International Trade 2021 Comparisons

Last Updated January 06, 2021

Law and Practice

Authors



Borden Ladner Gervais LLP is the largest, truly full-service Canadian law firm, delivering practical legal advice for domestic and international clients across more practices and industries than any Canadian firm. With over 700 lawyers, intellectual property agents and other professionals in five Canadian offices, Borden Ladner Gervais LLP (BLG) serves the legal needs of businesses and institutions across Canada and beyond. BLG’s international trade and investment practice covers all aspects of trade and investment regulation, compliance and dispute resolution, from customs and trade remedies to sanctions, export control and anti-corruption laws, treaty negotiations, and WTO, FTA and investor-state dispute settlement. The firm fields Canada’s largest team of highly experienced partners and associates dedicated exclusively to international trade and investigation matters, working closely with its corporate, competition and disputes groups to provide practical, strategic representation to its global client base.

Canada was an original contracting party to the General Agreement on Tariffs and Trade (GATT) and has been a member of the WTO since its inception in 1995.

Canada is a party to the following WTO plurilateral agreements:

  • Revised Agreement on Government Procurement (GPA);
  • Trade Facilitation Agreement;
  • Agreement on Trade in Civil Aircraft;
  • Information Technology Agreement.

The GPA is particularly important for Canada because it is the only agreement governing Canada’s government procurement obligations with the USA, its largest trading partner. (The government procurement commitments in the United States–Canada–Mexico Agreement (USMCA), which replaced the North American Free Trade Agreement, apply only as between the USA and Mexico.)

Canada is also a participant in the multi-party interim appeal arrangement (MPIA) to use the voluntary arbitration provisions of the WTO’s Dispute Settlement Understanding to enable appeals from panel reports during the current impasse that has left the Appellate Body non-functioning. The effect of the MPIA is to preserve binding WTO dispute settlement among the participating members.

Canada is party to 14 regional and bilateral free trade agreements (FTAs) covering trade with many of its largest trading partners and a number of its smaller ones. Some of Canada’s FTAs are broad agreements that substantively address goods, services, investment, procurement and intellectual property, or some combination of these, while others focus largely on trade in goods.

In the former category are the:

  • Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP);
  • USMCA;
  • Canada–European Union Comprehensive Economic and Trade Agreement (CETA);
  • Canada–Chile FTA;
  • Canada–Columbia FTA;
  • Canada–Honduras FTA;
  • Canada–Korea FTA;
  • Canada–Panama FTA;
  • Canada–Peru FTA;
  • Canada–Ukraine FTA.

In the latter category are the:

  • Canada–Costa Rica FTA;
  • Canada–European Free Trade Association FTA;
  • Canada–Israel FTA;
  • Canada–Jordan FTA.

Canada’s FTAs with some of its other trading partners incorporate investment protections and investor-state dispute settlement, while in other cases (Costa Rica and Ukraine) those protections are found in separate bilateral investment treaties (BITs) as further discussed in 1.3 Other Trade Agreements.

All of the FTAs listed above are in force, other than the CETA – most of which is provisionally in force, with the notable exception of its investment protection provisions.

Canada has a number of other trade agreements and arrangements that can facilitate trade.

Preferential Tariff Arrangements

Canada currently has three regimes for providing non-reciprocal tariff preferences to developing and least-developed countries, including the General Preferential Tariff (GPT), Least Developed Country Tariff (LDCT), and the Commonwealth Caribbean Country Tariff (CCCT). Under these, Canada offers unilateral tariff rates less than the Most Favoured Nation rates that would otherwise apply. Canada maintains its CCCT pursuant to a general waiver authorised by the WTO General Council, expiring on 31 December 2023.

Under the GPT and CCCT, Canada grants tariff preferences only for certain agricultural and industrial products, whereas under the LDCT – with the exception of certain supply-managed agricultural goods – all goods imported into Canada from a LDC receive duty-free access.

Canada graduated 72 countries out of GPT preference on 1 January 2015.

Internal Trade Agreements

As a federal state, Canada, its provinces and territories are – somewhat unusually – parties to an internal Canadian Free Trade Agreement (CFTA). The existence of the CFTA reflects the prevalence of internal trade barriers in Canada. The CFTA’s strongest commitments are in the area of government procurement. Certain provinces have further liberalised trade among themselves, notably the western provinces of British Columbia, Alberta and Saskatchewan under the New West Partnership Agreement.

Investment Protection Agreements

In addition to its free trade agreements, many of which include investment protections, Canada is party to over 35 BITs (also known in Canada as foreign investment promotion and protection agreements, or FIPPAs) offering investment protections and investor-state dispute settlement.

A full listing of Canada’s BITs, including not yet in force, is available on the Global Affairs Canada Trade and Investment Agreement website.

At the time of writing, Canada is in the process of negotiating several other FTAs, and has concluded negotiation of a “roll-over” agreement with the UK, which will extend bilaterally most of Canada’s and the UK’s CETA obligations beyond 1 January 2021.

Canada is also in the process of negotiating free trade agreements with the Mercosur trade bloc (which includes Argentina, Brazil, Paraguay and Uruguay) and with the Pacific Alliance (comprised of Chile, Colombia, Mexico and Peru). As Canada is already a party to a comprehensive FTA with each of the Pacific Alliance countries, the benefits of this latter agreement are likely to be incremental and include greater duty-free trade in agrifood products.

Canada has a number of other FTA negotiations that, while formally in progress, are unlikely to conclude any time soon, if ever. These include negotiations with India and with the CARICOM countries.

In recent years, Canada and the ASEAN countries have conducted exploratory discussions on a potential FTA but formal negotiations seem unlikely in the near term.

Canada has also been a party to the negotiation of a Trade in Services Agreement (TiSA) with 22 other WTO members (although not formally under the auspices of the WTO). These negotiations stalled in the aftermath of the 2016 US elections and no further work is currently scheduled.

