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International trade

Canada is a founding member of the World Trade Organization (WTO), and as a result, is party to WTO trade agreements and initiatives, and is an active participant in WTO dispute settlement. In recent years, Canada has aggressively negotiated and concluded numerous new trade agreements that were built upon, and have gone beyond, the North American Free Trade Agreement (NAFTA) model. These include the United States Mexico Canada Agreement (USMCA or CUSMA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Comprehensive Economic and Trade Agreement (CETA). In addition, Canada continues to actively negotiate, finalize and conclude bilateral investment treaties designed to protect Canadian investors abroad.

Canada currently has free trade agreements with 16 countries or regions and is in the process of actively negotiating six (6) additional agreements, and is exploring at least four (4) new agreements.

On July 1, 2020, the USMCA entered into force. This agreement is a replacement for NAFTA and includes key updates and changes that were intended to modernize trade between the three member countries. The parties will undertake a formal trilateral review of the USMCA in 2026 to decide whether to extend the agreement for another 16 years. 

Following the departure of the United Kingdom (U.K.) from the European Union, Canada successfully negotiated the Canada-United Kingdom Trade Continuity Agreement, which preserves the main benefits of CETA as between Canada the U.K. The Agreement came into force on April 1, 2021. Negotiations are ongoing for a Canada-United Kingdom Free Trade Agreement that will expand the agreement with the UK into new areas.

On July 1, 2024, the modernized Canada-Ukraine Free Trade Agreement (CUFTA) entered into force. The modernized CUFTA enhances the original 2017 agreement that primarily focused on trade in goods. The updated agreement retains existing market access for goods while significantly expanding its scope to include comprehensive chapters on investment protection, cross-border trade in services, temporary entry for businesspersons, financial services and digital trade. The modernized CUFTA also includes robust commitments on telecommunications and competition policy, as well as updated chapters on labour, environmental standards and transparency. These updates align with Canada’s broader trade agenda by promoting sustainable, inclusive and secure economic growth, while enhancing regulatory cooperation and supporting Ukraine's long-term stability amidst its recovery from conflict.

While economic integration provides enhanced opportunities, it also requires compliance with the legal framework for trade and customs within Canada, including rules relating to importation, export controls and sanctions regimes. Strategic use of free trade and investment agreements also highlights the importance of understanding the recourses available when disputes arise.

  1. Importation of goods
  2. Anti-dumping and countervailing duties
  3. Export controls and sanctions
  4. Controlled goods regime
  5. Investor-state disputes
  6. Canada's blocking legislation: The Foreign Extraterritorial Measures Act
  7. Proactive trade compliance

1. Importation of goods

a. Duties and tax

In Canada, customs duties are levied on imported goods that are classified under the Schedule to the Customs Tariff, in accordance with the harmonized system of customs classification. Duties represent the principal tax levied on goods imported into Canada. In addition to customs duties, imported goods and some services are subject to the federal Goods and Services Tax (GST), and Provincial Sales Tax (PST) or, in certain provinces and territories, the Harmonized Sales Tax (HST). For more information on the GST, see the chapter on taxation.

While tariff classification is based on the harmonized system, goods may be classified differently in Canada compared to other countries. In addition, not all countries have identical tariff codes, meaning an item listed under one tariff code in a foreign country may be listed under a completely different code in Canada.

There are many special tariff items under the Customs Tariff that allow for duty relief, such as goods destined for particular end uses. Canada also has duty-relief programs for temporary importations, goods exported from Canada and returned after repair, alteration or certain forms of processing, as well as duty drawbacks and deferrals.

In addition to customs duties, the possibility exists that the import may be subject to additional duties, tariffs and surtaxes due to anti-dumping or countervailing measures (discussed below), safeguards and retaliatory tariffs and countermeasures. The latter category of measures are generally rare, but may have a large impact on amounts payable upon import. Therefore, determining the proper tariff classification and origin of the product becomes particularly important (see section c. Rules of origin below).

b. Valuation

Classification of a product under the Customs Tariff determines the rate of duty, which is then applied to the value for duty to calculate the duty payable. Canada's system of customs valuation is based on the World Trade Organization's (WTO) Customs Valuation Code, which has been implemented into Canada's Customs Act.

