Prime Minister Justin Trudeau is headed to the U.S. capital for a summit meeting to talk about growing trade connections across the Western Hemisphere. Trudeau talks with United States President Joe Biden during a family photo with G7 leaders and outreach countries and international organizations Saturday, May 20, 2023 in Hiroshima, Japan. THE CANADIAN PRESS/Adrian Wyld

WASHINGTON - Business leaders are seizing on Prime Minister Justin Trudeau's trip to Washington on Friday to urge him to delay a controversial tax aimed at foreign tech firms that cater to Canadian audiences.

The digital services tax, which takes effect in January, is deeply unpopular with Canada's most important ally and trading partner, says Goldy Hyder, president and CEO of the Business Council of Canada.

And those tensions are mounting at a time of growing international instability, when the country's relationship with like-minded allies such as the U.S. should be a top priority, Hyder writes in a new letter to the prime minister.

Instead, Canada should agree to U.S. demands that the tax be held in abeyance until a global taxation framework being developed within the Organization for Economic Co-operation and Development can be introduced.

"Canada's economic interests will be severely harmed if Canada continues to defy the overwhelming OECD consensus," Hyder writes in the letter, a copy of which was provided to The Canadian Press.

"Amid growing economic uncertainty around the globe, Canada cannot afford a costly trade war with our most important trading partner."

On Tuesday, U.S. Ambassador to Canada David Cohen warned that a serious trade dispute could be brewing if the two countries can't come to an understanding before the tax kicks in early next year.

"That will be an area of contention unless it is resolved," Cohen told audience members after a luncheon speech at the Canadian Club in Ottawa. "There's a place where we're either going to have to have agreement, or we're going to have a big fight."

U.S. lawmakers, including dozens on the influential House Ways and Means committee, have already warned of "significant consequences" for Canada under existing trade agreements if the plan is allowed to go ahead.

Many on Capitol Hill see a unilateral tax as discriminatory against the U.S., where the vast majority of targeted digital services companies are based, as well as a potential violation of the U.S.-Mexico-Canada Agreement.

Finance Minister Chrystia Freeland said Tuesday she's "cautiously optimistic" that a solution can be found before the end of the year.

In his letter, Hyder also noted that Cohen likened Canada’s position to that of "outlier countries" like Russia and Belarus. "This is inexplicable at a time when Canada is trying to strengthen ties with continental partners in the Americas and allies around the world."

That's precisely what Trudeau is doing Friday in D.C., where he'll attend a White House summit that brings together the leaders of countries taking part in the Americas Partnership for Economic Prosperity.

That's what President Joe Biden's administration calls its hemispheric trade framework, an effort to head off migratory challenges by fostering economic growth and trade in the Americas.

The Prime Minister's Office said Thursday that leaders will also discuss attracting what it calls "responsible and sustainable investments" to strengthen supply chains.

The partnership, known as APEP, comprises 12 countries, including Mexico, Chile, Barbados, Colombia, Costa Rica, Ecuador, Panama, Peru, Uruguay and the Dominican Republic.

It's not clear whether Biden and Trudeau will have the opportunity to meet one-on-one on the margins of the half-day summit. Biden had separate bilateral meetings on Thursday with the leaders of the Dominican Republic and Chile.

"There is no better time to work together toward achieving a prosperous, strong and resilient future for our hemisphere," Trudeau said in a statement.

"I look forward to working with APEP leaders … to advance important issues such as sustainable economic growth, climate adaptation and mitigation, and expand trade and investment ties in the region."

This report by The Canadian Press was first published Nov. 2, 2023.

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