Back in November, US Trade Representative Katherine Tai met virtually with her Canadian counterpart, International Trade Minister Mary Ng. According to the account of the meeting released by USTR, among the issues raised was impending or proposed Canadian legislation related to digital platforms;
“Ambassador Tai expressed concern about Canada’s proposed unilateral digital service tax and pending legislation in the Canadian Parliament that could impact digital streaming services and online news sharing and discriminate against U.S. businesses.”
The critics of the pending legislation, particularly Bill C-18, the Online News Act, jumped on this statement as proof that the US might retaliate if the Bill is passed, sounding the klaxon of doom. In case anyone missed it, C-18 is designed to implement a negotiation process (backed up by government enabled compulsory arbitration if negotiations fail) for compensation for the use of news content by “digital news intermediaries” (which for sure include platforms such as Alphabet/Google and Meta/Facebook, and possibly others in future) and designated news businesses in Canada. It is based on Australia’s example where that country introduced a News Media Bargaining Code requiring the platforms to negotiate payment with news providers for providing access to Australian news. If a suitable deal was reached, the platforms could avoid designation under the Code. Not surprisingly, incentivized by the threat of legislation, the platforms managed to strike deals with most media outlets in Australia, although not without some initial game-playing and resistance by both Google and Facebook. The Canadian legislation is designed to do much the same, although with more transparency and more guidance on where the money is to be spent (on newsrooms).
The platforms have pulled out all the stops to oppose the Canadian legislation, which they probably see as writing on the wall for what is likely to happen eventually in the US. Facebook has threatened to block posting of Canadian news on its site in Canada, a tactic it also employed in the US to fight back similar legislation (Journalism Competition and Preservation Act, JCPA) being considered in Congress. (The JCPA almost made it through the US legislative mill last year, having been attached to the National Defense Appropriations Bill, but in December of 2022 the platforms and others mounted a counter-offensive that succeeded in getting the news provision dropped from the Defense Bill at the last moment).
Another tactic the platforms have used is to dredge up various claims that C-18 violates Canada’s commitments under the new NAFTA, the USMCA (or CUSMA in Canada), or the Berne Convention. An industry association to which both Google and Meta belong (Computer & Communications Industry Association, or CCIA) produced a White Paper arguing that if enacted, C-18 would violate Canada’s international trade obligations in several ways. The CCIA’s paper not only misconstrued key elements of C-18, its analysis did not stack up in terms of demonstrating any denial of national treatment to US companies, as I outlined in a previous blog post and article, (Bill C-18, the Online News Act: Does it Violate Canada’s Trade Agreement Obligations?).
One voluble critic of C-18 made much of the fact that the USTR read-out of the meeting contained the reference to Canadian legislation that I reproduced at the top of this blog post, whereas the Canadian read-out did not. (Michael Geist, A Tale of Two Readouts). Suggesting that there was some sort of subterfuge by Canada on this is just plain silly. For its part, the Canadian statement mentioned topics that did not make it into the US read-out such as softwood lumber and the need to maintain a well-functioning dispute settlement system within the WTO, both areas where Canada is not happy with US positions. (The latter refers to the current US position on the WTO’s dispute settlement system which has led it to block future appointments to the WTO’s Appellate Body). Regardless of the relative merits of the issues discussed, it is standard practice in reporting on such meetings that each side highlights the issues it has raised, not those brought up by the other side. The fact that the Canadian statement did not include Ambassador Tai’s comments on digital legislation is not even worth commenting on—unless you want to make a big deal out of nothing.
More important is the import of what USTR Tai had to say. Was the fact that she “expressed concern” over legislation that “could…discriminate” against US businesses an “Oops, we’ve got it wrong, and had better change the legislation” moment for Canada? Hardly. It is true that USTR was laying down a marker, as it frequently does, expressing its view that US businesses should not be discriminated against, especially when there are national treatment commitments that could be infringed. And of course, Trade Minister Ng “reassured” Tai that Canada’s legislation is consistent with its trade obligations. This is standard back-and-forth positioning between countries when measures that could affect the interests of the other are under consideration.