Transaction value is the primary valuation method for imported goods. It is the price actually paid or payable for the goods sold for export to a purchaser in Canada, subject to certain upward and downward adjustments.

Issues relating to transaction-value methodology often arise in related-party transactions due to the requirement that the value for duty reflect an arm's-length transaction. For instance, there is often tension between transfer-pricing objectives from tax and customs perspectives: a balance must be achieved to establish a transfer price that maximizes tax-planning objectives while considering customs duty implications and requirements.

c. Rules of origin

Preferential rates of duty are accorded to products that originate in a country with which Canada has a free trade agreement, such as USMCA, CPTPP, CETA, or agreements between Canada and Panama, Peru, Israel, Chile and other states. Whether a product "originates," from one of those nations and therefore benefits from a trade agreement, is determined by prescribed rules of origin. These rules may involve complex calculations and analysis of both the tariff classification and the value of the components that make up an imported product. This often raises the question of whether the components within an imported product, sourced from other countries, undergo the necessary degree of transformation to qualify for a tariff shift to claim preferential treatment under a trade agreement.

d. Appeals

Tariff classification, valuation and origin issues may all be appealed at the first level internally with the Canada Border Services Agency (CBSA), and then to the Canadian International Trade Tribunal (CITT), an independent tribunal.

e. Import restrictions

Canada maintains quantitative restrictions on imports of certain goods in the form of tariff rate quotas. The quotas establish a limit on the quantity of goods that may be imported at a lower "within access" rate of duty. These quotas are primarily applied to sensitive agricultural products under the authority of the Export and Import Permits Act (EIPA), which authorizes an import control list. A permit must be obtained to import these products at the within access rate of duty, unless a permit exemption applies.

Canada also prohibits the importation of certain categories of goods through the use of prohibited tariff items in the Customs Tariff. Goods classifiable under the prohibited tariff items include prohibited weapons, certain materials and imagery restricted by Canada's Criminal Code, and a range of other goods. Shipments of goods meeting the description of a prohibited tariff item may be detained at the Canadian border and have their tariff classification re-determined, after which the CBSA may pursue enforcement to prevent the goods from being released into Canada.

Notably, prohibited tariff items are a key means of enforcement in Canada's policy strategy to combat forced labour and child labour in Canadian supply chains.

On July 1, 2020, as part of its implementation of the USMCA, Canada amended its Customs Tariff to prohibit the importation of goods mined, manufactured or produced wholly or in part by forced labour. Canada's Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to Amend the Customs Tariff, which requires ESG reporting on the risks of forced labour and child labour in supply chains will come into force on Jan. 1, 2024. Bill S-211 was passed at Third Reading in the House of Commons on May 3, 2023 and received Royal Assent on May 11, 2023 and has now become an act of Parliament and part of the law of Canada. Bill S-211 will amend the Customs Tariff to also prohibit the importation of goods mined, manufactured or produced wholly or in part by child labour. Bill S-211 will be the very first ban anywhere on the importation of all child labour-made goods. CBSA is responsible for enforcement of the ban and can detain and seize imported goods suspected of being manufactured, in whole or in part, from forced labour and child labour. 

2. Anti-dumping and countervailing duties

The Special Import Measures Act (Canada) deals with dumping by foreign manufacturers and exporters, as well as subsidies received by foreign manufacturers or exporters. Dumping occurs when goods are sold for export at a price lower than that at which they are domestically sold in the country of origin under comparable conditions and terms of sale. The difference between the "normal" value and the export price is the margin of dumping.

A subsidy is a financial benefit that is granted by the country of origin's administration to a manufacturer or distributor of exported goods.

Subsidized goods may be subjected to countervailing duties, and dumping may result in the imposition of anti-dumping duties.

While the CBSA determines the amount of dumping or subsidy, Canada does not impose duties on the dumped or subsidized goods unless the CITT finds that the dumping or subsidization has caused, or threatens to cause, material injury to a domestic producer. Examples of factors that can constitute injury are loss of sales or reduction of profits, price depression, price suppression, reduction of employment, and price erosion or degradation.

