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Section IV: Trade & Investment Regulation

Doing Business in Canada

As a result of COVID-19, governments have implemented new rules and regulations that have impacted Competition & Foreign Investment, in addition to the significant changes to the foreign investment merger review process. Blakes Guide to Doing Business in Canada is a high-level overview. For the latest legal developments in Competition & Foreign Investment, please visit our Blakes Insights or contact a member of our Competition, Antitrust & Foreign Investment group.

1. Competition Law

The Competition Act (Act) is Canada’s antitrust legislation. It is legislation of general application and reflects classical economic theory regarding efficient markets and maximization of consumer welfare. It is administered and enforced by the Competition Bureau (Bureau), a federal investigative body headed by the Commissioner of Competition (Commissioner). The Act may be conveniently divided into two principal areas: criminal offences and civilly reviewable conduct, which includes merger regulation.

1.1 - Criminal offences

1.1.1 - What business practices are subject to criminal liability?

The main criminal offences in the Competition Act relate to conspiracy and bid-rigging.
The conspiracy provisions prohibit competitors (or persons who would be likely to compete) from: conspiring or entering into an agreement or arrangement to fix prices; allocate sales, territories, customers and markets; or fix or control production or supply. Contravention of these provisions constitutes a per se offence (i.e., there is no need to show an effect on competition to secure a conviction). In addition, as of June 2023, the Competition Act criminally prohibits wage-fixing and no-poach agreements between unaffiliated employers. This prohibition applies to agreements between employers even if the employers are not competitors. The penalty upon conviction is imprisonment for up to 14 years and/or a fine in the court’s discretion.

The bid-rigging provisions prohibit two or more bidders (in response to a call or request for bids or tender) from agreeing that one party will refrain from bidding or withdraw a submitted bid, or from agreeing among themselves on bids submitted. The provisions do not apply when the parties clearly inform the party who issued the tender about the joint bidding agreement at or before the time they submit the bid. The penalty upon conviction is imprisonment for up to 14 years and/or a fine at the discretion of the court.

Other criminal offences in the Competition Act relate to the making of false or misleading representations, now explicitly including drip pricing, which carry potential sentences of up to 14 years imprisonment and/or a fine in the court’s discretion.

1.1.2 - How are criminal offences prosecuted under the Competition Act?

The Commissioner, either on his own initiative or following a complaint from six Canadian residents, can initiate an investigation into a possible violation of the criminal provisions of the Act. At any time during his investigation, the Commissioner can refer the matter to the Director of Public Prosecutions (DPP). Only the DPP can initiate criminal proceedings for contraventions of the Act. To obtain a conviction, the DPP must satisfy a court beyond a reasonable doubt that an offence has been committed.

Note that, under the Act, a foreign competition authority that is a party to a mutual legal assistance treaty with Canada may request, subject to ministerial authorization, the assistance of the Commissioner to further its investigation — even where the conduct alleged as anti-competitive did not occur in Canada. Evidence obtained by the Commissioner in a Canadian investigation may be provided to a foreign competition authority without the authorization of the party being investigated.

The Act also allows for a private right of action for losses suffered as a result of a breach of any of the criminal provisions (see Section IV.1.3, “What business practices will attract civil liability? What is the exposure to civil damages?”).

1.1.3 - Recent enforcement action

Consistent with a global trend among competition authorities, the Commissioner continues to devote substantial resources to enforcing the criminal conspiracy provisions of the Act, particularly so-called “hard core” cartels involving agreements between competitors to fix prices or allocate markets or customers between themselves. The single largest fine imposed thus far on a corporation is C$50-million for conspiracy and C$30-million for bid-rigging. Executives have also been fined and subjected to jail terms.

1.2 - What business practices may constitute civilly reviewable conduct and be subject to possible review before the Competition Tribunal?

Certain non-criminal conduct may be subject to investigation by the Bureau and review by the Competition Tribunal (Tribunal). The Tribunal is a specialized body that is comprised of both judicial and lay members. Reviewable practices are not criminal and are not prohibited until they become subject to an order of the Tribunal specific to the particular conduct and party. Matters reviewable by the Tribunal include, among other things, non-criminal competitor collaborations, refusals to deal, exclusive dealing, tied selling, market restriction, price maintenance, and abuse of dominant position.

If the Tribunal finds, on the civil standard of the balance of probabilities, that a person has engaged in the reviewable activity, it may, depending on the activity, order a person to do or cease doing a particular act in the future, and to otherwise take any other action necessary to fix the anti-competitive harm. The Tribunal is also empowered to impose administrative monetary penalties under the abuse of dominance provisions that are the greater of C$10-million (in the case of repeat offenders, C$15-million) and three times the value of the benefit derived from the conduct, or if that cannot be reasonably determined, 3% of the corporation's annual worldwide gross revenue. Additionally, there are criminal penalties for failure to comply with an order once it has been made.

Private parties have the right to bring complaints against corporations directly to the Tribunal in relation to refusals to deal, exclusive dealing, tied selling, market restriction, price maintenance and abuse of dominance. However, private parties must obtain leave from the Tribunal to do so, and must be directly and substantially affected by the corporation's conduct.

1.3 - What business practices will attract civil liability? What is the exposure to civil damages?

Section 36 of the Act establishes a private right of action for parties who have suffered losses as a result of another party’s (i) breach of any of the criminal provisions (set out in Part VI) of the Act (see Section IV.1.1, “Criminal offences” for a discussion of the main criminal offences under the Act), or (ii) failure to comply with an order made pursuant to the Act (such as, by the Tribunal in connection with civilly reviewable conduct). The constitutional validity of this provision has been upheld and increasing numbers of parties are seeking to enforce this right.

Unlike in the U.S., section 36 limits the recoverable damages to losses that can be proven to have resulted from a violation of the Act or the failure to comply with the order in question, plus costs.

Section 36 provides that the “record of proceedings” in proceedings that resulted in either (i) a conviction of a criminal offence under the Act, or (ii) a finding of a failure to comply with an order made under the Act, is prima facie proof of the alleged conduct in a civil action. Furthermore, any evidence given in the prior proceedings as to the effects of the conduct on the person bringing the civil action “is evidence thereof” in the civil action.

1.4 - Merger regulation

1.4.1 - Under what circumstances will pre-merger notification be required?

Mergers fall under the civilly reviewable matters provisions of the Act. All mergers are subject to the Act, and thus to the substantive review provisions (described in Section IV.1.4.3, “What is the substantive test applicable to the review of mergers?”) and the enforcement procedures (set out in Section IV.1.4.3, “What are the consequences if the Commissioner is concerned with a transaction?”) of the Act. Additionally, mergers that satisfy certain prescribed thresholds must be notified to the Bureau, and certain statutory waiting periods must have expired (subject to certain exceptions), before a merger can be completed. As of June 2022, the Act also includes an anti-avoidance provision intended to capture transactions designed to avoid notification requirements.

The thresholds applicable to merger transactions are as follows:

  • Size of parties test: the parties to the transaction, together with their affiliates, must have assets in Canada, or gross revenues from sales in, from or into Canada, that exceed C$400-million.

  • Size of transaction test: in respect of the target, the value of the assets in Canada, or gross revenues from sales in or from Canada from such assets, must exceed C$93-million (this figure is adjusted annually).

  • Shareholding/interest test: in addition to the above two threshold tests, the Act prescribes a shareholding/economic interest test that applies to the acquisition of an interest in a corporation or an unincorporated entity. Regarding a corporation, there is an additional requirement that the acquirer and its affiliates must, as a result of the acquisition, hold more than 20 per cent of the voting shares of a public corporation or more than 35 per cent of the voting shares of a private corporation, or where the acquirer already exceeds these thresholds, the acquisition would result in the acquirer and its affiliates holding more than 50 per cent of the voting shares of the corporation. In the case of an unincorporated entity, the test is similar to the above, except that the interest is based on the right to more than 35 per cent of the profits or assets on dissolution, and if this level has already been exceeded, then more than 50 per cent. Additional thresholds apply in the case of amalgamations, which would cover, for example, Delaware mergers.

If all applicable thresholds are exceeded, the parties to the transaction are required to provide the Commissioner with prescribed information relating to the parties and their affiliates before closing. The obligation to notify is on both parties to a transaction – which, for a share acquisition, refers to the acquirer and the target (as opposed to the seller) – and the statutory waiting period (described below) does not commence until the parties have submitted their respective notifications. However, in the case of a hostile bid, a provision exists to allow the Commissioner to require the target to provide its notification within a prescribed period. Where this provision applies, the statutory waiting period begins when the bidding party submits its notification. A notification is subject to a filing fee of C$82,719.12.

1.4.2 - What are the notification procedures?

The waiting period is 30 days following the day on which complete notifications were submitted to the Bureau by all parties to a notifiable merger.

The parties may close the transaction after the 30-day statutory waiting period has expired unless the Commissioner issues a Supplementary Information Request (SIR), which is similar to a “Second Request” in the U.S. A SIR extends the statutory waiting period until 30 days after the Commissioner has received the information required by the SIR. The scope of additional information that may be required by a SIR is potentially quite broad – any information relevant to the Commissioner’s assessment of the transaction can be requested. Subject to the Commissioner obtaining an injunction, the merging parties may complete their merger once the waiting period has expired. In many cases, however, the parties will choose to wait until the Commissioner has completed his substantive assessment of the transaction before closing (see Section IV.1.4.3, “What is the substantive test applicable to the review of mergers?”).

In addition to, or in lieu of, filing a notification, the merging parties can request that the Commissioner issue an advance ruling certificate (ARC). An ARC can be issued, at the Commissioner’s discretion, where he is satisfied that he does not have sufficient grounds upon which to challenge the merger before the Tribunal. In practice, an ARC is issued only in respect of mergers that do not raise any substantive concerns. The issuance of an ARC has two important benefits:

  • It exempts the parties from having to file a notification (where the Commissioner does not issue an ARC, the parties can apply to have the requirement to file the notification waived as long as substantially the same information was supplied with the ARC request); and

  • It bars the Commissioner from later challenging the merger on the same facts upon which the ARC was issued.

A filing fee of C$82,719.12 applies to a request for an ARC. Only a single fee applies where both a request for an ARC and a notification have been submitted.

Where the Commissioner is not prepared to issue an ARC, but nevertheless does not intend to initiate proceedings to challenge a proposed transaction based on the information available, he will typically grant what is commonly referred to as a “no-action letter.” A substantial number of transactions close on the basis of a no-action letter. However, where an ARC has not been granted, the Commissioner theoretically retains the jurisdiction to challenge a transaction for up to one year after it has been substantially completed.

1.4.3 - What is the substantive test applicable to the review of mergers?

The substantive test applicable to a merger transaction is whether it will, or is likely to, prevent or lessen competition substantially in a relevant market. A relevant market is defined on the basis of product and geographic dimensions. The Act provides that the factors relevant to assessing the competitive impact of a merger include the extent of foreign competition, whether the business being purchased has failed or is likely to fail, the extent to which acceptable substitutes are available, barriers to entry, whether effective competition would remain, whether a vigorous and effective competitor would be removed, the nature of change and innovation in a relevant market, and any other factor relevant to competition.

The Act also provides for an “efficiencies defence” under which a merger that prevents or lessens, or is likely to prevent or lessen, competition substantially in any market in Canada may proceed as long as the efficiency gains likely to result from the merger will be greater than, and will offset, the anticipated anti-competitive effects.

1.4.4 - What are the consequences if the Commissioner is concerned with a transaction?

If, in the course of reviewing a proposed merger, the Commissioner identifies areas in which he believes the transaction is likely to prevent or lessen competition substantially, he will normally try to negotiate alterations to the transaction which address his concerns, which may include structural remedies (i.e., divestitures) and/or behavioural commitments. These negotiations can be protracted.

Prior to challenging a transaction before the Tribunal, the Commissioner may apply to the Tribunal for an order enjoining the parties from completing the transaction for a period not exceeding 30 days to permit the Commissioner to complete his inquiry. On a further application, this order may be extended for an additional 30 days. Following the end of this period, the Commissioner can challenge the merger.

If the Commissioner makes an application to the Tribunal challenging a transaction, he may also apply for an interim order on such terms as the Tribunal deems appropriate.

There is precedent for the Bureau permitting the parties to take up shares and enter into a “hold separate” agreement until the Tribunal process has run its course. Following its review, the Tribunal can either allow the merger to proceed or, in the case of a completed merger, it can order a purchaser to dispose of all or some assets or shares or take such other action as is acceptable to the merging parties and to the Commissioner.

In practice, there have been very few contested proceedings. In most cases where the Commissioner has expressed concerns, the parties have been able to agree upon a set of commitments that are mutually satisfactory to the merging parties and the Commissioner.

2. General Rules on Foreign Investments

2.1 - Are there special rules governing foreign investment?

The Investment Canada Act (ICA) is a federal statute of broad application regulating investments in Canadian businesses by non-Canadians. Except with respect to cultural businesses, the Investment Review Division (Investment Canada) administers the ICA under the direction of the Minister of Innovation, Science and Economic Development Canada (the ISED Minister). The Minister of Canadian Heritage is responsible for reviewing investments involving cultural businesses (i.e., business activities relating to Canada’s cultural heritage, such as publishing, film, video, music and broadcasting). In some cases, investments are reviewed by both the ISED Minister and the Minister of Canadian Heritage where only part of the business activities of the Canadian business involve Canada’s cultural heritage.

Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the ICA. The rules relating to an acquisition of control and whether an investor is a “Canadian” are complex and comprehensive.