Of particular concern to the US is the position of Canada and a number of other countries regarding a proposed Digital Services Tax (DST). DST’s have been proposed in many countries because some large companies operating digital platforms have managed to avoid being taxed in many jurisdictions where they generate considerable revenue, yet have no or minimal physical presence. Note that many, indeed most, of these companies are incorporated in the US. The DST is designed to tax companies doing business digitally but with no physical presence by imposing a levy based on a percentage of income (usually around 3%) earned in respective jurisdictions. The EU has been particularly active in this regard, and some countries have already imposed a digital tax. In 2020 the US imposed retaliatory tariffs on French luxury goods because France had imposed a DST that captured some US companies.
The OECD has been working for some time on an international agreement on profit-shifting that would address the issue of digital companies doing business in countries without a physical presence. If implemented, the agreement would avoid imposition of digital services tax by individual jurisdictions. That process is going slowly, but a draft Convention has now been reached. The US, however, has not yet signed on. The Biden Administration is onside but the problem, as always, is getting the deal approved by Congress. Given this situation, a number of countries, Canada included, have prepared DST legislation and are prepared to enact it if a suitable agreement is not finalized soon. It is against this backdrop of shadow-boxing that USTR Tai “expressed concern about Canada’s proposed unilateral digital service tax”. Since Canada is also developing the Online Streaming Act (to bring streaming content under the Broadcasting Act) and the Online News Act, C-18, why not throw them in too as areas of “concern”? But does this mean that this is setting the stage for a trade challenge by the US to C-18? Most unlikely.
Apart from the fact that C-18 is of far less concern to the US Government than the digital tax issue (the main issue with the DST is that if other countries tax US-based digital companies unilaterally, there could be less revenue for the US Treasury), there is also a huge difference in the impact and design of the legislation. While C-18 will likely target a couple of large US-based digital players, it will also benefit any US news companies that have qualifying news bureaux in Canada. Bloomberg and the NYT come to mind. The Online News Act is not discriminatory legislation aimed at US companies; rather it is legislation designed to reign in and require payment for content by mammoth internet platforms that exist as virtual monopolies. And the goal of this legislation has support in the US.
The fact that the interests of the United States and those of Google and Facebook are not one and the same was clearly highlighted in the form of a letter written to USTR Tai in mid-December by Danielle Coffey, Executive Vice President and General Counsel to the News/Media Alliance (NMA), a US industry association representing over 2000 publishers nation-wide. (News/Media Alliance Reminds USTR of the Importance of High-Quality Journalism). The NMA has been actively pushing for similar legislation to C-18 in the US and has been an active proponent of the JCPA (Journalism Competition and Preservation Act). Even though the JCPA just failed to secure adoption in the last Congress, the NMA will continue to advocate for it.
In its letter, the Media Alliance expressed its “serious concerns” over the comments that Tai made to Trade Minister Ng about C-18. The NMA letter says, “We believe this…fails to represent wider US business interests, in addition to contravening the public policy concerns underlying Canada’s C-18 and similar efforts elsewhere , including the United States”.
The letter goes on to say;
“Numerous studies, reports, and investigations have shown without question the ways that (a few dominant) platforms impose unfair terms on news publishers and other actors in the online ecosystem and reap the majority of the benefits, including digital advertising dollars and user data. The legislative measures – in Canada, other countries, and the United States – aim to correct these market failures and rebalance the online marketplace by making sure the platforms cannot benefit from publisher content without compensation. They are focused on tackling specific business practices by those with the most power – regardless of their national origin. The fact that many of the dominant companies engaging in these damaging practices, and therefore affected by the legislations, are incorporated in the United States does not make these laws discriminatory.”
“Publishers in the United States stand firmly with our international partners in supporting laws to combat market abusive business practices in the online ecosystem, including the Online News Act. Not only do many of our members have readers or operations in Canada, we strongly believe that such laws correspond with the public policy objectives of the United States to protect the free press.”
Finally, it concludes with; (emphasis added)
“We strongly believe that the Office of the USTR should represent the whole of the United States, not the interests of a few large companies… we urge you to refrain from taking positions that benefit one sector of the U.S. economy at the expense of others.”
That last sentence says it all. Important US interests align with the objectives of C-18. This is yet one more reason why the US Government will not be bringing retaliatory trade action against Canada for implementing the Online News Act.
© Hugh Stephens, 2023. All Rights Reserved.