The USMCA (called the CUSMA in Canada—just because we like to be different—I will use the two terms interchangeably) has passed in the US Congress and been signed by President Trump. It has also completed the ratification process in Mexico. But in Canada, where Justin Trudeau heads a minority Liberal government, it is still undergoing review in Parliament. To be completely accurate, the implementing legislation is undergoing review, since Parliamentary approval is not required for an international treaty, but when that treaty requires changes to legislation, those changes must be approved by Parliament. While it is a given that this will sail through when a vote finally comes, the opposition parties are making the Liberals jump through hoops by demanding hearings on the legislation, known as Bill C-4. The Bill will amend 24 disparate pieces of legislation ranging from the Copyright Act and Broadcasting Act to the Bank Act, the Canada Grain Act, the Fertilizers Act, the Importation of Intoxicating Liquors Act and on and on. This amalgam of various legislative amendments is required for Canada to be in compliance with its USMCA commitments.
While the USMCA will require Canada to do certain things, such as relaxing quotas on dairy products imported from the US or ensuring that US Superbowl ads are not broadcast in Canada, it also involves commitments by all three partners to not do certain things. In these circumstances of course, no legislative fix is required since the commitment is a constraint on taking certain future actions. It’s a bit difficult to judge how binding a given constraint is since there is almost always an escape clause of some sort. Normally this is subject to adjudication by a dispute settlement panel if there is disagreement between the Parties as to whether it is applicable. Moreover, a commitment to refrain from taking a given action is always subject to interpretation. When they are determined to do something, governments can be very creative in finding ways to meet that objective, even though they may have made an explicit commitment not to do so.
And, at the end of the day, a trade agreement is like a contract; it can always be broken if one is prepared to pay the penalty. Governments are sovereign and there is no supra-national authority that can bind them. While they may have willingly entered an agreement and the commitments that go with it, circumstances can change, governments can change and the mood of the electorate can change. In such situations, governments often employ either a force majeure clause to override commitments (the Trump Administration is very good at this, using “national security” as the easy excuse to break any US trade commitment it doesn’t like), or else are prepared to “pay the price” for transgression. Paying the price usually means permitting the damaged party to withdraw equivalent trade concessions, normally by instituting retaliatory tariffs.
What is not in Bill C-4?
This issue of what is not in the Bill was addressed by Michael Geist of the University of Ottawa in his testimony before the Committee reviewing the draft implementing legislation. Geist is an active blogger and commentator on a range of issues, including copyright, privacy and telecom policy. He noted that since no legislative change is required, commitments in the Agreement that potentially constrain action are not reviewable. Although that is a failing in the system that gives Parliament little real oversight, in actual fact the likelihood of Canada being able to introduce any changes to the text of the Agreement, either in terms of what it has agreed to do, or to not do, are at this stage negligible to non-existent.
Geist commented on four elements of the USMCA where no legislative change is required, arguing that they increase the cost of CUSMA. These are (1) Copyright Term Extension; (2) the Cultural Exemption (3) Data Localization and Privacy and (4) Internet Platform Liability. Do these hidden measures increase the cost of the Agreement for Canadians and if so, how and to what extent?
Copyright Term Extension
First, with regard to copyright term extension, it is not really a hidden measure. As I noted in a previous blog posting (here), it is not included in Bill C-4 because Canada negotiated a 30 month transition period before implementing its commitment to extend the period of protection by an additional twenty years. Once enacted (separate legislation will now be needed) this will bring Canada’s copyright term into alignment with most advanced countries, including the US, UK, Australia, and the 27 members of the EU and some others. The transition period was reportedly taken in order to engage in further public consultation on how to implement the measure. Whether Canada will complicate the process by requiring formal registration by rights-holders in order to take advantage of the twenty-year extension, as recommended by the Committee reviewing the Copyright Act, or will simply extend the period of protection for all current and future works protected by copyright, remains to be seen. The Berne Convention, to which Canada belongs, states that no formal act of registration should be required for a work to qualify for copyright protection.
