Toward a Balanced and Inclusive Canada–EU Digital Trade Agreement

Canada and the European Union (EU) are preparing to negotiate a Digital Trade Agreement (DTA) that could set new global standards for data governance, privacy, and innovation. While the Comprehensive Economic and Trade Agreement (CETA) laid the foundation for a modern transatlantic partnership, it did not fully address the digital economy’s complex dynamics. The upcoming DTA therefore carries both symbolic and practical weight: it has the potential to align Canadian and European digital markets while strengthening democratic values in the face of rapid technological change.

This analysis draws on the policy brief “Toward a Balanced and Inclusive Canada–EU Digital Trade Agreement: Policy Recommendations for Data Governance and Innovation” (Leblond & Camilleri, 2025), submitted to Global Affairs Canada as part of the Canada–EU DTA public consultation.

At stake is much more than market access. Digital trade touches on fundamental issues of regulatory sovereignty, personal privacy, and trust in emerging technologies such as artificial intelligence. If well designed, the Canada–EU DTA could provide a blueprint for reconciling economic openness with robust public oversight.

Core Challenges

  1. Cross-Border Data Flows and Sovereignty. The free flow of data underpins modern commerce, from cloud computing to e-commerce and artificial intelligence. Yet, provisions that prohibit data localization may constrain a government’s ability to regulate for privacy, security, or other public interest concerns. Canada’s experience under CUSMA and CPTPP illustrates the difficulty: exceptions for “legitimate public policy” exist, but their interpretation remains uncertain. A Canada–EU DTA must ensure that commitments to open data flows do not undermine national regulatory autonomy.
  2. GDPR Adequacy and Privacy Protection. Canada currently enjoys adequacy status under the EU’s General Data Protection Regulation (GDPR), which allows seamless data transfers between the two jurisdictions. However, this status is fragile. Canada’s privacy laws have not kept pace with the EU’s evolving framework, creating the risk of losing adequacy. Without it, Canadian firms—particularly SMEs—would face costly compliance hurdles to operate in the EU. Reinforcing Canada’s commitment to GDPR-equivalent protections should therefore be a cornerstone of the DTA.
  3. Algorithmic Accountability and Source Code Transparency. Algorithms increasingly shape access to goods, services, and opportunities. Trade agreements such as CPTPP and CUSMA generally prohibit mandatory source code disclosure, protecting innovation but limiting oversight. A Canada–EU DTA must balance these concerns by allowing narrowly defined exceptions where public interest demands scrutiny—for example, in cases of discrimination, fraud, or safety risks. This challenge is compounded by divergent approaches: the EU is moving forward with its AI Act, while the United States pursues a lighter-touch, market-driven model.
  4. Cybersecurity and Consumer Protection. Trust is the currency of digital trade. Without strong cybersecurity and consumer safeguards, confidence in cross-border transactions falters. A Canada–EU DTA should promote harmonized standards, shared certification schemes, and coordinated responses to cyber incidents. At the same time, it should embed consumer rights—such as dispute resolution, transparency, and protections against online deception—into its framework.
  5. The “Digital Noodle Bowl”. The global landscape is already crowded with overlapping digital trade agreements, from DEPA to CPTPP. This proliferation creates a patchwork of rules, raising compliance costs and limiting scalability. By pursuing a coherent, high-standard agreement, Canada and the EU can counteract fragmentation and promote a more unified digital trade area among like-minded partners.

Strategic Recommendations

  1. Enabling Trusted Data Flows. The DTA should prohibit unjustified localization requirements while embedding safeguards for privacy and security. Mechanisms for interoperability, strong encryption standards, and transparent rules for government access to data will help preserve trust.
  2. Strengthening Cybersecurity and Consumer Rights. Canada and the EU should establish common standards for online rights, dispute resolution, and content moderation. Joint incident response protocols and regulatory cooperation on misinformation would strengthen resilience while reinforcing democratic values.
  3. Protecting Innovation and Intellectual Property. Innovation thrives in an environment that balances openness with protection. A Canada–EU DTA should limit forced disclosure of source code while ensuring exceptions for pressing public interest needs. It should also create research-friendly frameworks for text and data mining, particularly in academic contexts, while safeguarding privacy and intellectual property in commercial applications.
  4. Promoting Inclusive Digital Trade. Digital transformation must not exacerbate inequality. The agreement should include dedicated support for SMEs, Indigenous communities, and underserved regions. Investments in broadband infrastructure, targeted training, and access to financing are key to ensuring inclusiveness in transatlantic digital commerce.
  5. Institutionalizing Regulatory Dialogue. To remain future-proof, the DTA should establish joint committees and permanent contact points to resolve disputes, coordinate standards, and report annually on progress. Continuous stakeholder engagement and transparency in policymaking will help maintain legitimacy and adaptability.

Conclusion

The Canada–EU Digital Trade Agreement is not simply a technical exercise in market liberalization. It is a governance project—an effort to align economic integration with democratic principles of privacy, transparency, and accountability. For Canada, it offers a chance to diversify beyond the U.S. market and position itself as a credible partner in setting global digital norms. For the EU, it represents an opportunity to expand its regulatory influence while reinforcing alliances with like-minded democracies.

If successful, the DTA could become a template for a plurilateral digital trade area that reduces fragmentation and builds trust across borders. In this way, Canada and the EU can lead not only in trade, but also in shaping the ethical and inclusive foundations of the 21st-century digital economy.

Summary by DigitalTrade4.EU

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