. They wouldn't even be able to market in that particular magazine.
I can see all these down-sides, and I can see one up-side for a protected group, which is that they would be protected from competition. Of course we have some history with protection from competition in this country, and we have seen where it has led. We have seen situations where in the past, certainly in the national policy 125 years ago, we had protected industries that ended up in a situation where at first it benefited them but ultimately it penalized consumers and ultimately they themselves were destroyed, because they were too weak to compete when it finally got down to it.
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So I can see all kinds of down-sides to this, but only one up-side, which is for a small group of vested interests. I'd like to hear your comments on that.
Mr. Walker: First, I warned you not to talk to Herb before you spoke.
It's no fairer to say that this is responding to lobbyists than to suggest your questions come from Sports Illustrated. You'd be quite offended if I should say that to you. So I'm quite offended to think that we are trying to protect and develop an industry only as a result of their lobbying.
I think the Canadian government, from a historical point of view going back to the commissions in the early 1960s, is very proud of the fact that we finally developed a magazine industry as a result of telling companies like Time that they couldn't have split-runs in this country. We needed to have some space for the Canadian print and magazine industry.
Similarly, we've had fights all along the line with American industrial and cultural industries dealing with television stations on the border. We have ongoing battles concerning movie theatres and the distribution of movies.
There is no doubt that there is intense lobbying, which you are probably sympathetic with, dealing with the fact that this is simply just a marketplace and only of vague consumer interest.
We are very proud of the fact that we have a Canadian culture we're willing to protect. That was done in the free trade agreement. It's an offshoot of the NAFTA arrangements.
The cultural industries in Canada will continue to receive the protection of the Government of Canada. This is an example of a step we have to take, after a long review by a task force, long cabinet discussions, and now, public discussions.
Mr. Solberg: But let's talk for a moment about protecting Canadian industry and culture.
Certainly, magazines that want to expand into the U.S., thereby bringing in more revenue and that kind of thing, would be the ones, in my judgment, that would be a lot more successful over the long run and would be able to withstand the American juggernaut. So doesn't it make sense that legislation should encourage Canadian magazines to go and set up shop in the United States if that's what's necessary to bring in the extra revenue so they can continue to publish Canadian magazines?
Mr. Walker: I'm not too sure of the extent to which we have to be preoccupied with Canadian magazines setting up American shops. We should be preoccupied with the capacity of Canadian magazines to export into the United States, to the extent to which they feel they have to adopt that strategy.
There's a lot of leakage in American rules that we fought over continually. There are protectionist rules, for example, dealing with the municipal purchases of buses. There's the fact that Canadians have to forgo a lot of content in buses because they have to do it just across the New York border or the Manitoba border.
These are ongoing battles between the United States and Canada on several fronts. In this area, our primary consideration has to be the protection of the Canadian magazine industry; then take the other industries one step at a time.
Mr. Solberg: But ultimately, isn't that for people to decide? I appreciate the intentions of the government, but people themselves will make these decisions. If they decide that a magazine is a good magazine, it provides them with the content they want, they will purchase it, and advertisers will advertise in it as a result of that. Why do we have so little faith in the ability of people to make these decisions themselves?
Mr. Walker: I have tremendous faith in people's ability to make decisions. I also have tremendous respect for the ability of large manufacturers of products, whether those are industrial or cultural products, to push everyone else out of the way.
The Canadian marketplace is not only involved with the survival of the fittest, because one of the premises in the Canadian political system is the protection of viable, respected and necessary institutions, such as ones that we find in the magazine industry.
An announcement was made yesterday. How long has it taken the National Film Board to get a deal from Famous Players just to get NFB films distributed, for which we pay? If you think for one second that it's in the interest of a multinational company to provide time on the theatre screen for Canadian work, you're crazy. We have to make it our interest to promote these things.
This is similar to the magazine industry. Where do writers come from? Where does the cultural industry come from? It comes from products. It comes from things in the marketplace.
To think naively that these things just rise up and space will be provided by distributors because you say you're Canadian, and that they have cheaper products available -
Mr. Solberg: I don't think people want that. I don't think people want to have access just because they're Canadians; I think they want to have access because they're good.
Mr. Walker: That's right, and we do provide access.
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To make it clear to everybody, my first choice is to buy the The New Yorker. But I don't expect The New Yorker to be in here undercutting the Canadian marketplace. I expect to buy it at full market price, based on their American distribution system, not on their coming in and undercutting the Canadian advertising market for Canadian products.
Mr. Solberg: Everybody uses the economies of scale.