USMCA

The USMCA, which replaced the North American Free Trade Agreement, entered into force on 1 July 2020. While the USMCA largely preserves the content of the former NAFTA, there are some significant differences, namely:

  • more flexible origin procedures and an increase (from 7% to 10%) in the permitted levels of non-originating content that will still allow goods to qualify for preferential tariff treatment;
  • stricter rules of origin for automobiles and parts, including a higher regional value content, a new high-wage labour value content requirement, and a requirement to use North American steel and aluminium;
  • more flexible rules of origin for a range of chemical and petrochemical products, including to allow for non-originating diluent in crude petroleum and non-originating feedstock in liquefied natural gas;
  • additional US TRQ access to Canada’s dairy market and changes to Canada wheat grading system;
  • increased de minimis thresholds for goods imported into Canada by express shipment;
  • revisions making it more difficult for a party to block the formation of state-to-state dispute settlement panels.
  • elimination of investor-state dispute settlement as between the USA and Canada three years from the agreement’s entry into force;
  • expanded and more enforceable labour rights and environmental protection provisions;
  • the addition of a “sunset” clause under which the agreement expires 16 years after entry into force unless the parties extend it;
  • provisions on digital trade, including a prohibition on data localisation and on customs duties and other charges on digital products;
  • additional intellectual property protections including
    1. patent term adjustments for unreasonable approval delays,
    2. an increase to the basis term of copyright protection from the life of the author plus 50 years to life plus 70 years,
    3. safe harbours for internet services providers,
    4. the protection of “collective marks”, and
    5. provisions regarding geographical indications.

See also 2.4 Key Developments in Customs Measures.

US Section 232 Tariffs

In August 2020, the USA re-imposed a 10% Section 232 tariff on certain aluminium imports, which it had first imposed in 2018 (along with a 25% tariff on steel products) and then lifted in 2019 as part of a settlement understanding with Canada in which Canada also removed its retaliatory tariffs. The USA again lifted the aluminium tariffs effective 1 September 2020, shortly before Canada was poised to retaliate, but has threatened to reimpose them if Canadian aluminium exports exceed certain thresholds.

WTO Appellate Body Impasse

Canada is among the WTO Members participating in the MPIA; see also 1.1 World Trade Organization Membership or Plurilateral Agreements.

UK Trade after Brexit

Canada’s recently concluded “roll-over” agreement with the UK is expected to enter force before the end of 2020. If it does not (see 1.4 Future Trade Agreements), Canada-UK trade will no longer benefit from the terms negotiated in the CETA and tariffs could revert to Most Favoured Nation tariffs rates.

WTO Reform

Canada is among the most active users of the WTO dispute settlement system. We expect that the government of Canada will remain active, through the Ottawa Group, in efforts to advance reforms to the multilateral trading system, including to resolve the Appellate Body impasse.

Introduction

The Canadian constitution allocates the power to regulate international trade, including border controls and customs enforcement, to the Parliament of Canada. Two primary federal laws govern most customs matters, the Customs Act and the Customs Tariff Act, and their associated regulations. Other federal laws govern certain discrete customs matters. The Special Import Measures Act, which regulates the conduct of trade remedy proceedings and the levying and collection of provisional, anti-dumping, and countervailing duties (see 5 Anti-dumping and Countervailing (AD/CVD)), and the Excise Tax Act, which imposes taxes on imported goods.

Administrative policies and procedures governing the interpretation and implementation of customs laws are contained in the Departmental Memoranda and Customs Notices of the Canada Border Services Agency (CBSA), the customs and border control authority, and are an integral part of Canada’s customs framework.

The Customs Act

The Customs Act is the primary law governing the importation and exportation of goods into and out of Canada. It requires persons to report and account for imports, including the payment and collection of customs duties. Commercial exports must also be reported, with the notable exception of most goods exported to the USA. Pursuant to an agreement with the USA, Canada receives export information from US import data and, therefore, does not require export declarations for most commercial goods exported to the USA. The Customs Act also outlines the powers and responsibilities of Border Services Officers of the CBSA, including the power to inspect and detain persons, goods and conveyances entering Canada, and the power to collect customs duties.

Specifically, the Customs Act provides authority for the following:

  • the establishment of Customs Offices and the licensing of customs brokers;
  • reporting of persons, goods, and conveyances entering Canada;
  • release, accounting (including the keeping of records) and payment of duties;
  • valuation of goods for the purpose of duty calculation;
  • appeals processes; and
  • penalties and other sanctions for non-compliance.

The Customs Tariff

The Customs Tariff is the Act providing the legal authority for both the imposition of, and relief from, customs duties and other charges on goods entering Canada.

Specifically, the Customs Tariff Act provides authority for:

  • the imposition of customs duties, including rules of origin, direct shipment and transhipment, marking of goods, tariff treatment (including the implementation of tariff treatment for goods subject to bilateral and multilateral preferential free trade agreements), tariff rate quotas, and other special and emergency measures, including global and country specific safeguards;
  • duties relief, including the reduction of rates of customs duties, importation without full payment of duties, relief on obsolete or surplus goods, and other relief; and
  • prohibited goods.

A schedule under the Customs Tariff lists the specific rates of duty that Canada applies to imported goods. The Customs Tariff is based on the World Customs Organization’s Harmonized Commodity Description and Coding System.

Departmental Memoranda and Customs Notices

The CBSA establishes policies respecting its interpretation of federal laws governing customs matters. The CBSA publishes its policies in Departmental Memoranda, referred to as D-memos, and Customs Notices. The CBSA issues Customs Notices to inform the importing and exporting community about proposed changes to customs programmes and procedures. Any information contained in a Customs Notice that is intended as ongoing reference material is later integrated into D-memos.

The primary government agencies that administer and enforce customs laws, regulations, and administrative policy are the CBSA and the Canada Revenue Agency (CRA). The CBSA carries out the vast majority of customs and border administration while the CRA administers Canada’s taxation system, which includes certain border taxes payable on goods at their time of importation.

The Canada Border Services Agency

The CBSA is an agency of Public Safety Canada, which is part of the federal Ministry of Public Safety and Emergency Preparedness.

