Canada Rescinds Digital Services Tax, but Deeper Trade Frictions Remain
The Canadian Department of Finance recently announced it will rescind its proposed digital services tax, a move welcomed by U.S. trade officials and seen as a step toward easing tensions between the two countries. The tax had become a sticking point in ongoing trade negotiations, and its removal allows both Canada and the United States to continue their discussions. However, according to Erin Borror, Vice President of Economic Analysis at the U.S. Meat Export Federation (USMEF), deeper trade concerns remain—particularly around agricultural policy.
Supply Management Safeguards Stir Unease
Borror highlighted Canada’s longstanding efforts to protect its domestic supply management systems—especially in the dairy and poultry sectors. These programs control production levels and set pricing mechanisms to stabilize the Canadian market. Recently, Canada has sought to “safeguard” these systems by legislating guardrails that effectively shield them from being altered during international trade negotiations, including those under the United States-Mexico-Canada Agreement (USMCA).
“These guardrails,” Borror noted, “are a troubling signal to many in the U.S.” She explained that they essentially mark certain sectors as non-negotiable, limiting the scope of what can be addressed or reformed through trade agreements. This move has sparked concern not only among U.S. exporters but also within Canada’s own agricultural community, where some domestic producers fear that the legislation could damage Canada’s credibility in future trade talks.
New Legislation Protects Poultry Supply Management
Canada recently enacted new legislation that further codifies the protection of its poultry supply management system. The law prevents future trade agreements from altering the system’s structure or operation. While this may reassure domestic producers in poultry and dairy, it has drawn criticism from other sectors of Canadian agriculture, particularly in livestock and grains. These groups argue the move could “tie negotiators’ hands” and result in missed opportunities to expand Canadian access to global markets.
U.S. Sausage Exports Hit by Retaliatory Tariffs
In addition to policy concerns, tangible trade barriers remain. Since March, Canada has imposed a 25 percent retaliatory tariff on sausages imported from the United States. This tariff is particularly significant given that Canada is the largest export market for U.S. sausages, with 2024 sales exceeding $275 million.
Outlook Ahead of Trade Deal Deadline
Both nations have set a target date of July 21 to finalize ongoing trade discussions. While the withdrawal of the digital services tax may help smooth negotiations, lingering disagreements—especially around Canada’s supply management protections and retaliatory tariffs—could complicate progress.
As trade talks continue, the outcome will carry significant implications for cross-border agricultural commerce and the broader U.S.-Canada economic relationship.
Reported by Lorrie Boyer for AgNet West.