U.S. takes Canada to WTO over 80 percent magazine tax

U.S. takes Canada to WTO over 80 percent magazine tax

03/25/96

WASHINGTON, D.C.–Canada is violating fair trade laws and discriminating against U.S. magazines by enacting stiff excise taxes and disallowing deductions for advertisers, the Clinton Administration alleged in a mid-March complaint to the Geneva-based World Trade Organization.

In late December 1995, Canada enacted an 80 percent excise tax on advertising in existing “split-run” magazines — foreign publications that print separate Canadian editions with Canadian advertisements — and changed laws to effectively ban any new split-run magazines.

Previously-existing measures disallow an income tax deduction for advertisements in split-run magazines and set a significantly higher postage rate for them, according to the complaint.

U.S. Trade Representative Mickey Kantor argued that the prohibitive measures were prompted by the Canadian publishing industry, which has long complained that magazines like Time Warner’s Canadian edition of Sports Illustrated compete for Canadian advertising with domestic publications.

After Time Canada, Inc. was given approval to print and distribute the magazine in 1990, the Canadian publishing industry pressured the government to prevent future publication of split-run editions, according to the administration’s complaint.

A Task Force on the Canadian Magazine Industry recommended in May 1994 that the government ban all future split-runs and impose an 80 percent excise tax on any issues above the number a magazine then published per year, thus effectively limiting Sports Illustrated to six issues per year.

But the Canadian government in December 1995 passed a law that applied the 80 percent tax to all issues of magazines already publishing in the country, and changed other laws to keep publishers from introducing new split-runs, the administration charged. Canada- owned split-runs that publish in the United States are not subject to separate American or Canadian taxes, according to the complaint.

Due to the new regulations, Sports Illustrated has halted publication in Canada and no longer solicits advertising from Canadian companies.

Canada’s trade minister said that foreign split-run magazines threaten the Canada’s “cultural identity” in that they endanger the nation’s chances for a viable magazine industry, according to the Washington Post.

But Kantor said in a statement that the United States is prepared to act on “so-called cultural issues” when there is discrimination against the United States. He added that Canada is strictly concerned with protecting its commercial interests as opposed to its cultural identity. If the WTO rules in favor of the United States, it could impose retaliatory sanctions on Canadian imports within 18 months.