Importers (including non-residents) of commercial goods that carry on commercial activities in Canada at a certain threshold must obtain a business number and an import/export account from the CRA. Businesses may use a licensed customs broker to transact business on their behalf with the CBSA but remain responsible for the accounting of imported goods, including liability for the payment of any duties and taxes.

The CBSA has authority to examine shipments, and verify compliance with respect to origin, tariff classification, value for duty and other regulations applying to imported goods. The CBSA also administers Canada advance ruling procedures for importers, exporters, producers to request either: (i) a National Customs Ruling for valuation, non-FTA origin, or marking; or (ii) an Advance Ruling for tariff classification and origin under an FTA.

The CBSA is empowered by the Customs Act to control and detain goods on behalf of other federal government departments and agencies. The CBSA works with these organisations to regulate importations, including with:

  • the Canadian Food Inspection Agency, for foods, animals, and plants;
  • Health Canada, for controlled substances and precursor chemicals;
  • Global Affairs Canada, for goods controlled by way of quotas, tariffs, or that are otherwise restricted;
  • Innovation, Science and Economic Development Canada for packaging and labelling; and
  • Environment and Climate Change Canada for the import and export of goods subject to the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES) and the Montreal Protocol on Substances that Deplete the Ozone Layer.

In total, the CBSA assists in administering over 90 acts, regulations and international agreements on behalf of other federal departments and agencies, Canada’s provinces, and Canada’s territories.

Canada Revenue Agency

The CRA administers federal tax laws as well as certain tax programmes for Canada’s provinces and territories. Respecting customs matters, the CRA is responsible for levying and collecting certain taxes on imported goods including the federal Goods and Services Tax, the Harmonized Sales Tax, and Excise Tax.

Under the Customs Tariff Act, the Governor-in-Council (which is composed of the federal Cabinet) can impose, by order, “special measures” to enforce Canada’s rights under a trade agreement and/or in response to acts, policies or practices of another country that adversely affect trade in goods or services of Canada. Specifically, Section 53 allows the federal government to impose surtaxes and/or tariff-rate-quotas.

The federal government most recently imposed surtaxes under the Customs Tariff in 2018 in response to the USA’s decision to impose Section 232 tariffs on Canadian steel and aluminium. These surtaxes were later repealed in accordance with a settlement arrangement with the USA.

There is no formal procedure or process for domestic companies to petition the federal government to initiate a review to determine whether the conditions in Section 53 of the Customs Tariff Act have been met. The federal government simply encourages Canadian companies operating abroad to report trade and/or investment barriers they may encounter to Global Affairs Canada.

Streamlined Customs Procedures for COVID-19

In response to the COVID-19 pandemic, the federal government and CBSA made temporary changes to a range of customs procedures to provide relief from legislative and/or administrative timelines, fees, duties and penalties in response to business interruptions, and to streamline importation and regulatory processes for high-demand goods such as personal protective equipment (PPE) and medical devices.

USMCA Revisions

Revisions to customs procedures under the USMCA include new Uniform Regulations respecting the interpretation and application of Chapter 5 (Origin Procedures), Chapter 6 (Textiles and Apparel Goods) and Chapter 7 (Customs Administration and Trade Facilitation). Significant changes were made to origin procedures for automotive goods including requirements for increased North American content and a new Labour Value Content Rule requiring 40-45% of automotive content to be made by workers earning USD16 per hour or more. Other significant changes include:

  • importers, exporters or producers may now certify origin using an electronic certification of origin that contains minimum threshold data elements (previously only producers or exporters could certify using a set form);
  • an increase to the low-value-shipment threshold for commercial goods to CAD3,300 and the elimination of the requirement to provide a written statement certifying origin for these goods;
  • an extension of the timeline for submitting claims for duty refunds because of preferential tariff treatment from one year to four years from the customs accounting date.

Trade Fraud and Trade-Based Money Laundering Centre of Expertise

First announced in Canada’s 2019 Federal Budget, the CBSA launched its Trade Fraud and Trade-based Money Laundering Centre of Expertise on 1 April 2020. This new centre aims to improve the CBSA’s ability to investigate customs and trade fraud offences that allow trade-based money laundering to occur.

CBSA Assessment and Revenue Management (CARM) Initiative

CARM is a multi-year initiative that aims to replace existing customs systems with a unified paperless solution for the accounting, payment, and collection of duties and taxes. The CBSA intended the initiative to be completed in autumn 2021. However, this has been delayed by the COVID-19 pandemic and new timelines have yet to be released.

The government of Canada imposes sanctions under three principal statutes:

  • the United Nations Act (UN Act), which gives effect to UN Security Council sanctions resolutions;
  • the Special Economic Measures Act (SEMA), which enables the government of Canada to unilaterally impose sanctions in response to grave breaches of international peace and security; and
  • the Justice for Victims of Corrupt Foreign Officials Act (JCVFOA), a Magnitsky-type law under which Canada can impose sanctions on individuals responsible for or complicit in significant acts of corruption or in “extrajudicial killings, torture or other gross violations of internationally recognised human rights” committed against whistle-blowers or human rights defenders in a foreign state.

Sanctions under these laws can include asset freezes and financial prohibitions. Under the UN Act and the SEMA, they also can include prohibitions on the sale of arms or other military goods, export and import restrictions, and technical assistance prohibitions. It is also generally an offence to directly or indirectly facilitate or assist in a prohibited transaction or dealing that is prohibited. Individuals listed under the JCVFOA are also inadmissible to enter Canada.

Two other statutes allow the government of Canada to impose asset freezes on non-state actors. Under the Freezing of Assets of Corrupt Foreign Officials Act (FACFOA), the government of Canada may freeze the assets of politically exposed foreign persons that have misappropriated of improperly acquired property, while the Criminal Code allows the government of Canada to list prohibited terrorist groups and to freeze or seize related property.

The legal authorities for imposing sanctions are the UN Act, the SEMA, the JVCFOA, the FACFOA, and the Criminal Code.

Global Affairs Canada is responsible for administering Canada’s sanctions regime. The Royal Canadian Mounted Police, the Canada Border Services Agency and the Attorney General of Canada are responsible for sanctions enforcement.

