Target deal not about CanCon — it’s about easing rules on foreign ownership
NationalPost.com – business/FinancialPost/FPComment
Jul 7, 2012. Terence Corcoran
On the face of it, this was one strange announcement from Heritage Canada. The minister, James Moore, said in a news release Friday that the Target retail chain — set to invest $3.5-billion in Canada and employ up to 25,000 people — would be allowed to sell cultural products. As the release put it, Target “has been granted approval under the Investment Canada Act to sell cultural products in its Canadian stores.”
What madness is this? Surely a multi-billion-dollar investor doesn’t need to grovel to Ottawa for the right to sell products.
Many news reports, not surprisingly, completely misread the main intent of Mr. Moore’s announcement. One said that Ottawa had approved the U.S. retailer’s move into Canada “on the condition that the stores have a more Canadian feel.” Another said that Target would be required to “sell Canadian ‘cultural products,’ including Canadian magazines, books, music and DVDs.”
Careful readers already will have noticed that the minister’s words said something completely different. He did not say that Target had been approved on the condition that it sell Canadian culture to Canadians. He said exactly the opposite: Target would be allowed to sell cultural products at the 125 stores it intends to open across Canada by 2015. Target wanted to sell cultural products and the minister gave his approval.
And that is where the real story can be found. The news is not that Target must meet some oppressive Canadian content conditions in its stores, or support sales of Bryan Adams CDs or Margaret Atwood novels.
The news is that the minister has approved foreign ownership of a cultural distribution business, thereby once again setting a precedent that breaks policy.
At least one expert in the legal tangle known as the Investment Canada Act says Friday’s Target decision is another sign that Ottawa will soon announce new cultural investment rules. Allowing foreign companies to establish and operate cultural industries in Canada is likely to be announced soon as Ottawa sets new policy. Some Canadian content rules might be sought, but the old formal blanket prohibitions on foreign ownership will soon be replaced.
None of this was forthcoming Friday from Heritage Canada officials, who when asked to clarify the Target announcement kept repeating the official line. “The minister reviewed and approved Target’s proposal to sell cultural products in its stores in Canada as per section 15 of the Act.” Nobody wanted to say that Target is being allowed to do something that is technically in contravention of formal policy.
It’s not the first time Ottawa has recently sidestepped cultural investment rules. When Heather Reisman’s Indigo Books & Music sold its Kobo e-reader to Rakuten of Japan last year, Ottawa approved even though the sale flew in the face of the long-standing prohibition against such foreign ownership.
Foreign ownership controls, under cultural clauses of the Investment Canada Act, were clearly laid down in 1992 and reiterated by the Harper government in a 2010 discussion paper. In books, for example, the line is clear: “The current policy sets the following conditions for foreign investment in the Canadian book publishing, distribution and retail sectors: Foreign investment in new business enterprises will be limited to Canadian-controlled joint ventures.”
According to the 2010 paper, Investing in the Future of Canadian Books, other avenues for foreign control are also cut off. For example, a “direct acquisition of an existing Canadian-controlled business by a non-Canadian will not be permitted.”
So far, the book policy, a cornerstone of Canadian cultural investment protection, has not been formally changed. Which means that Target, which bought the Zellers real estate but not the Zellers business, is considered a new business enterprise and therefore cannot technically open a book-selling operation without a joint-venture Canadian partner.
Except for the loophole. Formal policy says no, but informal policy — like the Kobo sale and the Target announcement Friday — is increasingly being applied by the Harper government.
Comments on the 2010 discussion paper, which proposed various alternatives to address the numerous absurdities of the existing policy in an age of e-books and Internet culture, have been accepted, but a new policy has yet to be announced.
Oliver Borgers, a foreign investment legal expert, says he believes Ottawa is on the brink of issuing “a more flexible policy” on foreign investment in cultural industries. The Target decision, he said, is a clear indication the government, from the cabinet on down, is “relaxing this policy and it’s just a matter of time before formally replacing” the current official policy.
There is, then, method to the madness of the Friday announcement on Target. All Canadians who are anxiously awaiting the company’s arrival on the Canadian retail scene can already thank the chain for having played a part in the unmaking of an anachronistic barrier to a more competitive and open market in cultural products, including Canadian cultural products.
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