U.S. concerns with Canadian digital policy continues to mount with both the U.S. Administration and Senators from both parties raising fears of discrimination. U.S. pressure seems likely to grow as the issue emerges as a major irritant in the bi-lateral trade relationship with Canada’s most important trading partner. With U.S. President Joe Biden scheduled to visit Ottawa later this winter, it seems likely that digital policy – particularly a proposed digital services tax, Bill C-11, and Bill C-18 – will be on the agenda at the meeting.

The latest signals came last week at a bilateral meeting between U.S. and Canadian trade officials. The U.S. readout of the meeting states:

Ambassador White expressed the United States’ ongoing concerns with Canada’s proposed unilateral digital service tax and pending legislation in the Canadian Parliament that could impact digital streaming services and online news sharing and discriminate against U.S. businesses.

The following day the two leaders of the U.S. Senate Committee on Finance – Democratic Senator Ron Wyden and Republic Mike Crapo wrote to the USTR to express similar concerns. On Bills C-11 and C-18, they wrote:

Online Content: In addition to pursuing a DST, Canada has been moving ahead on other troubling policies that target U.S. technology companies and raise concerns under USMCA. The Online Streaming Act would require streaming services to fund Canadian made content and promote it on their platforms. This bill would mandate preferential treatment for Canadian content and deprive U.S. creatives of the North American market access they were promised under USMCA. Meanwhile, Canada’s Online News Act would require the largest social media platforms to bargain with Canadian news organizations and pay for the right to display news stories, headlines, snippets, and links. Again, this policy targets U.S. companies for the benefit of Canadian news producers and raises national treatment concerns under USMCA.

It is important to note that this issue has been festering for months. I wrote about the risks of Canadian policy running off-side Canada’s trade obligations before either bill was even introduced given the recommendations found in the Yale Report. The U.S. expressed concern about digital tax policy in 2021 and that expanded to Bill C-11 in the summer of 2022 and to Bill C-18 last month. 

While supporters of the Canadian policies downplay the risks associated with U.S. retaliation, the reality is that a violation of the USMCA could spark billions in retaliatory tariffs. Further, even if Canada maintains that the laws are consistent with the trade agreements, U.S. pressure is typically hard to ignore. Indeed, years of debates on Canadian copyright policy have taught that if the U.S. seizes on an issue (as it did with digital locks and copyright term extension), Canadian governments often look for compromise or cave altogether. For the U.S. to raise these issues before they have even completed the Parliamentary process suggests that the digital policy trade policy concerns are not going away. In fact, they are likely to become more consequential in the months ahead and may cause headaches for progress on other issues of importance to the Canadian government.

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