Transparency of the Regulatory System
The transparency of Canada's regulatory system is similar to that of the United States and legal, regulatory, and accounting systems are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada's antitrust legislation.
Canada and the United States announced the creation of the Canada-U.S. Regulatory Cooperation Council (RCC) on February 4, 2011. This regulatory cooperation does not encompass all regulatory activities within all agencies. Rather, the RCC is focused on areas where benefits can be realized by regulated parties, consumers, and/or regulators without sacrificing outcomes such as protecting public health, safety and the environment. The initial RCC Joint Action Plan set out 29 initiatives where Canada and the United States sought greater regulatory alignment. On May 28, 2015, the United States and Canada released Regulatory Partnership Statements and Work Plans that, collectively, outline major objectives for bilateral cooperation over the next three to five years in specific areas of regulatory activity. The U.S. Department of Agriculture and the Canadian Food Inspection Agency are working together on changes and updates to their slaughter and processed meat inspection policies and procedures in an effort to achieve closer alignment between inspection system requirements and eliminate unnecessary or duplicative requirements. On May 4, 2016, the U.S. Food and Drug Administration and Health Canada’s Canadian Food Inspection Agency signed an U.S.-Canada Food Safety Systems Recognition Arrangement. Through this arrangement the countries intend to better align their food safety regulatory systems, reduce unnecessary duplication, enhance information sharing, and to the extent possible, leverage resources so that the agencies can better meet their public health objectives. The countries will also work together to identify areas of mutual interest and collaboration based on the best available science and technological advances in our respective meat inspection systems and modernization approaches. On plant health, the Canadian Food Inspection Agency and U.S. Department of Agriculture’s Animal and Plant Health Inspection Service are collaborating to facilitate safe bilateral trade and protect Canada and the United States from risks posed by plants and plant products arriving from third countries. This will include aligning phytosanitary import requirements and allow countries to utilize information from phytosanitary inspections conducted by one country to the other.
Other areas of engagement include efforts to develop a common approach to marine safety and security; energy efficiency standards and labeling; natural gas transportation; locomotive, vehicle, and engine emissions; chemicals management; crop protection products (pesticides); food safety; pharmaceutical and biological products; aquaculture; connected (self-driven) vehicles; dangerous goods transportation; developing joint rail, aviation, and motor vehicle safety standards; fostering greater symmetry and access with respect to agriculture production, increasing fairness and effectiveness of agricultural trade, and aligning marine transportation security requirements to facilitate more secure and efficient cross-border trade.
The World Bank published in-depth information on regulatory transparency for 185 economies. For information on Canada, see the World Bank website.
International Regulatory Considerations
Canada is not part of a regional economic block and does not incorporate regional standards into its economic system. However, Canada and the United States work together through the RCC to develop like standards and streamline product certification on both sides of the border. Canada, with the United States and Mexico, is a member of the NAFTA.
Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
Canada's legal system is based on English common law, except for Quebec, which follows civil law. Canada has both a federal parliament which makes laws for all of Canada and a legislature in each of the provinces and territories that deals with laws in their areas. When Parliament or a provincial or territorial legislature passes a statute, it takes the place of common law or precedents dealing with the same subject. The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions. This includes organizing and maintaining the civil and criminal provincial courts and civil procedure in those courts.
Canada has both written commercial law and contractual law and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.
Parliament and provincial and territorial legislatures give government organizations the authority to make specific regulations. As of June 1, 2009, all consolidated Acts and regulations on the Justice Laws Website (http://laws-lois.justice.gc.ca/eng/) are "official", meaning they can be used for evidentiary purposes.
Laws and Regulations on Foreign Direct Investment
Foreign investment policy in Canada has been guided by the Investment Canada Act (ICA) since 1985. The ICA liberalized policy on foreign investment by recognizing that investment is central to economic growth and key to technological advancement. The ICA provides for review of large acquisitions by non-Canadians and imposes a requirement that these investments be of "net benefit" to Canada. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only notify the Canadian government of their investment. Fewer than 10 percent of foreign acquisitions are subject to ICA review. The threshold for investments subject to ICA review for 2016 is C600 million for WTO Members. (Indirect control acquisitions by WTO Members do not have to be reviewed.) New regulations that come into effect on April 24, 2017 will implement revised review thresholds for WTO investors, other than SOEs, and will increase the review threshold to C800 million, and ultimately to C1 billion in 2019. Thereafter the review amount will be subject to indexation. Additionally, the time periods for the security review process will be increased from 130 days to 200 days. For non-WTO Members, the threshold remains at USD 5 million for direct control and USD 50 million for indirect control acquisitions.
In 2015, Canada amended its National Security Review of Investment Regulations to provide the government with the flexibility to extend time periods for the review of investments that could be injurious to national security.
Canada announced new SOE guidelines in December 2012, which included the statement that future SOE bids to acquire control of a Canadian oil-sands business will only be approved on an “exceptional basis.” Canada altered the definition of an SOE in its 2013 Budget Implementation Bill to an entity or individual that is influenced directly or indirectly by a foreign government. The Bill also established a separate threshold review for SOE acquisitions of control, and allows Canada’s Industry Minister to review minority SOE investments for the first time. SOE investments from WTO member countries over USD 375 million are subject to review.
