Music sales in Canada dropped 4% in 2005 to $536 million, the Canadian Recording Industry Assn. reported Thursday.

The dip is part of a 10-year decline that the CRIA blames on illegal music downloading.

Canada hasn’t updated copyright legislation to cover digital music. Consequently, it has the highest online piracy rate per capita in the world, according to the Intl. Federation of the Phonographic Industry; the CRIA says 1.6 billion music files are swapped annually.

In 2004 the Supreme Court ruled that Internet service providers don’t have to pay royalties to artists and songwriters for illegally downloaded digital music files. Last March, the Federal Court ruled music file-sharing on the Internet was legal and that neither downloading nor sharing digital music online infringes copyright.

“It’s astonishing that a sophisticated nation like Canada has dragged its feet for so long while the rest of the world has adapted its copyright laws to the digital age,” said John Kennedy, IFPI chief exec.

Worldwide legal digital revenues have jumped from zero to 6% of record company revenues globally in the last two years. In sharp contrast, digital revenues make-up less than 1% of record company sales in Canada.

The former Liberal government introduced beefed-up copyright legislation last year, but the bill never made it to a vote due to the election campaign. The current Tory government has not said whether it plans to revive the legislation.

“As legal downloading surges ahead in other parts of the world, Canada is marooned on the sidelines,” said CRIA president Graham Henderson. “The goal of a vibrant digital marketplace in Canada will remain beyond reach until our legal environment encourages people to buy music instead of passively accepting theft on the Web.”