We have two contrary policies. I certainly don't hear the government saying Wal-Mart shouldn't be allowed into the country. But on the other hand, they say that Sports Illustrated is bad somehow. I don't see the difference. I think people can make good judgments either way, whether it's buying something from Wal-Mart or buying a cultural product.
Mr. Walker: Until the last government, we had a very stringent set of regulations dealing with the purchases of companies in Canada for that very reason. Some markets have matured to the extent that we no longer regulate the purchases of competitors. The retail industry is one where we've made the decision that it's mature enough.
But there are other industries, mostly in the cultural area, in which we decided - and for a long time also in the oil and gas industry - that Canadian content had to be one of the objectives of national policy. So I have a very fundamental disagreement with what the government should be doing in this case, although in other areas I would tend to agree with you. In this case I think the Canadian cultural community needs some protection and support. Bill C-103 is a good way to effectively protect it.
The Chair: I have a question for Mr. Solberg. Are you advocating that Bill C-103 not go through at all and apply to any publication or that it not apply only to Sports Illustrated?
Mr. Solberg: I would advocate that ultimately we aim for complete free trade in all areas of the economy. That may happen over a period of time. It should be done reciprocally with the United States, because they're not a paragon of openness sometimes either. But I believe ultimately that's where we should go. I do believe the cream will rise to the top in that the magazines and the cultural industry that people support will be the ones to survive.
The Chair: And do you believe split-run editions are not a problem for competition or fairness?
Mr. Solberg: The economy of scale is something we see every day in this country. We see it in all the other sectors of the economy.
When Wal-Mart comes into town - I hope I don't ever catch you shopping in Wal-Mart - and is able to distribute things at a lower cost so people have more money in their pocket and purchase other goods, that's good for the economy. It creates jobs. Certainly that's what this government says it's all about. I think that's an important factor.
Mr. Walker: Are you saying people shouldn't shop there?
Mr. Solberg: Pardon me?
Mr. Walker: You said you thought people shouldn't shop there.
Mr. Solberg: Shop where?
Mr. Walker: At Wal-Mart.
Mr. Solberg: No, I'm not saying that. I'm just saying to the chairman that I don't want to catch him in there because I don't want him violating his nationalistic point of view.
Mr. Grubel (Capilano - Howe Sound): Could I elaborate on that?
The Chair: Yes, please, Mr. Grubel.
Thank you, Mr. Solberg.
Mr. Grubel: Mr. Solberg, excuse me for a minute, but you know one of the principles of efficiency is that if you want to subsidize something, subsidize it.
Why don't we go to the people of Canada every year with the budget saying we want to subsidize the cultural interest as embodied in the magazine industry and here is x hundred million dollars? But no, we don't do it that way, because we haven't got the guts.
We sit here. In ten minutes we'll all be outvoted and there will be a subsidy going to those industries for ever and ever and it will never show up.
The people in Canada will wonder why they can't read the quality magazine called Sports Illustrated. They will never know directly that this committee and this government have passed a subsidy hidden in the way it is. We are allowed to subsidize industry -
Mr. Walker: Excuse me, Mr. Grubel, but that's technically wrong. You can read Sports Illustrated. What they can't do is provide high-discount advertising by using predatory trade practices.
Mr. Grubel: But look, the same thing is being done. Sports Illustrated has a southeastern edition and a southwestern edition. In principle, the people in Texas have the same kind of argument. This is the way the world runs. You are also forcing other advertisers, people who have made big Canadian investments in the new basketball franchises and so on, to target their audiences to promote their business, which is all part of an integration of North American sports economy that is good for everyone, to have to go to a cheaper substitute.
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One last objective question: have you made any inquiry into where Sports Illustrated is being printed?
Mr. Walker: Yes.
Mr. Grubel: Where is it being printed?
Mr. Walker: As far as I know, it's in Richmond Hill, north of Toronto.
Mr. Grubel: How many people are being employed by printing Sports Illustrated?
Mr. Walker: I would say, to be conservative, a handful. I was going to say less than a handful.
Mr. Grubel: How much paper is being used?
Mr. Walker: I don't know what the run is and I don't know where they buy their paper.
Mr. Grubel: That was going to be my next question.
Either it is a threat because it has a wide distribution and takes away a lot of advertising, or it is not important. If it's not important because they don't employ many people and all those kinds of things, then it shouldn't be an issue.
