Vice President, International Digital Economy Policy, U.S. Chamber of Commerce
July 25, 2023
Canada’s recent announcement that it intends to follow through on its pledge to implement a new digital services tax (DST) is getting strong pushback from the U.S. government—and rightfully so.
Ottawa recently reaffirmed its plans to implement a DST at the beginning of 2024. If it proceeds, it would do so in defiance of an agreement reached earlier this month among nearly 140 countries to refrain from imposing any newly enacted DSTs or relevant similar measures on any company between January 1, 2024, and at least December 31, 2024.
Governments in several dozen countries have adopted or considered DSTs, but almost all concurred in this month’s agreement to put them on hold or drop them altogether as the broader tax deal takes shape.
Canada is balking. Of primary concern, the tax disproportionately targets U.S. suppliers and puts them at a disadvantage vis-à-vis their foreign-based competitors. As constructed, it represents a clear violation of Canada’s obligations under the United States-Mexico-Canada Agreement (USMCA) and the World Trade Organization (WTO).
The Office of the U.S. Trade Representative cautioned Canada last year that it would be subject to action under Section 301 of the Trade Act of 1974—the authority the administration uses to impose retaliatory tariffs—if it proceeded with the tax. More recently, U.S. Trade Representative Katherine Tai warned her Canadian counterpart to refrain from imposing a DST while the OECD process proceeds. Treasury Secretary Janet Yellen has also weighed in, warning: “Implementation of a DST by Canada would seriously undermine the Pillar One negotiations.” As recently as July 21, U.S. Ambassador to Canada David Cohen said Canada’s decision left the U.S. with “no choice but to take retaliatory measures.”
The U.S. Chamber appreciates this forceful U.S. government response—one that should be commended as a response to Canada’s overreach and its targeting of American companies.
However, it also begs the question: Why is the U.S. government finding it so challenging to defend the interests of U.S. companies against other similar forms of blatant discrimination in other markets?
In Europe, the U.S. has been slow to respond as Brussels proceeds with a digital sovereignty agenda that targets U.S. business both by design and in practice. From the EU’s Digital Markets Act (DMA) to the Data Act, AI Act, its proposed Cybersecurity Certification Scheme for Cloud Services (EUCS) and more, EU digital policies are taking direct aim at U.S. business – with the goal of handcuffing American competitors and creating new European national champions in the digital economy.
On the EUCS, for example, Deputy U.S. Trade Representative María Pagánrecently affirmed that the EU “is required to provide non-discriminatory access to covered procurement” under the WTO Government Procurement Agreement. The violation is acknowledged; what’s lacking is decisive action to challenge it. Washington must adopt a comprehensive approach to the EU’s digital sovereignty agenda, confronting discrimination, fostering constructive dialogue, and advocating for fair trade practices in Brussels.
Similarly, the Federal Trade Commission and the Antitrust Division of the Department of Justice have made secretive attempts to pressure USTR to abandon due process and procedural fairness norms that are the hallmarks of democracies and that have been sought in trade negotiations. The same agencies have pressured USTR to not stand up against discrimination as part of the digital trade commitments under consideration in the ongoing Indo-Pacific Economic Framework (IPEF) talks.
An IPEF process that initially drew skepticism over its lack of ambition now risks doing tangible, long-term damage to U.S. business, workers, and the broader economy by enshrining measures that fail to reflect core values, like due process and nondiscrimination. Meanwhile, it threatens to weaken protections for U.S. companies of all sizes and roll back meaningful provisions that advance America’s leadership in the trade of digital products and services.
The U.S. government plainly recognizes the urgency in pushing back on Canada’s DST position, lest it risk a spillover effect in which other countries follow Ottawa’s lead, harming U.S. firms’ competitiveness around the world. It is time to start combatting equally discriminatory measures in other markets with the same vigor — or American workers and the companies that employ them will pay the price.