As Canadian Foreign Affairs Minister Chrystia Freeland takes to the negotiating table in Washington, D.C. today to rework the North American Free Trade Agreement (NAFTA) as demanded by U.S. President Donald Trump, there are several ways the technology sector could feel the impacts.
From changing the rules on how much tax Canadians pay when they do online shopping at U.S. retailer, to the prospect of relaxing data sovereignty requirements by the federal government, here’s what you need to know about how NAFTA’s rework could change tech in Canada.
De Minimis threshold could be raised
Many Canadians are already shopping online and having goods shipped to them across the border. But if they spend more than $20 in that cross-border transaction, they must also pay a duty on the purchase. That $20 limit is referred to as the “de minimis” threshold, Latin for “about minimal things,” and it’s the lowest such rate in North America. Mexico’s threshold is $200 and the U.S. has an $800 threshold. That means that Canadians have a lot more motivation to opt for an in-country option when shopping online compared to a U.S. shopper who may not think anything of having a Canadian e-tailer ship an order south of the border.
According to The Globe and Mail, Canadian negotiators will argue at the negotiation table that Canadian retailers would be hurt by being exposed to more online competition. Washington will want Canada to match its much more generous de minimis threshold. The argument that Canadian online merchants are against such a change isn’t helped by a campaign by eBay Canada that we reported on in February. eBay is petitioning the federal government to raise its threshold as well, saying its Canadian members are hurt by the low limit because they have to pay duty on returns shipped back to them across the border. While returns aren’t supposed to be taxed under the legislation, often consumers don’t label the packages as returns and the reality is that store owners are paying up. Canada hasn’t revised its de minimis threshold since the ’80s, long before the days of online shopping.
Data sovereignty dialed back
Much of Canada’s Internet traffic dips into the U.S. at some point along its journey to a major exchange hub location such as New York or Chicago. But where data is stored is often the subject of government compliance requirements for public agencies and the financial industry. Data sovereignty concerns were enough of a factor in Canada to prompt the hyperscale public cloud providers to open up local facilities over the past 18 months, and as we saw in our recent CIO Census, that has been a key motivator for many businesses to embrace cloud computing. What’s expected to be discussed at the negotiating table for NAFTA is relaxed government regulations that require certain data to be stored in the country that it originates.
Specifically, Washington has stated that it wants “rules to ensure that NAFTA countries do not impose measures that restrict cross-border data flows and do not require the use or installation of local computing facilities.” The difficulty in meeting that requirement is that governments want to make sure that specific data, such as financial records, are within their jurisdiction to seize when legal proceedings require it.
In a column on TechSoup, Open Media’s Communications Manager Meghan Sali points out that B.C. and Nova Scotia both have provincial laws that require data that a public body has under its control to be stored in Canada. In 2016, the federal government stated in its Cloud Adoption Strategy that it planned to keep its data on Canadian soil as well and encrypt any data in transit. Since any data stored in the U.S. could come under U.S. jurisdiction, many public bodies and even private companies not bound by compliance law have opted to avoid that route for privacy reasons.
Intellectual Property laws up for debate
As Michael Geist writes in an article on the Centre for International Governance Innovation, IP laws as they pertain for digital content could be up for negotiation as well. While the U.S. had traditionally taken a more strict stance than Canadian law when it comes to protecting and enforcing the rights of IP owners, there’s also a chance to negotiate for more fairness by seeking more exceptions for anti-circumvention measures and an expansion of fair dealing rights.