Weeks before negotiations are even due to begin, data centres have emerged as an early and unexpected source of disagreement between Canada and the United States over how the North American Free Trade Agreement should be updated.
The U.S. released its list of objectives for the upcoming NAFTA talks earlier this week, as required under American law. Most of the goals outlined in the 17-page document were intentionally broad in order to lay the groundwork for what is expected to be at least several months of negotiations between the U.S., Canada and Mexico.
Among the few rather specific ambitions disclosed by the Americans, however, related to where banks are required to store customer data. The U.S. objective calls for all three NAFTA partners to “refrain from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.”
The United States’ goal to update NAFTA rules governing financial services caught many in Canada by surprise, as the issue was never raised by U.S. President Donald Trump during his regular public admonishments of the 23-year-old trade deal. However, the U.S. banking industry clearly sees the issue as significant.
“It is crucial for our financial services firms operating in a global environment to be able to decide where and how to structure [I.T.] infrastructure,” Peter Matheson of the U.S. Securities Industry and Financial Markets Association wrote in an op-ed for the July 13th edition of The Hill newspaper. “A modernized [NAFTA] agreement must effectively address this issue.”
Neil Parmenter, CEO of the Canadian Bankers Association, told BNN via email on Wednesday he would like to know more about what exactly the U.S. government has in mind with its reference to local computing services. Currently, he explained, “the Bank Act and [Office of the Superintendent of Financial Institutions] guidelines can be interpreted to require that certain types of bank records be kept in Canada.”
If American negotiators press the issue, with the goal of making it easier for U.S.-based financial services providers to set up shop in Canada or Mexico while keeping their data in their preexisting U.S.-based computer servers, the opposite effect is possible. Google and Amazon have opened data centres in Quebec over the past two years, with both American tech giants citing the low cost of electricity as a key motivation.
“Once you remove the localization requirement for data centres, companies that rely on them will immediately look for the lowest cost geographies and in this case Quebec has a strategic advantage relative to basically any other jurisdiction in North America,” CTV technology Analyst Carmi Levy told BNN via telephone. “The law of unintended consequences dictates that this potential change, if it is ultimately baked into an updated NAFTA, would give Quebec a huge advantage over anywhere else in North America.”
“It tilts the playing field in favour of Canada in terms of data centre costs,” Levy said. “I would expect that providers north of the border are already preparing for that possibility.”