Data Localization and Digital Trade in the New United States-Mexico-Canada Agreement

October 22, 2018
By Amanda Branch and Sarah D’Ambrosio 

The new United States-Mexico-Canada Agreement (“USMCA”), announced on September 30, 2018, succeeds the North American Free Trade Agreement (NAFTA) and introduces, among other additions, a Digital Trade chapter. These provisions have raised questions and concerns about how Canada’s legislative and policy flexibility may be impacted.

The first of these relates to where data can be stored and transferred. The new provision restricts the parties’ abilities to localize data freely, such that a party cannot require, as a condition for conducting business within their country, that stored data be located within its territory. The implications and importance of data location are still largely unknown and widely debated; however, localization, or physically storing Canadian data within Canada, has been of increasing interest given the shift of businesses towards cloud-based services and the belief that storing data in Canada would help to prevent it from being accessed by foreign governments.  

Some argue that this international commitment runs counter to Canada’s data sovereignty and privacy efforts to date. The governments of British Columbia and Nova Scotia have data localization requirements mandating that, subject to a few exceptions, public sector data be stored within Canada with a view to protecting the personal information of its residents. Federal government contracts have largely encouraged localization, leading to investment in Canadian based cloud facilities.

The provisions also prohibit restrictions on cross-border transfer of information, including personal information, for businesses; however, it provides a public policy carve out, allowing the members to act contrary to the provision for a “legitimate public policy objective”, meaning doing so is not arbitrary, discriminatory, or a disguised restriction on trade and does not impose greater restrictions than necessary. Some have raised questions about what this might entail for Canada in its dealings with the European Union, which uses data restrictions to create legal protections of information.

Other notable provisions include recognizing the legal validity of electronic signatures, anti-spam provisions, protection of personal information, non-discriminatory treatment of digital products, online consumer protection against fraudulent and deceptive commercial activities, and identifying and protecting against cybersecurity threats.

Another addition is a safe harbour for internet intermediaries, prohibiting members from imposing liability on internet companies for content posted by its users. The provision does not relate to intellectual property; rather, it excludes liability for the removal of harmful or objectionable content, while also potentially encouraging greater freedom of speech on the internet.

Further changes are still possible, as USMCA must be formally ratified by all member countries. Fully examining and understanding the potential effect and obligations imposed by this section will take time. We will continue to provide updates as more information becomes available.

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