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February 12, 1996

U.S. Bookstore's Plan to Open Branch in Toronto Is Stymied

By CLYDE H. FARNSWORTH

TORONTO -- Opening a front in the long war between Canada and the United States over cultural protectionism, Ottawa has killed plans of a giant American bookstore chain, Borders Group Inc., to start a superstore in Canada.

The Canadian government concluded that the enterprise failed to meet strict standards for foreign booksellers laid down by the Cabinet four years ago. The decision marks the first time that Canadian protection of the publishing industry has had a direct impact on retailing.

"If Canadian stories, Canadian books, Canadian authors are going to get the kind of exposure that they need within Canadian retailers, then we have to make sure that we pursue policies that are going to enable that to happen," said Industry Minister John Manley after news of the decision was disclosed by a Canadian partner in the planned store.

The government did not announce the decision. Disclosure was made by Heather Reisman, a Toronto financier and a partner in the planned 50,000-square-foot emporium that was to open next fall at the ManuLife Centre in downtown Toronto.

Ms. Reisman told The Toronto Star late last week that Borders decided to shelve its plans after getting an unfavorable opinion from the Investment Review Division of Investment Canada.

Ms. Reisman said that even though Canadians were to be the majority owners, the government objected to the use of Borders' computerized inventory control and sales system that controls which books are on the shelves and could mean the display of fewer Canadian authors.

Although Canada and the United States have a free trade agreement that has pushed two-way trade to more than $300 billion a year, Ottawa, fearing even greater inundation of culture from the United States, negotiated an exemption for cultural industries.

Several Canadian publishers said they were relieved that Borders, a former unit of Kmart Corp. and the second-largest bookseller in the United States after Barnes & Noble Inc., no longer posed a threat to small, independent Canadian booksellers.

"I hate to see a retail opportunity not materialize," said Gordon Bain, chairman of Random House of Canada Ltd. "But I'm relieved that some of my friends who are booksellers will stay in business."

The store would have been just a few blocks from a flagship superstore of the biggest Canadian bookseller, Chapters Inc., which was a product of the merger of the Coles and SmithBooks chains last year.

Larry Stevenson, Chapters' chief executive, who lobbied hard to stop Borders, welcomed the news. "The one thing I think it says is the government wasn't willing to roll over."

The American government reaction was muted. Andrew Koss, press attache at the American Embassy in Ottawa, called it a "purely commercial dispute." Trade officials in Washington said that Borders, based in Ann Arbor, Mich., had not approached Washington for assistance.


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