The CRTC’s Online Streaming Act ruling, which triples the mandated payments for large Internet streaming services, has attracted widespread criticism given fears the approach could result in higher consumer fees and a trade backlash from the United States. Culture Minister Marc Miller’s response to the ruling was somewhat muted, saying the government was reviewing the changes and assessing their impact. The reluctance to take a stronger public position may stem from concerns about the ruling’s trade implications, as it appears to violate Canada’s trade obligations. The violation can be saved by invoking CUSMA’s cultural exemption, but that triggers the U.S. right to apply dollar-for-dollar retaliation. In other words, if the Online Streaming Act generates hundreds of millions in mandated expenditures, it will also spark matching tariffs targeting high-value Canadian economic sectors.

As outlined in my initial post on the CRTC decision, large Internet streamers now face a 10% expenditure requirement in addition to the previous 5% base contribution. The Commission not only sets the amount, but also dictates how the money is spent: a minimum of 30% of qualifying Canadian programming expenditure must flow to “enhanced partnerships,” defined as productions in which a Canadian broadcaster or Canadian independent producer holds more than 50% of the copyright, with a Canadian independent producer in turn defined as a company in which the streamer holds less than 30% of the equity. The foreign streamer is therefore required to spend the money, barred from owning the majority of what it funds, and blocked from controlling the producer that does. While the opposition is characterizing the CRTC outcome as a tax, it is actually a regulation dictating how foreign capital must be deployed in Canada and who must own the result.

That regulatory approach treads on dangerous ground because CUSMA’s investment chapter contains a prohibition on “performance requirements” in Article 14.10. It states:

No Party shall, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment of an investor of a Party or of a non-Party in its territory, impose or enforce any requirement, or enforce any commitment or undertaking…

(b) to achieve a given level or percentage of domestic content;

(c) to purchase, use, or accord a preference to a good produced or a service supplied in its territory, or to purchase a good or a service from a person in its territory;

A requirement that dictates how a company spends and counts that spending only if a domestic entity owns the resulting copyright is exactly the kind of thing that Article 14.10 prohibits.

The closest precedent is Mobil Investments / Murphy Oil v. Canada, decided under NAFTA Article 1106, the direct predecessor to Article 14.10. Newfoundland guidelines requiring offshore oil operators to spend a fixed percentage of their revenues on research and development in the province were found by the tribunal to breach Article 1106(1)(c)’s prohibition on local-preference requirements. That finding cost Canada roughly $17 million in damages plus interest. The CRTC requirement compels a foreign company to deploy capital into Canadian productions and counts that spending only when a Canadian holds the majority of the resulting copyright, a condition on an investment and on who owns its output that appears directly on point. In fact, both supporters and critics of the Online Streaming Act warned against an approach requiring foreign streamers to contribute while denying them the ability to acquire and exploit the productions they finance, with no equivalent limit imposed on Canadian services.

The CUSMA allows Canada to keep a cultural measure that would otherwise breach the agreement with the cultural exemption, but that is subject to Article 32.6(4), which gives the U.S. the right to respond with retaliation of equivalent commercial effect, applied to any sector it chooses. As I argued in March, that means the U.S. can impose tariffs on sensitive Canadian economic sectors such as dairy, lumber, or steel. Since 15% of the large streamers’ Canadian revenues run into the hundreds of millions, any equivalent commercial-effect retaliation would match that figure and be applied to Canadian goods unrelated to streaming.

The timing of the CRTC ruling could not be worse. The U.S. has already placed the Online Streaming Act alongside dairy as high priority issues that must be resolved for the joint CUSMA review and the CRTC has now handed the U.S. a “trump” card before negotiations formally get underway. The Commission was notably aware of the risks associated with its approach. During the Online Streaming Act hearings, the Motion Picture Association-Canada urged flexible models that permit shared or non-Canadian ownership. I warned in December 2020, days after Bill C-10 was first tabled, that requiring foreign companies to pay without the ability to benefit would pose a trade risk and could lead to retaliatory tariffs. Those warnings were waved away with assurances that the cultural exemption settled the matter.

Other governments imposing similar obligations have steered clear of the Canadian approach. France caps how long a streamer may hold exclusive rights, one year for film and three years for audiovisual works, so that ownership follows from time-limited licensing rather than from a rule that a French national must hold the majority. Australia, which passed its own system late last year after holding it back over concerns about its free trade agreement with the U.S., imposes no ownership condition at all. Italy, the one jurisdiction that had codified producer IP protections, deleted them in its 2024 reform. Yet Canada chose an explicit majority-Canadian copyright test, which, on its face, reads as the localization requirement that the trade rules are built to catch. While the CRTC may argue that the requirements bind large Canadian broadcasters as well, the prohibition on performance requirements does not depend on discrimination, and a requirement that production vest majority ownership in a domestic entity is caught even when applied equally.

The Online Streaming Act mess is reminiscent of the digital services tax retreat, where the government talked tough, dismissed the warnings, and scrambled for an exit once the consequences arrived. The difference this time is that the CRTC has devised a system the U.S. can respond to with tariffs on goods far removed from streaming, just as the two countries are about to review Canada’s most important trade agreement. If I could figure that out that risk five and a half years ago, surely the Canadian government and the CRTC could have as well.