Investment in specific sectors is covered by special legislation. Foreign investment in the financial sector is administered by the Finance Department. Investment in any activity related to Canada's cultural heritage or national identity is administered by the Heritage Department. Foreign ownership of Canadian telecommunications firms is governed by the Telecommunications Act, while the Broadcast Act governs foreign investment in radio and television broadcasting.
The Canadian Trade Commissioner Service has a comprehensive website “Invest in Canada” with the needed information for starting and registering a business in Canada. It can be found at the following website.
Investment in Canada is also subject to provincial jurisdiction. Restrictions on foreign investment differ by province, but are largely confined to the purchase of land and to provincially-regulated financial services. Provincial government policies relating to culture, language, labor relations or the environment, can be a factor for foreign investors.
U.S. foreign direct investment in Canada is subject to provisions of the ICA, the WTO, and the NAFTA. Chapter 11 of the NAFTA ensures that regulation of U.S. investors in Canada and Canadian investors in the United States results in treatment no different than that extended to domestic investors within each country, i.e., "national treatment." Both governments are free to regulate the ongoing operation of business enterprises in their respective jurisdictions provided that the governments accord national treatment to both U.S. and Canadian investors.
Existing U.S. and Canadian laws, policies, and practices were "grandfathered" under the NAFTA except where specific changes were required. The "grandfathering" froze various exceptions to national treatment provided in Canadian and U.S. law, such as foreign ownership restrictions in the communications and transportation industries. Canada retains the right to review the acquisition of firms in Canada by U.S. investors at the levels applicable to other WTO members and has required changes before approving some investments.
Under the NAFTA, Canada is free to tax foreign-owned companies on a different basis from domestic firms, provided this does not result in arbitrary or unjustifiable discrimination. The governments can also exempt the sale of Crown (government-owned) corporations from any national treatment obligations. The Canadian government retains some flexibility in the application of national treatment obligations and need not extend identical treatment, as long as the treatment is "equivalent."
Canada-U.S. trade in services is largely free of restrictions and has doubled over the past decade. U.S. services exports to Canada totaled more than USD 54 billion in 2016, while Canada’s services exports to the United States totaled over USD 54 billion. The NAFTA ensured that restrictions on bilateral services trade would not be applied following the agreement. Preexisting restrictions, such as those in the financial sector, were not eliminated by the NAFTA. The NAFTA services agreement is primarily a code of principles that establishes national treatment, right of establishment, right of commercial presence, and transparency for a number of service sectors specifically enumerated in annexes to the NAFTA. The NAFTA also commits both governments to expand the list of covered service sectors, except for the financial services covered by NAFTA Chapter 14.
Competition and Anti-Trust Laws
The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada's antitrust legislation.
Expropriation and Compensation
Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose, and the obligation to pay compensation. The federal government has not nationalized any foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed, after reaching agreement with the former owners.
ICSID Convention and New York Convention
Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on 12 May 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.
Investor-State Dispute Settlement
Canada accepts binding arbitration of investment disputes to which it is a party only when it has specifically agreed to do so through a bilateral or multilateral agreement, such as a Foreign Investment Protection Agreement (see below). The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between NAFTA persons and the NAFTA member governments. The NAFTA encourages parties to settle disputes through consultation or negotiation. It also establishes special arbitration procedures for investment disputes separate from the NAFTA's general dispute settlement provisions. Under the NAFTA, a narrow range of disputes dealing with government monopolies and expropriation between an investor from a NAFTA country and a NAFTA government may be settled, at the investor's option, by binding international arbitration. An investor who seeks binding arbitration in a dispute with a NAFTA party gives up his right to seek redress through the court system of the NAFTA party, except for proceedings seeking nonmonetary damages. Canada does not have a history of extrajudicial action against foreign investors.
A list of current NAFTA Chapter 11 Arbitrations is below:
The CUFTA and NAFTA recognize that a hospitable and secure investment climate is necessary to achieve the full benefits of reduced barriers to trade in goods and services. The agreements establish a framework of investment principles sensitive to U.S., Canadian, and Mexican interests while assuring that investment flows freely and investors are treated in a fair and equitable manner. The NAFTA provides higher review thresholds for U.S. investment in Canada than for other foreign investors, but the agreement does not exempt all U.S. investment from review nor does it override specific foreign investment prohibitions, notably in "cultural industries" (e.g., publishing, film, music). The NAFTA investor-state dispute settlement mechanism creates the right to binding arbitration in specific situations.
Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and is not criminalized. Creditors must deliver claims to the trustee and the trustee must examine every proof of claim. The trustee may disallow, in whole or in part, any claim of right to a priority under the BIA or security. Generally, the test of proving the claim before the trustee in bankruptcy is very low and a claim is proved unless it is too "remote and speculative." Provision is also made for dealing with cross-border insolvencies and the recognition of foreign proceedings. Canada is ranked number 15 for ease of “resolving insolvency” by the World Bank.