US Senators are now getting involved in criticizing Canada over Bill C-11 and Bill C-18. They called them violations of the USMCA.
Pressure from the United States against Canada is growing. In July of last year, the US raised the issue about how Canada could be in violation of the USMCA should they move forward with various digital policies. Those concerns were raised again in December when the government explicitly mentioned Bill C-11, Bill C-18, and forthcoming taxes on digital services. The US then repeated those warnings a third time earlier this month, adding that they are in talks with various digital businesses to discuss next steps in dealing with Canada.
Those weren’t the only warnings that Canada got about all of this either.
In September of last year, the CCIA (Computer & Communications Industry Association) issued a white paper explaining how Bill C-18 violates the USMCA. Earlier this week, the CCIA issued a separate white paper explaining why Bill C-11 violates the USMCA as well.
Throughout all of this, the Canadian governments approach was to ignore these warnings and pretend that the concerns being raised weren’t being raised at all. In short, the strategy is to ignore the issue and hope it all goes away. However, the growing warnings and increased frequency suggests that this strategy is proving to be a failed one. The Canadian government eventually relented and admitted that the US did raise these issues, however, the denials that Canada could be in violation of their international trade obligations persisted.
Now, we are learning that the warnings are now coming directly from US senators. In a bi-partisan letter (PDF), Senators expressed concerns about the digital services taxes and Bill C-11 and Bill C-18:
We also appreciate that USTR has resolved five cases under the new Rapid Response Mechanism (RRM) to address labor violations in Mexico. Yet we remain concerned that Canada and Mexico continue to ignore many other critical USMCA obligations, requiring a forceful and timely response from USTR. To that end, we are highlighting a number of outstanding issues where USTR must ensure that the United States gets what it bargained for, including by fully pursuing enforcement actions as necessary.
● Discriminatory Taxation: USMCA included the United States’ first digital chapter in any free trade agreement, and it was intended to promote trade in digital goods and services throughout North America, supporting innovation, jobs in the technology industry, consumer protections, and the free flow of information. In spite of this, Canada has pursued a discriminatory digital services tax (DST) that is targeted at U.S. employers. Canada’s DST raises concerns regarding its commitments under USMCA, as well as the OECD inclusive framework agreement, where 137 countries agreed not to enact unilateral DSTs while negotiations on international taxation of digital services are ongoing. We understand that you have raised these concerns with Minister Ng and emphasize the importance of continuing to press Canada to abandon these discriminatory measures through dispute settlement, use of other tools available under U.S. laws, or other appropriate avenues.
● 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.
The letter was signed by Ron Wyden, United States Senator Chairman, Committee on Finance and Michael D. Crapo, United States Senator Ranking Member, Committee on Finance.
This is how far things have already escalated between Canada and the United States. The Canadian government continues to ignore or flat out deny that there are trade issues of any kind with any of their digital policies. The United States, meanwhile, has tried to work with Canada and express their concerns about Canada’s digital policies. However, the lack of responses have resulted in US Senators now stepping in to ramp up pressure on Canada to back off of these policies or risk trade sanctions. It’s unclear if the Canadian government will react to this latest escalation of complaints about these digital policies or if this will eventually result in a full blown trade war.