By Jahangir Valiani and Carlo Dade
In Policy Options

August 14, 2017

Upheaval in the global trading system is forcing Canada, and many other countries, to contemplate the appropriateness of a wide range of trade provisions. And while much has been said about how we should update trade agreements — including in NAFTA renegotiations — far less attention has been paid to the unintended consequences of existing trade provisions. As recent research at the Canada West Foundation shows, Canada’s participation in trade agreements brings net benefits to our economy and society. Some unintended consequences are unavoidable, however, and policy-makers can mitigate their effects through careful analysis and a willingness to respond.

One interesting example of such unintended consequences is how one deal is now threatening to turn Canada’s farmers into hackers. And while the link between farmers and digital trade isn’t obvious, it’s important, as we will now show.

First some background. Between 2008 and 2010, Canada participated in Anti-Counterfeiting Trade Agreement (ACTA) negotiations that included a large group of countries (Australia, the European Union, Japan, South Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, and the United States). The Agreement, which was finalized 2011, sought to put in place international standards for enforcing intellectual property rights in order to fight counterfeiting and piracy. Article 27 of the Agreement required signatories to prohibit the circumvention of technological measures that restrict access to an author’s work.

The move to protect these “digital locks” arose from a desire by the motion picture and music industries to limit the unpaid, widespread distribution of their work across the Internet. Digital lock provisions have since been a part of major trade agreements, notably the Trans-Pacific Partnership.

In response to ACTA and heavy lobbying by the motion picture and music industries, Canada implemented some of the strictest digital lock provisions in the world. As a result, it’s now illegal in Canada to break a digital lock, say, on a song purchased on iTunes, to allow it to play on another device. Recent judgements in Canada have even found that copyright infringement no longer needs to occur to break copyright law; simply breaking the lock itself suffices. (Additionally, reasonable exceptions from copyright law, such as fair use, don’t apply if a digital lock must be circumvented to access the underlying work.)

Since ACTA’s implementation, software has been embedded in an increasing variety of consumer and industrial products, and more and more manufacturers are using digital locks to ensure that only authorized individuals can access the underlying software in their products. Ensuring that artists receive royalties is a good thing. But when digital locks prevent equipment owners from choosing their own service provider, or from doing their own maintenance on the product, this crosses the line into restraining trade — especially when owners may not even be aware of these provisions.

This problem has now come home to roost on the farm. The notion of a tractor as an unsophisticated, clunky jalopy is enormously outdated. While today’s tractor may not ride like a Rolls Royce, a new tractor in the John Deere 7 series costs the same and easily has twice as much embedded technology. In the past, tractors could be fixed onsite with tools most farmers had on hand. Newer models now require a computer interface for most regular maintenance. Digital locks are embedded within the tractor’s software, and breaking them is unlawful. Therefore, anyone other than a manufacturer-authorized repair person — including the equipment owner — is conducting an illegal act if they try to fix their equipment.

Essentially, these provisions allow a tractor manufacturer to penalize farmers for attempting to “hack” their tractors by allowing a local repair shop, or the farmers themselves, to quickly perform needed repairs to get their machines back in the field. Harvest and seeding are particularly time-sensitive operations. Any delays mean lost money. So, aside from the monopoly-inflated costs of being limited to using only authorized repair people, the loss of productive time on the field can be the difference between a profitable harvest and a call to the bank.

And so Canadian policy-makers are left with a question: how can we minimize these unintended consequences without exposing the government — and ultimately taxpayers — to liability for failing to uphold the terms of a trade agreement?

Our neighbours to the south have already developed some solutions. Temporary exemptions from the digital lock provisions were sought in the US through the US Copyright Office. Additionally, several states have implemented laws to compel manufacturers selling tractors (and other consumer goods) to provide access to the software underlying their product, in the same way they are provided to the authorized manufacturer.

Canadian governments have yet to implement these reasonable policies, which would ensure that Canadian farmers and other businesses can fully benefit from the market access provided by trade agreements, without being unduly encumbered by digital restrictions. Though the federal government entered a voluntary agreement with auto manufacturers to allow access to their software by independent repair facilities, provinces have yet to use their jurisdiction over property to legislate access to the software used by tractor manufacturers. Not only will this annoy any farmers who attempt to repair equipment that they own and have heavily invested in, it also puts them at a disadvantage vis-à-vis their competitors across the border.

At this point, Canadians generally support the pursuit and completion of new trade agreements. But to ensure that this support continues, governments must implement practical policies that will open access to new markets, while not unduly restricting the actions of Canadian businesses. This example of farmer-hackers is a cautionary tale as we head into NAFTA talks. Our policy-makers need to do their best to consider any potential unintended consequences, and take steps to mitigate them, before trade agreements come into force.

Jahangir Valiani is a policy analyst and Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation