P20211118AS-1520-1 by Official White House Photo by Adam Schultz https://flic.kr/p/2mZvc8a United States government work

P20211118AS-1520-1 by Official White House Photo by Adam Schultz https://flic.kr/p/2mZvc8a United States government work

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Bill C-11 Now a Trade Issue: U.S. Warns Canada About Online Streaming Act Concerns

Bill C-11, the government’s online streaming legislation, has caught the attention of the U.S. government, which raised it as a concern during a recent meeting between U.S. Trade Representative Katherine Tai and Canadian Minister of International Trade Mary Ng. The issue is cited in the U.S. readout of the meeting, though the Canadian readout of the same meeting notably excludes any reference to the issue. The readout specifically states that “Ambassador Tai expressed concern about Canada’s proposed digital service tax and pending legislation in the Canadian Parliament that could impact digital streaming services.” The reference to concerns with a digital services tax has been raised before, but the inclusion of Bill C-11 is new. The concerns may reflect Canadian Heritage Minister Pablo Rodriguez’s decision to regulate user generated content, an approach not found in any other country in the world.

The creation of a new trade irritant with Bill C-11 could prove extremely costly as it opens the door the possibility of hundreds of millions of dollars in retaliatory tariffs. Those tariffs can target any sector, meaning they could be levied on dairy, steel or other sensitive economic sectors. Minister Rodriguez has claimed that the bill could result in $1 billion in new revenues, though his own officials have since admitted that the number is only an “illustrative estimate.” Whatever the number, the CUSMA would allow the U.S. to levy tariffs of an equivalent commercial effect in the event of a violation of the treaty.

Article 19.4 of the CUSMA covers non-discriminatory treatment of digital products. It provides:

Article 19.4: Non-Discriminatory Treatment of Digital Products
1. No Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of another Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of another Party, than it accords to other like digital products.

2. This Article does not apply to a subsidy or grant provided by a Party, including a government-supported loan, guarantee, or insurance.

In addition, Article 32.6 provides a broad exception for the cultural industries, with Article 32.6(2) stating:

This Agreement does not apply to a measure adopted or maintained by Canada with respect to a cultural industry, except as specifically provided in Article 2.4 (Treatment of Customs Duties) or Annex 15-D (Programming Services).

So does that mean Canada can ignore the U.S. concern about the bill?  Not exactly. First, the bill quite clearly prohibits discriminatory treatment of digital products, including potential payment requirements for companies that do not enjoy equal access to the benefits and the possibility of discoverability requirements that could lead to U.S. content being downgraded or discriminated against when compared to Canadian content. This has implications for the treatment of digital services, digital advertising revenues, and other digital commercial activities.

While Bill C-11 faces charges of discriminatory treatment, Canada could cite two responses: 19.4(2), which excludes subsidies or grants, and the 32.6 exception. The problem with the first argument is that Bill C-11’s discriminatory treatment of content extends beyond just subsidies or grants. In doing so, that exclusion does not apply to all of Bill C-11’s potential regulations. Assuming there is a violation, the 32.6(2) exception would kick-in, but it would not eliminate the ability for the U.S. to apply retaliatory tariffs. That is because Article 32.6(4) states:

Notwithstanding any other provision of this Agreement, a Party may take a measure of equivalent commercial effect in response to an action by another Party that would have been inconsistent with this Agreement but for paragraph 2 or 3.

Put simply, the agreement permits Canada to violate the non-discrimination provisions for the cultural sector, but it grants the U.S. the right to levy “measures of equivalent commercial effect” in response. This provision is often referred to as a culture “poison pill” as it designed to discourage the use of the exemption. Since the provision does not limit retaliation to the cultural sector, the U.S. may levy equivalent tariffs on its choice of Canadian products or services. This was its strategy when it responded to a French plan to levy a new digital tax, which led to threats to impose US$2.4-billion in tariffs against French goods such as wine, cheese and handbags.

From a Canadian perspective, the CUSMA cultural exemption allows for discriminatory policies but at a price with Bill C-11 opening the door to U.S. retaliatory measures that would be designed to match any new benefits dollar-for-dollar. With the U.S. now signalling its concern with the legislation, the risks of pushing ahead with the unprecedented regulation of user content just got much bigger.

15 Comments

  1. Fortinbras says:

    You can tell we’re in summer recess at Ottawa U. Michael Geist has nothing new to say about Bill C-11 as a trade issue and is resorting to tired material he has trotted out many times before. (See, for example, his posts of October 11, 2018 and February 28, 2020.) I think that, by now, everybody knows about the cultural exemption in the Canada-US-Mexico-Agreement and the notwithstanding clause. Retaliatory measures of “equivalent commercial effect” or its equivalent have been in our trade agreement with the United States since the Canada-US FTA of 1987 – with no untoward effects. The United States has never undertaken retaliatory measures in the cultural domain in its relations with Canada. It is hardly surprising that the US Trade Representative has raised the issue of “pending legislation in the Canadian Parliament that could impact digital streaming services.” It’s her job to protect US interests and no doubt the US web giants have been lobbying her intensely. Let’s hope that the Canadian Parliament does its job and protects Canadian interests in our broadcasting environment by passing Bill C-11.

    • I think everyone is for promoting Canadian content and making it more discoverable.

      However this bill goes far beyond that and does very little to limit or restrict those powers. And in fact it could allow CRTC would have full control and filter everything a Canadian sees and heards broad casted and everything that the govment does not want you to hear including information that negatively reflects the govement could be dropped or at least pushed to the bottom of the filtering list. And The govment already has many grants and funding for Canadian content already.

      and if it was soly for just making Canadian content more discoverable their would be no reason to grant the crtc so many and vaguely defined powers and they could of discussed limits of the powers instead none of that.

    • Bill C11 is nothing but an attempt to censure Canadians wrapped up in a pretty bow. It has never been about making the internet giants pay.

  2. So Pablo extracts $1B from the digital entertainment industry in the US and gives that $1B to the digital entertainment industry here in Canada.

    But then the US retaliates and extracts $1B from some other Canadian industry, say, dairy.

    What Pablo has in effect done is taken $1B out of the pockets of the Canadian dairy industry and given it to the digital entertainment industry here in Canada.

    How is that even remotely just and fair? Why should one industry in Canada have to pay to prop up the broken business models of other industries here in Canada?

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  6. name me some really good Canadian Content out there that all of Canada is watching? The CRTC has pushed bad content for decades and we have to pay for it. You want more Canadian content to be seen by a global audience then make better content.

  7. Fortinbras says:

    Last night, I watched Pretty Hard Cases (CBC) and Departure (Global). Both of them are great Canadian productions (also airing on US services). Unfortunately, both of them were aired at the same time, so it was only possible to watch one of them by time shifting it…

    • Time shifting is so last century. Does this mean that your support for an outdated policy (Bill C11), is because you’re stuck in the past?

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  11. This has an effect on how digital services, digital advertising income, and other digital business activities are treated.

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