Canada Open to Digital Trade Adds in NAFTA Renegotiation

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By George Lynch

Canada is open to adding digital commerce to NAFTA and using data provisions already negotiated by Canada, Mexico and the U.S. in a Pacific trade pact as a starting point, privacy and trade professionals told Bloomberg BNA.

U.S. technology companies are especially eager to add digital trade provisions to the North American Free Trade Agreement. Alphabet Inc.'s Google, PayPal Holdings Inc. and Computer & Communications Industry Association representatives recently said such provisions would make it easier for businesses to operate across borders.

“I think it a certainty that the U.S. will speak of digital commerce, a high probability that Canada will be glad to embark on the topic, and a probability that Canada will revert to the Trans-Pacific Partnership drafts for inspiration,” Simon Potter, international trade partner at McCarthy Tetrault LLP in Montreal, told Bloomberg BNA.

But although Canada’s commitment to including cross-border data flow updates to NAFTA appears strong, the U.S. position is less clear, as the Trump administration moves to address the broader NAFTA renegotiation.

David Fewer, executive director of the the Samuelson-Glushko Canadian Internet Policy & Public Interest Clinic at the University of Ottawa, told Bloomberg BNA that he “absolutely” expects the TPP’s more progressive elements—such as digital trade provisions—to make their way into NAFTA.

When to Restrict Data

Ambassador Alan Wm. Wolff, chairman of the National Foreign Trade Council and senior counsel at Dentons in Washington, told Bloomberg BNA that cross-border data flows will be a centerpiece in updating NAFTA—a discussion that will require referencing the TPP’s digital commerce provisions as well as new issues raised by the countries.

Under the TPP, countries are allowed to limit the flow of data for “legitimate” public policy reasons, such as national security. Canada is expected to agree to use the TPP’s cross-border data transfer provisions as a starting point but is also likely to favor broader data controls, Nathaniel Lipkus, intellectual property partner at Osler, Hoskin & Harcourt LLP in Toronto, told Bloomberg BNA.

For instance, Canada would likely want “legitimate public policy” objectives to be interpreted as broadly as possible in NAFTA so it would have the flexibility to enact public policies in such areas as cybersecurity, health and the environment, as well as in national security, he said. However, Lipkus is also skeptical about Canada’s ability to expand the scope of such public-interest exceptions from the TPP.

U.S. Position Unsettled

In January, President Donald Trump withdrew the U.S. from the TPP ratification process. Whether that move undercuts the relevance of the TPP digital trade provisions to NAFTA renegotiation discussions is unclear.

The Bipartisan Congressional Trade Priorities and Accountability Act of 2015, a law that sets out Congress’s objectives for trade negotiations, includes digital trade and cross-border data flows as principle negotiating objectives for free trade agreements. The Trump administration “would be advised to deliver on a principal objective set by Congress” if it wants Congress to grant expedited procedures for trade deals, Scott Miller, trade analyst at the Center for Strategic and International Studies, told Bloomberg BNA.

Trump’s trade representative nominee, Robert Lighthizer, expressed general support for adding a digital trade chapter to NAFTA during his Senate Finance Committee confirmation hearing in March but stopped short of listing specific provisions he might support. Lighthizer’s nomination is awaiting Senate confirmation.

Digital trade and cross-border data flows, as well as intellectual property rights, were also included in NAFTA renegotiation objectives outlined in a draft notice to Congress from the administration that surfaced March 30. The administration later backed off, saying the notice, which was signed by acting U.S. Trade Representative Stephen Vaughn, wasn’t a statement of administration policy.

Congress and the Trump Administration didn't make an agreement with Canada any easier when they repealed the Federal Communication Commission's privacy rules that would have expanded consumer data-sharing restrictions to broadband providers, such as AT&T Inc. and Verizon Corp. The Canadian government wants to avoid putting Canadians’ data at risk of being swept up and sold by U.S. telecom companies, Lipkus said.

Keeping Data Home

One area where negotiators may have to depart from the TPP is data localization. The U.S. would like to add prohibitions on data-localization laws requiring financial services data to be stored within the borders of a country to NAFTA, Wolff said. The Pacific pact didn’t prohibit such laws.

As for Canadian data-localization rules, the Office of the U.S. Trade Representative recently used its National Trade Estimate report to criticize Canada’s move to require that a government email service provider keep data inside the country. The USTR said the move precluded U.S.-based cloud computing companies participating in the procurement process.

Despite its data-localization stance on contracts, Canada would likely seek to renegotiate provisions in NAFTA so Canadian cloud service providers could be considered domestic companies for the purpose of U.S. government procurement contracts, Wolff said.

With assistance from Dan Stoller in Washington

To contact the reporter on this story: George Lynch in Washington at gLynch@bna.com.

To contact the editor responsible for this story: Donald Aplin at daplin@bna.com

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