Ottawa said it will allow U.S. on-line bookseller Amazon.com Inc. to set up its own distribution centre in Canada, a second major move in recent months by the federal government to effectively override foreign-ownership rules.
The ruling allows the Seattle-based firm to cut its costs significantly, prompting heavy criticism by local booksellers who say it will allow Amazon to price Canadian businesses out of the market.
Until now, Amazon.ca has had to use a Canada Post subsidiary to ship goods in Canada in order to avoid violating cultural protection rules.
"This signals a government of Canada policy change confirming that a company no longer needs to be Canadian-owned to sell books in Canada," said Heather Reisman, chief executive officer of Indigo Books & Music Inc.
The government's approval of Amazon's plans follows a surprise December decision that opened the door for Globalive Wireless Management Corp. to begin operating a wireless network in Canada, overturning a ruling by the Canadian Radio-television and Telecommunications Commission that deemed Globalive to be a foreign company because of its Egyptian financial backing.
Despite the fact that Canadian law places severe restrictions on bricks-and-mortar foreign-owned businesses operating in certain Canadian cultural industries - including books - Amazon has had a Canadian presence for almost a decade.
That's in large part because Amazon.ca is a website that has no physical presence in Canada. Had Ottawa rejected Amazon's shipping centre application, the government would have found itself in the untenable position of saying the company's business runs afoul of Canadian rules, while at the same time allowing Amazon.ca to operate outside those rules.
Instead, the Conservative government secured a number of "commitments" from Amazon in exchange for approving the distribution centre.
According to Heritage Minister James Moore, those "commitments" include a $20-million investment in Canada, $1.5-million of which will go to "cultural events and awards in Canada and the promotion of Canadian-authored books internationally." Amazon has also agreed to run a summer internship program for Canadian postsecondary students.
"Our government is committed to strengthening Canada's economy through all its sectors, especially arts and culture," Mr. Moore said in a statement. "Amazon has shown its willingness to promote Canadian cultural products, and we are pleased it is continuing to demonstrate this through this new investment."
However it's unclear how much of the $20-million investment is new money. In addition, many of Amazon's commitments are vaguely stated, such as "increased visibility for Canadian books on the Amazon.ca Web page," "increased availability of French-language Canadian cultural products" and "making more Canadian content available on the Kindle e-reader." Neither the government nor Amazon supplemented these promises with hard numbers, or indicated when they would begin to take effect.
"We believe that a local fulfilment [distribution]centre will enable us to even better serve our customers in Canada, as well as our customers in other countries who seek Canadian books and other cultural products," Paul Misener, Amazon's vice-president for global public policy, said in a statement.
Carolyn Wood, executive director of the Association of Canadian Publishers, said while disappointed, her group hopes that Amazon will start to provide better services to Canadian publishers.
She said she was encouraged that Amazon has committed to dedicate staff to help Canadian publishers. In the past, Amazon has bypassed domestic editions of books for U.S. editions, she said. "In general, if they remove some of the barriers that publishers have encountered in having their books available, that's a step forward," Ms. Wood said.
The Canadian Publishers Council, which represents international publishers, was more upbeat. As long as copyright is respected, "publishers are always happy to have new channels and avenues for their business," said executive director Jacqueline Hushion.
Amazon and its supporters have argued that increased competition is beneficial to Canadians, but several Canadian booksellers counter that Amazon will eviscerate small operations in the country, who simply can't afford to compete with the massive company on price.
"My fear is that this decision will lead to opportunities for more deep-pocketed foreign-owned firms to come into Canada and wreak havoc on our cultural landscape using predatory cutthroat practices (such as selling items below cost and operating at a loss long enough to wipe out all competition) that seek not to be a part of the community but rather to destroy all competitors," said Mark Lefebvre, vice-president of the Canadian Booksellers Association.
"And if that happens, what choice will Canadian consumers ultimately be left with?"
Ben McNally, who runs Toronto-based McNally books, said Ottawa's decision may have serious long-term implications, if it opens the door for big foreign firms to buy up Canadian chains.
"I think [the government's decision]has the potential to make life not very good for Canadian publishers and writers," he said. "But I'm not surprised this has come down."