A “direct acquisition” for the purpose of the ICA is the acquisition of a Canadian business by virtue of the acquisition of all or substantially all of its assets or a majority (or, in some cases, one-third or more) of the voting interests (shares) of the entity carrying on the business in Canada. Subject to certain exceptions discussed below, a direct acquisition is reviewable where the value of the acquired assets is C$5-million or more.

An “indirect acquisition” for the purpose of the ICA is the acquisition of control of a Canadian business by virtue of the acquisition of a non-Canadian parent entity. Subject to certain exceptions discussed below, an indirect acquisition is reviewable where (i) the value of the Canadian assets is less than or equal to 50% of the value of all the assets acquired in the transaction and the value of the Canadian assets is C$50-million or more, or (ii) the value of the Canadian assets is greater than 50% of the value of all the assets acquired in the transaction and the value of the Canadian assets is C$5-million or more.

The acquisition of control of an existing Canadian business or the establishment of a new one may also be reviewable, regardless of asset values, if it falls within a prescribed business activity related to Canada’s cultural heritage or relates to national security.

Special rules apply with respect to investments made by state-owned enterprises (SOEs):

  • The ISED Minister has the power to determine that an SOE has acquired “control in fact” of a Canadian business or that a Canadian business is “controlled in fact” by one or more SOEs (notwithstanding the control rules otherwise set out in the statute), with the potential result that certain investments may be subject to a ministerial review and approval requirement where they otherwise would not have been.

  • SOEs’ investments in the Canadian oil sands are limited by a federal government policy introduced in December 2012. Specifically, reviewable acquisitions of control (including acquisitions of “control in fact”) of oil sands businesses by SOEs will not receive approval from the ISED Minister, except on an “exceptional basis.”
  • SOE’s investments in critical minerals are limited by a federal government policy introduced in October 2022. As with oil sands businesses, reviewable acquisitions of control of critical mineral businesses by SOEs will only be approved by the ISED Minister on an “exceptional basis.”

The ICA defines an SOE broadly as it includes foreign governments and their agencies and entities that are controlled or influenced, directly or indirectly, by such governments or agencies. It also includes “an individual who is acting under the direction of” or “who is acting under the influence of” such a government or agency. An SOE investor, as with any other investor, will also have to consider the potential of a national security review in respect of the proposed investment (see Section IV.2.7, “What types of foreign investments may be subject to a national security review?”).

2.2 - How are WTO members treated differently?

The ICA also reflects commitments made by Canada as a member of the World Trade Organization (WTO). In the case of a direct acquisition by or from a (non-Canadian) “WTO investor” (that is, an investor controlled by persons who are residents of WTO member countries) that is not an SOE, the C$5-million threshold for direct investments increases to an “enterprise value” of C$1.287-billion. This threshold is adjusted annually to account for growth in nominal GDP.

The regulations set out the precise manner in which the “enterprise value” is calculated. In general terms:

  • For acquisitions of control of publicly traded entities, the enterprise value of the assets of the Canadian business is equal to the market capitalization of the entity plus liabilities, minus cash and cash equivalents.

  • For acquisitions of control of private companies and for asset acquisitions, the enterprise value is the purchase price, plus liabilities, minus cash and cash equivalents.

The higher threshold applicable to WTO investors does not apply where the Canadian business is considered to be carrying on a “cultural business.” Where a direct acquisition is made by an SOE WTO investor, the threshold is an asset value-based test, which is C$512-million, based on the book value of the assets of the Canadian business. An indirect acquisition of a Canadian business by a WTO investor (including SOEs) is not reviewable but is only subject to a notification obligation (provided that the Canadian business is not considered to be carrying on a cultural business).

2.3 - How are trade agreement investors treated differently?

A direct acquisition by a trade agreement investor is subject to a higher review threshold. Trade agreement investors refer to investors whose country of ultimate control is party to a trade agreement with Canada such as regional trade agreements (e.g., the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act (CETA), the Canada-United States-Mexico Agreement (CUSMA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)), or bilateral trade agreements (e.g., the Canada-UK Trade Continuity Agreement, Canada-Chile Free Trade Agreement Implementation Act and Canada-Korea Economic Growth and Prosperity Act)).

When a Canadian business is being acquired by a trade agreement investor, the threshold for review is an “enterprise value” of C$1.931-billion (which is higher than the C$1.287-billion threshold for WTO investors). The threshold is adjusted annually to account for growth in nominal GDP.

The threshold does not apply to investments by SOEs or where the Canadian business is considered to be carrying on a “cultural business”.

2.4 - If a review is required, what is the process?

A reviewable transaction may not be completed unless the investment has been reviewed and the relevant Minister is satisfied that the investment is likely to be of “net benefit to Canada.” The non-Canadian proposing the investment must make an application to Investment Canada setting out particulars of the proposed transaction. There is then an initial waiting period of up to 45 days; the Minister may unilaterally extend the period for up to 30 days and may further extend the review only with the consent of the investor (although in effect this can be an indefinite period since, with a few exceptions, the investor cannot acquire the Canadian business until it has received, or is deemed to have received, the Minister’s “net benefit to Canada” decision). If the waiting period is not renewed and the transaction is not expressly rejected, the Minister is deemed to be satisfied that the investment is likely to be of net benefit to Canada. Failure to comply with these rules opens the investor to enforcement proceedings that can result in fines of up to C$10,000 per day.

The principal practical negative effects of a review are the reality of delay and negotiation. It is often difficult to get the Minister’s approval before the expiration of the initial 45-day period. In addition, the Minister will usually seek undertakings (see Section IV.2.4, “What is required for an investment to be of “net benefit to Canada”?”) as a condition of approval.
Special review requirements and timing considerations apply to transactions, whether already implemented or proposed, which potentially raise national security considerations (see Section IV.2.7, “What types of foreign investments may be subject to a national security review?”).

Where a “net benefit to Canada” review is underway concurrently with a national security review, the Minister will have up to an additional 30 days to complete his review once the investment has been cleared on national security grounds

2.5 - What is required for an investment to be of "net benefit to Canada"?

The ICA requires the relevant Minister to consider the following factors, where relevant, when determining if an investment is likely to be of “net benefit to Canada”:

  • The effect of the investment on the level and nature of economic activity in Canada, including, without limiting the generality of the foregoing, the effect on employment, resource processing, the utilization of parts, components and services produced in Canada, and exports from Canada;

  • The degree and significance of participation by Canadians in the Canadian business and in any industry or industries in Canada of which the Canadian business forms a part;

  • The effect of the investment on productivity, industrial efficiency, technological development, product innovation, and product variety in Canada;

  • The effect of the investment on competition within any industry or industries in Canada;

  • The compatibility of the investment with national industrial, economic, and cultural policies, taking into consideration industrial, economic, and cultural policy objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and

  • The contribution of the investment to Canada’s ability to compete in world markets.

Typically, during the 45-day period, the investor will negotiate with Investment Canada and/or Canadian Heritage a suitable set of undertakings to be provided in connection with the Minister’s approval of the transaction. These undertakings comprise commitments by the investor concerning its operation of the Canadian business following the completion of the transaction. With respect to SOEs, the government has issued guidelines whereby such enterprises may be subject to certain additional obligations designed to ensure that their governance is in line with Canadian standards and that the Canadian businesses that they acquire maintain a commercial orientation.

Commitments provided to the Minister by a foreign investor may, among other things, obligate the investor to keep the head office of the Canadian business in Canada, ensure that a majority of senior management of the Canadian business is comprised of Canadians, maintain certain employment levels, make specified capital expenditures and conduct research and development activities based on specified budgets, and make a certain level of charitable contributions, all over a period of usually three years. According to guidelines established by Investment Canada, these undertakings will be reviewed by Investment Canada or Canadian Heritage, as the case may be, on a 12-to 18-month basis for up to three to five years in the ordinary course to confirm the investor’s performance.

2.6 - Are there any requirements ofr investments that are not "reviewable"?

If the acquisition of an existing business or the establishment of a new business is not reviewable under the “net benefit to Canada” test, the investment will be “notifiable.” Notification requires the non-Canadian investor to provide certain specific information to Investment Canada, including information on the parties to the transaction, the number of employees of the business in question, and the value of its assets or market capitalization of the investment. Notification may be given before or within 30 days after the closing of the transaction.

2.7 - What types of foreign investments may be subject to a national security review?

The national security provisions of the ICA apply to all investments by non-Canadians to acquire control of an existing Canadian business or establish a new one.

The term “national security” is not defined in the ICA. However, in December 2016, the federal government released guidelines on national security reviews as part of a new transparency initiative intended to encourage foreign investment. These guidelines were updated in March 2021 and provide investors with more information about (i) the types of transactions that may require a national security review and (ii) the factors considered by the government when assessing national security risk. Relevant factors identified in the guidelines include: the effect on Canada’s defence capabilities, transfers of sensitive technology (that have military, intelligence or dual military/civilian applications) or know-how, critical infrastructure, the enablement of foreign surveillance or espionage, the hindering of law enforcement operations, the potential involvement of illicit actors (such as terrorists or organized crime syndicates), the impact on the supply of critical goods and services to Canadians, the supply of goods and services to the federal government, and the impact of an investment on Canada’s international interests.

Additionally, the March 2021 updated guidelines adopt several national security-related measures that the Canadian government put in place in April 2020 at the outset of the COVID-19 pandemic. In particular, investments by SOEs and investments in businesses related to public health or involving the supply of critical goods and services to Canadians or the government will be subject to enhanced scrutiny under the ICA, regardless of the investment’s value.

Once an investor has submitted its ICA notification or application for a “net benefit to Canada” review, as applicable, the responsible Minister under the ICA can, within 45 days, either (i) order a national security review, or (ii) advise the investor that the Minister believes that the investment could be injurious to national security. If the latter, an additional 45-day screening period is triggered, at the end of which, the Minister may order a national security review or terminate the process.

As of August 2022, for investments that do not trigger a mandatory filing obligation, investors can choose to voluntarily submit a notification. Where an investor does so, the responsible Minister has 45 days to either (i) order a national security review, or (ii) advise the investor that the Minister believes that the investment could be injurious to national security. If an investor does not make a voluntary filing, the Minister has up to five years post-closing to commence a national security review. Guidance issued in August 2022 states that where an application for review or a notification are not required, Investment Canada may contact the investor to discuss the possibility of a voluntary filing.

Where a national security review is required, the parties may be required to provide the Minister with any information considered necessary for the review. The Minister may then either:

  • Inform the parties that no further action will be taken if the Minister is satisfied that the investment would not be injurious to national security (in which case the transaction may proceed); or
  • Refer the transaction to the Governor-in-Council (i.e., the federal Cabinet) if the Minister is satisfied that the investment would be injurious to national security or the Minister is not able to make such a determination.

Where the transaction is referred to the Governor-in-Council, the Governor-in-Council may take any measures considered advisable to protect national security including blocking the transaction, authorizing the transaction on the basis of written undertakings or other terms and conditions, or ordering a divestiture of the Canadian business.

Investors should be aware that the national security review regime, as described, could be subject to change. In December 2022, the government proposed amendments to the ICA that, if enacted, would alter the scope and mechanics of national security reviews going forward. Among other things, the proposed amendments would introduce a new pre-closing filing requirement for investments in certain business sectors (that are yet to be defined), increase penalties for non-compliance including introducing new penalties and substantially increasing fines, and authorize the Minister to extend the timeline of national security reviews, impose interim conditions on an investment during a national security review or accept undertakings to mitigate national security risk.

2.8 - Are there other statues that regulate foreign investments in particular sectors?

In addition to the ICA, other federal statutes regulate and restrict foreign investment in specialized industries and sectors, such as telecommunications, broadcasting, rail and air transportation and financial institutions.

3. International Trade Agreements

3.1 - Trade agreements as a constitution for international business regulation 

The international trade agreements to which Canada is a party act like constitutions, placing limits on the laws, regulations, procedures, decisions, and actions that all levels of government and their agents may undertake. While these agreements do not automatically invalidate laws that breach their obligations, they may provide sanctions for non-compliance.

3.2 - Key principles of trade agreements

The guiding principle of all trade agreements is non-discrimination. This general principle is enforced through a number of specific rules that appear in most trade agreements with varying degrees of force. The underlying rationale is that discriminating between the goods, investments, persons, or services of different countries distorts trade and results in a less efficient utilization of resources and comparative advantages, ultimately to the detriment of all.

The two most prevalent rules are most favoured nation and national treatment. Most favoured nation treatment prohibits discrimination in the treatment of goods, persons, or companies, as the case may be, of other parties to the agreement. For instance, most favoured nation treatment requires that Canada must give as favourable a duty rate to imports from the European Union (EU) as from Brazil. National treatment prohibits giving more favourable treatment to domestic persons, investments, services or goods than is offered to persons, investments, services or goods from other countries. It does not require treating them the same as nationals, as long as the treatment is as favourable.

There are many other rules that address more subtle or specific forms of discriminatory and trade-distorting practices. Some of these are discussed below. 

3.3 - Using trade agreements as business tools

Historically, trade agreements focused on reducing tariffs, which are the most obvious form of trade discrimination. A tariff is a form of “tax” imposed on imported goods by virtue of the fact that they cross a border. As trade negotiations have succeeded in reducing tariffs other, often more subtle, trade barriers have grown in importance. These non-tariff barriers can include all manner of domestic regulation such as labelling, environmental, and even food safety requirements that directly or indirectly affect the import, export and sale of goods, foreign investment, and the ability of companies to move people across borders to provide a service.

Today, these domestic regulations, policies and programs can interfere significantly with business operations. Canada’s trade obligations under the various agreements to which it is a party offer effective tools for the business community to respond to these obstacles. Many trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and free trade agreements with Chile, Columbia, Honduras, South Korea, Peru and Panama, provide investors with a direct means of challenging barriers to establishing, acquiring or managing a Canadian company. Canada is a strong advocate of multilateral trade rules that seek to ensure that the development of new laws and the application of current regulations are consistent with international trade law obligations.

