Digital infrastructure and data sovereignty as national priority projects

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

In our recent brief, we discuss a range of potential national priority projects that satisfy Canada’s key domestic and international trade goals and/or work to assert our sovereignty. One of the key project categories we identify is digital infrastructure and data sovereignty (e.g., data centres and broadband).

The gap in AI and digital infrastructure—and the push toward data sovereignty

When it comes to AI compute infrastructure, Canada trails every other G7 country and holds the lowest amount of publicly available computing infrastructure and performance, according to a recent report by The Dais, a public policy and leadership think tank at Toronto Metropolitan University¹. The report goes on to say that apart from weakening Canadian competitiveness globally, this represents a domestic gap where the other strong AI metrics—a recent BCG report names Canada as one of the top five AI pioneers globally (others being Mainland China, Singapore, the United Kingdom, and the U.S.) with high scores in skills, policy and regulation, investment, and research and development—clash with low-capacity computing infrastructure².

Data sovereignty—the right of Canada to regulate access to and disclosure of its digital data, governed solely by Canadian laws—has assumed new economic and political significance as tariff tensions between Canada and the U.S. and the wider U.S. project of addressing its trade relationships globally continue.

So far, cloud and AI services have not been raised specifically as part of tariff and trade discussions, but as negotiations continue, it is possible that the Trump administration could impose new costs on cross-border services as part of a broader attempt to “level the playing field” for digital services. The Trump administration notably signaled in its February 21 memorandum specifically that it viewed Canada’s Digital Services Tax levied on U.S. companies and content requirements for streaming services as an unfair trade practice. The administration has also discussed imposing a levy on semiconductor chips which could drive up the costs of graphics processing units.

We are now seeing increased focus on Canadian digital infrastructure and emerging signs of the Canadian government’s policies and strategies leading to funding for significant projects in this space. And although governments in Canada have historically procured a range of digital services from U.S. providers (including for satellite-based internet service), if trade tensions continue we could see a rise in domestic solutions driven by a “buy Canadian” imperative similar to the recently announced Ontario government policy restricting U.S. businesses from public sector procurements in the province.

Opportunities for Canadian companies and investments

This environment presents unique opportunities for Canadian investors and companies. Companies in the business of data centre development, AI supercomputing, and fibre-optic and 5G network deployment may want to take advantage of the increased government funding now being directed toward AI compute and broadband services.

The Universal Broadband Fund is one example: a $3.225 billion program to provide funding to high-speed internet projects in Canada launched in 2020 to respond to the urgency of internet connectivity during the COVID-19 pandemic. The program set a target of connecting 98% of Canadians by 2026 and 100% by 2030.

Data sovereignty is also being supported through government initiatives and funding programs for Canadian businesses in AI. Canada was the first country in 2017 to launch a national AI strategy—the Pan-Canadian Artificial Intelligence Strategy at the Canadian Institute for Advanced Research. The strategy, among other things, drives AI commercialization by promoting adoption of made-in-Canada AI technologies across industries and sectors³.

The AI Assist Program of the National Research Council of Canada Industrial Research Program helps SMEs overcome challenges of developing and adapting generative AI and deep learning solutions and to assist them with awareness, planning, and execution for safe and ethical development of these technologies⁴.

The Alberta government’s AI Data Centres Strategy is an example of a dedicated program to encourage data centre development. Alongside commitments to increase power capacity and sustainable cooling, among other initiatives, the program has a target to source $100 billion of investment in data centre development in the next five years⁵. Other programs include the Global Innovation Clusters program, the Strategic Innovation Fund, and the Scientific Research and Experimental Development (SR&ED) tax incentives.

While many of these initiatives have been in place for some time, we are seeing—and expect to continue seeing—renewed urgency to get funds flowing toward Canada AI initiatives and digital infrastructure projects.

Recent activity

In the last few months, the federal government has announced a number of initiatives to shore up Canada’s digital infrastructure. On March 20, the government finalized its investment of $240 million in Cohere Inc.’s $725 million project to bring compute capacity to Canada and support the development and scaling of AI capabilities domestically⁶. Cohere Inc. is a Canadian-founded technology focused on generative AI and large language models for businesses. It is the first funding recipient of the AI Compute Challenge, announced in December last year, under the Canadian Sovereign AI Compute Strategy that aims to boost domestic AI infrastructure and capacity (see our previous bulletin on these initiatives) ^{7 8}.

On March 7, the federal government launched the AI Compute Access Fund that will provide up to $300 million for affordable access to high-performance compute power for small and medium-sized enterprises (SMEs) to develop made-in-Canada artificial intelligence (AI) products and solutions⁹. This is one of the three elements of the government’s $2 billion Canadian Sovereign AI Compute Strategy. The other two elements are mobilizing private sector investment and building public supercomputing infrastructure. The strategy includes up to $700 million to build Canadian AI data centres, $705 million for a new AI supercomputing system to support researchers and industry, and $200 million to augment existing public compute infrastructure to address immediate needs.

 
Read more Tariffs and trade briefs.