In recent years, foreign manufacturers have often succeeded in defending dumping and subsidy actions before the CITT. However, anti-dumping and countervailing orders remain in place on a number of products, and, in particular, on steel and other primary commodities. While dumping and subsidy proceedings continue to frequently target primary commodities, recent complaints have resulted in measures being imposed in respect of manufactured goods, including household furniture, and complex procured equipment and machinery.

Over the past few years, changes have been introduced to Canada's anti-dumping and countervailing duties regime. These changes increase the frequency of CBSA reviews of anti-dumping levels and alter the CBSA's methods of calculating certain costs of production to determine normal values. These amendments were made to address transactions between associated parties (e.g. a subsidiary or affiliated company) and "particular market situations" which encompasses a broad range of potential government actions that may distort the market.

3. Export controls and sanctions

Canada has a comprehensive regime for export controls and sanctions administered primarily by Global Affairs Canada (GAC), with enforcement assistance from the CBSA and the Royal Canadian Mounted Police (RCMP).

a. Export controls

Four lists established under the authority of the EIPA govern exports of goods and technology from Canada to various destinations: the Export Control List, the Area Control List, the Brokering Control list, and the Automatic Firearms Country Control List.

Detailed schedules to the Export Control List itemize specific categories of goods and technology controlled for export. They are included in the Government of Canada's "A Guide to Canada's Export Controls", which is available online at international.gc.ca.

In 2019, in order to comply with the requirements of the Arms Trade Treaty, brokering controls were implemented under the EIPA. These controls prohibit those captured by the legislation from arranging or negotiating transactions involving the movement of arms from one foreign country to another foreign country, without a permit. The Brokering Control List identifies the specific goods and technologies for which brokering is controlled.

Under the EIPA, it is an offence to export or transfer goods or technology included on the Export Control List, or export or transfer goods to a destination on the Area Control List, except under the authority of a permit. Note that this includes transfers of controlled software and data via intangible means, including hosting controlled goods data on cloud servers based outside of Canada. Canada does not have a "licensing" system similar to the U.S., which makes it necessary for each exporter of a controlled good or technology to apply for a permit where one is required.

With certain exceptions, export controls for military, dual-use and strategic items in the Export Control List generally apply to all destinations except the United States. Export permits are not required for most controlled goods or technology destined to a final consignee in the U.S.. Items that do require an export permit to the U.S. are identified on the Export Control List with a statement indicating that the control applies to "all destinations."

A permit is otherwise required to export or transfer controlled goods or technologies.

The Minister of Foreign Affairs has issued several general export permits (GEPs) that allow exports of certain controlled goods or technology to specific destinations without the requirement to apply for an exporter-specific permit (assuming certain conditions are met). For example, in an effort to streamline the process for the export of certain controlled goods and technology, GAC has introduced a GEP authorizing the export of most controlled dual-use goods and technology (with some exceptions) to certain eligible destinations, provided the exporter complies with specific conditions. GEPs also exist with respect to the export of cryptographic goods and technology, including for technology related to the development and production of such products.

In the absence of an applicable GEP, exporters must apply for an individual export permit (IEP) to export controlled goods or technology, or to export to a controlled destination. "Broad base" permits may be available, particularly to those applicants to whom an export permit has been issued in the past, to authorize multiple shipments to multiple destinations over a certain time period, provided regular reporting requirements are met.

While Canada's export control regime focuses on "export or transfer" and destination rather than "origin," item 5400 of the Export Control List respects U.S. controls on the re-export of U.S.-origin goods by requiring a permit to export U.S.-origin goods and technology from Canada. GEP No. 12 allows the export or transfer of U.S.-origin goods and technology without an individual export permit, except to Cuba, North Korea, Iran, Syria or any destination on Canada's Area Control List.

No goods or technology may be exported or transferred from Canada to a country on the Area Control List without an individual export permit. The only country currently listed on the Area Control List is North Korea.

