For the past two years, Canadian digital tax policy has been on a collision course with Canadian trade policy. The Liberal government committed in the 2019 election campaign to a digital services tax primarily designed to target large U.S. technology companies that generate significant revenues in Canada from online advertising and user data. The policy has been adopted in several other countries, repeatedly sparking a response from the U.S. that threatens to retaliate with tariffs on sensitive sectors of the economy. For example, after France announced plans for a similar tax, the U.S. threatened to levy billions in tariffs on French products.
As the trade threats escalate, the effort to strike an international agreement on the issue has gained increasing traction (my Law Bytes podcast last February with Professor Itai Grinberg provides a great backgrounder into the issue). After a preliminary deal was struck in October on an international approach, the U.S. dropped the tariff threat against several countries. Yet as efforts to finalize and implement the deal continue, Canadian Finance Minister Chrystia Freeland announced this week that new legislation will be introduced to create a Canadian digital services tax (this is distinct from digital sales taxes, which are currently in effect).
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Trade tensions between Canada and the U.S. have been rising in recent weeks with the U.S. Build Back Better Act proposing to create a tax credit for electronic vehicles that Canadian officials argue violates the Canada-U.S.-Mexico Agreement. The U.S. plan is said to be the equivalent of a 34 percent tariff on Canadian assembled electric vehicles. While trade disputes are not particularly noteworthy, the Canadian government response certainly is. Last week, Finance Minister Chrystia Freeland and International Trade Minister Mary Ng wrote to eight U.S. Senators with the following warning:
Beyond possible retaliatory actions, if the U.S. proceeds with the tax credit provisions as drafted, we would see this as a significant change in the balance of concessions agreed to in the USMCA. As such, we would consider the possible suspension of USMCA concessions of importance to the U.S. in return. Those concessions could include suspending USMCA dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes.
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Earlier this year, the Canadian government launched a timid consultation on copyright term extension. After years of rejecting copyright term extension beyond the international law standard of life of the author plus 50 years, the Canadian government caved to pressure from the United States by agreeing to the equivalent of life of the author plus 70 years in the U.S.-Canada-Mexico Trade Agreement (USMCA). With a 30 month transition period to allow for consultation, this represents an opportunity to mitigate against the harms of term extension.
I submitted my response last night and it is posted here. The submission cites a wide range of experts – including Justice Minister David Lametti and former US Register of Copyrights Maria Pallante for the proposition that registration for the additional 20 years is not only permissible under international law, it is desirable. I also include a lengthy appendix of the some of the Canadian authors and leaders whose works will not enter the public domain if term is extended. These include Gabrielle Roy, Marshall McLuhan, Margaret Laurence, Louis St. Laurent, John Diefenbaker, Tommy Douglas, René Lévesque, Jean Lesage, John Robarts, and Bora Laskin.
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After years of rejecting copyright term extension beyond the international law standard of life of the author plus 50 years, the Canadian government caved to pressure from the United States by agreeing to the equivalent of life of the author plus 70 years in the U.S.-Canada-Mexico Trade Agreement (USMCA). As part of that agreement, Canada obtained a 30 month transition period that would allow for consultation on how to implement the copyright term obligation. That consultation was launched late yesterday, with the two departments responsible for copyright – ISED and Canadian Heritage – launching the consultation and a consultation document. The consultation period is very short with responses due by March 12, 2021. The department says that all responses will be made available online once the consultation is concluded.
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The Broadcasting Act blunder series has made several references to the risk of a trade challenge over provisions found in Bill C-10. This post unpacks the trade issue and explains why the bill could result in billions of dollars in retaliatory tariffs against Canada. The starting point for the trade issue is to recognize that Canada negotiated the continuation of the cultural exemption in the Canada-US-Mexico Trade Agreement (CUSMA or USMCA). This was viewed as an important policy objective for the government, with Prime Minister Justin Trudeau insisting that “defending that cultural exemption is something fundamental to Canadians.” The exemption means that commitments such as equal treatment for U.S., Mexican and Canadian companies may be limited within the cultural sector.
Yet the cultural exemption did not come without a cost.
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