Canada, USA, and Mexico reach tentative new USMCA trade deal
After more than a year of intense negotiations, the United States, Canada, and Mexico reached an agreement in principle to update NAFTA, the 1994 pact that governs more than $1.2 trillion worth of trade among the three nations. Both President Trump and Prime Minister Trudeau are heralding the new deal as a success for their respective countries.
NAFTA will be renamed the United States-Mexico-Canada Agreement – or USMCA. The text of the full agreement can be found here: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico
The early consensus is that the USMCA will result in some significant reforms to Canadian copyright and IP law, with most changes favouring rights holders. The following is a summary of the most relevant provisions in the new agreement as it pertains to our industry.
Copyright Term Extension
Copyright terms in Canada currently extend for 50 years beyond the year the creator of the work dies or if not owned by a single creator, the last day of the year the work was released. The USMCA will bring Canada's copyright terms in line with the U.S. and Europe who have longer terms: 70 years after the creator's death or 75 years after the last day of the year the work was launched. This is a significant win for our sector here in Canada as it was a point we have been advocating on since 2015 when the music industry was given these provisions.
TPM’s Enshrined
The Technical Protection Measures that are so important to our industry have been enshrined in law within the USMCA, including civil and criminal penalties. We are currently investigating the details to determine if there are any significant differences between the TPM’s enshrined in the USMCA and those provided in the Copyright Modernization Act (2012). At first review, they are very similar, including the various exceptions.
Notice-and-Notice Preserved
One area that did not change is the notice-and-notice system, as the IP chapter includes an annex (Annex to Section J) that creates an exemption to the notice-and-takedown requirement for any party that, as of the date of the agreement, has a notice-and-notice system. That means that Canada gets to keep notice-and-notice, which is the same outcome as when we entered into the EU agreement. While not the most ideal outcome, our industry has long since accepted that a notice-and-takedown regime is not culturally acceptable in Canada at the current time.
Under the new agreement, the more punitive notice-and-takedown approach used in the US becomes the legal standard in Mexico.
No Data Localization Requirements
The digital trade chapter in the new agreement largely mirrors that of the TPP. Most notable are the rules around data localization. The USMCA restricts the ability for a country to impose data localization rules, which could have an impact on future privacy reforms. Similarly, the data transfer provisions limit the ability to restrict data transfers across borders, which could become a challenge should the EU require restrictions to meet its privacy standards. Canada effectively agreed to similar provisions in the TPP and their inclusion in this agreement is unsurprising.
Cultural Exemptions Preserved
Unchanged from the original version of NAFTA, cultural exemptions will remain in the new deal. This particular segment became a Canadian must-have, Prime Minister Trudeau argued, because otherwise, it could enable American companies to buy Canadian newspapers or TV stations.
It is worth noting that video games are not listed by name in the list of “cultural industries” along with radio, music, magazines, television, etc. While we could be captured in theory, it was a request of ESAC’s that the industry not be specifically mentioned in the clause in fear that it could create retaliatory protectionist policies in key export markets.
“De minimis” Threshold
Both Canada and Mexico agreed to raise the thresholds at which they apply duties to cross-border purchase, including online, another key U.S. demand.
Canada raised its threshold to $150 for duties and $40 for sales taxes, from $20 for both in the previous agreement. It is believed that this change, which was opposed by the Canadian retail industry, was agreed to by Canada in exchange for still being able to collect sales tax on the purchases over $40.
This would imply that a Canadian consumer can now purchase most standard priced games from the US duty (but not tax) free. Given the unfavourable exchange rate, however, it remains to be seen if this change will lead to a notable increase in Canadian consumers purchasing video games in the US or from US online retailers.
Cross-Border Labour Mobility Remains
The inter-company transfers within NAFTA that are so crucial to our members have been maintained in the new agreement under Chapter 16 – Temporary Entry for Business Persons. The program continues to apply to Managers, Executives and those employees who demonstrate a level of “Specialized Knowledge”, which could apply to senior creative and technical employees. The actual definition of “Specialized Knowledge” is something that each country sets. Currently the definition in Canada is much stricter than it has been in the past, however still allows for certain employees to move freely between office locations.
Additional Highlights
In addition to the changes most relevant to our industry, other highlights of the USMCA include:
- Preservation of the ‘Chapter 19’ dispute resolution mechanism which allows Canada to challenge punitive American tariffs on imports at binational panels rather than in the U.S. court system.
- No tariffs on Canadian automobiles or parts.
- No five-year‘ Sunset Clause’.
- Aluminum and steel tariffs remain.
- Increased US market access for dairy, poultry and egg products, although supply management remains.
ESAC will continue to closely monitor the USMCA as it proceeds to ratification in all three countries and into implementation in 2019 as planned. If you have any questions or comments please do not hesitate to contact Paul Fogolin, Policy Director at ESAC (pfogolin@theesa.ca).