The point is that you're putting out of business, not just with Sports Illustrated but also with other things that are being printed.... You are possibly pushing these advertisers, who are now using this, by revealed preference, as their preferred vehicle for advertising, into electronic media outlets. Therefore, you are losing six workers alone, plus all those multipliers in which the left is so interested all the time - they depend on those six - plus the people who are providing the paper, who have multiplier effects.
I thought you were creating jobs. What this activity is doing is cutting jobs in Canada, important jobs - not just for Sports Illustrated, but for all the other magazines that would be here and are taking the place of advertising on electronic media.
Mr. Walker: At face value, your point is correct, of course: if Sports Illustrated pulls its small shop out of Canada as a result of this decision, then obviously it is. But if you think that one of the underpinnings of the Canadian industry has given them access to the advertising market free of the predatory practice of split-runs, then I think the fact is that we're maintaining several hundred jobs and we're maintaining an industry. You should be very proud of our job creation efforts there.
Mr. Grubel: With all due respect, this is what we call a lump of quantity fallacy. It is a fallacy to believe that there are only x hundreds of millions of dollars of advertising that go into magazines in Canada. That is just false. There are all kinds of alternative outlets. One is radio; the other is television - television originating in Canada, television originating in the United States. There are flyers. There are all kinds of other substitutes. If you open up a market that appeals to a specific niche, then you don't necessarily take money away from other magazines.
Mr. Walker: The underpinning of the industry is such that, because of the regulatory framework that has existed, television and radio are primarily Canadian owned. So the dollars are circulating. If the advertiser chooses Canadian television or Canadian radio, then the dollars stay in this country.
The reason for setting this up - you have to go back - is that if we had let the Canadian system go, it was a beamer in from Buffalo, from Seattle, and from other places across the border that would have completely overrun the Canadian industry. As a result, there'd be nothing here. At that point in time, in the capitalization of the American industry versus that of the Canadian industry, the fight that took place in the 1960s and 1970s, which this is the latest electronic update for, has been very fundamental to maintaining that industry.
We all might belittle this and say, ``Look, consumers had a choice. They don't really like that. They like Sports Illustrated.''
We've been very liberal...than our government has been, but those magazines and those programs have a right to be heard, a right to be seen, a right for advertisers to buy time with.
What we have said consistently is that there should be no predatory price practices, no creaming the Canadian market as an add-on to an existing cost that you have in the States. That's something we feel very strongly about.
Mr. Grubel: What it comes down to, I believe, is a belief here in Canada: a total lack of confidence in the ability of Canada to maintain its culture. In Texas there are split-runs of all kinds of magazines that are created in New York. California has the same problem. All have been able to preserve their culture. Nobody here will deny that there's a Texas culture, a Tennessee culture, a California culture and a New York culture. In the same way, without that protection we could have a potentially even more vital and dynamic culture.
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This is simple and pure special interest group pleading by a group of people who would not otherwise be able to do what they are doing, and it's done arrogantly, with them claiming they know what's best for Canadians rather than Canadians choosing for themselves what they want to do.
Thank you.
The Chair: Thanks, Mr. Grubel.
Mr. Solberg, do you have one last brief comment before we adjourn?
Mr. Solberg: Yes.
By not allowing Canadian advertising all the various media you've just referred to, isn't it true that we're allowing American products to be advertised throughout this country with no competition on all these foreign media coming in? We've been through radio, cable, satellite, the Internet and certainly magazines coming in, and there's no Canadian counterpoise, because this government won't allow it.
So basically what you're really doing is allowing the economy of scale to work extremely well for Americans coming in here, but you won't allow Canadian advertisers to utilize the economy of scale because of this legislation.
Mr. Walker: If Sports Illustrated wishes to set up a magazine called Sports Canada to develop an interest in Canadian sports, at an editorial level that is acceptable in Canadian sports, we'd love to have their editorial skills and their commitment to great photos. The packaging they do is fantastic.
If there's a Sports Canada around the corner, we'd all be happy to see it. We'd like to see them set up a large shop in Richmond Hill and, as Mr. Grubel insinuates, create dozens of jobs for Canadians in the sports journalist field. We'd love to have them here.
The Chair: I'd prefer that they be in Willowdale.
Thank you very much, Mr. Walker, Ms Katz and Ms Malone.
We will be continuing this very issue on Thursday afternoon, when the Canadian Magazine Publishers' Association and other witnesses will be before us. It's obviously an issue that has brought out the very great contrast in the philosophies of the government and the Reform Party on this particular issue. It should continue to be a compelling and interesting issue for us to deal with.
We now adjourn. We're going in camera for a steering committee meeting.