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Pop-Culture Profits a Growing Source of U.S.-Canada Friction

December 20, 1995

TORONTO (AP) _ Country music. A sports magazine. Bookstores.

Sounds harmless enough. But it’s over such pop-culture topics that Canada and the United States, the world’s biggest trading partners, are waging a complex, multifaceted trade war.

The common theme, as battlefields shift from one cultural domain to another, is Canada’s pervasive fear that it cannot compete financially against U.S. multimedia giants. Canadians aren’t opposed to American culture _ but they worry about whether their own can survive.

Such fears rouse little sympathy in Washington, which sees Canada more worried about profits than cultural integrity.

The latest skirmish came last week, when Canada’s Parliament imposed a punitive 80 percent excise tax to shut down Sports Illustrated’s Canadian edition.

U.S. Trade Representative Mickey Kantor warned of possible retaliation.

He said his office, in consultation with U.S. publishers, ``is examining this discriminatory action and all options available to appropriately respond.″

Kantor noted that the move against Sports Illustrated followed revocation of a Canadian license earlier this year for Nashville, Tenn.-based Country Music Television.

He said those moves, and proposed copyright legislation that might favor Canadian performers, revealed ``an increasing and disturbing trend in Canada toward the implementation of policies intended to protect Canadian industry by discriminating against legitimate U.S. interests.″

Sports Illustrated, owned by Time Warner Inc., was equally upset, vowing to consider ``all the available international legal options.″ It was publishing only 12 editions a year in Canada, and had no direct competitor within the Canadian magazine industry.

``The government has stepped away from a clear opportunity to treat all parties with fairness,″ said the magazine.

The law targeting Sports Illustrated imposes an 80 percent tax on the advertising revenues of so-called ``split-run″ editions of foreign magazines.

In split-run magazines, editorial content produced in the publication’s home market is used almost unchanged in a second country, but new ads are sold. Canadian publishers fear split-runs would drain away local advertising dollars, dooming some Canadian magazines while boosting U.S. publications that have made a minimal investment in Canada.

In 1965, Canada passed legislation barring the import of all split-run magazines except the two that already existed _ Time and Readers Digest. Sports Illustrated started its Canadian edition in 1993, circumventing the law by beaming its contents by satellite to its Canadian printer.

``Sports Illustrated broke the spirit, if not the letter, of our law,″ said Catherine Keachie, president of the Canadian Magazine Publishers Association.

There was an attempt last week in Canada’s Senate to allow Sports Illustrated to continue its Canadian edition while blocking any other U.S. magazines from following its example. But the Senate rejected that exemption, effectively expelling the magazine and triggering Kantor’s angry comment.

While Kantor mulls his options, there is growing speculation in Canada that the next pop-culture battleground will be over bookstores.

At least one giant U.S. book retailer _ Borders Group Inc. _ is considering entry into Canada next year.

Its rival, Barnes and Noble, may do likewise.

With revenues of $2 billion a year, Borders is almost double the size of the entire Canadian general-interest book industry.

As a result, the Canadian industry is on edge, worrying that superstores operated by these U.S. chains will be able to undersell Canadian-owned stores and make it harder for Canadian publishing houses to market their books.

At parliamentary hearings last month, Industry Minister John Manley said the U.S. chains would be allowed to operate in Canada only as minority investors in Canadian-controlled ventures.

But publishers want additional assurances, and have asked that retailers be required to buy the books they sell in Canada from Canadian sources.

``It is a commercial issue, but it’s also a cultural issue and it goes right to the root of this country,″ said David Peterson, a former premier of Ontario who is chairman of Canada’s biggest bookstore chain, Chapters Inc.

``We need to hang onto the threads that bind this country together.″

Not all Canadians are worried. On Monday, a Canadian chain of coffee shops _ Second Cup Ltd. _ said it plans to invest about $2 million in Borders’ Canadian venture, possibly as a step toward operating cafes in Borders’ stores.

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