In his C-4 testimony Geist trotted out a new version of the old canard that extending the term of copyright in Canada would cost “hundreds of millions” of dollars. Previously he and others had claimed that this would be a huge net cost to Canada as royalties drained out of the country. This unsubstantiated claim was based on some erroneous back-of-the-envelope calculations carried out by copyright opponents that completely ignored the benefit of extension to Canadian creators. Now the criticism is that extension would result in “a major windfall that could run into the hundreds of millions of dollars for rights holders and creates the need to recalibrate Canadian copyright law to restore the balance.” There has already been plenty of “recalibration” in recent years, such as broadening fair dealing exceptions, and very little of it has benefited creators.
USMCA Cultural Exemption
The “Cultural Exemption”, Article 32.6 of the Agreement, is another issue not referred to in C-4 since it requires no pro-active action. This exemption covers the following “cultural industries”;
(a) the publication, distribution, or sale of books, magazines, periodicals, or newspapers in print or machine readable form but not including the sole activity of printing or typesetting any of the foregoing;
(b) the production, distribution, sale, or exhibition of film or video recordings;
(c) the production, distribution, sale, or exhibition of audio or video music recordings;
(d) the publication, distribution, or sale of music in print or machine readable form; or
(e) radiocommunications in which the transmissions are intended for direct reception by the general public, and all radio, television and cable broadcasting undertakings and all satellite programming and broadcast network services.
Article 32.6 states that CUSMA does not apply to a measure taken by Canada with respect to a cultural industry, except for customs tariffs and Superbowl Ads. (Yes, Superbowl ads are deemed “cultural). This cultural exemption dates all the way back to the original Canada-US Free Trade Agreement of 1989 when the government at the time insisted that “Canadian culture” be protected. The FTA was a tough political sell since there was strong pushback from Canadian nationalists who were concerned with Canadian identity. It almost became a deal-breaker. The US did not see film making, music and publishing as cultural industries but as parts of the entertainment business. They wanted to ensure that Canada would not block US content in the name of promoting Canadian culture. A compromise was reached. Canada could override the Agreement when it came to a cultural industry but it would pay the price for doing so. If a measure taken by Canada was ruled inconsistent with the Agreement but for the cultural exception, then the damaged Party could take retaliatory measures of equivalent commercial effect (in any area of trade). It has never been used but this retaliatory clause continues in the USMCA/CUSMA.
Equivalent commercial retaliation is not unusual in trade agreements. Indeed it is the standard remedy whenever there is an adjudicated dispute that the offending Party refuses to remedy, or where damage has already been caused and no compensation is paid. The US-EU disputes over (alleged) unfair subsidies to Airbus and Boeing are prime examples of this. However, when countries sign up to certain commitments in a trade agreement, one expects that the commitments will be honoured and it is only when they are not that retaliation occurs. The CUSMA cultural exemption is a bit different because Canada has already signalled in the Agreement that it reserves the right to take measures that may violate treaty commitments in order to protect Canadian culture.
Michael Geist argues that the Cultural Exemption article adds to the potential cost of the USMCA if Canada takes action that allows retaliation. That is hypothetically true, but is nothing new, and the retaliation is limited to the damage caused by the measure taken. It is a deliberate constraint against violating the obligations of the Agreement on cultural grounds, although Canada retains the right to do so if that becomes the priority. However, it is also important to note that if the action taken to promote Canadian culture is not discriminatory (i.e. if it is taken on a “national treatment” basis), it would not be inconsistent with the USMCA and therefore would not lead to retaliation. Moreover, providing subsidies to Canadian content producers (while not providing them to US producers) is not inconsistent with the national treatment provisions of the Agreement.
The argument that the Cultural Exemption will add to the costs of CUSMA is overblown. Much ado about nothing.
Privacy and Data Protection
There are requirements in the Agreement against imposition of data localization requirements. In other words, none of the Parties can require that data be stored in their jurisdiction as a condition of doing business or limit the transfer of data (except under specified circumstances). This is clearly a constraint, and not just on Canada. Michael Geist argues that Canada has severely limited its ability to regulate in the area of data and privacy, yet what does the Agreement actually say in this regard?;
“1. No Party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means if this activity is for the conduct of the business of a covered person.
- This Article does not prevent a Party from adopting or maintaining a measure inconsistent with paragraph 1 that is necessary to achieve a legitimate public policy objective, provided that the measure:
(a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and
(b) does not impose restrictions on transfers of information greater than are necessary to achieve the objective.”
