The Globe and Mail - 02.03.2020

B4| REPORTONBUSINESS O THEGLOBEANDMAIL| MONDAY,MARCH2,2020

OPINION&ANALYSIS

DILBERT

A

s Parliament continues its

review of legislation de-

signed to implement the

United States-Mexico-Canada

Agreement, the issue that has

sparked the greatest surprise

arises from a provision frequent-

ly promoted as a “win” during

the negotiations.

The inclusion of a cultural ex-

emption was viewed as an im-

portant policy objective for the

government, with Prime Minis-

ter Justin Trudeau insisting “de-

fending that cultural exemption

is something fundamental to

Canadians.” The USMCA does, in-

deed, feature a broad cultural ex-

emption that covers a wide

range of sectors. The exemption

means that commitments such

as equal treatment for U.S., Mex-

ican and Canadian companies

may be limited within the cultur-

al sector.

Yet the cultural exemption did

not come without a cost. The

government rarely mentions it,

but the agreement also includes

a culture “poison pill” designed

to discourage use of the exemp-

tion. It grants the U.S. the right to

levy retaliatory measures of

“equivalent commercial effect”

in response to Canadian policies

that would otherwise violate

USMCA if not for the exemption.

Since the provision does not

limit retaliation to the cultural

sector, the U.S. can be expected

to target sensitive areas of the

Canadian economy such as the

dairy or steel sectors. This was

the U.S. strategy last year when

responding to a French plan to

levy a new digital tax, which led

to threats to impose US$2.4-bil-

lion in tariffs against French

goods such as wine, cheese and

handbags.

The poison pill has existed for

many years in Canada-U.S. agree-

ments, but two things have

changed in the current environ-

ment. First, the introduction of a

digital trade chapter significantly

expands the scope of the deal,

introducing new rules on priva-

cy, e-commerce and digital ser-

vices. Given the prospect of treat-

ing Canadian and U.S. cultural

digital services differently, the li-

kelihood of triggering retaliatory

measures under USMCA is far

greater.

Second, the recent broadcast-

ing and telecommunications leg-

islative review panel report –

called the Yale Report – contains

many recommendations on reg-

ulating the internet and online

news services, such as news ag-

gregators, that would open the

door to tariff retaliation. The re-

port’s recommendations have

yet to be adopted, but Canadian

Heritage Minister Steven Guil-

beault has indicated he hopes to

respond with legislation within

months.

Should thegovernment adopt

the broadcast panel recommen-

dations on content, the U.S.

would have a strong case for per-

mitting retaliation with mea-

sures of equivalent commercial

effect.

Panel proposals that may vio-

late the new trade agreement in-

clude requirements to pay levies

to fund Canadian content with-

out full access to the same fund-

ing mechanisms enjoyed by Can-

adian firms, licensing require-

ments for internet services that

may violate USMCA standards

and discoverability requirements

that limit the manner that infor-

mation is conveyed on websites

and services.

The likely U.S. reaction should

come as little surprise given how

Canada would react if Canadian

digital services were required to

fund broadband initiatives in

Montana, support local newspa-

pers in Alabama or fund the cre-

ation of television programs in

Kentucky.

Yet that is precisely what the

panel envisages, with mandated

payments from services such as

Skype or WhatsApp to support

Canadian broadband in rural

communities, registration re-

quirements and levies on foreign

news aggregation services such

as Reddit to support Canadian

newspapers, and mandated Can-

adian content spending on on-

line video services such as Net-

flix, despite restrictions on their

ability to benefit from Canadian

cultural funding in the same

manner as domestic competi-

tors.

Canada has already backed

away from plans to impose a dig-

ital tax on technology compa-

nies, recognizing that such a

move would invite U.S. retalia-

tion.

If the government moves

ahead with panel recommenda-

tions that would subject internet

services and sites around the

world to millions in compliance

fees, taxes and levies, there is ev-

ery reason to believe that the

cost would ultimately be borne

by Canadian consumers and

businesses, who would face the

prospect of tariff retaliation be-

cause of a culture poison pill

that Canada itself agreed to in

the USMCA.

TheinclusionofaculturalexemptionwasanimportantpolicyobjectivefortheCanadiangovernment,with

PrimeMinisterJustinTrudeau,seeninBrampton,Ont.,onJan.30.,insisting‘defendingthatculturalexemption

issomethingfundamentaltoCanadians.’MARK BLINCH/REUTERS

TheUSMCAculturalpoisonpill:

Whythebroadcastpanelreport

couldleadtomillionsintariffretaliation

MICHAELGEIST

OPINION

Canada Research Chair in Internet

and E-commerce Law at the

University of Ottawa’s faculty of law.

He recently appeared before the

federal government’s international

trade and industry and science and

technology committees to discuss

the digital implications of the United

States-Mexico-Canada Agreement on

trade.

The USMCA does,

indeed, feature a broad

cultural exemption that

covers a wide range

of sectors.