A number of specific export controls are also imposed by legislation administered by government departments other than GAC. These controlled products include, for example, wheat and barley, certain cultural property, rough diamonds, endangered species, ozone-depleting substances, nuclear substances, select equipment and information, hazardous waste, and certain wild plants and animals.

b. Sanctions

Canada has three main statutes that authorize the imposition of trade and economic sanctions: the United Nations Act (UNA), the Special Economic Measures Act (SEMA), and the Justice for Victims of Corrupt Foreign Officials Act (JVCFOA).

The UNA is used by Canada to give effect to resolutions passed by the United Nations Security Council where it has decided a measure shall be taken to restore or maintain international peace and security.

Canada's autonomous economic and trade sanctions are primarily imposed under the SEMA. Sanctions may be imposed by regulation under the SEMA in numerous situations, including:

  • Where an international organization to which Canada belongs calls on its members to take economic measures against a foreign state.
  • Where a grave breach of international peace and security has occurred and is likely to result in a serious international crisis.
  • Where gross and systemic human rights violations have been committed in a foreign state.
  • Where a national of a foreign state, who is either a foreign public official or an associate of such an official, is responsible for or complicit in acts of significant corruption.

The JVCFOA came into force on October 18, 2017, and enables Canada to impose sanctions against foreign nationals in a foreign state for human rights abuses or against foreign public officials and their associates who are responsible or complicit in acts of significant corruption.

Related measures may be imposed under the Criminal Code (listing of terrorist entities) and Freezing Assets of Corrupt Foreign Officials Act, under which Canada may acquiesce to a demand by a country in turmoil to freeze the assets or restrain the property of certain of its government officials or politicians.

Regulations under these Acts specify the countries, entities or individuals that are subject to sanctions, and outline the specific measures that will apply.

In addition to the import and export controls under the EIPA, sanctions regulations often impose additional import and export restrictions applicable to specific sanctioned countries, among other measures. Sanctions-related export controls and prohibitions are normally limited to arms and related material and technical assistance but sometimes target particular economic sectors and luxury goods and may be broader for a particular state, such as Canada's very extensive sanctions on Syria and Russia.

Other measures imposed by sanctions regulations include limitations on official and diplomatic contacts, and broader restrictions on economic activity between Canada and states that are the targets of sanctions. This includes the creation of "designated persons" lists where individuals and entities may be listed. Listing results in the freezing and/or seizure of the listed persons' property and assets situated in Canada and prohibits any Canadian or person in Canada from doing business with the listed persons, anywhere in the world.

Facilitating, assisting in or causing any prohibited activity is also prohibited.

The prohibitions imposed by Canadian sanctions generally apply only to the conduct of persons in Canada and Canadians outside of Canada. This includes corporations incorporated in Canada and other entities that maintain Canadian operations. Such persons must generally conduct due diligence when doing business with sanctioned countries and related persons in order to ensure specific transactions are not prohibited by Canadian sanctions.

Asset freezes and dealings bans frequently have downstream effects on trade with entities owned or otherwise controlled by listed persons. Such ownership is not always clear, making careful ownership-screening important for Canadian individuals and organizations entering into transactions with new entities.

Canada recently amended the SEMA and JVCFOA to prescribe "deemed ownership" rules in respect of entities owned or controlled by listed persons, to clarify when the assets of such entities may be impacted by the asset freezes and dealings bans imposed through regulations under those Acts.

Under the new deemed ownership rules, a listed person is deemed to own property that is owned, held or controlled, directly or indirectly, by an entity deemed owned by the listed person. Listed persons are deemed to own entities where:

  1. The person holds, directly or indirectly, 50 per cent or more of the shares or ownership interests in the entity or 50 per cent or more of the voting rights in the entity.
  2. The person is able, directly or indirectly, to change the composition or powers of the entity's board of directors.
  3. It is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity's activities.

Prohibited activities may be conducted only by obtaining an authorizing permit from the Minister of Foreign Affairs.

In recent years, global use of sanctions and export controls as a means of responding to armed conflict and other international human rights violations has increased. Particularly in light of the extensive multi-jurisdictional international sanctions that have been imposed on Russia in respect of the ongoing conflict in Ukraine, enforcement has become more frequent. Canadian officials have recently signed on to commitments to heighten enforcement of export controls and sanctions and combat sanctions evasion in cooperation with allied jurisdictions.

