I attach four copies of a memorandum on this subject for consideration in relation to the coming budget. You might want to show copies, not only to the Prime Minister, but also to Mr. Pickersgill, who has given a good deal of thought to this subject in the past, and to Mr. Pearson who will be interested in possible international repercussions.

As you know, while we started by considering this as a subject for tariff action we have swung towards possible action in the form of an excise tax. I have collaborated with Dr. Eaton in working out the proposals put forward here.

We await your further instructions.

A.F.W. P[LUMPTRE]

[PIÈCE JOINTE/ENCLOSURE]

Note du sous-ministre adjoint du ministère des Finances

Memorandum by Assistant Deputy Minister of Finance

CANADIAN MAGAZINES - POSSIBLE ASSISTANCE¹⁰²

For some years now the Canadian Periodical Press Association has been asking for help from the Government in the face of increasingly intense competition from the United States. Some assistance has been given; for instance, various Government departments have bought more advertising space in Canadian magazines. However, the position of these magazines has continued to deteriorate. It has now become seriously questionable whether Canadian magazines - both the so-called consumer magazines such as MacLeans, Saturday Night, Chatelaine, and Liberty, and even the so-called business papers which circulate amongst various trading and manufacturing groups in Canada - can continue to survive.

The fact that the publication of magazines, particularly consumer magazines, is no longer profitable in Canada, even under conditions of general economic expansion and prosperity, is attested by at least two types of evidence. On the one hand, certain confidential figures have been received indicating the financial position of some of the better known Canadian magazines. On the other hand, post-war experience speaks pretty clearly: New World ceased publication in 1947; National Home Monthly in 1950; Liberty reduced from weekly to monthly in 1947; Saturday Night reduced from weekly to semi-monthly in 1955; and there have been casualties amongst some small French-language publications as well.

Meanwhile American magazines have extended their coverage of the Canadian market. The total circulation of Canadian consumer magazines has kept fairly constant since the war; but the circulation of U.S. consumer magazines in Canada has almost doubled. In 1948 approximately two-thirds of the consumer magazines sold in Canada were American and one-third were Canadian; by 1954-55 the American share was four-fifths.

The competition from U.S. magazines takes two forms, one old and the other new, and Canadian magazines have been asking for some sort of protection against both of them. The old form comprises the overflow circulation of American magazines into Canada: Saturday Evening Post, Life, Ladies' Home Journal, Newsweek, and so forth, not to mention many of the more lurid exhibits on our news-stands. The new form, which did not exist before the war, comprises the special editions of U.S. publications designed for the Canadian market; the best known are the Canadian editions of Time and Reader's Digest; in addition there are four women's magazines, circulated through chain stores, each of which puts out an edition carrying some Canadian reading matter and some Canadian advertising: Better Living and Every woman's which began this practice in 1951, Family Circle in 1952, and Parents Magazine in 1954; and finally there are two business papers in this class, Canadian Farm Chemicals and Cleaning and Laundry World.

Overflow Circulation

Against overflow circulation the only form of protection that might reasonably be considered would be the imposition of a tariff. If this were to be done the most appropriate and defensible approach would be to resort to the rates already applicable against imports of advertising material, as follows:

These rates might be applied, in some rough approximation, to the advertising content of imported magazines. It could be claimed that the Government was not thereby going back on its traditional opposition in principle to any restriction on the free movement of ideas; but that the free influx of American advertising, carried in magazines, was having (as indeed it is) serious effects on the position of Canadian manufacturers in trying to stand up to competition of American products widely advertised in U.S. magazines.

However, for several reasons it is not recommended that this approach be adopted, at any rate at this stage. Whatever explanation is advanced, the fact would remain that a tariff on imports of magazines, not unlike that imposed in 1931 and removed as a matter of principle in 1935, was being reimposed in 1956. The re-establishment of free entry for magazines in 1935 was part, and an important part, of the Canada-U.S. Trade Agreement and has subsequently been bound under GATT. It will be noted that the tariff rates applicable to advertising, which are quoted above, include a substantial British preference; if these rates were to be applied to imported magazines, the blow to the U.S., which is very sensitive about preferences, would be all the harder to take and the no-new-preference rule in GATT would probably be breached. Difficult questions might arise as to how to deal with magazines published abroad in French. And, finally, the administration of such a tariff would probably be pretty difficult.

Special Editions

Serious and immediate consideration may be given, however, to the special editions of U.S. publications. The Canadian publishers have left the impression that they are more worried by this new, double-edged competition than by overflow circulation; these editions not merely displace Canadian magazines in the field of circulation, but also undermine their income by selling space to Canadian advertisers. This advertising space is frequently offered at rates substantially below those that the Canadian papers can offer. Complete figures for all the special editions mentioned above are not available, but the inroads on advertising revenues made by Time and Reader's Digest and disclosed by the accompanying table are sufficiently striking.

gross advertising revenue of selected magazines
(Source: Canadian Magazine Advertising Summary)

It will be seen from the table that these two special editions (or three, if French and English editions of Reader's Digest are considered to be separate) now absorb well over one-third of the total advertising revenues obtained by this important group of magazines.

The publishers of special Canadian editions of U.S. magazines have peculiar advantages in the Canadian market - advantages not shared by Canadian magazines. Their circulation and advertising campaigns can be managed as part of the very large and expensive campaigns put on in their own country. They can in some cases print most of the Canadian edition as part of their home edition. Most important, while the Canadian magazines have to pay normal prices for their reading matter, illustrations, etc., the special editions can and do get the great bulk of their material as a by-product from their parent publications.

The most appropriate way of restraining this form of competition appears to be the imposition of a tax. Such a tax would have the following features:

(1) It would be levied on any publisher of a special Canadian edition, whether located in Canada (like Reader's Digest) or abroad (like the others mentioned above); hence it would be non-discriminatory in form and, in the judgment of Canadian officials, could be effectively defended in relation to GATT and other treaty obligations.

(ii) It probably should apply not only to Canadian editions in English, but also to French language translations (e.g. Reader's Digest) thus giving some relief to Canadians publishing magazines in that language.

(iii) It should be levied on gross advertising revenue, thus bearing directly on the point at which Canadian publishers feel the competition most keenly. If levied in that form (as opposed to so-many-cents-per-copy) there would be no direct incentive to raise prices to the consumer.

(iv) From the point of view of administration it would probably be practicable to follow sales tax procedure and require a publisher to pay tax before the end of one month on the value of advertising contained in magazines (of the type defined) sold in Canada in the previous month.

(v) As for the rate of tax, it should presumably be aimed at offsetting the peculiar advantages which the special editions have over the genuine Canadian magazines; it must be admitted, however, that computations of this sort are open to wide differences, and in the last analysis the rate of tax would be pretty arbitrary.

Of course, if this whole matter were judged on purely commercial or economic grounds, there would be no justification for a special tax. Other industries should not be encouraged to expect similar action if they get into difficulties owing to U.S. competition. The only justification would lie in the view that Canadian magazines of all sorts - consumer magazines and business papers alike - form a really important strand in the fabric of Canadian life, and that no government could allow a strand of this importance to be broken or worn away.