With the end of trade talks, it’s time to talk about the digital services tax
OTTAWA—Culture is on the front burner for the first time in modern trade negotiations.
In the aftermath of the breakdown of talks between Canada and the United States, Prime Minister Mark Carney cited attacks on the French language as a major reason for why the country walked away from the deal.
U.S. President Donald Trump attacked the prime minister’s claim with a bizarre statement on his social media platform claiming he loves French Canadians: “This lie was made up by a weak and ineffective prime minister in an attempt to gain political support, which he has totally lost, from the people of Quebec.”
Trump says he has no problem with people speaking French, but his negotiators signalled that Canada’s requirement for bilingual labelling was an irritant. The Canadian government also rejected an American demand to eliminate streaming requirements that make French and Quebec cultural content easily discoverable. Such requirements currently exist in the streaming sector.
Since the breakdown of talks, the U.S. government—through an interview provided by its Trade Representative Jamieson Greer to CBC News on Aug. 26—has indicated that discoverability was not a "red line." In an X post on Aug. 27, Canada-U.S. Trade Minister Dominic LeBlanc said, "Canada is pleased that the United States is now reversing its positions regarding discoverability," and that his government is looking forward to other "contructive clarifications" on American positions on proposed free trade terms.
Carney’s decision to leave the negotiating table on Aug. 21, and promise dollar-for-dollar counter-tariffs has been widely applauded by Canadians, but his strong defence of the French culture came as a surprise.
It also spawned new demands on the culture front from the Bloc Québécois. In the lead up to the current round of negotiations, the Liberal government eliminated the implementation of a digital services tax.
The proposed tax was seen as an irritant to the Americans. The three-per-cent levy was cancelled in the 11th hour before its implementation, as the prime minister said it would not be worth implementing a tax that may be abolished in the upcoming trade discussions. He also defended cancelling the tax as a way of protecting affordability for families that are struggling with rising household costs.
At the time, Carney announced the tax revenue would be replaced by an annual direct investment of $600-million for Canadian content.
With the collapse of negotiations, Bloc Québécois leader Yves-François Blanchet is asking Carney to implement the digital tax that was originally introduced by the previous Liberal government. Blanchet says the replacement of the tax by a multi-million-dollar government investment is shifting financial responsibility from entertainment multinationals to taxpayers.
He also says the cancellation of the tax threatens the survival of French-language cultural production and Quebec jobs.
In outlining the government’s counter-tariff strategy, Industry minister Mélanie Joly specifically cited risks to the cultural sector, which she said employs 900,000 people across Canada.
Blanchet is also asking the prime minister to cancel the procurement of fighter jets from the U.S. as part of the Canadian response.
British Columbia Premier David Eby publicly reinforced the Bloc’s request to cancel jet procurement. He said the government needs to reinforce its plan to implement retaliatory tariffs with other measures, including the power of purchasing boycotts such as the fighter jet purchase.
For Carney, it was the first time that culture was front and centre in a positive way.
When the government cancelled the implementation of the digital tax, most Canadians were happy or neutral, assuming it would limit any digital streaming cost increases.
The Conservative Party had opposed the digital tax and lauded the cancellation.
But the move prompted major concern in the cultural sector that defends those 900,000 jobs.
The $600-million commitment by Ottawa would replace the tax, but it could also be subject to potential uncertainty as future budgets could reduce the payment.
More importantly, the change means that global web companies contribute nothing to the CRTC-mandated system that requires domestic broadcasters to pay their fair share.
Several European countries have implemented a digital services tax in amounts ranging from 1.5 to 7.5 per cent.
Carney’s call for Canadian cultural protection has awakened the sleeping cultural giant.
In the 1992 North American Free Trade Agreement, Canada vigorously defended a cultural exemption. The government of then-Progressive Conservative prime minister Brian Mulroney insisted on a cultural carveout.
The second free trade deal, the Canada-United States-Mexico Agreement (CUSMA) Agreement—signed in 2018 and revised in 2019—involved the same exemption.
In the more recent CUSMA negotiations, culture was not a major issue in the discussion. The decision to cancel the digital tax preceded the talks, leaving the impression that the Canadian government would be willing to sacrifice culture in favour of a trade agreement.
Carney insists that one of the main reasons for the talk’s breakdown was Canada’s vow to protect French language and culture.
Digital tax implementation would strengthen his position.
Sheila Copps is a former Jean Chrétien-era cabinet minister, and is a former deputy prime minister.
The Hill Times