The enforcement record under Canada’s sanctions laws is relatively slim with only a handful of guilty pleas to date, as well as seizures by the Canada Border Services Agency.

Canadian sanctions laws and regulations apply to all persons in Canada (regardless of nationality) and to all Canadian persons (including corporations) whether in Canada or abroad.

Regulations made under each of Canada’s sanctions laws include schedules listing sanctioned persons (individuals or entities), who are referred to as “listed persons”.

Under the JVCFOA, the Governor in Council may add listed persons under prescribed circumstances as described in 3.1 Sanctions Regime.

Under the SEMA, the Governor in Council may add listed persons under prescribed circumstances, such as where a foreign public official or their associate is responsible for acts of corruption, gross and systematic human rights violations, or a grave breach of international peace and security.

Persons named under the JVCFOA and the SEMA also allow listed persons to challenge their designation by making an application to the Minister of Foreign Affairs.

Canada does not presently maintain any comprehensive economic embargoes. However, Canada’s current sanctions against North Korea, Syria and Crimea are extensive. North Korea is also listed on Canada’s Area Control List (ACL) under the Export and Import Permits Act. The export of any goods or technology without an export permit to an ACL-listed country is prohibited.

Canada maintains certain sectoral sanctions that target a sector that is important to a sanctioned country’s economy. For example, Canada maintains certain economic restrictions on Russia’s oil and gas industry.

Sanctions legislation applies to all persons in Canada, regardless of their nationality, and the activities of Canadian persons (including Canadian entities, organisations, and corporations) outside Canada.

Penalties for violations are:

  • under the SEMA, a maximum fine of CAD25,000, and/or five years' imprisonment;
  • under the UN Act, a maximum fine of CAD100,000 and/or ten years' imprisonment; and
  • under the JVCFOA, a maximum fine of CAD25,000, or up to five years' imprisonment, or both.

See also 3.11 Compliance.

The Minister of Foreign Affairs may issue permits or certificates to authorise activities or transactions that are otherwise prohibited under Canadian sanctions legislation and may impose terms and conditions on such permits. The permit process is time consuming, typically taking several months, and may extend longer than a year.

The standard of liability differs slightly under each of Canada’s sanctions laws. Under the SEMA, a person must “wilfully contravene” or “fail to comply”; under the JVCFOA, a person must “knowingly contravene” or “fail to comply”; while under the UN Act, a person must simply “contravene” a regulation or order under the Act. It is typically more difficult to secure a conviction for a specific intent offence (one that requires wilful conduct or knowledge) because the prosecution must prove that intent.

All sanctions violations are criminal offences and therefore require proof “beyond a reasonable doubt” for a conviction.

Global Affairs Canada, which is responsible for administering Canada’s sanctions regime, publishes descriptive materials on the sanctions pages of its website but does not provide interpretative or legal advice on the application of Canadian sanctions laws.

The Foreign Extraterritorial Measures Act (FEMA) authorises the Attorney General of Canada to issue orders prohibiting compliance with foreign extraterritorial measures or reporting requirements in relation to such measures. Canada has enacted FEMA orders only against the USA.

The FEMA prevents the extraterritorial application of foreign laws to Canadians and Canadian businesses. The government of Canada has made two orders under FEMA, one of which relates to sanctions. That order prohibits compliance with the US embargo against Cuba, and requires (among other things) that Canadian subsidiaries of US companies report any directions or communications they receive from parent companies relating to the application of the embargo.

In addition, the FEMA prohibits Canadian enforcement of any judgment issued under Title III of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, which permits US nationals to sue persons who “traffic” in property expropriated by the Cuban government during the Cuban revolution. The FEMA allows Canadians to sue for damages when they are the subject of Title III judgments and to sue for their expenses in defending against Title III claims.

Since 1976, the government of Canada has maintained an international anti-boycott policy. Businesses can be denied assistance, such as export credit or insurance, for transactions that violate the policy.

Two provinces, Manitoba and Ontario, have enacted anti-boycott laws, which include requirements to report requests for compliance with foreign boycotts. Penalties for non-compliance can include fines and debarment from government procurements.

In September and October 2020, the government of Canada issued sanctions regulations under the SEMA against the government of Belarus in response to violence against those protesting the August 2020 presidential election. The sanctions include a dealings prohibition and an asset freeze against listed persons.

In 2020, the government of Canada amended several regulations under the UN Act, including regulations enacted against the Central African Republic, the Democratic Republic of Congo, Sudan, South Sudan and Somalia.

The first trial over alleged breaches of the SEMA is pending. The accused allegedly made a payment of CAD140,000 to a Syrian company in violation of Canadian sanctions. A previous prosecution, in 2014, produced the first conviction under the SEMA, when a company accused of illegal exports to Iran entered into a plea agreement.

The government of Canada is facing domestic pressure to enact sanctions under the JVCFOA against Chinese officials for human rights abuses in Tibet and Xinjiang. Canada last amended the JVCFOA in 2018, when it imposed sanctions against Saudi Arabian officials.

Canada is a party to various multilateral export control regimes (including the Wassenaar Arrangement and the Missile Technology Control Regime), and, since 2019, to a brokering control regime (under the Arms Trade Treaty). Parties to these agreements negotiate common lists of controlled goods and technology. The federal Export and Import Permits Act (EIPA) and its regulations (including the Export Control List, Area Control List and Brokering Control List) implement the obligations under these regimes into Canadian law.

Canadian export controls are list-based and use a permit regime to authorise the export or re-export of goods and technology included in the Export Control List or to a country listed on the Area Control List.

The Export Control List is organised by groups as follows:

  • group 1 – Dual-Use List;
  • group 2 – Munitions List;
  • group 3 – Nuclear Non-Proliferation List;
  • group 4 – Nuclear-Related Dual-Use List;
  • group 5 – Miscellaneous Goods and Technology, including all US-origin goods and technology, certain agriculture and food products, certain forest products and certain apparel goods;
  • group 6 – Missile Technology Control Regime List; and
  • group 7 – Chemical and Biological Weapons Non-Proliferation List.