International trade agreements are a relatively new business tool. Identifying how these agreements can be leveraged into the achievement of strategic business objectives is a subtle and specialized skill that can help uncover potential market opportunities.

3.4 - Canada's trade agreements

Canada is a party to many trade agreements. The list of countries with which Canada enjoys trade agreements continues to expand through ongoing negotiations. Canada’s current and anticipated trade agreements are summarized below.

3.4.1 - WTO agreements

Canada is a member of the World Trade Organization (WTO) and has committed to respect the rules of the agreements adopted by WTO members (the WTO Agreements). The WTO administers the WTO Agreements and associated rules governing trade among the organization’s 164 members.

The WTO Agreements are comprised of six principal parts: the Agreement Establishing the WTO; the General Agreement on Tariffs and Trade (GATT) for trade in goods; the General Agreement on Trade in Services (GATS); the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); dispute settlement; and reviews of governments’ trade policies. The WTO Agreements set out rules that governments must follow in regulating a wide range of business activities including procurement, investment, agriculture and industrial goods trade, and subsidies and anti-dumping decisions. For example, the WTO’s Agreement on Government Procurement is often reviewed when advising clients in procurement matters. A revamped Agreement on Government Procurement (sometimes referred to as the Revised Agreement on Government Procurement) has been in force since April 6, 2014, and is binding on those WTO members that have completed the ratification process, including Canada.

The current round of multilateral negotiations aimed at strengthening the rules of the WTO agreements, commonly known as the Doha Development Round or the Doha Round, began in 2001 and remains stalled largely as a result of differences between the member countries on measures relating to agricultural products. Nevertheless, the WTO Agreements continue to apply and impose rules governing the laws, regulations and practices of member countries that affect trade in goods or services.

The WTO Agreements place limits on actions that WTO member governments and their agents may undertake. If, for example, European, U.S. or Chinese laws, policies or practices adversely affect a business in Canada in contravention of the WTO rules, Canada may use the WTO dispute settlement process to ensure that a WTO member abides by its obligations under the WTO Agreements. While the WTO complaints mechanism is available only to sovereign states (or to a regional grouping of states, such as the EU), private companies confronting WTO unlawful barriers in their activities may request that their governments make use of the system.

In December 2017, Canada requested WTO dispute consultations with the United States on the basis that it considers certain U.S. measures relating to anti-dumping and countervailing duty proceedings to be inconsistent with its obligations under the WTO Agreements. In January 2018, Argentina and Russia requested to join the consultations. As of July 2023, consultations are ongoing.

In June 2018, Canada and the EU requested WTO dispute consultations with the United States, claiming that U.S. duties on steel and aluminum products, imposed by the U.S. on May 31, 2018, were inconsistent with the WTO Agreements. These disputes were settled in May 2019 when the Canadian and United States governments issued a joint statement agreeing to eliminate the duties.

In January 2018, Australia requested consultations with Canada concerning federal and provincial measures governing the sale of wine, claiming they were inconsistent with Canada’s obligations under WTO Agreements. New Zealand, the United States, Argentina, the EU and Chile subsequently requested to join consultations. The matter was withdrawn on May 12, 2021, when Australia and Canada provided notification that they had reached a mutually agreed solution concerning the federal and provincial measures at issue.

In September 2019, China requested consultations with Canada concerning the importation of canola seeds. The panel’s report was not expected prior to the end of 2022. On August 30, 2022, the parties reached an agreement, and the panel suspended its work. Canada is currently involved in four WTO dispute settlements that have been active since 2017. Canada is a complainant in three of those disputes and a respondent in one.

In recent years, the U.S. has refused to approve new members to the WTO Appellate Body, eventually causing it to become defunct on December 10, 2019, due to there being an insufficient number of arbiters to hear the WTO appeals. Despite petitions and criticisms from other WTO members to allow appointments to the Appellate Body, the U.S. has maintained its position, citing concerns over the way that the Appellate Body has adjudicated disputes around U.S. trade remedy measures. In June 2022, the WTO’s 12th Ministerial Conference took place where a commitment was made by WTO members to engage in discussions to secure a fully functioning dispute settlement system by 2024.

In response to the WTO Appellate Body stalemate, a number of WTO members agreed on April 30, 2020, to use a multi-party interim appeal arbitration arrangement (MPIA) as a stopgap measure until the WTO Appellate Body can operate again. The MPIA is based on Article 25 of the WTO Dispute Settlement Understanding and became operational in July 2020. As of August 2023, 26 WTO members, comprised of Australia, Benin, Brazil, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the EU including its Member States, Guatemala, Hong Kong, Iceland, Japan, Macao SAR, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Peru, Singapore, Switzerland, Ukraine and Uruguay, have joined the MPIA. Any WTO member can join the MPIA, and the system is likely to remain in place for as long as the Appellate Body is not functioning.

On December 21, 2022, the MPIA issued its first ruling regarding Colombian duties on frozen fries from Belgium, Germany and the Netherlands for a two-year period from November 2018. The EU argued that such anti-dumping duties were inconsistent with its obligations under WTO agreements, including the Anti-Dumping Agreement, Article 10 of the Customs Valuation Agreement and Article VI of the General Agreement on Tariffs and Trade 1994 (GATT). The WTO panel previously found the measures inconsistent with Colombia’s obligations under several international instruments. Three MPIA arbitrators overturned one finding in favour of Colombia, but otherwise upheld the Panel’s decision.

3.4.2 - Canada-United States-Mexico Agreement (CUSMA)

CUSMA is a regional free trade agreement between Canada, the U.S. and Mexico that entered into force on July 1, 2020. CUSMA has essentially eliminated duties on trade between the three countries and replaces the North American Free Trade Agreement (NAFTA), which was in effect between January 1, 1994, and June 30, 2020. CUSMA imposes similar, and in some cases, more comprehensive, rules to those found in the WTO Agreements. CUSMA falls under an exception to the most favoured nation principle under the WTO Rules which allows parties to a regional trade agreement to provide preferential treatment beyond that afforded by the WTO Agreements.

CUSMA comprises 34 chapters of complex provisions governing the trade relationship between the three CUSMA parties. CUSMA carries forward many of the same or similar rules as NAFTA but is by no means a continuation or renewal of NAFTA. CUSMA makes some significant changes to the rules governing trade between the three parties. These changes  affect many industries including oil and gas, automotive, agriculture, textiles and apparel, alcoholic beverages, and many others. Further, CUSMA changes the dispute resolution landscape significantly, removing the investor-state dispute settlement (ISDS) mechanism formerly available to Canada under NAFTA and streamlining state-to-state dispute settlement procedures. - CUSMA investment rules 

CUSMA Chapter 14, which replaced NAFTA Chapter 11, continues to provide rules relating to the treatment of investments and investors of other CUSMA parties. CUSMA Chapter 14 continues the national and most favoured nation treatment to investors and investments of the other CUSMA parties so that laws, regulations and government actions cannot discriminate between investors of any of the three countries. The CUSMA investment rules are more detailed than those provided for in the WTO’s Agreement on Trade-Related Investment Measures.

Under CUSMA, Canada is no longer a party to an ISDS mechanism equivalent to that contained in NAFTA. The ISDS mechanism allowed investors to make claims that government measures have effectively expropriated their investment and to recoup the value of the expropriated investment, including lost profits. While no longer part of CUSMA, similar ISDS mechanisms can be found in Canada’s other investment agreements.

Canada remains a party to the state-to-state arbitration provisions, now at CUSMA Chapter 31. - CUSMA service rules

CUSMA extends the protection of national treatment to all service sectors, except those specifically excluded (by contrast, under the WTO GATS, national treatment is extended only in those service sectors specifically included). National treatment means that each country must accord to service providers of another CUSMA country treatment no less favourable than it accords to its own service providers. No local presence is required to provide a service cross-border. CUSMA countries can maintain existing restrictions on cross-border services where such restrictions have been listed in an annex to the Agreement. These include the export of logs species, unprocessed fish or goods specifically designed for military use. CUSMA continues the NAFTA requirement of ensuring that licensing and qualification requirements are based on objective and transparent criteria, such as competence or ability, and adds new rules around how a CUSMA party may develop and administer authorizations for cross-border supply of services.

CUSMA also eases restrictions on the entry of “businesspersons” for the purposes of providing marketing, training, and before and after sales and service for their products and services, among others. These temporary entry commitments under CUSMA do not exempt a person from any licensing or qualification requirements or from measures regarding citizenship, nationality, residence or employment, however.

3.4.3 - Free Trade Agreements (FTAs)

FTAs generally provide for preferential tariff rates on imported goods and services and enhanced market access to goods and services of the member parties. Such agreements may also provide for protection such as most favoured nation and national treatment. FTAs may go beyond the scope and extent of coverage of the WTO Agreements. Moreover, FTAs may cover areas not addressed by WTO Agreements, such as protection of investments and investors. FTAs generally include dispute settlement mechanisms.

Canada has entered into FTAs with numerous countries besides the U.S. and Mexico, including Colombia, Costa Rica, Chile, Honduras, Israel, Jordan, South Korea, Panama, Peru, Ukraine and the European Free Trade Association (EFTA) countries (Iceland, Norway, Switzerland and Liechtenstein). After 14 rounds of negotiations spanning nearly 10 years, Canada concluded the Canada-Korea Free Trade Agreement (CKFTA), which came into force on January 1, 2015. The CKFTA is Canada’s first free trade deal with an Asia-Pacific country and is considered to be an important gateway to other markets in the region. On July 11, 2016, Canada and Ukraine signed the Canada-Ukraine Free Trade Agreement (CUFTA), which was implemented on August 1, 2017.

Canada is in the process of negotiating FTAs with a number of other countries, including Singapore, Japan, the Dominican Republic, Morocco, Guatemala, Nicaragua, El Salvador, the Caribbean Community countries, Mercosur (Argentina, Brazil, Paraguay and Uruguay) and the Pacific Alliance (Chile, Colombia, Mexico and Peru). In 2010, Canada and India began the negotiation of a possible Comprehensive Economic Partnership Agreement (CEPA). The two countries have since held 10 rounds of negotiations, the latest in August 2017, but have not yet reached an agreement. Most recently, the countries concluded their sixth India-Canada Ministerial Dialogue on Trade and Investment in May 2023. Similar negotiations for a possible CEPA between Canada and Indonesia launched in June 2021 — five rounds of negotiations have occurred as of June 2023. - Comprehensive Economic and Trade Agreement (CETA)

On October 30, 2016, Canada and the EU signed CETA, a comprehensive free trade agreement. The European Parliament approved CETA on February 15, 2017. In Canada, legislation implementing CETA received royal assent on May 16, 2017, and certain provisions of CETA came into force provisionally on September 21, 2017. Most of the agreement now applies, including the elimination of most customs duties that the agreement covers. However, CETA will not take full effect until it is ratified by all EU Member States. To date, 17 EU countries have ratified the agreement.

CETA contains a modified form of ISDS called the Investor Court System (ICS). In April 2019, the Court of Justice of the European Union delivered an opinion confirming that the ICS is compatible with EU law. The opinion, requested by Belgium, followed a similar conclusion by the EU’s Advocate General in January 2019. The ICS replaces the typical use of ad hoc arbitral tribunals used in the ISDS mechanism with a permanent international arbitration “court” comprising both a tribunal of first instance and an appeal tribunal. The ICS provisions of CETA have not entered into force pending ratification by all EU Member States. - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

In October 2012, Canada joined the Trans-Pacific Partnership (TPP), an agreement designed to promote free trade between Asia and the Americas. The original signatories to the TPP included Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The agreement was signed on February 4, 2016, but was not ratified and did not take effect, as U.S. President Donald Trump issued a Presidential Memorandum on January 23, 2017, withdrawing the U.S. from the TPP.

In May 2017, the remaining signatories of the TPP agreed to proceed with the trade deal without the participation of the United States. The 11 remaining countries signed the CPTPP on March 8, 2018. On December 30, 2018, the agreement came into force for the first six countries to ratify it: Canada, Australia, Japan, Mexico, New Zealand and Singapore. The agreement came into force for Vietnam on January 14, 2019.

On February 1, 2021, the United Kingdom submitted a notification of intent to begin the CPTPP accession process. On June 1, 2021, the fourth meeting of the CPTPP Commission was hosted virtually by Japan, and a decision was reached to commence an accession process with the U.K. An Accession Working Group was established to negotiate the terms of accession. On February 18, 2022, the Accession Working Group announced the successful conclusion of initial negotiations and the commencement of the second “market access” phase of negotiations between the CPTPP and the U.K. Accession negotiations were concluded by March 31, 2023, and the U.K. formally signed the agreement on July 16, 2023. The U.K. will now begin its internal ratification process to bring its membership into force.

Canada’s involvement in CPTPP, CUSMA, CETA and its free trade agreement with South Korea make Canada the only G7 nation with free trade access to the Americas, Europe and the Asia-Pacific region. - Canada-U.K. Trade Continuity Agreement (Canada-U.K. TCA)

On April 1, 2021, the Canada-U.K. TCA entered into force, providing an interim agreement to preserve existing trading rules between the U.K. and Canada following the U.K.’s exit from the EU (broadly referred to as Brexit) until a new agreement can be reached that best reflects the Canada-U.K. bilateral trade relationship. The Canada-U.K. TCA provides continuity, clarity, and stability to trade between Canada and the U.K. in a post-Brexit landscape. The main benefits of CETA are replicated in the Canada-U.K. TCA, providing Canadian business, exporters, and investors with continued preferential access to the U.K. market. This includes eliminating tariffs on 98% of Canadian products exported to the U.K.

