CUSMA Consultations October 31, 2024 To whom it may concern: I am writing on behalf of DIMA – the Digital Media Association – the trade association that represents the world’s leading audio streaming companies. DIMA’s members, which include Amazon Music, Apple Music, Spotify, and YouTube, make it possible for music fans to legally engage with music whenever and wherever they want, and for artists to reach and grow their fan base more easily. Our members have deep roots in the Canadian cultural and commercial marketplace. This includes making direct investments in the Canadian music industry, artists, songwriters, and creators, support for festivals and other cultural events, and the operation of offices throughout Canada, as well as providing a vast amount of Canadian music to customers in Canada and around the world. Our members have millions of customers in Canada who count on these services to hear their favorite music and discover new artists. Critically, around seventy percent of the revenue paid by those customers to streaming services are then paid to music rights owners in the form of royalties. Those royalties account for almost 80% of the recorded music industry revenues in Canada and, in 2023, they surpassed $500M USD (or 680m CAD) for the first time.(1) For these reasons, DIMA appreciates the opportunity to provide comments to Global Affairs in connection with the Canada-United States-Mexico Agreement (“CUSMA”). CUSMA is critical to the shared success of the North American economy and we believe that a review should ensure the agreement is fit for purpose, including providing a forum to resolve common challenges. Unfortunately, as outlined below, certain Canadian digital policies risk starting the review off on the wrong foot. Specifically, recently enacted and contemplated laws and regulations target non-Canadian companies and music creators, including in particular companies and music creators in the United States. DIMA is writing to urge Global Affairs to seek course correction from other government departments in anticipation of the review. At the outset, CUSMA and the three signatories should remain anchored to the principles of non-discrimination. At a fundamental level, CUSMA is an agreement that commits each country to treat each other’s goods and services equally. The principles of non-discrimination, national treatment, and most-favored nation commitments are foundational to this goal. These principles are captured in numerous places in the existing agreement, including the Nation Treatment Chapter for goods, the Cross-Border Trade in Services Chapter for services and service suppliers, the Investment Chapter for covered investments, and, most importantly for the issues we are writing about today, in the Digital Trade Chapter for trade in digital products. The Digital Trade Chapter is, among other things, intended to ensure a non-discriminatory legal framework for digital products and services. These provisions are critical not just for promoting North America’s economy, but also for strengthening North American economic and technology leadership – creating a model that many countries around the world have now adopted in their trade agreements. The Online Streaming Act departs from the principles embedded in CUSMA. Granted Royal Assent in 2023, the Online Streaming Act (also referred to as Bill C-11) was intended to update the country’s Broadcasting Act by bringing streaming services under its regulatory framework. According to the Canadian government, the Act is meant to play “an important role in supporting Canada’s cultural industries and ensuring Canadian content is available and accessible.” At the time of passage, some observers believed the law as written would likely violate CUSMA by discriminating against US (and foreign) companies and content (2). Implementation of the bill has brought these concerns into even sharper focus. On June 4, 2024, the Canadian Radio-television and Telecommunications Commission (CRTC) issued its first major decision implementing Bill C-11. (3) The Commission’s decision stipulates that foreign, largely U.S.-based, music and audio-visual streaming service providers with revenues over $25M must contribute 5% of their gross in-country revenue to a set of Canadian cultural funds. Critically, it is clear that the levy targets foreign companies, including U.S. companies, since it exempts their competitors affiliated with Canadian broadcasters. And, going further, the regulations prevent those same U.S. companies from even accessing the funds to which these levies flow. The Canadian government, including through the Minister of Heritage’s formal policy direction to the Chair of the CRTC, has repeatedly stated that Bill C-11’s implementation by the Commission should value the substantial contributions U.S. streamers already make to the Canadian broadcast system and allow for flexibility in how they meet the Commission’s regulatory requirements. And yet, contrary to that guidance, these levies ignore the streaming services’ current work to support Canadian music production via royalty payments, investments in culture, audience building tools, and marketing, and the work to showcase English and French speaking Canadian artists both within Canada and to global audiences. They also ignore the fact that music streaming services already operate under very tight margins, paying approximately seventy percent of revenues to rights owners, which is a multiple of what traditional Canadian broadcasters pay in royalties and fund contributions combined. Over the next two years, the CRTC will carry out a series of additional consultations, including to redefine Canadian content and settle on final contribution requirements that may include local content production and discoverability requirements on top of the already onerous 5% gross revenue contribution requirement. We are concerned these are signs of further departure from the principles of CUSMA, and that, if followed by Canada’s other trading partners, they would directly and significantly impact the very industry that the Canadian government is trying to help. (4) Policy makers in the United States are following this issue closely, and for good reason: By one analysis, digital music streaming supported over 92,000 jobs in the U.S. in 2021 (5). Members of Congress have raised Canada’s streaming regulation directly with Katherine Tai, the United States Trade Representative, in recent hearings, and she explicitly acknowledged that this could have a major impact on U.S. jobs in the creative industry (6). In May, nineteen bipartisan Members of Congress sent a letter to USTR expressing concerns with the Online Streaming Act. USTR included implementation of Bill C-11 as a key issue they are “closely monitor[ing]” in their 2024 National Trade Estimate Report on Foreign Trade Barriers, while the U.S. Commerce Department has noted that the U.S. government “has concerns regarding the CRTC’s approach,” which has “reinforced the U.S. government’s view that Bill C-11 disproportionately target’s U.S. companies to financial benefit Canadian firms” (7). Importantly, the implementation of Bill C-11 is proceeding against a backdrop in which Canada already may be seen in violation of its obligations under CUSMA. Specifically, USTR has initiated dispute settlement consultations with Canada in connection with Canada’s new Digital Services Tax. The DST imposes new – and retroactive – taxes on online services, and the U.S. has already concluded that similar taxes discriminate against U.S. businesses. For example, Canada’s DST proposal is similar to the French DST, which the U.S. Trade Representative ruled was a “discriminatory” tax and actionable under Section 301 of the Trade Act of 1974. Bill C-11 and the implementing regulations are similarly discriminatory and consistent with an overall departure from the principles of CUSMA. In short, the implementation of Bill C-11, by targeting US companies, and penalizing non- Canadian content, including partly Canadian content, is precisely the type of discrimination that CUSMA is intended to avoid. And, as noted above, the implementation of Bill C-11 faces bipartisan opposition in the United States – significantly raising the risk that the U.S. will challenge the regulations and pursue other relief. It would be best to alleviate these concerns in advance of the review to avoid the risk of trade retaliation. We appreciate your consideration of these comments. Sincerely, Graham Davies 1 IFPI Global Music Report 2024 2 https://ccianet.org/library/ccia-white-paper-on-canadas-online-streaming-act-bill-c-11/ 3 The final order implementing the decision was issued on August 28. 4 Importantly, because the Canadian music industry is an exporting industry, many Canadian music rights holders make much more in royalties from streaming outside of Canada than streaming in their home market. 5 https://dima.org/wp-content/uploads/2023/04/An-Economic-Analysis-of-the-Impact-of-Digital-Music-Streaming_April-2023.pdf 6 https://waysandmeans.house.gov/event/hearing-on-the-biden-administrations-2024-trade-policy-agenda-with-united-states-trade-representative-katherine-tai/ 7 https://www.trade.gov/country-commercial-guides/canada-digital-economy
DIMA Comments on Global Affairs Canada Consultation on CUSMA
Global Affairs Canada
Trade Negotiations – North America (TNP)
President and CEO
Digital Media Association (DIMA)
