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