OTTAWA—Concern is growing that federal negotiators aren’t doing enough to protect the personal information of Canadians from prying U.S. interests at the North American Free Trade Agreement negotiations.

Information technology companies and other digital economy insiders say federal negotiators appeared unprepared during this week’s third round of talks to counter an American proposal that would forbid the storage of sensitive data in computing facilities on Canadian soil.

Some warned that Canada appeared soft on the issue and might concede to the American demands in the interest of horse-trading — to potentially win concessions on higher-profile areas of contention, such as autos and agriculture.

They say giving in to American demands to open up a freer flow of cross-border data would not only undermine domestic privacy rights, but hamstring the ability of emerging Canadian companies to compete in the growing digital economy.

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At issue is so-called “data localization,” which would allow the government to protect the sensitive personal information of Canadians — especially health and financial records — from unwanted American intrusion, by storing it in Canada.

A senior federal official, who would only speak on the condition they not be identified, said the government would stand up for Canadians’ data and privacy rights at the bargaining table.

Widespread global concern has been stoked by fears of U.S. surveillance on private citizens, and requirements under the post 9-11 Patriot Act that gives American law enforcement access to data stored in U.S. facilities. Big companies such as Amazon and Microsoft have built servers in Canada to address privacy concerns.

Sources say U.S. negotiators proposed NAFTA terms that banned data localization, lifting language directly from the failed Trans-Pacific Partnership.

The U.S. position contrasts with British Columbia and Nova Scotia laws that require local data storage and appears to conflict with federal policy, which says “sensitive or protected data under government control will be stored on servers that reside in Canada.”

Canada lacks an overall strategy on the data and should not give in to American demands until it develops one, said Keith Millar, senior vice-president of Ottawa-based technology firm Pythian.

“Data localization seems not to be negotiated as aggressively as agriculture or auto,” said Millar.

“Until Canada gets a national strategy together, we should keep it out of NAFTA.”

Morgan Elliot, vice-president of Mississauga-based SOTI Inc., said data “is the new gold” of the 21st century economy and giving up access to it in NAFTA could have “catastrophic” consequences for the competitiveness of Canadian companies in the future.

“We worry that might be something that could be given up in terms of supporting legacy industries like autos,” said Elliot. “The U.S. is playing the long-term game and I just worry that 10 years down the road we go, ‘whoops that was more important than we thought.’”

One source, who spoke on the condition of anonymity because of the sensitivity of the talks, said industry representatives came away from a meeting this week with Canadian negotiators feeling that they were “not up to speed” on key issues.

Another source, who also insisted on anonymity for the same reason, said he believed Canada was preparing to give ground to the U.S. on data in exchange for an easier ride on autos and demands by the American dairy industry for greater market access.

The Canadian Council of Innovators, a group representing small- and medium-sized companies, urged the government prior to the latest round of talks to resist the U.S. proposals, citing concerns over the Patriot Act and “less stringent” restrictions on access to data for U.S. companies.

“Allowing our data to reside across the border will grant the U.S. a significant economic advantage, as they will be able to access and use Canadian data in ways Canadian companies cannot,” it said in a letter to Steve Verheul, Canada’s lead negotiator.

“This data could be used to identify trends to guide the investment, product development, commercialization and marketing initiatives, creating an un-level playing field.”

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Millar said Canadian negotiators need to address the concerns and clarify what they’re fighting for and what “they’re giving away.”

“This isn’t protectionism,” said Millar.

“Just giving up sovereignty of data and having North America viewed as the island of (the) Patriot Act would be detrimental to Canadian interest.”

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