Further negotiations were held between Canada and the U.K. on March 24, 2022, to work towards a new, bespoke free-trade agreement that can better reflect the bilateral relationship between Canada and the U.K. and both parties’ trade priorities. As of July 2023, those negotiations are still ongoing.

3.4.4 - Foreign Investment Protection Agreements (FIPAs)

A FIPA is a bilateral agreement aimed at protecting and promoting foreign investment through legally binding rights and obligations. FIPAs accomplish their objectives by setting out the respective rights and obligations of the countries that are signatories to the treaty with respect to the treatment of foreign investment.

FIPAs seek to ensure that foreign investors will not be treated worse than similarly situated domestic investors or other foreign investors; they will not have their investments expropriated without prompt and adequate compensation; and they will not be subject to treatment lower than the minimum standard established in customary international law. As well, in most circumstances, investors should be free to invest capital and repatriate their investments and returns. Typically, there are agreed exceptions to these obligations.

Canada began negotiating FIPAs in 1989 to secure investment liberalization and protection commitments on the basis of a model agreement developed by the Organization for Economic Co-operation and Development (OECD). In 2003, Canada updated its FIPA model to reflect and incorporate the results of its experience with the implementation and operation of the investment chapter of NAFTA, CUSMA’s predecessor. This model provided for a high standard of investment protection and incorporates several key principles: treatment that is non-discriminatory and that meets a minimum standard; protection against expropriation without compensation and restraints on the transfer of funds; transparency of measures affecting investment; and dispute settlement procedures.

In May 2021, Canada revised its FIPA model for the first time since 2003. The new model is intended to make a more modern and inclusive FIPA model compared to the 2003 version, building on recent innovations in free trade agreements since NAFTA, such as CETA, CPTPP, and CUSMA. The changes will continue to provide foreign investors with international dispute resolution protections, while ensuring all Canadians, including women, Indigenous peoples, and small and medium-sized enterprises, are able to benefit from Canada’s investment agreements. Some of the key changes to the model include clarifying the definition of “minimum standards of treatment” and “indirect expropriation,” updating the ISDS mechanism, and codifying the “right to regulate.” The new model serves as a template for Canada in negotiations with investment partners on bilateral investment rules.

Currently, Canada has FIPAs in force with 38 countries including Russia, Poland, Venezuela, Argentina, Barbados, Benin, China, Costa Rica, Jordan, Kuwait and Tanzania, and has concluded negotiations with five countries (Albania, Bahrain, Madagascar, the United Arab Emirates and Zambia). Negotiations are ongoing for a FIPA with India and 13 other countries. Canada has updated its FIPAs with Latvia, the Czech Republic, Slovakia and Romania to bring them into conformity with EU law. Negotiations were ongoing with Poland and Hungry to do the same, and negotiations with Hungary successfully concluded, but updated FIPAs never entered into force with these countries, likely due to the successful negotiation of CETA. FIPAs with Burkina Faso, Guinea, Kosovo and Mongolia have recently come into force, and agreements have been signed with Nigeria and Moldova that are not yet in force.

3.4.5 - Trade within Canada

In addition to Canada’s international trade agreements, there are several significant agreements and recent developments relating to trade within Canada, as summarized below. - Canadian Free Trade Agreement (CFTA)

The CFTA came into force on July 1, 2017, and replaced the Agreement on Internal Trade (AIT). The CFTA is an agreement among the federal, provincial and territorial governments designed to reduce barriers to the free movement of persons, goods, services and investment within Canada. The CFTA seeks to reduce costs to Canadian businesses by making internal trade more efficient, increasing market access and facilitating labour mobility.

Unlike the AIT, which covered only those sectors that were specifically listed, the CFTA uses a “negative list approach,” meaning that the agreement applies to all sectors except those that are specifically excluded. Chapter 8 of the CFTA lists the types of measures that are subject to general exception, such as measures concerning Aboriginal Peoples, national security, taxation, water, social services, tobacco control, language, culture, gambling and betting, collective marketing arrangements for agricultural goods and passenger transportation services.

Chapter 10 of the CFTA contains a formal dispute settlement mechanism. Only companies with a “substantial and direct” connection to a party to the agreement may bring forward a complaint under the CFTA. To meet the “substantial and direct” connection a complainant party must have suffered some form of economic injury or denial of a benefit from a government or government entity covered by the CFTA. The CFTA does not trump Canada’s international agreements and does not create any obligations to foreign suppliers.

The CFTA, in addition to providing the governments standing to bring matters before a dispute resolution panel, also contains a business-to-government complaint mechanism whereby complainants can initiate complaints to address barriers to trade across Canada. 

The CFTA allows the federal, provincial and territorial governments to maintain party-specific exemptions from the obligations of the CFTA. In December 2019, the CFTA was amended to allow the parties to remove and/or narrow these party-specific exemptions more quickly and efficiently (for example, by allowing removal of exemptions without requiring the approval of all other parties). The parties also continue to negotiate and complete reconciliation agreements to provide for regulatory reconciliation and cooperation and to reduce internal trade barriers.

For example, in late 2021, Alberta passed a bill to streamline and standardize the documentation transfer and recognition process for skilled workers in regulated professions. On April 6, 2023, it came into force as the Labour Mobility Act, facilitating the integration of out-of-province credentialed workers into Alberta’s labour forceIn early 2023, Ontario also introduced legislation to streamline the recognition of healthcare workers licensed in other Canadian jurisdictions so that they may start practicing in Ontario immediately. - Inter-provincial trade barriers

Despite the CFTA, internal trade barriers continue to exist within Canada. One example is various provincial restrictions on alcohol imports and sales. In its 2018 decision in R v. Comeau, the Supreme Court of Canada confirmed that Canadian provinces have considerable discretion to manage the passage of goods across their borders when legislating to address particular conditions and priorities in each province. While the Constitution Act, 1867 prohibits explicit inter-provincial trade barriers such as the imposition of tariffs, regulating goods for different purposes that indirectly affect inter-provincial trade is permissible.

Regarding the particular example of alcohol imports and sales, the CFTA established an Alcoholic Beverages Working Group. In May 2019, the federal, provincial and territorial governments agreed on an action plan for trade in alcoholic beverages that would create personal use exemption limits between provinces and territories, support e-commerce platforms and reduce administrative burdens on existing sales channels. In January 2020, a new website was launched to serve as a comprehensive source of information regarding rules and regulations governing the Canadian liquor industry. - New West Partnership Trade Agreement (NWPTA)

The NWPTA, formerly known as the Trade, Investment and Labour Mobility Agreement, is an agreement between Alberta, British Columbia, Saskatchewan and Manitoba designed to remove barriers to trade, investment and labour mobility. The NWPTA was originally signed and effective between Alberta and British Columbia in 2007. Saskatchewan and Manitoba joined the agreement in 2010 and 2016, respectively.

The NWPTA applies to all government measures (e.g., legislation, regulations, standards, policies, procedures, guidelines, etc.) affecting trade, investment and labour mobility between the western provinces. Certain special provisions have been established for some sectors, such as investment, business subsidies, labour mobility, procurement, energy and transportation. There are also a limited number of sectors that have been excluded from the coverage of the NWPTA, such as water, taxation, social policy, and renewable and alternative energy.

The NWPTA requires the signatory provinces to provide open and non-discriminatory access to procurements in excess of minimum thresholds by various government entities, including departments, ministries, agencies, Crown corporations, municipal governments, school boards and publicly funded academic, health, and social service entities.

The NWPTA’s dispute resolution provisions are available to companies registered under the laws of one of the parties to the agreement. Where a government measure is considered to be inconsistent with both the CFTA and NWPTA, the NWPTA provides that the dispute resolution process under either agreement may be selected, but once chosen, there is no recourse to the other process in respect of the same issue. The maximum penalty is C$5-million and applies only to the provincial governments that are parties to the NWPTA. - Trade and Cooperation Agreement between Ontario and Quebec

In 2009, Ontario and Quebec entered into the Trade and Cooperation Agreement between Ontario and Quebec with the intention of eliminating and reducing barriers that restrict trade, investment and labour mobility. Under the agreement, the two provinces have pledged to cooperate on a number of matters falling under the general categories of economic, regulatory and energy cooperation. The agreement also contains commitments related to labour mobility, financial services, transportation, government procurement, agriculture and food goods, and environmental and sustainable development.

In May 2015, amendments to the Trade and Cooperation Agreement’s chapter on government procurement were announced to bring its scope into alignment with the government procurement chapter contained in CETA. The revised government procurement chapter entered into force in two phases: on January 1, 2016, for ministries and agencies, and on September 1, 2016, for all other entities. - Pipeline and related disputes between Alberta and British Columbia

The Trans Mountain Pipeline currently carries approximately 300,000 barrels of oil per day from Alberta to British Columbia for the purposes of export. In November 2016, the federal government approved the Trans Mountain Pipeline Expansion Project, which would increase the capacity of the pipeline to approximately 890,000 barrels per day. Following the 2017 election, the new British Columbia NDP government expressed concerns regarding the environmental risks of the pipeline expansion project. In January 2018, British Columbia proposed a restriction on the increase of diluted bitumen transportation pending further consideration of environmental risks. British Columbia subsequently submitted a reference question to the British Columbia Court of Appeal, which found that the province does not have jurisdiction to regulate the shipment of heavy oil through the province. The Court of Appeal’s decision was subsequently affirmed by the Supreme Court of Canada in January 2020.

In response to British Columbia’s delays to the project, Alberta implemented a number of retaliatory measures, including a temporary ban on the import of British Columbia wine, the suspension of negotiations for the purchase of electricity from British Columbia and the passage of the Preserving Canada’s Economic Prosperity Act (PCEPA).

British Columbia attempted to challenge the constitutionality of Alberta’s PCEPA, but the Alberta Court of Queen’s Bench struck B.C.’s claim on the basis that it was premature, as the PCEPA was not in force at the time. Following this decision, British Columbia applied to the Federal Court in mid-June 2019 seeking a pre-emptive injunction against Alberta from restricting oil exports, pursuant to the PCEPA.

In September 2019, the Federal Court ruled in favour of British Columbia and granted the interlocutory injunction against Alberta until the constitutional validity of the PCEPA could be finally determined. In April 2021, the Federal Court of Appeal held that the legal test for granting declaratory relief had not arisen, and might never arise, and allowed Alberta’s appeal.

The PCEPA was repealed effective April 30, 2021, due to section 14 of the PCEPA’s “sunset clause.” However, the Alberta government reintroduced the PCEPA with some minor revisions which entered into effect on May 1, 2021. As of July 2023, the revised PCEPA continues in force.

3.5 - Importing goods into Canada

The importation of goods into Canada is regulated by the federal government. The Customs Tariff imposes tariffs on imported goods while the Customs Act sets out the procedures that importers must follow when importing goods, and specifies how customs duties payable on imported goods are to be calculated and remitted.

Under CUSMA, barriers to trade in goods between Canada, the U.S. and Mexico have largely been removed. Tariffs between Canada and the U.S. have been generally eliminated since January 1, 1998, and tariffs on most goods flowing between Canada and Mexico were eliminated by January 1, 2003.

In order for goods to be duty-free under CUSMA, they must satisfy “rules of origin” requirements, which require products to have a certain level of North American value-added content in order to avail of the protections of CUSMA. These rules are complex and are based on changes in tariff classification and regional value content, the latter calculated by either transaction value or the net cost method. Goods not meeting these requirements will remain subject to Canadian, U.S., or Mexican tariffs. These rules do not depend on the ownership of the business importing or exporting the goods, so they apply equally to foreign-owned Canadian companies. In the case of services, CUSMA’s provisions are generally applicable to enterprises of other CUSMA members, even if controlled by non-CUSMA nationals, as long as the enterprise carries on substantive business activities in a CUSMA country.

A more detailed discussion of the steps involved in importing goods and the applicable legislation is set out below.

3.5.1 - Tariff classification

All goods imported into Canada are subject to the provisions of Canada’s customs laws, including the provisions of the Customs Act and the Customs Tariff. To determine the rate of duty, if any, applicable on the imported goods, the goods must be classified among the various tariff items set out in the List of Tariff Provisions of the Customs Tariff. Canada and the U.S. are signatories to the Convention on the Harmonized Commodity Description and Coding System; therefore, tariff classifications up to the sixth digit should be identical between Canada and the U.S.

3.5.2 - Tariff treatment

Once the tariff classification of imported goods is determined, the List of Tariff Provisions under the Customs Tariff indicates the various tariff treatments available in respect of the goods, depending on their country of origin. For instance, where no preferential tariff treatment is claimed, the most favoured nation tariff treatment applies.

However, as a result of Canada’s participation in several bilateral, plurilateral and multilateral trade agreements in recent years, various preferential tariff treatments are available to goods from certain countries. For example, all customs duties on goods originating in the U.S. have been eliminated, pursuant to CUSMA.

In addition to the preferential tariff treatment that Canada affords to imports from countries with which Canada has established a free trade agreement, Canada also affords preferential tariff treatment to imports of goods originating in developing countries, as part of an effort to encourage foreign development in those countries. For instance, the General Preferential Tariff (GPT) treatment provides partial duty relief to goods originating in certain developing countries. As of June 2023, the GPT treatment is accorded to qualifying imports from 106 countries. Similarly, through the Least Developed Country Tariff (LDCT), Canada grants duty-free access to the Canadian market to goods that originate in certain specified Least Developed Countries. As of June 2023, the LDCT treatment is accorded to qualifying imports from 49 countries. To claim one of the preferential rates of duty, the importer must establish that the goods qualify for the claimed treatment pursuant to the relevant rules of origin and must obtain proper proof of origin, usually from the exporter.

