Canada’s DST imperils CUSMA mandatory review

Letter to The Honourable Chrystia Freeland, P.C., M.P., Deputy Prime Minister and Minister of Finance and The Honourable Mary Ng, P.C., M.P. Minister of Export Promotion, International Trade and Economic Development regarding Canada’s unilateral digital services tax (DST).

I am writing with regards to your joint statement in response to the U.S. Trade Representative’s request for dispute settlement consultations on Canada’s unilateral digital services tax (DST) pursuant to the provisions of the Canada-U.S.-Mexico Agreement (CUSMA).

For more than two years, the Business Council of Canada has warned that the unilateral imposition of a DST outside of the OECD framework would trigger a retaliatory response from our most important trading partner. This has now happened. It was clear from the outset that the Biden-Harris Administration, and a rare bipartisan consensus in the U.S. Congress, viewed the DST as discriminatory and in direct contravention of the CUSMA.

As harmful as retaliatory measures by the U.S. would be to Canadian families, businesses, and our domestic economy – while also negating any projected tax revenues – the government’s unilateral DST risks having an even more destructive impact. In successive meetings with senior U.S. officials, we have been repeatedly told that if Canada’s unilateral DST remains in place it will imperil the upcoming mandatory review of the CUSMA.

Your joint statement in response to the U.S. request for dispute settlement consultations said the “new NAFTA” – meaning CUSMA – was the appropriate forum in which to discuss the DST. That strategy will neither address nor assuage U.S. concern and, in fact, risks undermining CUSMA and our most important trade and investment partnership. The government’s unilateral DST must be rescinded immediately, before the CUSMA review starts.

The DST is one of many bilateral irritants where the U.S. believes Canada has gone back on its word and failed to honour its commitments. To avoid serious economic consequences for Canadians, the government must reverse its decision, revoke its unilateral DST, and recommit Canada to the multilateral OECD negotiations alongside the United States.

Yours very truly,
Goldy Hyder