Sports Illustrated Canada prevails in trade dispute

SWITZERLAND–The World Trade Organization in late June ruled against Canada’s appeal of a 1996 ruling holding that the Canadian government unfairly restricted the sale of magazines produced in the United States, according to the Office of the U.S. Trade Representative.

Despite Canada’s arguments that the restrictions are needed to preserve its culture, the WTO said the Canadian rules violated the international trade regulations established under the General Agreement on Tariffs and Trade (GATT).

Canada enacted measures prohibiting or restricting the importation of certain magazines, discriminating in their tax treatment of “split-run” magazines — those that contain Canadian advertising but foreign editorial content — and offering favorable postage rates to Canadian magazines.

In 1995, Canada added an 80 percent tax on revenue from advertisements placed in split-run magazines or other magazines originating abroad. The tax eliminated a loophole which had previously allowed Sports Illustrated Canada to escape the extra taxes because it was produced in Canada with editorial content transmitted from the United States.

Sports Illustrated Canada shut down soon after, prompting the U.S. government to file a complaint in 1996.

A WTO panel the found that Canada’s import ban, 80 percent excise tax, and discriminatory postal rates violated the trade rules established under GATT in 1994.

The panel also found that the tax drew an artificial distinction between split-run and non-split-run magazines which are considered “like products” under GATT. (WTO Report of the Appellate Body: Canada; Certain Measures Concerning Periodicals)