Bill C-18 (Canada’s Link Tax Law) Violates USMCA According to New White Paper

There are many ways that Bill C-18 is terrible. One angle is the fact that it violates the USMCA which could result in trade retaliation.

Stop us if you heard this one before. A Canadian law that threatens to crack down on the internet could violate international trade obligations through at least one international trade agreement. On second thought, don’t, because we know that Bill C-11 (social media censorship bill) already does this. In fact, the US has already effectively threatened retaliatory tariffs should Canada move ahead with the bill as-is. After radio silence for a while, Canada made a meek response effectively saying, ‘no it doesn’t‘, and just gave the US the middle finger by moving full steam ahead with the bill anyway.

Now, we are learning that Bill C-11 may not be the only bill that could cause additional trade friction with Canada’s largest trading partner. Bill C-18, Canada’s ridiculously bad link tax bill, could also have the same problems of violating international trade obligations with the US. According to Project-Disco, the legislation also violates multiple sections of the USMCA (sometimes referred to as CUSMA):

Canada is expected to soon renew debate on Bill C-18 “An Act respecting online communications platforms that make news content available to persons in Canada” (the “Online News Act”). Project Disco has previously covered the current text of the draft bill, and examined potential conflicts with Canada’s international commitments.

This post dives deeper into Canada’s trade commitments under the U.S.-Mexico Canada Agreement (USMCA) that are implicated if Canada enacts the flawed approach to compensating Canadian news publishers. Further analysis of the negative implications of C-18 is included in a white paper released today.

The article cites Articles 14.4 and 14.5 (Investment), 15.3 and 15.4 (Cross-border Services), 14.10, and 19.4 as articles the legislation could violate. This for a variety of reasons including the legislation’s discriminatory nature against US companies. The CCIA white paper (PDF) goes into further detail about these and notes that the legislation is the wrong approach to a changing market in the world of news:

Industry supports efforts to ensure a vibrant and sustainable market for domestic news. News and quality journalism contribute significantly to civic and cultural life and are indispensable to an informed citizenry and a healthy democracy. Digital technologies have had a profound effect on how news is collected, produced, and disseminated, as well as the challenges such changes pose for the economics of traditional news gathering and dissemination.

However, the Online News Act is the wrong answer to the changing news and information-sharing landscape. The way consumers exchange information and share articles, videos, and other pieces of news is constantly changing, and enshrining a tax on a few technology companies to be paid primarily to a select few large, powerful media companies will do little to nothing to support sustainable quality journalism in Canada. This legislation would transparently target a limited number of U.S. technology companies and would run afoul of several of Canada’s trade commitments, leaving Canada vulnerable to potential retaliation. Policymakers should recognize the shifting news landscape to identify methods of cooperation that may genuinely support the growth of independent journalism.

What’s interesting about those comments is that we actually saw first hand this dynamic playing out last month with Sing Tao, Canada’s largest Chinese language newspaper. In our report at the time, we noted that the owners noted that older generations have grown more accustomed to their digital only edition. So, it was ultimately a business decision to simply go digital only.

While the CBC and/or Unifor tried turning the story into a case for Bill C-18, the case wound up being extremely weak. The assertion that this was a sign that journalism was dying didn’t really hold water given that it was a business decision to shift distribution methods. What’s more, the call to preserve print journalism wound up ringing hollow because we are seeing, yet again, a call to prop up businesses selling product fewer and fewer people want. In this case, a physical newspaper. It’s just like how legacy broadcasters are demanding people be force fed so-called “Canadian” content on platforms that apparently no one wants to watch. Another familiar pattern here.

A big part of the problem in all of this, and why we wind up in a situation of government trying to force feed content no one wants while news rooms seem to be unable to really adapt well to a digital environment, is the attitudes held within the executive level. More often then not, a lot of executives will have the attitude that they know exactly what the consumer wants. There’s this weird and ultimately arbitrary set of expectations that ultimately have been dreamed up of what their vision of a viewer or reader wants and they will hold on to that image to the bitter end. The moment you propose or introduce something new and interesting, there is almost this instant pushback of “that may be what you think is interesting, but it’s not what the viewer/reader wants”.

A lot of these suggestions for change come from pretty much all angles. Whether it is from the public at large or from within their own ranks. Believe me, I’ve made my share of suggestions myself only to get flatly rejected from within the corporate structure. Obviously, some ideas are better than others. Unfortunately, it’s always this wall of rejection that keeps almost every idea out. What ideas do get through barely even moves the needle of what is already offered. More often then not, they wind up being these tacky idea’s that you wonder how that idea flew in the first place.

With the internet in general, idea’s wind up floating around in a much more free market (though, admittedly, that free market has being increasingly challenged in recent years with consolidation in ad markets and platforms). Idea’s wind up floating or sinking based on what works and what doesn’t with audiences. A vast majority of ideas that wind up floating with audiences are almost always idea’s that would easily get rejected by those same executives. When those same ideas wound up scoring millions of dollars, those executives got jealous and demanded that they are entitled to those audiences.

The response invariably ends up being either these corporate elites demand a captive audience (as is the case with Bill C-11) or they demand free money (which is the case with Bill C-18). Many have remarked that Bill C-18 is essentially a massive cash grab. I’ve personally said that it’s a bill that allows those large publishers to freeload off of platforms, getting money they were obviously never entitled to. Regardless, it legally tilts the playing field into the legacy news organizations favour while leaving smaller outlets and independent journalism behind.

In simple terms, if you were starting up a news organization, what would you rather start with? No money at all or a free monthly cheque of, say, $100,000? Obviously, you are going with the latter choice because, at that point, you can easily pay for server costs, hire people to handle web administration and a handful of journalists while you are at it. That is even before you find yourself getting a revenue stream rolling. Unfortunately, with Bill C-18, that fist full of cash is, as of now, going to be destined to the largest players, giving them a permanent advantage over a site like Freezenet. It completely upends any notion of a free market in the journalism sector (at least, more than it already is).

As a result, because those executives are pushing this idea of what a reader “wants”, even though they are definitely wrong on their assumptions, they are going to continue down that path of lack of innovation and lack of properly serving the actual needs of their audience. The added financial incentives are going to prove to be a disincentive to innovating because, what’s the point of innovation when you’re going to get that cash anyway? This is the environment that breeds low quality content because poor quality gets rewarded while high quality content gets punished before it reaches the eyeballs of end users.

While lawmakers seem to fail to grasp this while crafting this bill (instead, opting to seemingly listen more to the wads of cash being thrown their way instead), perhaps the liability under international trade obligations will get them to listen. The CCIA has definitely laid out a compelling case that this legislation violates international trade agreements. Given that companies like Alphabet and Meta are so huge in the first place, they are going to want to push against this bill any way they can. A trade war would certainly be a powerful voice in the void left behind by Canadian’s and common sense being ignored. Given that Facebook has already told US publishers that they won’t be paying for links, the probability of a trade fight no doubt grew.

It remains to be seen if these warnings will be heard by the Canadian government. Given that they have ignored all the warnings about Bill C-11 and pushed full steam ahead with that bill, the history is not there to suggest that they would take a step back. At any rate, the liability Canada is going to be opening up is already starting to stack up from the looks of things. What’s more, a potential trade war could be costly for Canada both on the litigation front in an international court system and in the tariffs the US could theoretically slap on Canada. While a trade war thwarting Canada’s war on the internet would be a pretty stupid reason to stop it, digital rights advocates will probably take what they can get at this stage.

Drew Wilson on Twitter: @icecube85 and Facebook.

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