Canadian International Trade Minister Mary Ng and U.S. Trade Representative Katherine Tai met yesterday to discuss Canada-U.S. Trade issues and concerns regarding Canada’s digital policy – most notably a proposed digital sales tax and Bills C-11 and C-18 – continue to mount. The U.S. raised digital policy concern over the summer, specifically citing Bill C-11 with a reference to “pending legislation in the Canadian Parliament that could impact digital streaming services.” The latest readout suggests that the concerns are growing, as the U.S. now cites both Bills C-11 and C-18 by raising “pending legislation in the Canadian Parliament that could impact digital streaming services and online news sharing and discriminate against U.S. businesses.”
The U.S. concern is notable for several reasons. First, the Canadian readout against makes no reference to the issue, seemingly hoping that it will simply go away if Canada ignores it or pretends it doesn’t hear the concerns (Canadian officials keep insisting that the U.S. understands where Canada is coming from as if that addresses the concern). The government is clearly aware of trade implications of its legislation – last night it rejected a proposed amendment to Bill C-11 during Senate hearings citing trade obligations – but committees studying the bills have barely scratched the surface on trade related risks. As further discussed below, the Canadian bills are vulnerable to trade challenges with the prospect of billions in retaliatory tariffs that could hit some of Canada’s most important economic sectors.
Second, it is worth re-iterating that the Canada-U.S.-Mexico Trade Agreement has rules that are specifically designed to address these issues. While Canada has negotiated a cultural exemption which permits Canada to violate the non-discrimination provisions for the cultural sector, 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. The relevant provisions are discussed in this post. In fact, while Bill C-11 surely falls within the cultural exemption, it is open to question whether Internet platform activities contemplated by Bill C-18 such as indexing can similarly be considered within the scope of the exemption.
Third, the inclusion of Bill C-18 for the first time among the list of U.S. trade concerns should give the government pause. The Canadian Heritage committee is conducting clause-by-clause review of Bill C-18, but did not call any experts from Global Affairs to provide a trade analysis of the bill nor did it call groups such as the CCIA, which released a white paper on trade-related concerns. If it had, it would have learned that there are several trade and CUSMA provisions that could be used to challenge Bill C-18. These include the violation of the Berne Convention’s right to quotation (discussed in this post) and Bill C-18’s Section 51 “must carry” obligations designed to prevent a platform from refusing to link to third party content, which as currently drafted are vulnerable under CUSMA’s performance requirements in Article 14.10. Further, the definition of eligible news business in Bill C-18, which the committee has now expanded to include community radio stations with a tenuous link to news, raises potential challenges under Article 14.4 on investors, Article 15.3 on cross-border service suppliers, and Article 19.4 on suppliers of digital products.
While there may be a debate about the likelihood of success in a trade challenge, the fact that the U.S. has now repeatedly raised the issue suggests that Canadian digital policy is fast becoming a major trade irritant that is unlikely to go away. Even without a formal legal challenge that represents a cost to Canada as it may ultimately stymie other trade priorities as the issue escalates within the U.S. administration and Congress.