4. Controlled goods regime

Public Services and Procurement Canada (PSPC) manages the Controlled Goods Program (CGP), which requires mandatory registration and regulation of persons and entities who examine, possess or transfer defence goods as defined in Canada's Defence Production Act (DPA). Controlled goods are primarily goods, including components and technical data, that have military or national security significance. The CGP was created in 2001 to strengthen the Canada-U.S. agreement on defence trade controls and is essential for maintaining the Canadian exemption with respect to the U.S. International Traffic in Arms Regulation (ITAR) regime.

In October 2011, the CGP began implementing the Enhanced Security Strategy, which imposes heightened security requirements on registered persons and entities. These requirements were adopted to allow Canadian registrants to make use of the new ITAR dual-national rule, which amends the treatment of dual- and third-country nationals in a manner that resolves the conflict that existed between ITAR restrictions and Canadian human rights laws that prohibit discrimination based on nationality.

5. Investor-state disputes

Canada is party to a number of trade and investment agreements that allow foreign investors to bring claims against the Canadian government for a breach of an obligation owed to the investor (by either the federal or provincial governments) under one of Canada's investment treaties. Such obligations include, for example:

  • The requirement to accord national treatment and a minimum standard of treatment
  • The prohibition against the adoption of certain performance requirements (e.g., domestic content requirements)
  • The commitment to pay compensation for expropriation

Canadian investors abroad can also bring similar claims against their host country's government under the numerous investment treaties between Canada and foreign countries.

The USMCA introduces significant changes to the investor-state arbitration scheme for Canadian investors in their dealings in the US and Mexico. Under the USMCA, Canada is completely excluded from the investor-state arbitration provisions. There will be no investor-state arbitration claims against Canada and Canadian investors will not be allowed to file claims for damages against the USA or Mexico. However, the agreement includes a "sunset clause" that allows U.S. investors already present in Canada as of July 1, 2020 to use investor-state arbitration for another three years (expiring June 30, 2023). Following the three-year period, the only recourse will be State-to-State dispute settlement if the U.S. government were to bring a claim against Canada on a U.S. investor's behalf. Otherwise, American companies will be required to use Canada's domestic court system for any legal challenges. American and Mexican investors will continue to have access to investor-state arbitration against each other, but the rights in the USMCA are significantly limited when compared to what was available under NAFTA.

Importantly, Canadian and Mexican investors still have access to investor-state arbitration under the CPTPP.

6. Canada's blocking legislation: The Foreign Extraterritorial Measures Act

The Foreign Extraterritorial Measures Act (FEMA) provides for the enactment of orders to prevent Canadian companies from complying with extraterritorial measures of other countries.

There is currently only one order in force under FEMA: the Certain Foreign Extraterritorial Measures (United States) Order. This Order creates a dangerous "catch-22" for related Canadian and American companies by prohibiting a Canadian company from complying with American extraterritorial measures that restrict trade between Canada and Cuba.

If the company complies with U.S. law, it faces serious sanctions under FEMA. On the other hand, if it does not comply with U.S. law, it may face serious sanctions under U.S. laws that prohibit trade with Cuba. The FEMA order also imposes an obligation on Canadian companies to "report" communications received that relate to an extraterritorial measure of the U.S. pertaining to Cuba, and imposes strict penalties for non-compliance to this obligation.

FEMA applies to any company incorporated and carrying out work in Canada, meaning that a subsidiary of a U.S. company registered in Canada and carrying on activities in Canada, even if minor, would be captured under the FEMA order and subject to its reporting and compliance obligations. As a result, FEMA issues often arise in the context of mergers between Canadian and U.S. companies where the Canadian companies have existing Cuban businesses or when a U.S. company establishes a Canadian affiliate or subsidiary.

7. Proactive trade compliance

Failure to comply with the numerous laws and regulations governing trade with Canada can result in serious penalties and prosecution, including criminal liability, and may cause disruptions to business operations. In Canada, the CBSA can require a company to revise and correct any incorrect import for up to 4 years after the improper classification is made. This financial risk is compounded by the ability of the CBSA to impose administrative monetary penalties (AMPS) for errors.

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