Transparency of the Regulatory System
The transparency of Canada’s regulatory system is similar to that of the United States. The legal, regulatory, and accounting systems, including those related to debt obligations, 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 in the Canada Gazette. 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. Under the United States-Mexico-Canada Agreement (USMCA), parties agreed to make publicly available any written comments they receive, except to the extent necessary to protect confidential information or withhold personal identifying information or inappropriate content.
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 focuses 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. A Memorandum of Understanding between the Treasury Board of Canada and the U.S. Office of Information and Regulatory Affairs, signed on June 4, 2018, reaffirmed the RCC as a vehicle for regulatory cooperation.
Canada publishes an annual budget and debt management report. According to the Ministry of Finance, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity.
International Regulatory Considerations
Canada is not part of a regional economic block and does not incorporate regional standards into its economic system. Through the new United States-Mexico-Canada Agreement (USMCA) the three countries agreed to a new chapter on Good Regulatory Practices that will promote transparency and accountability when developing and implementing regulations. Canada and the United States also work together through the RCC to reduce differences between their regulatory frameworks, making it easier for bilateral trade. Canada, with the United States and Mexico, is a member of the NAFTA. The Canada-EU Comprehensive and Economic Trade Agreement (CETA) also contains a chapter on regulatory cooperation that commits both sides to strengthen regulatory cooperation and facilitate discussions between regulatory authorities in the EU and Canada. The Comprehensive and Progressive Partnership for Trans-Pacific Partnership contains a chapter on regulatory coherence that aims to encourage members of the agreement to adopt widely accepted good regulatory practices, such as reviewing the effectiveness of existing regulatory practices and providing public notice of future regulatory measures.
Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.
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 procedures 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. The ICA also contains provisions that permit the government to conduct a national security review of virtually any investment or acquisition. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only to notify the Canadian government of their investments.
U.S. FDI 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.” The concept of national treatment is also a feature of the USMCA. 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.
Competition and Anti-Trust Laws
Competition Bureau Canada is a law-enforcement agency that administers and enforces Canadian legislation that regulates competition, including the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. The Competition Tribunal is a specialized tribunal that adjudicates antitrust cases related to competition.
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.
The USMCA, like NAFTA, requires that expropriation can only be used for a public purpose and must be done in a nondiscriminatory manner, with prompt, adequate, and effective compensation, and in accordance with due process of law.
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 May 12, 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. The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between NAFTA persons and 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.
Over the history of the NAFTA, more than 25 disputes have been filed against the Government of Canada. For more information about cases filed under NAFTA Chapter 11, please visit https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/gov.aspx?lang=eng
Upon entry into force of the USMCA, Investor State Dispute Settlement procedures that existed under NAFTA for the United States and Canada will be eliminated over a three-year period. Canadian and U.S. investors that believe their host country has violated USMCA will rely on the domestic courts and other dispute resolution mechanisms.
International Commercial Arbitration and Foreign Courts
Provinces primarily regulate arbitration within Canada. With the exception of Quebec, each province has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, requiring witnesses to attend and give evidence and produce documents and other evidence to the arbitral tribunal.
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. 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 was ranked number 13 for ease of “resolving insolvency” by the World Bank in 2020. Credit bureaus in Canada include Equifax Canada and TransUnion Canada.