Bill C-11, Bill C-18, and the Digital Services Tax have long been trade irritants. With Trump threatening tariffs, questions are being raised.
It’s no secret that the Online Streaming Act (formerly Bill C-11), the Online News Act (formerly Bill C-18), and the Digital Services Tax is a blatant violation of Canada’s international trade obligations – especially with the US. After all, all three legislative efforts target American businesses and tries to enrich Canadian legacy media companies in the process – a pretty clear violation of the USMCA/CUSMA.
What’s more, it is no secret that the US knows this. In fact, all three legislative efforts are the reason why the American’s have been sending warnings and letters for years now to back off of all three or face trade retaliation.
The Canadian government, for its part, ignored all of the angry letters and warnings and went ahead with implementing the Digital Services Tax anyway. Experts and observers alike gave a collective facepalm to this, exasperated at the daftness of the government. So, it came as no surprise when the US responded to that implementation by beginning the process of creating a trade dispute panel, effectively getting the ball rolling on sanctioning Canada. To be clear here, as far as we can tell, once the American’s start formalizing the complaint process and legally challenging Canada on all three, Canada really has no legal defence to any of this. Simply put, the US government has a slam dunk case to levy tariffs against Canada.
All of this was highly avoidable. Throughout the Bill C-11 and Bill C-18 debates, the Canadian government heard from numerous experts and observers about how all three would prove to be an international trade irritant with the US. In response, the government just gave a deer in headlights look and gave the talking point that all three are in compliance with all of Canada’s international trade obligations. To the surprise of no one, they gave no real details about how they feel that way (probably because there really is no argument that backs up that talking point).
Ultimately, it seemed as though the Canadian government was sleepwalking directly towards a trade war with the US, much to the despair of many Canadians including the business community. A massive and costly collision that would leave Canada economically limping seemed unavoidable.
Now, you might be thinking that this is all part in parcel with the incoming Trump administration. After all, Trump has threatened tariffs plenty of times now, so what’s new? Well, the punchline here is that all of the above actually happened under the Biden administration. As the saying goes, if you think that was bad, you ain’t seen nothing yet.
With the incoming Trump administration, there has long been the threat of slapping a 25% tariff on everything. Forget all the trade obligation violating digital policy, things are ratcheting up to be a blanket tariff full stop. That has left governments both at the federal and provincial government scrambling. Some premiers are pushing to push back with sanctions of their own (notably from both BC and Ontario). Others have chosen to take the approach of negotiating and/or appeasing the crazed dictator wannabe, thinking that they can talk their way out of this (notably from Alberta). Indeed, there are merits to both – namely in the form of having options of both carrot and stick.
At the federal level, it seems like everyone is running around in a massive state of panic, trying to figure out what the heck to do. This while trying to put on a brave face for the public, basically saying everything is going to be just fine and they’ll figure it all out (LOL!). To be fair for the federal government, this is not a situation that has really happened in decades. So, as far as anyone living today is concerned, this is unprecedented where the American’s are trying to bulldoze the Canadian national interest.
Of course, a big part of the debate is how to avoid economic disaster in Canada. Personally, I think that as far as Trump is concerned, the chaos and the destruction is the whole point of his incoming regime, so, even if the Canadian government jumps to appease Trump, there’s the possibility that the tariffs are hitting anyway. So, this is just an unstoppable train and the only question is when the economy gets absolutely torched by the US. The only real reaction Canada has is, “this is gonna hurt.” In other words, Canada is simply screwed thanks in part to a lack of economic diversification for the last couple of decades. So much for “business as usual” being a viable financial strategy.
A different train of thought is the aforementioned threats to retaliate. I mean, if there is going to be action on Canada’s part, it’s not a terrible idea to push the idea that Canada can put the economic hurt on the US. Yes, Canada doesn’t exactly have the economic footing to do a whole lot, but it’s probably better than just taking the tariffs up the rear end and sitting there and grinning and bearing with it. After all, Trump has been saying how he wants to turn Canada into a ’51st state’.
Another train of thought that seems to be adopted by the federal government is to just go along with beefing up border security to handle the largely non-existent problems. The thinking, of course, being that if the Canadian government just does everything the Trump administration says, the tariffs won’t happen and Canada would get spared.
Similar to that train of thought is doing things that remove trade irritants with the US. That circles back to the Online News Act, the Online Streaming Act, and the Digital Services Tax. This is actually something being floated by former Liberal Finance Minister, Bill Morneau. From CTV:
If the Canadian government wants to make headway with the incoming U.S. administration, it should look at scrapping some sticking-point policies, such as the controversial digital services tax, former Liberal finance minister Bill Morneau says.
“I would move away from that, and think about the other places that we have a mutual interest in moving forward,” Morneau told CTV’s Question Period host Vassy Kapelos in an interview airing Sunday. “And do that in a way that’s calm and that recognizes that we need to have an enduring ability to work together.”
Morneau said that in dealing with U.S. president-elect Donald Trump — and his looming threat of tariffs on Canadian imports — the federal government should look for issues on which the two countries can work together, as opposed to ones that “can inflame differences.”
Honestly, I can’t see this as something that hurts Canada’s position. Saying that Canada could consider scrapping the Digital Services Tax would likely sweeten the pot for trying to get the US to not blow up the Canadian economy. Similarly, President and CEO of DIMA, Graham Davies, offered a similar suggestion. From the National Post:
Back in June this year, I spoke to the Canadian House of Commons Standing Committee on International Trade, to sound the alarm about the Canadian Government’s disastrous Online Streaming Act. I explained it was not just bad policy; it was also a trade irritant with the United States. I made clear the Act should be scrapped, to stop it harming the success of music streaming—a service loved by millions of Canadians, but also, to stop the potential damage to Canada’s most vital trade relationship.
What I cautioned against then, is even more urgent now.
This week, President-elect Trump made clear he intends to impose a 25 per cent tariff on all Canadian goods imported to the USA. Canadian businesses that rely on US exports will bear the brunt of this new cost. This is a wake-up call for Canada to get serious about its trade obligations and get serious about scrapping the Online Streaming Act. This Act, formerly known as Bill C-11, targets and discriminates against foreign-owned streaming services, raising concerns and questions in Washington DC.
The Online Streaming Act isn’t just bad for trade—it’s also bad for Canadian music and culture. It demands that streaming services fork over 5 per cent of their revenues to government-designated legacy funds, which could lead to reduced investments to support Canadian artists and festivals and to higher prices for consumers. Applying a system designed for traditional radio to modern music streaming is neither realistic, nor beneficial to consumers who love streaming because it gives them freedom and flexibility about what to listen to. Not long ago, the consumption of music online was dominated by piracy. Today, it is a success story for rights holders and consumers alike. Why is the government messing with a good thing?
Again, not a bad idea. It would certainly help sweeten the pot for the American’s to not move forward with the tariffs with Canada.
Another possibility is, of course, scrapping the Online News Act which also got scorn from the US government over it’s violation of Canada’s trade obligations. After all, that, too, targeted American businesses (namely Meta and Google).
If the Canadian government was looking for ways to appease the American’s and avoid the economy killing tariffs, those are three possible tools right there. American lawmakers have long made it clear that they really dislike the Online News Act, Online Streaming Act, and the Digital Services Tax. If investing billions into getting people to stare at an empty field all day long near the border isn’t enough, those are three additional options that the Canadian government can table to avoid those tariffs.
Yes, I’m of the opinion we’re screwed either way, but I don’t see how scrapping all three to appease the American’s would hurt anything. After all, it’s not just me thinking of these things. Former Liberal cabinet ministers and industry leaders are making these suggestions as well.