The Area Control List, which operates much like a sanctions regime, currently lists only the Democratic People’s Republic of Korea (North Korea).

Permits are issued to exporters by the Trade and Export Controls Bureau of Global Affairs Canada, a federal government department. Various types of permits exist depending on the good and the destination in question.

Canadian brokering controls are similarly list-based and use permits to authorise the brokering of certain controlled goods and technology by Canadian persons both in Canada and abroad. Brokering is defined to include the arrangement or negotiation of a transaction relating to the movement of goods or technology included in a Brokering Control List from a foreign country to another foreign country.

In addition to export and brokering controls, Canada maintains a domestic, list-based Controlled Goods Program that applies to persons who possess, examine, or transfer controlled goods in Canada and covers much the same items as are listed in group 2 (Munitions List) of the Export Control List.

Canada’s export controls regime is given legal authority in the following.

  • Export and Import Permits Act:
    1. Export Control List;
    2. Canada’s Guide to the Export Control List;
    3. Brokering Control List;
    4. Area Control List;
    5. Automatic Firearms Country Control List.
  • Criminal Code:
    1. Regulations Prescribing Certain Firearms and Other Weapons, Components and Parts of Weapons, Accessories, Cartridge Magazines, Ammunition and Projectiles as Prohibited or Restricted.

Global Affairs Canada issues administrative guidance in the form of its Export and Brokering Controls Handbook, as well as numerous and regularly updated Notices to Exporters, all of which are published on its website.

In Canada, export and brokering control laws are administered and enforced primarily by:

  • Global Affairs Canada (GAC);
  • the Canada Border Services Agency (CBSA); and
  • the Royal Canadian Mounted Police (RCMP).

Certain items, ranging from agricultural goods to nuclear materials, are subject to additional export controls and permitting requirements that come under the jurisdiction of other federal departments and agencies.

As noted above, Canadian export controls are list-based and operate by prohibiting the export or brokering of certain listed goods and technology. Canada’s Export Control List is organised by group, with each group listed in 4.1 Export Controls.

Most Canadian laws apply only territorially, but in some cases a law may deem conduct outside Canada to be subject to the law’s jurisdiction. In the case of the EIPA, this includes the prohibition on brokering.

Export permits may be issued only to a “resident of Canada”, which is defined as individuals who ordinarily reside in Canada, or corporations having a head office in Canada or operating a branch office in Canada. Permits may also be issued to residents of Canada on behalf of non-residents.

Brokering permits may be issued to any person or organisation, regardless of residence or nationality, that applies for a permit.

Canada maintains restricted persons lists under its sanctions laws, but not under its export control laws.

Canada’s lists are updated by way of regulatory amendment, typically for consistency with the international regimes to which Canada is a party.

Exports to countries on the Area Controls List require permits in all instances. Canada also maintains non-list based economic sanctions that prohibit the export of goods and technology to certain destinations such as the Crimea region of Ukraine. See 3.6 Sanctions against Countries/Regions.

As of 27 November 2020, pursuant to an order under the Food and Drugs Act, Canada has prohibited the sale for consumption outside of Canada of certain drugs intended for the Canadian market, if that sale could cause or worsen a drug shortage. The order was made in response to a US measure that would enable bulk importations into the USA of certain prescription drugs intended for the Canadian market.

The maximum penalty for an EIPA violation is a fine in an amount at the discretion of the court, imprisonment for a term not exceeding ten years, or both.

Offences under the Criminal Code for exporting (or importing) certain types of firearms without a permit include fines, or imprisonment up to five years.

The CBSA administers an administrative monetary penalty (AMP) regime for instances of non-compliance with export requirements, such as:

  • failure to report an export at the time, place, or in the manner required;
  • failure to keep records as required; or
  • failure to respond truthfully to a CBSA officer’s questions regarding an export report.

Export permits are available to authorise the export of controlled goods and technology from Canada, and brokering permits are available to authorise the transfer of controlled goods and technology from a country outside Canada to another country outside Canada.

A permit may authorise a single shipment or multiple shipments, and constitutes a legally binding authorisation to export or broker-controlled goods or technology as described.

In addition, there are various General Export Permits (GEPs) and one General Brokering Permit that do not require formal applications. Exporters can cite the applicable GEP on the export reporting documentation (and brokers can report the reliance on the GBP), assuming all applicable conditions are met. These include: General Export Permit No 12 allowing the export of US-origin goods described in item 5400 of group 5 of the Export Control List to most countries, excluding Cuba, North Korea, Iran and Syria; and permits allowing the export of certain controlled goods and technology to NATO members and other like-minded allied countries.

Compliance with export control laws is monitored by the CBSA through mandatory export reporting and occasionally through trade verifications (audits) of exporters. Exporters may also voluntarily disclose instances of non-compliance, which can mitigate the consequences of that non-compliance.

A failure to obtain an export permit is a strict liability offence under the EIPA, meaning that the prosecution does not need to prove intent to commit the offence. An officer or director of an organisation can incur liability by acquiescing or participating in or authorising the commission of an offence under the Act, whether or not the organisation is prosecuted.

There is a three-year limitation period for EIPA prosecutions.

As a general matter, all exports from Canada other than non-controlled exports to the USA must be reported to the CBSA at the time of export. Export reports for controlled goods and technology must be accompanied by the applicable permit authorising the export.

Certain goods, when subject to export quotas or when exported under the authority of a GEP, are subject to specific reporting requirements. These typically involve regular (eg, monthly, biannual) reports on each shipment made in the preceding period.

Recent updates to Canada’s enforcement of export controls are found in Notices to Exporters from GAC, which reflect administrative guidance on enforcement rather than legal amendments. These include:

  • Notice to Exporters No 1003 – export of items listed on the Export Control List to Hong Kong (July 2020) announcing that exports of “sensitive goods” to Hong Kong will be treated as exports to China;
  • Notice to Exporters No 999 – requirements for exporting prohibited firearms (May 2020) addressing firearms newly listed as “prohibited” under the Criminal Code; and
  • Notice to Exporters No 992 – export of items listed on the Export Control List to Turkey (April 2020) suspending the issuance of new permits for the export of controlled goods and technology to Turkey.

