Bill C-11, the government’s online broadcasting legislation, has caught the attention of the US government, which raised it as a concern during a recent meeting between US Trade Representative Katherine Tai and the Canadian Minister for International Trade Mary Ng. The issue is cited in the American reading of the meeting, although the Canadian reading of the same meeting notably excludes any reference to the issue. The reading specifically states that “Ambassador Tai expressed concern about Canada’s proposed Digital Services Tax and pending legislation in the Canadian Parliament that could impact digital streaming services.” The reference to concerns about 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.
Creating a new trade irritant with Bill C-11 could prove extremely costly as it opens the door to the possibility of hundreds of millions of dollars in retaliatory tariffs. These tariffs can target any sector, meaning they could be levied on dairy, steel or other sensitive economic sectors. Minister Rodriguez claimed the bill could generate $1 billion in new revenue, although his own officials have since admitted that figure was only an “illustrative estimate”. Regardless of the number, CUSMA would allow the United States to levy tariffs of equivalent commercial effect for breaches of the treaty.
CUSMA Article 19.4 covers non-discriminatory treatment of digital products. He offers:
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, ordered or first made available on commercial terms in the territory of another Party, or to a digital product whose author, performer, producer, developer or owner is a person of another Party, that it grants to other similar digital products.
2. This Article does not apply to any subsidy or grant made by a Party, including any government-backed loan, guarantee or insurance.
In addition, Article 32.6 provides a broad exception for cultural industries, 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 expressly provided in Article 2.4 (Treatment of Customs Duties) or Annex 15-D (Programming Services).
Does that mean Canada can ignore US concerns about the bill? Not exactly. First, the bill very clearly prohibits discriminatory treatment of digital products, including potential payment requirements for companies that do not receive equal access to benefits and the possibility of discoverability requirements that could result in downgrading or the discrimination of American content versus Canadian content. . This has implications for the treatment of digital services, digital advertising revenue and other digital business activities.
As Bill C-11 faces charges of discriminatory treatment, Canada could cite two responses: 19.4(2), which excludes grants or subsidies, and exception 32.6. The problem with the first argument is that the discriminatory treatment of the content of Bill C-11 goes beyond grants or subsidies. As such, this exclusion does not apply to all potential Bill C-11 regulations. Assuming a violation, exception 32.6(2) would come into effect, but it would not eliminate the ability of the United States to apply retaliatory tariffs. Indeed, Article 32.6(4) states:
Notwithstanding any other provision of this Agreement, a party may take action of equivalent commercial effect in response to an action of another party that would have been inconsistent with this Agreement but for paragraph 2 or 3.
Simply put, the agreement allows Canada to violate non-discrimination provisions for the cultural sector, but grants the United States the right to impose “measures of equivalent trade effect” in response. This provision is often referred to as a “poison pill” for culture, as it is intended to discourage the use of the exemption. Since the provision does not limit retaliation to the cultural sector, the United States can impose equivalent tariffs on its choice of Canadian goods or services. That was her strategy when she responded to a French plan to levy a new digital tax, which led to threats to impose $2.4 billion in tariffs on French products such as wine. , cheese and handbags.
From a Canadian perspective, CUSMA’s cultural exemption allows for discriminatory policies, but at a cost, with Bill C-11 opening the door to US retaliatory measures that would be designed to match any new benefits dollar for dollar. With the United States now signaling its concern over the legislation, the risks of continuing the unprecedented regulation of user content have become much greater.