3.5.3 - How are tariffs calculated?

The amount of customs duties payable on any importation is a function of the rate of duty (determined as set out above) and the valuation of the goods. This is because most of Canada’s tariff rates are imposed on an ad valorem (or percentage) basis. In Canada, the primary method for customs valuation is the “transaction value” system, under which the value for duty is the price paid for the goods when sold for export to a purchaser in Canada, subject to specified adjustments. A non-resident may qualify as a “purchaser in Canada” where the non-resident imports goods for its own use and not for resale, or for resale if the non-resident has not entered into an agreement to sell the goods prior to its acquisition from the foreign seller. Otherwise, customs value will be based on the sale price charged by the non-resident seller to the customer who is resident, or who has a permanent establishment, in Canada.

The transaction value method may not be available in certain other circumstances, such as where the buyer and seller do not deal at arm’s length, or where title to the goods passes to the buyer in Canada. In these circumstances, other valuation methods will be considered in the following order: (1) transaction value of identical goods; (2) transaction value of similar goods; (3) deductive value; (4) computed value; and (5) residual method.

If applicable, the transaction value method begins with the sale price charged to the purchaser in Canada. However, the customs value is determined by considering certain statutory additions and permitted deductions. For instance, selling commissions, assists, royalties, and subsequent proceeds must be added to arrive at the customs value of the goods. The value of post-importation services may be deducted from the customs value of the goods.

If the importer’s goods originate primarily from suppliers with whom the importer is related and the importer wishes to use the transaction value method of valuation, the importer is frequently requested to demonstrate that the relationship did not influence the transfer price between the importer and the vendor. In such a situation, documentation may be required to establish that the transfer price reflects the transaction value.

3.5.4 - How are tariffs assessed?

Canada has a self-assessment customs system. Importers and their authorized agents are responsible for declaring and paying customs duties on imported goods. In addition, importers are required to report any errors made in their declarations of tariff classification, valuation, or origin when they have “reason to believe” that an error has been made. This obligation lasts for four years following the importation of any goods. The Customs Act imposes severe penalties for non-compliance with this and other provisions, up to C$25,000 per occurrence.

3.5.5 - What penalties are imposed for non-compliance with customs laws?

Where a person has failed to comply with the provisions of the Customs Act, the Canada Border Services Agency (CBSA) is authorized to take several enforcement measures, including seizures, ascertained forfeitures, or the imposition of administrative monetary penalties under the Administrative Monetary Penalty System (AMPS). Seizures and ascertained forfeitures are applied to the more serious offences under the Customs Act, such as intentional non-compliance, evasion of customs duties, and smuggling.

Importers may be liable for penalties of up to C$25,000 per contravention in accordance with the AMPS. The CBSA maintains a “compliance history” for each importer. The retention period for an individual contravention is either one or three years for penalty calculation purposes only. However, the contravention remains on the AMPS system for six years plus the current year. Repeat offenders may be subject to increased penalties.

3.5.6 - Country of origin marking rules

Certain goods listed in regulations made pursuant to the Customs Tariff must be marked with their country of origin in order to be imported into Canada. In the case of goods imported from a CUSMA country, the relevant regulations base the determination of origin on tariff shift rules, which are in turn dependent on the tariff classification of components and the finished product. In the case of goods imported from any country other than a CUSMA country, the country of origin is the country in which the goods were “substantially manufactured".

3.5.7 - Which products are subject to import controls?

Almost all goods may be imported into Canada, subject to compliance with certain conditions imposed by the federal and provincial governments. Goods over which Canada imposes import controls and requires import permits are listed in the Import Control List. Other Canadian laws that must be complied with in relation to imports include labelling laws for goods intended for retail sale; emission control standards for vehicles; and health and sanitary conditions for food and agricultural imports. Certain goods, for example, electrical appliances, must be certified by a recognized certification body. Imports of liquor, wine and beer may require prior authorization from the appropriate provincial liquor commission.

3.6 - Domestic trade remedy actions

3.6.1 - Anti-dumping and anti-subsidy investigations

The Special Import Measures Act (SIMA) contains measures designed to protect businesses in Canada from material injury due to unfair import competition. SIMA’s provisions are based on Canada’s rights and obligations set out in the WTO agreements.

SIMA allows Canadian producers to file a complaint against unfairly traded imports and to request relief in the form of anti-dumping or countervailing duties where material injury results from: imports that are “dumped” (i.e., sold at lower prices in Canada than in the exporter’s home market); or imports that are unfairly subsidized by the government of the exporter’s country.

Canada’s trade remedy regime establishes a bifurcated process under which the CBSA has jurisdiction over determinations of dumping and subsidization and the Canadian International Trade Tribunal (CITT) enquires into and considers the issue of whether any dumping or subsidization is causing or is likely to cause material injury to the affected Canadian industry.

If the CITT makes a preliminary determination of injury and the CBSA makes preliminary and final determinations of dumping or subsidization, the CITT goes on to consider whether there is “material injury.” If the CITT makes a finding of material injury, an anti-dumping duty (equal to the margin of dumping found by the CBSA) or a countervailing duty (equal to the margin of subsidization found by the CBSA) will be imposed on all importations of the subject goods for a period of five years. During this time, the CBSA may initiate re-investigations to update the margin of dumping or subsidization, and the CITT may review its finding if the circumstances warrant. At the expiry of the five-year period, the CITT may review its finding and may rescind or continue the finding for an additional period of five years (with no limit on the number of continuation orders permissible).

For example, on April 21, 2023, the CBSA initiated an investigation on the alleged injurious dumping and subsidizing of certain wind towers from China. The investigation followed a complaint filed by Marmen Inc. and Marmen Energie Inc., of Trois Rivieres, Quebec. On April 24, 2023, the CITT initiated their preliminary injury inquiry on the same complaint.
On June 20, 2023, CITT Issued its determination that there was evidence disclosing a reasonable indication that the dumping and subsidizing of the subject goods has caused injury or is threatening to cause injury to the domestic industry. Its reasons followed on July 5, 2023.
Following the CITT’s preliminary inquiry, on July 20, 2023, the CBSA made preliminary determinations of dumping and subsidizing with respect to steel utility wind towers and sections thereof originating from China. The associated dumping and countervailing duties, which are now payable on subject goods released by the CBSA from the date of the determinations, can be as high as 193.8% of the export price. Products classified under tariff numbers 7308.20.00.00 and 8502.31.00.00 that are also subject goods are captured by the duties. In particular, exporters CS Wind China Co., Ltd., Penglai Dajin Offshore Heavy Industry Co., Ltd. and Shanghai Taisheng Wind Power Equipment Co., Ltd. are subject to provisional duties in the amount of 135.7%, 97.6% and 100% respectively. The CITT has now begun its final injury inquiry process, with a public hearing expected on October 16, 2023, and a final finding issued on November 17, 2023. Reasons for the final determination should become available by December 1, 2023.

The CBSA implemented the current normal value review process in June 2018. Normal value reviews are conducted by the CBSA to ensure that export prices accurately reflect current market conditions, and normal values are used to make determinations regarding the margin of dumping or subsidization.

Importers may request a formal scope ruling from CBSA as to whether certain goods are subject to an anti-dumping or countervailing duty. A scope ruling may be appealed to the CITT. A final determination from the CBSA or CITT is subject to judicial review by the Federal Court of Appeal. Where a dumping or subsidy investigation involves U.S. or Mexican goods, an aggrieved party may choose to request a review of the CBSA or CITT finding by a CUSMA ad hoc panel of trade law experts. A review of final anti-dumping or countervailing duty determinations with respect to U.S. or Mexican goods must be undertaken by an ad hoc CUSMA panel, as CUSMA provides that there is no recourse to judicial review from final determinations.

3.6.2 - Safeguard protection

SIMA applies only in the case of unfairly traded (i.e., dumped or subsidized) imports that are causing material injury to a Canadian industry. However, the Canadian International Trade Tribunal Act and the Customs Tariff provide for a trade remedy in the case of fairly traded goods that nevertheless are causing or threatening to cause “serious injury” to a Canadian industry. These are called “safeguard” actions. In such cases, the CITT may hold an inquiry and may make recommendations to the finance minister. The finance minister is authorized, in appropriate cases, to take certain safeguard actions against such imports, including imposing surtaxes or quotas for a limited time.

On October 10, 2018, the CITT began an inquiry to determine whether seven classes of steel goods were being imported into Canada in increased quantities and under conditions as to make them a serious threat of injury to domestic producers of directly competitive goods. The Governor in Council directed the Tribunal to submit a report by April 3, 2019. The Tribunal found that two classes of steel goods (heavy plate and stainless steel wire) were being imported in such increased quantities and under such conditions to be a threat of serious injury to the domestic industry. As a result, the Tribunal recommended a tariff rate quota on imports of those types of steel from subject countries.

Subsequently, on May 9, 2019, the CITT announced an exclusions inquiry to determine whether certain goods subject to the safeguard tariff should be exempt because there is no domestic source of supply or commercially viable plan to produce such goods domestically. As a result of the inquiry, the CITT made recommendations to the Federal Minister of Finance on July 15, 2019, to exclude certain heavy plate and stainless steel wire from the safeguard tariff.

The CITT is mandated to hold an exclusions inquiry every six months. A second exclusions inquiry was announced on January 15, 2020, and the CITT made recommendations on March 13, 2020, to exclude certain additional stainless steel wire from the safeguard tariff. The third exclusions inquiry was announced on September 11, 2020, and the CITT received a further exclusion request for certain stainless steel wire.  However, it denied the request on November 10, 2020.  A fourth exclusions inquiry (GC-2018-001-E4) was commenced on May 10, 2021. The Tribunal received one request for exclusion in respect of certain stainless steel wire, which it granted in its decision issued on July 9, 2021.

The Order was scheduled to expire on October 24, 2021. On March 26, 2021, the CITT gave notice of expiry and invited requests to extend the order. Having received no requests by April 12, 2021, the Tribunal did not commence an extension inquiry and the Order expired as scheduled.

As of July 2023, there are no active safeguard inquiries.

3.7 - Procurement (government contracts) review

CETA, CPTPP, the CFTA and the WTO Revised Agreement on Government Procurement (AGP) require the signatories to the agreements to provide open access to government procurement for certain goods and services. These agreements also require signatory governments to maintain an independent bid challenge authority to receive complaints. The CITT is Canada’s complaint authority.

Parliament has enacted legislation designed to ensure that the procurements covered by CETA, CPTPP, the CFTA or the AGP are conducted in an open, fair and transparent manner and, wherever possible, in a way that maximizes competition. While there is considerable overlap in the scope and coverage of procurements covered by these international agreements, several areas have significant differences. The most notable differences are the goods and services included, and the minimum monetary thresholds for goods, services, and construction services contracts. These monetary thresholds are subject to periodic review.

The federal government has agreed to provide potential suppliers equal access to federal government procurement for contracts involving certain goods and services bought by approximately 100 government departments, agencies and Crown corporations. Still, on occasion, a potential domestic or foreign supplier may have reason to believe that a contract has been or is about to be awarded improperly or illegally, or that the potential supplier has been wrongfully denied a contract or an opportunity to compete for one. The CITT provides an opportunity for redress for Canadian and foreign suppliers concerned about the propriety of the procurement process relating to contracts covered by CETA, CPTPP, the CFTA or the AGP.

As discussed above, the NWPTA requires the governments of Alberta, British Columbia, Saskatchewan and Manitoba to provide open and non-discriminatory access to procurements by government entities in excess of minimum thresholds.

3.8 - Export controls, economic sanctions and industry-specific trade laws

3.8.1 - Which products are subject to export controls

Canada’s export controls are based on several international agreements and arrangements, such as the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technology, and the Treaty on the Non-Proliferation of Nuclear Weapons (NPT).

Canada’s Export Control List (ECL) identifies specific goods and technology that may only be exported from Canada to specified destinations if an export permit is obtained. The ECL is items that are divided into Groups 1 – 9: dual-use, munitions, nuclear non-proliferation, nuclear-related dual-use, miscellaneous goods and technology, missile technology control regime, chemical and biological weapons non-proliferation, and arms trade treaty items (Group 8 has no items in it). The last group was added to the ECL in September 2019, as a result of Canada becoming a State Party to the UN Arms Trade Treaty (ATT). Per its obligations under the ATT, the federal government introduced legislation to amend the EIPA to establish controls on brokering of military items.

Canadian businesses must determine whether their exports are subject to the ECL. Under the Export and Import Permits Act (EIPA), a corporation with its head office in Canada or operating a branch office in Canada may apply to the Minister of Foreign Affairs for a permit to export ECL goods.

Some goods and technology on the ECL may be exempted from the permit requirement if they are being shipped to certain countries. For example, goods or technology that are manufactured in the U.S., imported into Canada, and are proposed for export to a country other than Cuba, Iran, North Korea, Syria, or a country on the Area Control List are covered by General Export Permit No. 12 and do not require individual export permits. However, as a condition of authorizing exports of certain goods or technology to a Canadian company, the U.S. government may require that company to obtain an explicit re-export authorization before exporting the items from Canada.

In addition to the ECL, the Area Control List restricts the export of all products to specified countries, currently only North Korea. The export of any goods or technology to North Korea requires an export permit. Belarus was removed from the Area Control List in 2017.

The Export Act imposes export duties on certain logs and pulpwood, ores, petroleum in its crude or partly manufactured state, and intoxicating liquors.

