The first three articles in this series on Bill C-11 focused on the risks of regulating user content, the risks for Canadian creators, and the risks of increased costs for consumers and decreased competition. Today’s article identifies another risk associated with the bill: the prospect of a trade challenge under CUSMA that could result in billions of dollars in retaliatory tariffs that target some of the most important to Canada. The possibility of a US trade battle over the bill is not idle speculation, though it was downplayed this week by a Global Affairs official. This summer, US Trade Representative Katherine Tai raised the issue directly with Canadian International Trade Minister Mary Ng. While the Canadian minutes of the meeting notably excluded any reference to the issue, it was quoted in the American minutes of the meeting:

“Ambassador Tai expressed concern about Canada’s proposed Digital Services Tax and pending legislation in the Canadian Parliament that could impact digital streaming services.”

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. Canadian Heritage Minister Rodriguez claimed the bill could generate $1 billion in new revenue (a figure debunked by his own officials), but regardless of the figure, CUSMA would allow the United States to levy tariffs of equivalent commercial effect in the event of a breach of the treaty.

There are several grounds for potential dispute. First, CUSMA Article 19.4 covers non-discriminatory treatment of digital products. He offers:

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.

Given the prospect of Cancon regulations that would limit the benefits for foreign streaming services, Canada could breach this obligation.

Second, Article 14.10 limits performance requirements:

Neither Party shall in connection with the establishment, acquisition, expansion, management, conduct, operation, sale or other disposition of any investment of an investor of a Party or a non-Party
within its territory, impose or enforce any requirement, or enforce any covenant or commitment:

(a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or give preference to a good produced or a service supplied in its territory, or to purchase a good or a service from a person in its territory.

If the CRTC’s discoverability rules require a certain percentage of Canadian content, Canada could be outside this obligation.

Third, there are the national treatment obligations set out in Article 14.5:

1. Each Party shall accord to investors of another Party treatment no less favorable than the treatment it accords, in like circumstances, to investors of any other Party or of any non-Party with respect to establishment, the acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory.
2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of investors of any other Party or of any non-Party with respect to the establishment , acquisition, expansion, management, conduct, operation and sale or other disposition of investments.

But Bill C-11 does not treat foreign broadcasters and domestic broadcasters in the same way. For example, foreign broadcasters may be faced with obligations to provide content in French. There is no such regulatory obligation on equivalent Canadian services, again raising the possibility that Canada is in breach of its treaty obligations.

Proponents of the bill will point to section 32.6, which provides a broad exception for cultural industries. Section 32.6(2) states:

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. 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 a measure 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. .

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. While some have sought to argue that retaliatory measures have always been available, Bill C-11 (and Bill C-18) are clearly more delicate and costly than previous legislative reforms. With the US signaling concern over the legislation, the risk of a trade challenge and ensuing tariff retaliation is very real.

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