Central to Canadian innovation prowess has been one of the world’s most stable and transparent investment climates, but recent policy changes are leading some American businesses and investors to consider whether Canada is still a good place to invest.Elaine Thompson/The Associated Press
Neil Herrington is senior vice-president, Americas, at the U.S. Chamber of Commerce.
Alarm in Canada about the country’s plummeting national economic output and flagging levels of investment has not gone unnoticed in the U.S. The apprehension expressed by Bank of Canada officials and others comes at a time when U.S. businesses with decades of operations in Canada have themselves been asking hard questions about whether Canada remains an attractive destination for investment.
There has long been a Canadian culture of innovation that has given the world such transcendent inventions as insulin, sonar, the pacemaker and the telephone. Central to Canadian innovation prowess has been one of the world’s most stable and transparent investment climates. But recent policy missteps have undermined that sense of security.
Much needed in the fall when Parliament reconvenes is a policy course correction. Indeed, Canada’s economic prosperity, the Canada-U.S. trade relationship and even our shared security may depend on it.
On Wednesday, the Canadian government’s long-standing threat to levy a unilateral digital services tax (DST) on large technology companies passed an important milestone, when the Senate passed DST legislation.
This despite the ongoing multilateral effort led by the Organisation for Economic Co-operation and Development and the G20 to address the tax challenges arising from the digitalization of the economy. Canadian officials have repeatedly claimed to support the multilateral process, but their actions speak louder than words. Last July, Canada was one of five countries to oppose an OECD/G20-brokered agreement – supported by 138 other countries – to extend the moratorium on imposing DSTs on any company for another year.
Meanwhile, a cacophony of bipartisan voices in Washington – from both the Biden administration and Congress – has asserted that unilateral imposition of a DST would contravene Canada’s commitments under the United States Mexico-Canada Agreement (USMCA) and that retaliatory U.S. action would be forthcoming.
It’s a mystery to us why Canada would risk an economic row with its most important trade partner over this issue. We believe the measure is not only inconsequential from a revenue perspective, but threatens to stifle the country’s innovation landscape and impose new costs on Canadian consumers as businesses pass on the tax.
Then there’s the Online Streaming Act, signed into law last year. It compels foreign streaming providers to further promote Canadian content beyond investments they’re making to do just that. What does – and doesn’t – constitute Canadian content depends on not so much the content itself but whether they’re produced by U.S. entities.
Last week, the Canadian Radio-television and Telecommunications Commission (CRTC) imposed a levy on content providers that very likely violates Canada’s USMCA commitments and would burden Canadian consumers with $200-million in additional fees. Canadians and Americans alike should embrace showcasing Canada’s rich francophone and Indigenous heritage, but this law is regulatory overreach run amok that poses a trade challenge. The law also stands to undermine creative arts innovation in Canada if streaming providers pull out from the domestic market as a result.
These measures join other pieces of legislation that American businesses find problematic, including the Artificial Intelligence and Data Act, a framework for regulating AI systems the government introduced in 2022, and Online News Act, which requires digital platforms to compensate news businesses when their content is made available on the platforms.
Such measures are being advanced in Canada just as the three USMCA countries gear up for the agreement’s mandatory 2026 review. Canadian Trade Minister Mary Ng said last week that the process must be a review and not a renegotiation. And yet in deed, the Government of Canada’s generation of new trade irritants only serves naysayers in the U.S. already skeptical of the three governments’ commitment to comply with their obligations.
Giving any fuel to forces that want a wide-ranging reworking of the pact conjures the unsettling days of the 2017-2018 renegotiation of the North American free-trade agreement (NAFTA) introducing substantial risks for the Canadian economy and its already fragile investment landscape.
The uncertainty that Canadian policy creates for business and the country’s precipitously declining output and investment are directly correlated. The stakes – both for Canada’s economic well-being and North American security – necessitate a policy course correction.
Whether bolstering Ukraine and NATO on the battlefield, thwarting state-sponsored cyber sabotage or preventing the next pandemic, the democratic world desperately needs Canadian innovation prowess that only a healthy investment climate can ensure. A renewed Canadian landscape for innovation will not only go a long way toward addressing the country’s investment and output deficits, it will make all of us safer in the process.