3.8.2 - Economic sanctions

Certain activities and the export of certain goods are subject to United Nations (UN) trade sanctions or arms embargoes against particular countries and regions. Under the United Nations Act (UNA), Canada has implemented regulations that are necessary to facilitate compliance with measures taken by the United Nations Security Council. These regulations prohibit certain exports, principally arms and related material, to the following countries: the Central African Republic, the Democratic Republic of the Congo, Iran, Iraq, Lebanon, Libya, Mali, North Korea, Somalia, South Sudan, Sudan, Yemen and Haiti. Eritrea has been removed from the list on June 1, 2020, following the Security Council’s decision to lift the sanctions against it. In some cases, UNA sanctions prohibit dealing with listed persons and entities. Listed persons and entities are normally associated with the subject country’s government. Therefore, exports and other transactions should be carefully reviewed so that UNA sanctions are not violated.

The Special Economic Measures Act (SEMA) empowers Canada to take unilateral action, including embargoes, against a country in specified circumstances. SEMA gives the Canadian government authority to impose orders or regulations to restrict or prohibit persons in Canada, or Canadians outside Canada, from:

  • Dealing in property of a foreign state (or its residents or nationals);
  • Exporting, selling or shipping goods to a foreign state;
  • Transferring technical data to a foreign state;
  • Importing or acquiring goods from a foreign state; and
  • Providing or acquiring any financial or other services to, or from, a foreign state.

Canada imposes economic measures under SEMA against several countries and designated entities through regulations. As of July 2023, the following countries are subject to SEMA restrictions: Iran, Libya, Myanmar, Nicaragua, North Korea, Russia, South Sudan, Syria, Ukraine (linked to Russia’s ongoing involvement), Venezuela, Zimbabwe, China, Belarus, Sri Lanka and Moldova.

Belarus was added to the list on September 29, 2020, in light of the human rights violations committed during the country’s 2020 presidential election. China was added to the list on March 21, 2021, in response to gross and systemic human rights violations in Xinjiang Uyghur Autonomous Region. Sri Lanka was added to the list on January 6, 2023, in response to violations of human rights in connection with its 1983 to 2009 civil war and post-conflict lack of accountability.

After Russia’s unjustified invasion of Ukraine in February 2022, restrictions and measures against Russian and Belarusian companies and individuals have been significantly broadened. Ukrainian entities have also been targeted by SEMA restrictions to the extent that those entities have collaborated with Russian authorities or have been complicit in the theft or destruction of Ukrainian cultural property. Moldova was added to the list on May 30, 2023, with restrictions that target entities connected to Russia or that are supportive of Russia’s operations in Ukraine and Transnistria.

Canadian companies are prohibited from making new investments in some, but not all, countries subject to measures under SEMA. Where UNA or SEMA sanctions apply, it may be possible to obtain a permit allowing an otherwise prohibited transaction. While humanitarian assistance is often allowed, the Canadian government may be willing to issue permits for certain types of non-humanitarian commercial transactions, depending on the government’s specific priorities and policies in respect of the country subject to sanctions.

In 2016, Canada announced significant amendments to its economic sanctions imposed on Iran. Previously, Canada imposed a ban on all imports from and exports to Iran, subject to certain humanitarian exceptions. The amendments removed the blanket import and export prohibitions, although the export of specific goods deemed to be proliferation-sensitive is still prohibited.

In 2017, Canada enacted the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) to impose targeted measures against foreign nationals who are responsible for, or complicit in, gross violations of human rights, or against public officials who are responsible for or complicit in acts of significant corruption. The legislation applies to both persons in Canada and Canadians outside of Canada and allows the Governor in Council to make regulations and orders that restrict property dealings and freeze assets of foreign nationals. To date, Canada has enacted regulations targeting certain nationals of Russia, Venezuela, South Sudan, Myanmar, and Saudi Arabia.

Canada also has the Freezing Assets of Corrupt Foreign Officials Act, which allows Canada to freeze the assets or restrain the property of foreign persons at the request of a country undergoing internal turmoil or political uncertainty. Current measures are in force against individual officials in Tunisia and Ukraine (linked to Russia’s ongoing involvement).

Finally, the Minister of Finance has issued two directives in respect of North Korea and Iran, pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. These directives impose obligations on Canadian institutions who are party to a transaction with either of these two countries.

3.8.3 - Sector-specific trade laws

Canada has certain trade laws that are specific to individual industries. For example, in the forestry industry, there are restrictions on the export of logs and softwood lumber from Canada. Similarly, permits are required for the export of steel and import controls are in place in respect of certain goods including steel, agricultural goods and textile products.

Moreover, numerous Canadian laws directly and indirectly impose trade controls. For example, consumer product safety laws and environmental regulations impact sales of specified types of goods by prohibiting or restricting importation into Canada unless the goods first comply with applicable Canadian standards. In some cases, the manufacture or sale of goods may be subject to Canadian standards even where those goods are intended solely for export.

Other government departments may also control the export of goods, requiring additional permits even where an export permit has already been granted pursuant to the EIPA. Departments that exercise controls over exports include Canadian Heritage, Natural Resources Canada, Fisheries and Oceans, Health Canada, the Canadian Wheat Board, Agriculture and Agri-Food Canada, Environment Canada, and the Canadian Food Inspection Agency. The circumstances that require additional departmental approvals are frequently not intuitive, and care must be taken to ensure compliance with all export controls.

3.8.4 - International Traffic In Arms Regulations and the Canadian exemption

The U.S. International Traffic in Arms Regulations (ITAR) generally regulates the export and licensing of certain defence articles and services from the U.S. For exports of defence articles and services to Canada for end-use in Canada, ITAR contains a very limited exemption for “Canadian-registered persons.” For a Canadian business to qualify for exemption from the licensing requirements under ITAR, it must be registered under the Canadian Defence Production Act. A list of registered businesses is maintained by the Canadian Controlled Goods Directorate.

There is a process to extend this exemption to the employees of a registered business. However, this exemption may not be available to employees who are dual citizens of a listed country if the employee has “substantive contacts” with the listed country. Employers are required to screen dual-citizen employees for such “substantive contacts.” When such employees are identified, a risk of technology diversion is presumed and the employer may not give such employee access to the defence articles or information unless the U.S. Directorate of Defence Trade Controls grants a discretionary individual exemption.

The Controlled Goods Regulations under the Defence Production Act set out the process for the registration of Canadian businesses in the Controlled Goods Program, described in greater detail in the following section

3.9 - Controlled Goods Program

The Controlled Goods Program is intended to safeguard potentially sensitive goods and technology and prevent them from falling into the wrong hands. The program requires companies dealing with specified civilian or military goods to register with the Controlled Goods Directorate, undergo security assessments, develop and implement a security plan, control access to the specified goods, report security breaches, and maintain extensive records on all such goods for the duration of registration and for five years after registration expires. In determining whether to register a business, the directorate must consider, on the basis of a security assessment, the risk that the applicant poses of transferring the controlled goods to someone not registered or exempt from registration.

Goods subject to the Controlled Goods Program include a number of goods that are listed on Canada’s ECL, as well as U.S. goods that are “defense articles,” or goods produced using “technical data” of U.S. origin, as those terms are defined in ITAR. The specific goods and technology that are subject to the Controlled Goods Program are contained in the Controlled Goods List, which is included in the schedule to the Defence Production Act. The inclusion of “technology” means that technical information such as documents or emails relating to these goods may also be captured.

While the procedures under the Controlled Goods Program can be very onerous, penalties for non-compliance are severe. Companies that fail to comply can have their registration revoked, and the company and individuals involved may receive fines from C$25,000 to C$2-million or a term of imprisonment not exceeding 10 years, or both.

The breadth of the goods involved, coupled with the severity of the potential penalties, make it imperative that companies doing business in Canada ensure that they are not dealing with controlled goods or technology if they have not registered with the Controlled Goods Program.

3.10 - Foreign Extraterritorial Measures Act (FEMA) and doing business with Cuba

FEMA is largely an enabling statute to protect Canadian interests against foreign courts and governments wishing to apply their laws extraterritorially in Canada by authorizing the attorney general to make orders relating to measures of foreign states or foreign tribunals affecting international trade or commerce. The attorney general has issued such an order with respect to extraterritorial measures of the U.S. that adversely affect trade or commerce between Canada and Cuba. The order was originally issued in retaliation for certain amendments to the U.S. Cuban Assets Control Regulations and was further amended in retaliation for the enactment of the U.S. Cuban Liberty and Democratic Solidarity (LIBERTAD) Act, both of which aim to prohibit the activities of U.S.-controlled entities domiciled outside the U.S. (e.g., Canadian subsidiaries of U.S. companies) with Cuba.

The FEMA order imposes two main obligations on Canadian corporations. First, it requires Canadian corporations (and their directors and officers) to give notice to the Attorney General of any directive or other communication relating to an extraterritorial measure of the U.S. in respect of any trade or commerce between Canada and Cuba that the Canadian corporation has received from a person who is in a position to direct or influence the policies of the Canadian corporation in Canada. Second, the FEMA order prohibits any Canadian corporation from complying with any such measure of the U.S. or with any directive or other communication relating to such a measure that the Canadian corporation has received from a person who is in a position to direct or influence the policies of the Canadian corporation in Canada.

This means that Canadian companies wishing to carry on business with or in Cuba and whose goods are regulated under the U.S. Cuban Assets Control Regulations, for example, could be in conflict with U.S. law. On the other hand, if the Canadian company decided not to do business in Cuba because a U.S. extraterritorial measure prohibited such conduct, the company could be in violation of FEMA. The conflict of U.S. and Canadian trade sanctions can result in legal liability for both individuals and corporations, not to mention public relations challenges.

For example, in January 2015, the federal government issued an order pursuant to FEMA in relation to a dispute with the State of Alaska over the construction of a ferry terminal in British Columbia that is leased by Alaska. Alaska had planned to complete the project using only American iron and steel. The FEMA order was intended to prohibit any person in Canada from complying with the Alaskan “Buy America” measures. However, two days after the FEMA order was issued, the State of Alaska cancelled its plans to construct the new terminal.

More recently, in 2017, the U.S. Office of Foreign Assets Control (OFAC) fined a U.S. company when its Canadian subsidiary approved and financed lease agreements between an unaffiliated dealership and the Cuban Embassy in Ottawa. OFAC determined that the lease agreements violated the U.S. Cuban Assets Control Regulations; however, the transactions were permitted under Canadian law and FEMA applied so as to prevent the company from refusing to enter the transaction on the basis of the U.S. law.

In April 2019, the U.S. announced that it would not be continuing the suspension of Title III of the Cuban Liberty and Solidarity Act of 1996. The Canadian government has objected to this decision and the Canadian Minister of Foreign Trade has stated that FEMA still applies. Despite this, the U.S. decision has potential legal implications for businesses operating in Canada.

3.11 - Canadian anti-bribery legislation

There are two statutes in Canada that address bribery and corruption, namely the Corruption of Foreign Public Officials Act (CFPOA), which criminalizes corruption of foreign public officials, and the Canadian Criminal Code, which criminalizes corruption of Canadian government officials and corrupt behaviour in certain transactions among private parties. In both the CFPOA and the Criminal Code, all relevant offences are criminal offences.

3.11.1 - Criminal Code

The Criminal Code contains a number of provisions that regulate conduct in relation to Canadian government officials. In particular, it contains several sections prohibiting the provision of a loan, reward, advantage or benefit of any kind (collectively a “benefit”) to a Canadian government official by those who do business with the government.

Under the Criminal Code, “government official” is defined broadly to include provincial and federal employees and officials (including elected officials, ministers, judges, police, military, employees of regulatory bodies, etc.), as well state corporations if they are acting as an agent of the federal or a provincial government. Bribery of municipal officials and employees is also regulated by section 123 of the Criminal Code. The definition of “official” has also been applied to Aboriginal Band officials and employees under the Criminal Code breach of trust offence, designed to ensure that holders of public office use their offices only for the public good. The secret commissions offence is applicable to all employees and agents, regardless of whether they are in the public or private sector.

Subsection 121(1)(a) of the Criminal Code prohibits the offering or giving a benefit to any government official, or any member of his family, as consideration for cooperation, assistance, the exercise of influence or an act or omission in connection with the transaction of business with the government. This provision is targeted at prohibiting overt forms of corruption. Case law from the Supreme Court of Canada has confirmed that this subsection is designed to prevent the provision of benefits in exchange for influence or an advantage in doing business with the government. It is not illegal under this subsection to provide a benefit per se, unless the benefit is in exchange for cooperation or assistance.

Subsections 121(1)(b) and (c) of the Criminal Code are much broader than the other anti-corruption sections of the Criminal Code, which require an element of a quid pro quo arrangementSubsection 121(1)(b) prohibits the provision of a benefit to government officials with whom the provider has business dealings, even if there are “no strings attached.” Subsection 121(1)(c) prohibits the receipt of such a benefit. Crucially, it is not an offence under these subsections to provide or receive a benefit that has been pre-approved, in writing, by the head of the branch of government dealing with the party that provided the benefit.

Penalties for violation of the anti-corruption offences in the Criminal Code include unlimited fines for corporations, up to five years imprisonment for individuals (including directors and officers that participate in or knowingly assist or encourage the commission of the offence), and forfeiture of any proceeds (not just profits) obtained by the illegal act. Under the Public Works and Government Services Canada Integrity Regime (Integrity Regime) and section 750 of the Criminal Code, conviction of a section 121 offence will result in debarment or incapacity to contract with the Canadian government indefinitely. Under the same regime, being charged with a section 121 offence may result in an 18-month suspension from contracting with the Canadian government.

3.11.2 - CFPOA

The CFPOA is Canada’s equivalent to the United States’ Foreign Corrupt Practices Act, (FCPA). While similar in many respects, there are some notable differences between the CFPOA and the FCPA, which include the prohibition of facilitation payments and lack of civil enforcement under the CFPOA.

