What Would a Digital Economy-Era NAFTA Mean for Canada?
U.S. Commerce Secretary Wilbur Ross is expected to file a notice of renegotiation of the North American free trade agreement within weeks, paving the way for talks that could reshape the Canadian economy. It became clear last week that the renegotiation will involve much more than just a few “tweaks”, as a U.S. congressional hearing saw officials trot out the usual laundry list of demands including changes to agricultural supply management, softwood lumber exports, and anti-counterfeiting measures.
Those issues will undoubtedly prove contentious, yet my Globe and Mail article notes that more interesting were comments from Mr. Ross about the need for new NAFTA chapters to reflect the digital economy. The emphasis on digital policies foreshadows a new battleground that will have enormous implications for Canadian privacy laws and digital policies.
Some of the digital economy policies, including online contract enforcement and consumer protection, should be relatively uncontroversial. Moreover, online sellers can be expected to renew their call for increases to the de minimis customs threshold from the current C$20 to C$200. The measure would prove popular with consumers who would be free to import bigger ticket items tax-free, but is sure to face stiff opposition from Canadian retailers who fear heightened competition from U.S.-based Internet sellers.
Even more difficult will be U.S. demands that Canada refrain from establishing “data localization” rules that mandate retention of personal information on computer servers located in Canada. Data localization has become an increasingly popular policy measure as countries respond to concerns about U.S.-based surveillance and the subordination of privacy protections for non-U.S. citizens and residents.
In response to the mounting public concerns, leading technology companies such as Microsoft, Amazon, and Google have established or committed to establish Canadian-based computer server facilities that can offer localization of information. These moves follow on the federal government’s 2016 cloud computing strategy that prioritizes privacy and security concerns by mandating that certain data be stored in Canada. The Trans Pacific Partnership included restrictions on data localization requirements at the insistence of U.S. negotiators. Those provisions are likely to resurface during the NAFTA talks.
So too will limitations on data transfer restrictions, which mandate the free flow of information on networks across borders. Those rules are important to preserve online freedoms in countries that have a history of cracking down on Internet speech, but in the Canadian context, could restrict the ability to establish privacy safeguards. In fact, should the European Union mandate data transfer restrictions as many experts expect, Canada could find itself between a proverbial privacy rock and a hard place, with the EU requiring restrictions and NAFTA prohibiting them.
The NAFTA digital economy implications extend beyond privacy issues. The U.S. and Canada have begun to move in opposite directions on network neutrality rules, which ensure that all content and applications are treated equally online. Canada has had net neutrality rules in place since 2009 and many believe that the Canadian Radio-television and Telecommunications Commission will expand them later this year.
Since the election of President Donald Trump, the U.S. has shifted away from its open Internet policies. The TPP included general net neutrality obligations, but a renegotiated NAFTA could see the U.S. seek to stop net neutrality rules from restricting potential “zero rating” agreements between large U.S. rights holders and Canadian Internet providers.
The updated trade agreement could also touch on digital cultural policies. The TPP departed from longstanding Canadian policy by not containing a full cultural exception and creating unprecedented restrictions on policies to support the creation of Canadian content. Those included a ban on access restrictions to online video services and a limitation on requirements on foreign providers to make financial contributions in support of Canadian content production.
Those provisions were seemingly designed to support the unregulated entry of services such as Netflix with trade-based restrictions on creating a so-called “Netflix tax.” There is little support for a cultural Netflix tax within the government, but cultural policy has traditionally been treated as a hands-off area for Canadian trade negotiators. Having opened the door to new regulatory restrictions in the TPP, those provisions can be expected to resurface during the NAFTA renegotiation.
Many of these digital provisions went largely unnoticed during the TPP talks, but will garner far tougher scrutiny in the spotlight of NAFTA trade negotiations. Indeed, the initial U.S. signals suggest that the renegotiated agreement could have a profound impact on Canadian law and policy, creating an enormous challenge for Foreign Minister Chrystia Freeland and International Trade Minister François-Philippe Champagne, who must simultaneously bring the U.S. onside and sell the deal to the Canadian public.
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