Canada’s export and brokering control lists are updated periodically, including for consistency with Canada’s international obligations.

In the face of public scrutiny, including with respect to Canada’s implementation of its Arms Trade Treaty commitments, the Canadian government has increasingly restricted the availability of export permits for controlled military and security goods to specific destinations, for foreign policy reasons.

The Special Import Measures Act (the SIMA), the Special Import Measures Regulations (the SIMR), and the Customs Act govern the imposition of anti-dumping and countervailing (AD/CVD) duties in Canada.

Canada gives effect to safeguards under the Customs Tariff, and the Canadian International Trade Tribunal Act and its related regulations,

The Canada Border Services Agency (the CBSA) and the Canadian International Trade Tribunal (the CITT) administer and enforce AD/CVD matters. The CBSA undertakes the dumping/subsidy investigation, while the CITT conducts both preliminary and final injury inquiries. If there is a preliminary determination of dumping/subsidisation, the CITT undertakes the final injury inquiry to determine whether the dumped or subsidised goods have caused injury or are threatening to cause injury, or have caused retardation to the domestic industry.

The CITT also conducts safeguard inquiries.

The SIMA permits domestic companies to petition the CBSA to initiate an investigation into the dumping and/or subsidising of any goods by filing a written complaint with sufficient evidence to justify an investigation. Alternatively, the President of the CBSA may self-initiate an investigation.

The domestic industry or other interested parties (including foreign exporters) may petition the relevant authorities to initiate:

  • an interim review (a CITT review of current AD/CVD measures);
  • a re-investigation (a CBSA review of the normal values/export prices assigned to all exporters in a subject country); or
  • a normal value review (a CBSA review of the normal values/export prices assigned to a particular exporter).

The CITT and the CBSA initiate expiry reviews shortly before the five-year expiry of AD/CVD measures. Determination of whether to continue an AD/CVD measure or to allow it to expire is concluded approximately ten months after the five-year anniversary of the measure.

Non-domestic companies may participate in normal value reviews, interim reviews, re-investigations and expiry reviews. The CBSA and the CITT provide notice of the initiation of a review to foreign producers (exporters) or non-resident importers, which may participate in the review by completing questionnaires and filing submissions with the relevant authority.

AD/CVD Duties

The CBSA initiates an anti-dumping/subsidy investigation where there is sufficient evidence of dumping or subsidising and of injury caused by the alleged dumping/subsidising.

After initiation, the CITT undertakes a preliminary inquiry into whether the evidence discloses a reasonable indication that the dumping or subsidising of the subject goods has caused or is threatening to cause injury to the domestic industry. The CITT renders a decision within 60 days of the CBSA initiating its investigation. Where the evidence supports a reasonable indication of injury, the CITT will make a preliminary determination of injury. If the CITT finds that the evidence does not disclose a reasonable determination of injury, the CITT and the CBSA investigations are terminated.

The CBSA conducts a preliminary dumping and/or subsidising investigation to determine whether the subject goods are dumped or subsidised. The CBSA issues questionnaires (called “requests for information”) to exporters and importers of the subject goods, and, in the case of a subsidy investigation, to the relevant foreign governments. Importers must respond to the request for information within 21 days after initiation and exporters and foreign government must respond within 37 days after initiation.

Typically, the CBSA renders its preliminary determination of dumping within 90 days of initiation, although the determination deadline may be extended to 135 days at the CBSA’s discretion. This preliminary determination estimates the margin of dumping or the amount of subsidy for each exporter of the goods. The CBSA may terminate the investigation at this stage if the actual and potential volume of goods is negligible (less than 3% of the total volume of goods that are released by customs into Canada from all subject countries). Although the CBSA may determine zero or insignificant margins of dumping at the preliminary determination stage, it does not terminate its investigation at that stage; it is required to complete its investigation and makes its final determination(s).

The CBSA must make a final determination of dumping or subsidising within 90 days of its preliminary determination. In the final determination, the CBSA will provide the final margin of dumping or amount of subsidy specified, by exporter. The CBSA terminates an investigation if there is no dumping or subsidising or if the margin of dumping or the amount of subsidy is insignificant.

The CITT must complete its injury inquiry within 120 days of the CBSA’s preliminary determination. The CITT may find that the subject goods:

  • have caused injury (AD/CVD duties are payable on all dumped or subsidised goods imported during the provisional period and are owing on all subject goods released after the date of the finding);
  • have not caused injury but are threatening to cause injury (provisional duties are returned with interest and AD/CVD duties are payable on all subject goods released after the date of the finding); or
  • have not caused, and are not threatening to cause, injury (all provisional duties are returned and no AD/CVD duties are payable going forward).

CITT findings are in place for five years, subject to the initiation of an interim review.

Safeguards

Canada may impose provisional safeguard measures for up to 200 days by order of the Governor in Council. Prior to the completion of this 200-day period, the CITT must investigate whether the measures meet the legal test under the Customs Tariff and the Canadian International Trade Tribunal Act. If the safeguard measures are unjustified, the measures must be removed. If the safeguard measures are justified, the measures may be made definitive and may remain in place for up to four years or longer.

The CBSA publishes its decisions and reasons for initiating an anti-dumping and subsidy investigation and for its preliminary and final determinations. The CITT publishes decisions and reasons for its preliminary injury and final injury inquiry. The CITT also publishes reports in safeguard inquiries as well as trade and tariff-related references as provided for under the Canadian International Trade Tribunal Act.

The Canada-Chile Free Trade Agreement precludes either country from imposing AD/CVD measures on imports from the other country.

AD/CVD duties are in place for a period of up to five years and ten months from the date of the final order. The CITT must issue a notice of expiry at least two months prior to the expiry date of the AD/CVD order or finding.