The CFPOA forbids transferring or offering to transfer any type of benefit for the purpose of influencing a foreign official to misuse his or her power or influence with the purpose of obtaining or retaining a business advantage. There is also an accounting offence under the CFPOA such that it is an offence to keep secret accounts, falsely record, not record or inadequately identify transactions, enter liabilities with incorrect identification of their object, use false documents, or destroy accounting books and records earlier than permitted by law for the purpose of concealing bribery of a foreign public official.

Under the CFPOA, the actions of Canadian citizens, permanent residents, corporations, societies, firms, or partnerships on a worldwide basis are deemed to be acts within Canada for the purpose of the Act. As a result, Canadian citizens and companies are subject to worldwide regulation by Canadian authorities under the CFPOA, regardless of whether the entirety of the alleged misconduct occurred abroad. For individuals and entities that are not Canadian, the CFPOA may still apply if there is a real and substantial connection between Canada and the alleged misconduct.

A foreign public official is defined in the CFPOA as a person who performs public duties or functions for a foreign state. This definition has broad application and includes a person employed by a board, commission, corporation or other body or authority that is performing a duty or function on behalf of the foreign state, or is established to perform such a duty or function. It also includes employees of wholly or partially state-owned or controlled corporations, and may extend to employees and members of political parties if they perform public duties or functions for a foreign state.

In 2017, the Federal Government of Canada repealed an exemption for facilitation payments under the CFPOA. Facilitation payments, often referred to as “grease payments,” are small payments made to government officials to secure or expedite “acts of a routine nature.” These payments are typically demanded by lower-level government officials, such as customs officials, for the provision of services that the provider of the payment would otherwise be entitled to. This is an important development for organizations that comply with the CFPOA and FCPA, as compliance with the FCPA alone will no longer prevent prosecution by Canadian authorities. These organizations must review their compliance programs to ensure they positively prohibit facilitation payments, even though they are still exempt under the FCPA.

A CFPOA violation can result in imprisonment for up to 14 years. An individual or corporation convicted of a CFPOA offence can also be subject to significant fines. There is no limit to the fines that can be imposed on corporations and the quantum is left to the discretion of the court. In addition, Canadian courts can and have ordered corporate probationary terms, including appointment of a third-party monitor. Under the Integrity Regime noted above, CFPOA convictions result in a maximum 10-year debarment period, and being charged with a CFPOA offence may result in an 18-month suspension from contracting with the Canadian government. Any proceeds (not just profits) or property obtained as a result of a CFPOA offence may be ordered to be forfeited to the Crown.

3.11.3 - Canada’s Resolution Regime

Prior to 2018 amendments to the Criminal Code, Canada had no deferred prosecution agreement regime. As a result, organizations charged with a criminal offence could either plead guilty, and face significant debarment and reputational consequences, or plead not guilty, and dispute the charge.

On September 19, 2018, the Criminal Code was amended to allow for the use of remediation agreements, or Canadian deferred prosecution agreements (Resolution Regime). Remediation agreements are agreements between an accused organization and the prosecutor, whereby the prosecutor agrees to suspend or defer prosecution of an offence in exchange for cooperation and compliance with certain conditions. Once the terms of a remediation agreement are complete, charges against the organization are withdrawn without a criminal conviction or debarment consequences. In the event that an accused organization violates the conditions of a remediation agreement, enforcement may resume through traditional means, including a full criminal conviction.

The Resolution Regime applies retroactively and is available for offences committed prior to it coming into force. The Resolution Regime only applies to certain offences, including section 121 and 123 Criminal Code offences and CFPOA offences. At this time, the Resolution Regime does not apply to Competition Act offences.

Under the Resolution Regime, prosecutors must initiate negotiations. Prosecutors can only enter into negotiations for a remediation agreement with an accused organization if they are of the opinion that there is a reasonable prospect of conviction for the offence and that negotiating a remediation agreement is appropriate in the circumstances and in the public interest. Prosecutors must consider several factors to determine if negotiating a remediation agreement is in the public interest, including:

  • The circumstances in which the alleged offence was brought to the attention of authorities, including whether the organization self-reported the offence
  • Whether the organization has made reparations or taken other measures to remedy harm caused by the alleged offence and to prevent the occurrence of similar issues in the future
  • Whether the organization has identified, or expressed a willingness to identify, any individuals involved with the offence
  • Whether the organization or its representatives have been convicted of, or entered into a remediation agreement with respect to, similar offences in the past

Remediation agreements must receive court approval. Specifically, a court must be satisfied that a remediation agreement is in the public interest and its terms are fair, reasonable and proportionate to the alleged offence. Remediation agreements must include, among other terms:

  • A statement of facts, including an admission of responsibility
  • An obligation to cooperate in identifying individuals or acts of wrongdoing involved in or related to the relevant conduct
  • An obligation to cooperate in any investigation or prosecution resulting from the relevant conduct, including providing information or testimony
  • An obligation to pay a penalty and make reparations (where appropriate)

Remediation agreements can also include additional terms, such as third-party compliance monitors or an obligation to reimburse the government for any costs related to the investigation and prosecution that led to the remediation agreement.

Upon receiving court approval, prosecution against the accused organization is stayed, subject to satisfaction of the terms of the remediation agreement. Approved remediation agreements, including the statement of facts and admission of responsibility, are publicly available, subject to a court sealing the record, and may be admissible as evidence in other matters related to underlying misconduct.

To date, there have been two remediation agreements entered into under the Resolution Regime. The first agreement was approved by a court in 2022 with respect to domestic bribery charges under the Criminal Code. The second was approved by a court in 2023 with respect to foreign bribery charges under the CFPOA. Both agreements were entered into by the Quebec Crown Prosecutor's Office and the respective accused corporations.

4. Product Standards, Labelling and Advertising

4.1 - How are product standards requirements created? Are Canadian product standards in line with international standards?

Canadian legislators and industry bodies are highly influenced by international standards, and so Canadian standards frequently reflect both U.S. and European influences. These standards may take several different forms, from mandatory legal requirements to voluntary industry codes.

Mandatory legal requirements may be imposed under federal and/or provincial legislation, particularly where health or safety issues are involved. These requirements may be written into the legislation itself or may be incorporated into legislation by reference (e.g., legislation may require compliance with the latest issue or edition of a voluntary standard).

The Standards Council of Canada (Council) is the national co-ordinating body for the development of voluntary standards through the National Standards System. The standards-developing organizations accredited by the Council include the Canadian General Standards Board (CGSB), the Canadian Standards Association (CSA Group), Underwriters Laboratories Inc., the Underwriters Laboratories of Canada (ULC Standards), NSF International, le Bureau de normalisation du Québec, and ASTM International. The Council also accredits other organizations, including certification bodies, inspection bodies, and testing/calibration laboratories.

The concern that standards constitute non-tariff trade barriers has been a major international and free trade issue. The Council participates in a variety of international harmonization initiatives, including the International Electrotechnical Commission and the World Trade Organization’s Committee on Technical Barriers to Trade, established under the WTO Agreement on Technical Barriers to Trade.

4.2 - Consumer product safety legislation

Consumer products are regulated in Canada by the Canada Consumer Product Safety Act (CCPSA). The CCPSA applies to all consumer products except those specifically exempted from the Act. The term “consumer product” is defined broadly to include components, parts, accessories and packaging that may be obtained by an individual to be used for non-commercial purposes.

The CCPSA does not apply to certain products regulated under other existing legislation, such as food, drugs (including natural health products), medical devices, cosmetics and pest control products. Nevertheless, the legislation still impacts otherwise exempt organizations (e.g., food or non-prescription drug companies) that distribute non-exempted products (e.g., in their packaging or via mail-in offers). Further, there are many products that are regulated by both the CCPSA and other product-specific legislation (such as electrical products and textile products).

4.2.1 - General prohibition

There is a general prohibition in the CCPSA against the manufacture, importation, advertisement or sale of any consumer product that is a “danger to human health or safety” or is subject to a recall or certain other corrective measures. The term “danger to human health or safety” means any existing or potential unreasonable hazard posed by a consumer product during normal or foreseeable use that may reasonably be expected to cause death or an adverse effect on health.

In addition, the CCPSA prohibits any person from manufacturing, importing, advertising or selling a specific consumer product listed in Schedule 2. Regulations published under the CCPSA govern various aspects of certain prescribed products, including manufacturing standards, labelling requirements and prohibited components/substances.

4.2.2 - Mandatory record-keeping and reporting

Under the CCPSA, manufacturers, importers, advertisers, sellers and testers of consumer products must maintain documentation that allows consumer products to be traced through the supply chain. Retailers must keep records of the name and address of the person from whom they obtained the product and all others must keep records of the name and address of the person from whom they obtained the product and to whom they sold it. These documents must be kept for six years at the Canadian place of business of the organization to which the provision applies.

Manufacturers, importers, advertisers and sellers of consumer products must notify the minister and the person from whom they received a consumer product within two days of an “incident” related to the product. An incident is defined to include:

  • An occurrence that resulted or may reasonably have been expected to result in an individual’s death or serious adverse health effects
  • A defect or characteristic that may reasonably be expected to result in an individual’s death or serious adverse health effects
  • Incorrect or insufficient labelling or instruction that may reasonably be expected to result in an individual’s death or serious adverse health effects, or
  • A recall or other measure initiated by a foreign entity, provincial government, public body or aboriginal government

The manufacturer or importer must provide a written report of the incident within 10 days of the incident.

4.2.3 - Minister’s powers

The minister is granted broad powers under the CCPSA in several areas. The minister has the authority to order manufacturers and importers of consumer products to conduct tests or studies on a product and to compile information to verify compliance with the CCPSA and regulations and to provide the minister with that information within the time and in the manner the minister specifies.

If the minister believes on reasonable grounds that a consumer product is a danger to human health or safety, the minister may order a manufacturer, importer or seller to recall the product or to implement other specified corrective measures. If a recall or corrective measure order issued by the minister is not complied with, the minister may carry out the recall at the expense of the non-compliant manufacturer, importer or seller. A review of the recall, if requested in writing by a manufacturer, importer or seller, must be completed within 30 days (or as extended by the review officer). The order of the minister remains in effect while the review is ongoing.

The minister also has broad powers to disclose personal and business information without consent to a person or government that carries out functions relating to the protection of health and safety.

Further, under the CCPSA and its regulations, every person who contravenes an order to take specified measures with respect to a consumer product, such as an order to recall a product, commits a violation under the Act and is liable to pay an administrative monetary penalty.

4.3 - What are the sources of labelling requirements? Must or should all labels be bilingual?

Product labelling is regulated at both the federal and provincial levels through statutes of general application and statutes applicable to specific products. The Consumer Packaging and Labelling Act (CPLA) is the major federal statute affecting pre-packaged products sold to consumers. The CPLA and the associated Consumer Packaging and Labelling Regulations require pre-packaged consumer product labels to state the common or generic name of the product, the net quantity and the manufacturer’s or distributor’s name and address. Detailed rules are set out as to placement, type size, exemptions and special rules for some imported products.

The CPLA and associated regulations, like most federal legislation, require mandatory information on labels to be in both English and French. There are exceptions – most notably that the manufacturer’s name and address can be in either English or French. While non-mandatory information is not generally required to be presented bilingually under federal law, most Canadian packaging is nevertheless fully bilingual for marketing and liability reasons. Moreover, labelling on products that are to be sold in Quebec is effectively required to be fully bilingual because the Quebec Charter of the French Language requires that most product labelling and accompanying materials, such as warranties, be in French. Labelling in Quebec can contain another language or languages, provided that no other version is given greater prominence or made available on more favourable terms than the French version. Depending on the circumstances, exceptions may apply. For instance, a “recognized” trademark within the meaning of the Trademarks Act may appear exclusively in a language other than French on product labelling or packaging or a document supplied with the product unless a French version of that trademark is registered. Pursuant to recent amendments to the Charter, starting on June 1, 2025, this exception will only be available to non-French registered trademarks if no French version appears on the register kept under the Trademarks Act. In addition, recent changes to the Charter will require, starting on June 1, 2025, to the extent that a trademark benefitting from the exception appearing on a product includes a generic term or description of the product, that term or description will have to appear in French on the product/packaging or on a medium accompanying the product in a permanent manner.

Marking of the country of origin is required for certain products listed in regulations issued pursuant to the Customs Tariff. See Section IV.3.5.6, “Country of origin issues.”

Many other federal statutes, such as the federal Food and Drugs Act, Cannabis Act, Tobacco and Vaping Products Act, Pest Control Products Act and the Textile Labelling Act, mandate labelling and language requirements for specific products and/or claims.

4.4 - Food

Most food products are regulated under the Food and Drugs Act and Food and Drug Regulations. In addition to labelling requirements common to other pre-packaged products, foods must also, with a very few exceptions, contain a list of ingredients in English and French. A “best before” date (in a particular Canadian format) is required for foods with a shelf life of less than 90 days. Nutrition labelling, with limited exceptions, is mandatory. Only a few very closely defined health claims are permitted. Canadian food legislation regulates claims, sets standards for specific food products and mandates standards of purity and quality.

Canada is currently undergoing a modernization of food safety legislation. The Safe Food for Canadians Act (SFCA) and associated regulations came into force in January 2019 and were intended to align Canadian requirements more closely with trade requirements under the U.S. Food Safety Modernization Act. The requirements of the SFCA are built around three key elements: licensing, preventative controls and traceability. Timelines for compliance with each of these requirements vary based on business size and activities and the types of food at issue. While some aspects of the regulatory framework are entirely new, others will be familiar to certain sectors of the food industry. This is because the SFCA constitutes, in part, a consolidation of the Fish Inspection Act, the Meat Inspection Act, the Canadian Agricultural Products Act and the Consumer Packaging and Labelling Act. However, companies should be aware that many of the requirements under the SFCA now apply to a wider range of food products and trade activities than in the past.