In other words, governments should not restrict cross border transmission of data as a general principle of doing business, but may do so for public policy reasons as long as they do so in a way that is not arbitrary, unjustifiably discriminatory, or used to disguise a trade restriction and is proportionate to the objective. This is a typical “escape hatch” used in trade agreements and considerably modifies the constraint for all Parties.
Internet Platform Liability
The final area that Dr. Geist pointed to in his testimony was that of internet platform liability. This measure (Article 19.17), which in my view should never have been included in the USMCA, is based on an outdated law in the US (known as Section 230 of the Communications Decency Act, 1996) that absolves internet platforms of liability for harmful material posted by users on their platforms (except for violations of intellectual property) by not treating them as the publisher of the material. The original intent of the US law was to encourage platforms to take action against abusive content without fear of litigation (platforms had expressed the fear that if they removed abusive content, this could be interpreted as exercising editorial control and making them “publishers” of the material). However, over the years it has been interpreted in US courts in such a way that it provides platforms with an excuse to turn a blind eye to abusive or even illegal content and take no action—because they are not legally the publishers. Essentially under this US law if they take action, they cannot be sued because they are not publishers, but equally if they don’t take action (even if they are well aware of the nature of the content), as non-publishers they are similarly not responsible.
This provision has come under intense scrutiny in the US and is under Congressional review. The tech industry (Google, Facebook and the like) loves Section 230 because it gives them a free pass and they fought hard to get it into the USMCA in order to limit the options of the US Congress. During the CUSMA negotiations Michael Geist among others strongly advocated that Canada give the US a “win” by accepting this US negotiating demand. Subsequently he proclaimed definitively that the inclusion of Article 19.17 meant that, in Canada, “Internet companies are not liable for the content of their users”. Fortunately the USMCA says no such thing, as I have explained in detail (here). Now it seems even Dr. Geist has accepted that the USMCA language leaves Canada’s laws with respect to platform immunity unchanged, and has back-pedalled somewhat;
“Contrary to some claims, the rule does not mean that “everything goes”. Sites and services are still subject to court orders and the enforcement of criminal law.”
Article 19.17 almost got cut at the last moment owing to a push in Washington to have it removed, even though it was originally a US “ask” in the negotiations. When the Trump Administration put the USCMA to Congress for approval, House Speaker Nancy Pelosi came up with a short-list of objections, one of which was the requirement that Section 230 be dropped. Given the abuse of the provision by internet platforms in the US, the Democrats were concerned that inclusion of Section 230 in the Agreement might constrain future Congressional action to hold the platforms accountable. The tech industry launched a furious rear-guard action, and issued assurances that;
“Inclusion of Section 230 language in trade agreements does not stop the US from changing the law in the future should (it) choose to do so.”
Well guess what? If the wording in USMCA Article 19.17 does not stop the US from changing its law with regard to whether an internet platform can be considered a publisher (i.e. to put more responsibility on the platforms) then there should be no problem with Canada passing a law to the same effect. Geist claims that while there are pros and cons as to whether and to what extent internet platforms should assume some responsibility for content on their platforms;
“Under the new NAFTA, Canada has already committed to a position – one that restricts our ability to establish liability for third party content.”
This comes across as a criticism and is strange coming from the very person who advocated for the inclusion of restrictive language in the Agreement in the first place.
Conclusion
Does the USMCA impose constraints on Canada and the US? Of course it does. That is the nature of trade agreements; concessions granted in return for other concessions of equal value in order to generate business certainty and economic growth. Sometimes these are commitments to take action (like lowering the tariff on widgets) and sometimes it is to not take action (like refraining from imposing import quotas on widgets). At the end of the day, although all Parties agree to make voluntary concessions (which become constraints on their ability to act unilaterally), the gains are presumably worth the costs. If this were not the case, there would be no trade agreements. At the end of the day, governments and their legislatures still remain sovereign, and can override any commitments made—but usually at a price. The intention is to make the price sufficiently dear that Parties will think twice before taking action to unravel what was agreed. And where there is a cost, there is an offsetting benefit. That’s how trade negotiations work.
© Hugh Stephens 2020. All Rights Reserved.
Update: This blog has been updated to add more information to the discussion on the Cultural Exemption, noting that non-discriminatory actions taken to promote Canadian culture would not allow for US retaliation, and furthermore that subsidies to Canadian content producers, even if not similarly offered to US producers, do not violate the national treatment article of the USMCA, and would therefore likewise not permit retaliation by the US.
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