Definitive safeguard measures may be in place for up to four years and may be extended for up to four years, as provided under the WTO Agreement on Safeguards. The WTO rules prohibit the re-imposition of a safeguard on the same products for a certain period; however, in June 2019, Canada repealed provisions under the Customs Tariff that prohibited the re-imposition of safeguards on the same goods within two years. This repeal is in force until June 2021, after which time the two-year prohibition on the re-imposition of a safeguard will apply.

The CITT issues a notice of expiry no later than two months prior to the expiry date of the order or finding. Interested parties may make submissions to oppose or support the initiation of a review. If the CITT determines that a review is warranted, it issues a notice of expiry review.

Within 150 days of the CITT’s notice, the CBSA must determine the likelihood of resumed dumping or subsidisation of the subject goods. If the CBSA makes a negative finding, the CITT rescinds the order or finding. If the CBSA makes a positive finding, within 160 days, the CITT must consider whether the resumption of dumping/subsidisation will result in injury to the domestic industry. The CITT will either continue its finding or allow it to expire.

The SIMA provides a right of appeal limited to errors of law to the Federal Court of Appeal to review and set aside certain decisions made under the Act. These decisions include final determinations in investigations interim reviews, or expiry reviews, by the CBSA or CITT. An application for review must be filed within 30 days of the decision at issue. US and Mexican parties may alternatively use dispute settlement under Chapter 10 of the USMCA.

In some cases, persons directly affected by the outcome of a SIMA AD/CVD proceeding may apply for judicial review to the Federal Court. Very few such judicial reviews are successful.

In July 2019, the government of Canada amended the Special Import Measures Regulations and CBSA policy to bolster the CBSA’s authority to investigate alleged market distortions and issue retroactive assessments of AD/CVD duties. The regulatory amendments created criteria for determining the costs of production in situations where inputs are supplied to exporters by related suppliers. The amendments also created a hierarchy of costs for the CBSA to apply when making a “particular market situation” finding where the costs of inputs do not allow for a proper comparison between the sale of goods in the country of export and the sale of goods exported to Canada.

In response to the COVID-19 pandemic, the government of Canada has extended the statutory timeframes under the SIMA for AD/CVD proceedings.

In 2018, the CBSA implemented a new administrative process, “normal value reviews”, to update normal values assigned to specific exporters. In its third year of operation, with only 12 normal value reviews completed as of November 2020, the process continues to evolve as the CBSA refines its investigative procedures.

There are no significant pending changes to AD/CVD laws in Canada. Despite the recent particular market situation amendments to the SIMA, the SIMR, and CBSA policy, to date, the CBSA has not made a particular market situation finding. However, Canadian industry continues to seek particular market situation findings, particularly in steel cases against South Korea and Turkey.

The Federal Investment Canada Act (ICA) includes a review process (National Security Review) that considers whether an investment in Canada by a non-Canadian could injure Canada's national security. This review process is conceptually similar to the US CFIUS process, and can potentially prohibit the parties to a transaction that raises “national security” issues from closing (it also can be applied post-closing).

The statutory maximum duration of a National Security Review is 200 days, but parties can be asked to consent to extending this period; see 6.8 Key Developments Regarding Investment Security for the recent extension of timelines due to COVID-19.

A separate review process that considers whether an acquisition of control of a Canadian business by a non-Canadian investor is of “net benefit” to Canada (Net Benefit Review) also applies under the ICA.

The Investment Review Division (IRD) of the Federal Department of Innovation, Science and Industry administers the National Security Review process. Reviews are technically ordered by the Governor-in-Council (essentially the Federal Cabinet), on the advice of the Minister of Innovation, Science and Industry (the Minister), who is also required to consult with the Minister of Public Safety and Emergency Preparedness. Other relevant government departments, including Defence, are consulted in the review process. The Minister has the power to end a National Security Review without taking any remedial action, but if action is to be taken with respect to an investment then it must be by the Cabinet.

Effectively any investment of any value into Canada by a non-Canadian (including non-controlling investments and the establishment of new businesses) can be subjected to a National Security Review. Control of a Canadian business does not have to be acquired. There are no financial thresholds applicable.

An investment is subject to a National Security Review if the Minister sends the investor a notice that a review will be commenced. The deadlines by which the process must be commenced depend on whether an investment is subject to (i) a post-closing notification, (i) a pre-closing application for review, or (iii) no filing requirement at all under the Net Benefit Review provisions of the ICA (for non-controlling investments). An application only needs to be filed if the value of a Canadian business over which control is being acquired exceeds a certain threshold. Acquisitions of control below the thresholds and establishments of new businesses are subject to notification only.

The deadlines for initiating the National Security Review process are:

  • for any investment not subject to notification, at any time up to 45 days after closing;
  • if an investment is subject to notification, at any time up to 45 days after the complete notification is filed (due within 30 days after closing); and
  • if an investment is subject to an application, at any time up to 45 days after the complete application is filed.

The standard for commencing a National Security Review is that the investment “could be injurious to national security”. The concept of “national security” is not defined in the ICA and is interpreted broadly, affording the government significant scope to prevent investments it believes would be problematic. Prior to its statement regarding the COVID-19 situation – discussed in 6.8 Key Developments Regarding Investment Security – the only guidance from the government on the factors taken into account are the non-exhaustive list of factors set out in the Guidelines on the National Security Review of Investments.

There are no National Security Review-related mandatory filings. However, during the process, IRD typically makes extensive information requests from the parties, to which failure to respond is likely to result in consequences as described in 6.6 Penalties and Consequences.

Where parties suspect that an investment might trigger national security concerns, they are advised to file their notification or application as early as possible.

The only applicable exemptions are for certain acquisitions in connection with the realisation of security granted for a loan or other financial assistance of financial or insurance companies for which other federal review procedures apply, or the acquisition of businesses carried on by federal or provincial government corporations.

The Cabinet is authorised to take any measure in respect of an investment considered advisable to protect Canada’s national security. These measures can include directing the parties not to implement an investment, requiring divestitures, requiring the investor to give undertakings in respect of the investment, or imposing conditions on the implementation of the investment.

If an investor fails to comply with an order issued under the ICA, a court can order them to divest an investment and/or impose a penalty of up to CAD10,000 per day.