In December 2016, amendments to the nutrition labelling, list of ingredients and food colour requirements under the Food and Drug Regulations came into force. Some of the notable changes include: revisions to the percentage daily values in the nutrition facts table based on updated science, updating the list of nutrients disclosed in the nutrition facts table, the grouping of sugars-based ingredients in the list of ingredients and changes to the declaration of serving sizes in the nutrition facts table. Industry was given a five-year transition period to meet most of the new requirements.

In July 2022, additional regulations came into effect setting out new requirements for supplemented foods and requiring most packaged food labels to include standardized front-of-package disclosure when the foods are considered high in saturated fat, sugars or sodium. There is a multi-year transition period ending in January 2026 for these new requirements.

4.5 - Drugs and Medical Devices 

Drugs are also regulated in Canada under the federal Food and Drugs Act and the Food and Drug Regulations. Prescription and non-prescription drugs require prior market authorization identified by a Drug Identification Number (DIN) which must appear on the product packaging. In the case of “new drugs,” a notice of compliance is also required which is issued following an assessment of the drug’s safety and efficacy. In addition, Canadian establishments that fabricate, package, label, distribute, import, wholesale or test a drug must have an establishment licence and further licensing may be required for activities related to certain substances, such as narcotics. The location of sale of drugs and the professions involved in the prescribing and sale of drugs, such as physicians and pharmacists, are regulated under provincial legislation and by self-regulatory professional organizations.

“Natural health products” such as vitamins and minerals, herbal remedies, homeopathic medicines and traditional medicines (such as traditional Chinese medicines) are regulated by the Natural Health Products Regulations. Natural health products require prior market authorization (product licence) identified by a product registration number (NPN) or, in the case of a homeopathic medicine, by the letters DIN-HM, which must appear on the product packaging. Canadian sites that manufacture, package, label and import these products must have a site licence. These requirements are quite different than in the U.S., where similar types of products are often considered “dietary supplements” and are not subject to the same level of regulatory oversight as natural health products.

Medical devices are regulated by the Medical Devices Regulations. Similar to drugs, most medical devices must have a medical device license (MDL) before they can be sold in Canada. To determine which devices need a license, regulators have categorized all medical devices based on the risk associated with their use. Medical devices are grouped into four classes. Class 1 devices present the lowest potential risk and Class 4 devices present the greatest potential risk. Prior to selling a device in Canada, manufacturers of Class 2, 3, and 4 devices must obtain an MDL. Although Class 1 devices do not require an MDL, they are monitored through the medical device establishment license system. Most importers and distributors of all classes of medical devices, as well as manufacturers of Class 1 devices who do not sell their products through a licensed importer or distributor in Canada, must hold a medical device establishment license.

The government passed amendments to the Food and Drugs Act under Bill C-17, the Protecting Canadians from Unsafe Drugs Act. Bill C-17 grants the minister substantial new powers, including the ability to: conduct recalls, order modifications to labels/packaging, and require the submission of health and safety data post-approval. In addition, Bill C-17 permits disclosure of confidential business information relating to drugs and medical devices under certain circumstances. Some of the provisions of Bill C-17 will only come into force after related regulations have been developed, and such regulations continue to evolve.

4.6 - Weights and measures

The Weights and Measures Act mandates that the metric system of measurement is the primary system of measurement in Canada. While a metric declaration of measure is required, in most cases it is also possible to have a non-metric declaration in appropriate form.

4.7 - Advertising regulations and enforcement

4.7.1 - Federal law

Product advertising and marketing claims are primarily regulated by the Competition Act (Canada), which has a dual civil and criminal track for advertising matters. The Competition Act includes a general prohibition against making any misleading representation to the public for the purpose of promoting a product or business interest that is false or misleading in a material respect. It is not necessary to establish that any person was actually deceived or misled by the representation. Making a false or misleading representation is a criminal offence if done knowingly or recklessly. In the absence of knowledge or recklessness, the Competition Act provides for civil sanctions including cease and desist orders, mandatory publication of information notices and administrative monetary penalties.

The false or misleading advertising provisions of the Competition Act were amended by Canada’s Anti-Spam Legislation. The amendments, which were introduced to give the Competition Bureau greater oversight of online activity, prohibit any representation in an electronic message that is false or misleading in a material respect. In addition, the amendments prohibit any false or misleading representation, regardless of materiality, in the sender description or subject line of an electronic message, or in a “locator” (e.g., metadata or URL). See Section XI, “Information Technology.”

Ordinary price or sale claims that do not meet time or volume tests set out in the Competition Act are also prohibited. These tests differ from U.S. law, and the Competition Bureau has been active in bringing enforcement actions against such claims. Performance, efficacy or length of life claims for products must be supported by adequate and proper testing conducted before the claims are made. The Competition Act’s telemarketing provisions require disclosure of certain information during telemarketing calls and render failures to disclose and certain deceptive practices criminal offences.

The Competition Act also requires disclosure of key details of promotional contests, such as the number and approximate value of prizes and factors affecting the chances of winning. It is prohibited to send a deceptive notice that gives the recipient the general impression that a prize will be or has been won and that asks or gives the recipient the option to pay money or incur a cost. Because of anti-lottery provisions in the Criminal Code, most Canadian contests offer consumers a “no purchase” method of entry and require selected entrants to answer a skill-testing question before being confirmed as winners.

The Competition Act provides a civil right of action to those suffering damage as a result of conduct contrary to the criminal provisions of the Act, including the criminal false or misleading advertising provisions. While no similar right of action exists with respect to civilly reviewable conduct, recourse may be sought through common law tort and trademark routes.

Monetary penalties for civilly reviewable false or misleading representations can be significant and were increased as recently as June 2022. The current maximum civil penalty under the Competition Act is the greater of C$15-million (for a second order against a corporation) and three times the value of the benefit obtained from the deceptive conduct. If that amount cannot be reasonably determined, the maximum penalty will be 3 per cent of annual worldwide gross revenues.

Courts may also order advertisers who engage in misleading advertising to disgorge the proceeds to persons to whom the products were sold (excluding retailers, wholesalers and distributors to the extent that they have resold or distributed the products). Courts are given broad authority to specify terms for the administration of such funds, including how to deal with unclaimed or undistributed funds.

In June 2022, the Competition Act was further amended to add a new provision specifically prohibiting drip pricing. Drip pricing involves offering a product or service at a price that is unattainable, because consumers must also pay additional non-government-imposed charges or fees to buy the product or service.

In addition to the Competition Act, there are many other sources of advertising law and guidance in Canada. For example, Ad Standards, a national not-for-profit advertising self-regulatory body, has developed the Canadian Code of Advertising Standards. In addition, there are a variety of product-specific codes and laws that contain advertising requirements, such as the Food and Drugs Act, Pest Control Products Act, Tobacco and Vaping Products Act and Cannabis Act.

4.7.2 - Provincial law

Provincial legislation, particularly consumer protection and business practices legislation, also impacts advertising. For example, the Consumer Protection Act, 2002 (Ontario) renders it an “unfair practice” to make false, misleading or deceptive consumer representations, including with respect to sponsorship, approval, performance characteristics, accessories, uses, ingredients, benefits or quantities that the products do not have, and even goes so far as to create, as an unfair practice, certain “unconscionable” representations. Businesses that make unconscionable consumer representations face exemplary or punitive damages. Other remedies include rescission or having to refund that portion of the purchase price which exceeds the “fair value” of the goods or services in question. Non-residents should pay particular attention to the Ontario Consumer Protection Act, 2002 as it applies if the consumer is located in Ontario, even if the supplier is not. Similar legislation exists in most provinces, although the specifics of the legislation can vary quite a bit.

Most promotional contests run in Quebec, or in Quebec and other Canadian jurisdictions, must comply with contest legislation in that province, including notice, duty, security and filing requirements. Moreover, Quebec’s Charter of the French Language generally requires commercial advertising in Quebec to be displayed in French, although, depending on the location of the advertisement, it may be accompanied by a version in one or more other languages provided that no other language version is available on more favourable terms than the French version or, in some situations, that the French version is markedly predominant. Depending on the circumstances, exceptions may apply. For instance, a “recognized” trademark within the meaning of the Trademarks Act may appear exclusively in a language other than French on commercial advertising available to the public or on public signage unless a French version of that trademark is registered (pursuant to recent amendments to the Charter, starting on June 1, 2025, this exception will only be available to non-French registered trademarks if no French version appears on the register kept under the Trademarks Act). The regulations under the Charter of the French Language require the use of French words along with the trademark on outdoor signs in certain circumstances, and will require French to be markedly predominant starting on June 1, 2025.

5. Product Liability — Common Law Provinces

5.1 - How broad is the potential for liability in a contractual claim?

A party to a purchase or supply contract is entitled to sue for damages for breach of the contract if the product’s quality, fitness or performance does not comply with express or implied contractual terms. Implied terms may be found by reference to trade practice or common usage. In addition, provincial sales of goods legislation will generally imply, as part of any agreement for the sale of goods, terms and conditions regarding the fitness and quality of the products sold. Legislation commonly prohibits exclusion of these statutory warranties and conditions from contracts for the sale of products to consumers. In a few provinces, legislation implies statutory warranties in favour of consumers by manufacturers and others in the distribution chain in certain circumstances, even in the absence of contractual privity.

5.2 - How broad is the potential for liability in a negligence claim?

Where a purchaser or user of a defective product does not have a contractual relationship with the proposed defendant and statutory warranties are not implied, the purchaser or user will have to prove negligence; that is, failure to exercise reasonable care in the preparation or putting up of the product that results in injury to the foreseeable user or the user’s property. Product liability claims under common law can be made for negligently manufacturing a product, negligently designing it or failing to warn foreseeable users of the product of dangers inherent therein. Although negligence must be proven in each case, manufacturers will, as a practical matter, be held liable if a product has a manufacturing defect (i.e., it was built in a way that was not intended by the manufacturer), because the court will assume there was negligence in the manufacturer’s production process or by its employees and will not require the consumer to establish which it was.

In addition to product liability claims, a product vendor, manufacturer or distributor who recklessly or carelessly makes false statements regarding its safety or utility may be held liable for any losses arising from reasonable reliance on such statements. To establish liability for such negligent misrepresentation, the court must find that there existed a “special relationship” between the person making the statement and the recipient of the statement, actual or constructive knowledge on the part of the maker that the recipient intended to rely on the accuracy of the statement, and proof that such reliance was reasonable and caused the loss. Provincial consumer protection legislation may provide consumers with additional remedies for “false,” “misleading” or “deceptive” representations, and is increasingly being relied upon in product liability class actions.

All parties in the distribution chain are potentially liable for product liability claims if negligence can be established. Examples would include failure to detect any product defect that they knew or ought to have known existed through reasonable inspection, or failing to provide warnings to potential users of dangers they knew or ought to have known were associated with use of the product.

Under provincial negligence legislation, joint tortfeasors are jointly and severally liable for a plaintiff’s loss in most cases. The court may determine the degree of fault or negligence of various persons whose collective “fault” or neglect caused injury to a plaintiff and apportion it among those persons. However, the plaintiff can recover all damages from a defendant found even partly at fault, and it will then be up to that defendant to seek contribution from other tortfeasors.

5.3 - What is the extent of a person’s liability?

A plaintiff’s damage recovery may be reduced to reflect any fault or negligence on the plaintiff’s part that contributed to the injury or loss. The recovery of damages for negligence, negligent misrepresentation, breach of the duty to warn and breach of contract are limited to losses reasonably foreseeable to the parties and not considered “remote.” Damages for personal injury and property damage are intended to be compensatory. General damages for pain and suffering are presently capped at about C$438,000.

Economic losses are recoverable in claims respecting breach of contract, negligent misrepresentation and breach of the duty to warn. Canadian law is unsettled in some respects regarding the extent to which economic loss arising from a product defect may be recovered in a negligence action where the defect does not cause personal injury or property damage other than to the product itself, or the risk of such loss. However, the Supreme Court of Canada has recently affirmed that pure economic loss caused by negligence can only be collected in a narrow set of circumstances, and in particular, are not recoverable in respect of reputational harm and resulting economic losses sustained by an intermediary in a supply chain as a result of a manufacturer’s recall.

5.4 - Other litigation risks: class actions, juries and punitive damages

Historically, Canadians have been less litigious than Americans and damage awards have been much lower. Jury trials are much less common than judge-alone trials; there is no constitutional right to a jury trial in a civil case. Punitive damages are available in Canada in certain circumstances, though such awards have historically been very rare in product liability cases and, in most cases, fairly modest when made. Outside the class action context, there has been some recent support for higher punitive damage awards, though still in very limited circumstances. See Section XVIII, “Dispute Resolution.”

In recent years, however, class action legislation in Canadian provinces has changed the Canadian litigation landscape, resulting in a number of multimillion-dollar settlements in the product liability area. The threshold for class certification is generally considered to be lower in Canada than the United States, and product liability class actions for personal injury damages, medical monitoring costs and refunds have been certified despite vigorous opposition from defendants. In Ontario, recent amendments to the Ontario Class Proceedings Act, 1992 have resulted in a reduction in the number of product liability class action claims being advanced in Ontario, though class actions are frequently brought and certified in other provinces including British Columbia and Quebec. To date, relatively few class actions have proceeded to trial in Canada (outside of Quebec), though this number has increased in recent years.