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COMMENTARY by Joseph Weber	June 3, 1999

Chalk up a victory for free markets. The new deal between Canada and the U.S. on the thorny subject of cultural protectionism establishes a new precedent for how publications, movies, music, and the arts should be handled across borders. The world should take note -- and follow.

After years of squabbling and the threat of a full-blown trade war, bargainers for the two countries on May 26 agreed on how much access Canada will give American magazine publishers. Magazines such as Good Housekeeping and Sports Illustrated will now be able to carry ads by Canadian advertisers and even set up Canadian editions.

While that may not mean much to magazine readers in the U.S., it should light a fire under the publishers of Canadian Living, Flare, and their cousins to improve their products at home. The likely result: more and better fare for Canadian consumers.

A MODEL? The deal, brokered only after President Bill Clinton and Prime Minister Jean Chretien personally interceded, may also prove to be a model for how countries can maintain choice for their residents while preserving local culture. Instead of building barriers against foreigners, as the Canadians originally proposed, the Northerners will now broaden access to 30 million Canadians, while subsidizing local publishers who worry that they'll lose out in international cultural competition. Even Sheila Copps, Canada's occasionally anti-American Heritage Minister, has accepted the new regime as a "win-win" for Canada and the U.S.

Most important, the deal confirms the idea that consumers -- not bureaucrats or politicians working to protect domestic industries -- should choose what they can read, see, and hear. Copps and the Liberal government in Ottawa originally wanted to make it a crime for American publishers to run Canadian ads, arguing that Canadian publishers couldn't afford to lose any revenue. Now, by letting Canadian advertisers buy space in American-owned magazines -- albeit just up to 18% of the ads in each issue -- the deal gives foreign publishers an incentive to better serve Canadian readers in order to win Canadian ad spending.

Canadian readers should be the beneficiaries. If they want more stories about hockey, Ottawa, or Canadian business, they'll likely get them. Even the Canadian publishers should be helped: Fresh competition may also bring advertisers back to print, reenergizing Canadian publishers' long-shrinking advertising market. Ultimately, readers and advertisers will now decide which publications do the best jobs for them.

HOARDING AIRTIME. For the world, the lesson is that consumer choice ought to hold true in culture, just as in most other realms. Countries that limit or ban American products, whether they're movies, TV programs, or music, are cheating their own citizens. Europe, for instance, effectively limits the amount of American-made TV that can be aired through the European Union's broadcast directive, which reserves shares of airtime for European programming. Israel has just enacted a rule that half of the music on its 15 network radio stations must be Israeli. China controls outright the number of foreign films that can be screened each year, and Korea requires that theater-owners show locally made movies 40% of the time.

The problem with such artificial restraints is that America's cultural efforts -- especially Hollywood's -- become even more sought-after as government-mandated products prove clunkers by comparison. In Canada, for instance, highly hyped but mediocre shows such as Traders, a drama about Toronto stock dealers, are lucky to grab a 2.1 rating (No. 154 last fall among shows aired in Toronto). In the meantime, Frasier dominates with an 11.9 rating, while dramas such as ER or NYPD Blue rank No. 5 and No. 10, respectively. If the market were truly free, the Canadian producers would have to come up with more products that viewers crave -- like the recently departed Due South, the Canadian-produced "Royal Canadian Mountie" drama that for a time was a hit on both sides of the border.

The Canada-U.S. magazine deal isn't a complete win. It sets up subsidies for Canadian publishers, for instance. Film producers have long been underwritten in this way, so they, unlike Hollywood, can thumb their noses at the public's tastes. "It breaks the link between the creator and his audience," snorts one Hollywood insider. "If you don't have to rely on your box office to pay back your investment, you can make beautiful art stories that no one sees."

MINISTERS, TAKE NOTE. The deal also continues restrictions on outside ownership. A foreign publisher that wants to exceed the 18% limit on Canadian ads, for instance, would have to provide at least half Canadian editorial matter. And foreign outfits would still be barred from acquiring Canadian publishers, even while newcomers would no longer be restricted to just 25% of ownership in a Canadian venture. Such restraints are certainly not unprecedented: the U.S. has long prevented foreign ownership of its TV networks, which is why Rupert Murdoch became an American.

But the pact is sure to get attention when the cultural ministers of some 30 governments go to Oaxaca, Mexico, in September for the second meeting of the International Network on Cultural Policy, a group that trades notes on cultural preservation. The deal will be a hot topic, too, when ministers of the World Trade Organization meet for a new round on trade liberalization in Seattle in December.

Cultural protectionism, like any other market meddling, usually hurts more than it helps. It may be especially invidious since it cheapens the art that reflects a nation's identity. World-class artists such as writer Mordecai Richler deride mandated Canadian-content work as guaranteed to be second-rate. And singers like Quebecoise superstar Celine Dion prove that talent knows no borders. A vibrant culture is like any commodity in one respect: In a free market, it will find its deserved place.

Weber is Business Week's Toronto bureau chief

EDITED BY DOUGLAS HARBRECHT _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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