I

f he still hopes to go down in history as the prime minis-
ter who put Canada on an ambitious path to fighting
climate change, Justin Trudeau might have to shift focus
from the country’s most contentious source of green-
house gas emissions.
Yes, annual emissions from Alberta’s oil sands continue to
rise toward the 100 megatonne cap to which the province’s
government has verbally committed, but not yet put into
law. And Canada will be hard-pressed to hit its 2030 commit-
ments under the Paris Agreement – let alone Mr. Trudeau’s
promise of carbon neutrality by 2050 – unless that trend is
reversed.
But lately, it’s been easy to get the impression that that’s
all Canada needs to worry about. Neithergovernment nor
the public seem to be as preoccupied with the roughly 600
megatonnes of annual emissions that aren’t caused by pull-
ing oil and gas out of the ground – much of which could be
tackled at less risk to national unity.
The overwhelming recent attention paid to where fossil-
fuel extraction fits into Canada’s future is not by the Liberals’
design. Their procrastination over whether to approve the
Frontier oil sands mine, before Teck Resources yanked its
proposal, suggested they’d have happily done without it
landing in their laps. And their role in the blockades crisis
stemming from a First Nations dispute over a natural-gas
pipeline in B.C. has been purely reactive.
But there is one important way in which the Liberals had
already fallen short. They had insufficiently advanced an
agenda that makes clear that Western Canada isn’t alone in
this, and provides enough of a national push toward sustain-
ability that it could not be derailed by controversies over
individual projects with limited impact.
Mr. Trudeau has suggested, not far off from many voices
in Alberta, that as long as there remains global reliance on
fossil fuels, Canada should try to meet demand with the
cleanest product it can produce. But he has rarely been as-
sertive enough about it to win Albertans’ trust.
Nor has he been muscular enough in how he approaches
the corollary:government doing all it can to hasten a con-
sumption shift toward other en-
ergy sources. Other than a na-
tional carbon price, which at cur-
rent levels has marginal impact,
most Canadians would be hard-
pressed to identify ways Ottawa is
trying to reduce fossil-fuel usage
domestically, or develop industri-
es that could foster cleaner ener-
gy usage globally.
If the Liberals want to tell that
sort of story – be less apologetic
about Canada’s existing industry,
but bolder in asking all Cana-
dians to join in economic and so-
cial transition – they will soon
have a golden opportunity.
Their re-elected government’s
first budget and the sales job that follows could allow Mr.
Trudeau’sgovernment to draw more attention to policies it
has already introduced, such as phasing out remaining coal
power. But probably only if it signals that such measures are
part of a comprehensive and scaled-up national plan.
That could include being more aggressive in addressing
road transportation, from which emissions exceed those of
oil and gas extraction. Ottawa has made investments to try
to hasten a shift to zero-emissions vehicles, mostly through
charging infrastructure and purchase rebates, but it could be
more ambitious on those fronts. And it has a lot more sticks
that it could wield in the form of price signals to consumers
and industry regulation.
It could include increased efforts to reduce the carbon
footprint of commercial and residential buildings, through
retrofit funding and tougher building codes and other tools
at Ottawa’s disposal.
It could include a more strategically focused, better-artic-
ulated clean technology strategy. The Liberals have directed
decent sums toward helping purveyors of low-emissions
products scale up, and they’ll continue to do so. They’ll also
likely follow up on their fuzzy campaign promise to imple-
ment a net-zero-emissions corporate tax cut. But what they
haven’t really done is zero in on particular areas where Cana-
da might build competitive advantage and help transitions
to low-carbon economies elsewhere through exports – some
of which, such as carbon capture and hydrogen uses, happen
to have particular opportunity in Alberta.
Inevitably, some policies aimed at these ends would still
be held up by Conservative politicians as proof the Liberals
are trying to kill the oil sands. That’s what’s happened with
carbon pricing, despite executives at some of the top oil
companies supporting it. It stands to happen again with Ot-
tawa’s in-the-works Clean Fuel Standard – which would de-
mand lower carbon intensity over the life cycle of fuels sold
in Canada – even though it would place a burden (likely
passed down to consumers) on fossil-fuel importers as well
as domestic producers, and shouldn’t affect exports.
But it’s presumably not beyond the Prime Minister’s capa-
bilities to overcome those arguments. That is, if he really
puts hisgovernment’s resources behind making the case – as
he has only tentatively so far – that Canada can best recon-
cile its economic interests and global responsibilities by wor-
rying a little less about its part in fulfilling fossil-fuel de-
mand, and a lot more about leading the way in reducing that
demand.
It’s not going to happen in one budget cycle, no matter
how hard the Liberals try. But if it’s a vision that a second-
term Prime Minister facing an uncertain minority Parlia-
ment end-date wants as his legacy, he needs to seize every
remaining opportunity to bring it into much sharper focus.

HowTrudeau

couldstillsave

hisclimate

agenda

IftheLiberalswanttobelessapologetic

aboutexistingindustry,butbolderinasking

Canadianstojointheeconomicandsocial

transition,theywillsoonhaveachance

ADAM
RADWANSKI

OPINION

Neither government

nor the public seem

to be as preoccupied

with the roughly 600

megatonnes of

annual emissions

that aren’t caused by

pulling oil and gas

out of the ground –

much of which could
be tackled at less

risk to national unity.