There are no fees associated with ICA filings.

Citing the COVID-19 pandemic and “sudden declines in valuations [that] could lead to opportunistic investment behaviour”, the government announced on 18 April 2020 that it will use the ICA to “subject certain foreign investments into Canada to enhanced scrutiny” until the economy recovers from the effects of the pandemic. The investments subject to this enhanced scrutiny are those related to public health or the supply of critical goods and services and/or by investors that are owned or closely tied to foreign states.

Effective 31 July 2020, also citing the COVID-19 pandemic, the government extended certain deadline relating to the National Security Review process. These extensions expire on 31 December 2020, and at the time of writing have not been further extended.

There has been a clear trend toward applying heightened scrutiny under the National Security Review provisions to investments by foreign state-owned enterprises and investors with close ties to foreign states, even if there is no formal state ownership or control. This was made clear when the government blocked the proposed acquisition of Aecon Group Inc. by China Communications Construction Company International Holding Limited (CCCI) in 2018. It is clear that investors with ties – whether formal or informal – to the Chinese government are more likely to be subjected to close scrutiny.

Additionally, the statement related to enhanced scrutiny in response to the COVID-19 pandemic described in 6.8 Key Developments Regarding Investment Security suggests that the breadth of industries considered sensitive enough to merit consideration under the National Security Review provisions may be increasing.

Overview of Incentive Programmes in Canada

Governments in Canada support certain businesses or sectors through a range of assistance measures, which can include grants, financing and tax concessions. While many incentives to manufacturers can be said to be aimed at encouraging domestic investment and, by extension, production, very few are aimed at reducing imports. One area that has received attention from Canada’s trading partners is government support for cultural industries, which includes financial support as well as quotas for Canadian programming expenditure and Canadian programming that licensed Canadian broadcasters must carry.

Since 2015, only one specific trade concern regarding a proposed Canadian regulation has been raised in the WTO’s Technical Barriers to Trade Committee – a provincial (Alberta) proposed regulation of flavoured tobacco products, which was not adopted.

Generally, Canada aligns its SPS measures with recognised international standards, guidelines, and recommendations. No trade concerns have been raised recently in the WTO’s SPS Committee regarding Canadian measures. In 2019, the European Union expressed concerns within the framework of the CETA regarding Canadian SPS requirements for imports of fresh tomatoes.

Investment Canada Act

Under the Investment Canada Act, the Competition Bureau reviews any potential acquisition by a non-Canadian investor of a Canadian business. As described in Section 6 Investment Security, this review process will always comprise a National Security Review, and potential acquisitions above a certain dollar value will require a net benefit review, which can consider criteria relating to production in Canada.

Price Controls

Canada does not impose price controls on most products, with the notable exception of pharmaceutical products. The maximum prices of patented medicines are overseen by the Patented Medicine Prices Review Board, which sets price ceilings and reviews individual products to determine if their prices are excessive. In addition, provincial governments manage the prices of medicines through public drug programmes, by reserving coverage for products that are price-competitive. The provinces also negotiate with the Canadian Generic Pharmaceutical Association (CGPA) to reduce prices of generic drugs.

Supply Management

Canada’s supply management system controls domestic production volumes and prices paid to producers for milk, poultry and eggs using production quotas, pricing arrangements and tariff rate quotas. Importers must secure a quota allocation before applying for an import licence.

Electricity

In the province of Québec, purchases of wind power by the state-owned electricity utility, Hydro-Québec, have required that wind farms meet minimum thresholds for expenditures in Québec and in some cases a minimum regional expenditure requirement in connection with the manufacture of wind turbines. In a recent U.S. Department of Commerce investigation, these requirements were found not to confer a countervailable subsidy on a Canadian wind tower manufacturer.

Alcoholic Beverages

Most Canadian provinces control the sale of wine, beer and spirits through province-run alcohol boards. In January 2018, Australia initiated WTO dispute settlement proceedings against a range of distribution, licensing, sales and taxation measures on wine in Canada, alleging that these measures discriminated against imported wines. In a partial settlement of the complaint, Canada and the provinces of Ontario and Nova Scotia have committed to changing or eliminating certain challenged measures.

Significant Canadian government procurement at the federal level and the provincial/territorial level is subject to international trade commitments, including under the WTO Agreement on Government Procurement, which give access to foreign businesses to Canadian procurement markets. The CETA extends these commitments for European suppliers down to the municipal level. Exclusions exist or coverage is more limited for, among other things:

  • shipbuilding;
  • vehicles, equipment and iron and steel for public transit and urban transportation projects;
  • defence procurements; and
  • set-asides for small and minority businesses including aboriginal businesses.

The provinces of Quebec and Manitoba also have excluded from coverage a range of goods for procurement by their state-owned electrical utilities and a number of provinces and territories have taken limited derogations under the CETA for procurements that support regional economic development.

Canada maintains a list of protected geographical indications (GIs) under the Trademarks Act for certain wines, spirits, and agricultural and food products. Most of the listed GIs are for foreign products and are protected under commitments in Canada’s free trade agreements, such as the CETA. These measures are not aimed at reducing imports and/or encouraging domestic production, but can have the effect of restricting imports that improperly use protected trade names or descriptions.

All significant issues and developments have been detailed above.

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Law and Practice in Canada

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Borden Ladner Gervais LLP is the largest, truly full-service Canadian law firm, delivering practical legal advice for domestic and international clients across more practices and industries than any Canadian firm. With over 700 lawyers, intellectual property agents and other professionals in five Canadian offices, Borden Ladner Gervais LLP (BLG) serves the legal needs of businesses and institutions across Canada and beyond. BLG’s international trade and investment practice covers all aspects of trade and investment regulation, compliance and dispute resolution, from customs and trade remedies to sanctions, export control and anti-corruption laws, treaty negotiations, and WTO, FTA and investor-state dispute settlement. The firm fields Canada’s largest team of highly experienced partners and associates dedicated exclusively to international trade and investigation matters, working closely with its corporate, competition and disputes groups to provide practical, strategic representation to its global client base.