Openness to Foreign Investment
Corporate Social Responsibility
U.S. investors are attracted to Canada's strong economic fundamentals, its proximity to the U.S. market, a highly skilled work force, and abundant resources. With few exceptions, Canada offers full national treatment to foreign investors within the context of a developed open market economy operating with democratic principles and institutions. Canada is one of the few OECD countries that still has a formal investment review process. Foreign investment is prohibited or restricted in a few key sectors of the economy.
Canada's economic development is related to foreign investment flows. The Canadian government estimates that foreign investors control about one quarter of Canada's nonfinancial corporate assets. The stock of global foreign direct investment in Canada stood at $561.1 billion in 2010, an increase of 7.2 percent from 2009. U.S. investment in Canada stood at $305.9 billion in 2010, accounting for 54.5 percent of Canada’s total stock of foreign direct investment (a 1.3 percent increase from 2009).
The United States and Canada agree on important foreign investment principles, including right of establishment and national treatment. The 1989 Canada-United States Free Trade Agreement (CUFTA) and 1994 North America Free Trade Agreement (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 American 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.
Legal Framework: The Investment Canada Act
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 imposed 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. The threshold for investments subject to ICA review for 2012 is expected to be C$330 million for WTO Members. (Indirect control acquisitions by WTO Members do not have to be reviewed.) For non-WTO Members, the threshold remains at C$5 million for direct control and C$50 million for indirect control acquisitions. The Canadian government amended the ICA in 2009 to increase the threshold for review to C$1 billion over a four-year period. This increase will take affect once regulations implementing the amendments come into force.
Fewer than 10 percent of foreign acquisitions are subject to ICA review; however, there have been several high profile cases in recent years. Canada’s Minister of Industry sought an order in federal court in July 2009 against a Pittsburgh-based U.S. steel producer alleging that the company had failed to fulfill its obligations under the ICA to maintain minimum Canadian employment levels in exchange for permission to acquire a Canadian steel mill. Under the ICA, the Canadian government has authority to levy financial penalties against the producer for breach of these undertakings. Following an unsuccessful appeal by the company, the Canadian government dropped its case in December 2011 in exchange for a commitment from the producer to continue manufacturing steel in Canada until 2015 and a pledge to invest an additional $50 million in its Canadian facilities.
The Canadian government blocked a proposed C$38.6 billion purchase of a potash producer in Saskatchewan by an Australian-based company in November 2010, claiming the hostile takeover failed to be of “net benefit” to Canada under the ICA. The decision marked only the second time the Canadian government has turned down an investment offer since the ICA came into force more than 25 years ago. The Canadian government pledged to clarify the rules governing foreign takeovers of Canadian companies following this decision, but has yet to offer new guidelines to the global business community.
The ICA review process was also invoked following the announced merger of Canada’s largest stock exchange and a major London-based stock exchange in February 2011. The deal failed to draw sufficient support from the Canadian stock exchange’s shareholders, which led to the merger’s demise before the ICA review process was completed. A rival bid for the Canadian stock exchange by a consortium of major Canadian banks, pension plans, and financial firms, was a significant factor in the merger’s eventual failure.
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. Under provisions of Canada's Telecommunications Act, foreign ownership of transmission facilities is limited to 20 percent direct ownership and 33 percent through a holding company, for an effective limit of 46.7 percent total foreign ownership. The Broadcast Act governs foreign investment in radio and television broadcasting. (See below for more detail on investment limitations applicable to this sector).
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, inter alia, 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 Investment Canada Act, the WTO, and the NAFTA. Chapter 11 of the NAFTA ensures that future 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. The Canadian government 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.
The U.S. and Canadian governments are 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 two governments retain some flexibility in the application of national treatment obligations. They need not extend identical treatment, as long as the treatment is "equivalent."
Bilateral services trade is largely free of restrictions, and the NAFTA ensures that restrictions will not be applied in the future. 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.
Canada is a signatory of the WTO Government Procurement Agreement, and has made government procurement market access commitments through NAFTA and the U.S.-Canada Agreement on Government Procurement. The U.S.–Canada Agreement on Government Procurement, which came into effect in February 2010, provides permanent U.S. access to Canadian provincial and territorial procurement contracts in accordance with the WTO Government Procurement Agreement. The U.S.-Canada Agreement provided Canadian companies with reciprocal access to 37 states subject to the WTO Government Procurement Agreement, as well as a limited number of projects under the American Recovery and Reinvestment Act of 2009.
These three agreements provide U.S. businesses with access to most Canadian federal departments and some provincial and municipal entities, but procurement by only ten of Canada’s Crown corporations are covered. Federal departments can delegate purchasing authorities to Crown corporations that are not bound by international procurement rules. Canada’s Air Transportation Security Authority (CATSA) excluded a U.S. equipment supplier in 2009 and 2010 procurements for baggage screening X-ray systems in favor of sole-source contracts to a U.K. supplier. CATSA has avoided competitive procedures in two procurements worth approximately $46 million.
The Canadian government adheres to Investment and Regional Benefits (IRB) policies, which ensures that any company awarded a Government of Canada defense and security contract must invest in Canadian business activities at a value equal to 100 percent of the contract. This investment can be achieved, for instance, through the purchase of goods and services from Canadian companies. Canada has more than 60 defense and security projects underway with IRB obligations, representing approximately C$20 billion in investment in the Canadian business community.
Canada has taken measures to address interprovincial trade barriers that can restrict U.S. firms established in one province from bidding on another province’s procurement opportunities. The Agreement on Internal Trade (AIT), which came into force in July 1995, provides a framework for dealing with intra-Canada trade in ten specific sectors and establishes a formal process for resolving trade disputes. In January 2009, the provinces expanded the AIT to include improvements for labor mobility and dispute resolution.
The provinces of British Columbia and Alberta signed a Trade, Investment, and Labor Mobility Agreement (TILMA) in 2006 to ensure that any provincial measures will not “operate to impair or restrict trade between or through the territory of the Parties, or investment or labor mobility between the Parties.” The Agreement came into force in April 2009.
The NAFTA includes provisions that enhance the ability of U.S. investors to enforce their rights through international arbitration; prohibit a broad range of performance requirements, including forced technology transfer, and expand coverage of the NAFTA investment chapter to include portfolio and intangible investments, as well as direct investment.
Investment in Cultural Industries
Canada defines cultural industries to include: the publication, distribution or sale of books, magazines, periodicals or newspapers, other than the sole activity of printing or typesetting; the production, distribution, sale or exhibition of film or video recording, or audio or video music recordings; the publication, distribution or sale of music in print or machine-readable form; and any radio, television and cable television broadcasting undertakings and any satellite programming and broadcast network services.
The Investment Canada Act requires that foreign investment in the book publishing and distribution sector be compatible with Canadian national cultural policies and be of "net benefit" to Canada. Takeovers of Canadian-owned and controlled distribution businesses are not allowed. The establishment of new film distribution companies in Canada is permitted only for importation and distribution of proprietary products. Direct and indirect takeovers of foreign distribution businesses operating in Canada are permitted only if the investor undertakes to reinvest a portion of its Canadian earnings in Canada.
The Broadcasting Act sets out the policy objectives of enriching and strengthening the cultural, political, social, and economic fabric of Canada. The Canadian Radio-television and Telecommunications Commission (CRTC) administers broadcasting policy. When a Canadian service is licensed in a format competitive with that of an authorized non-Canadian service, the commission can drop the non-Canadian service if a new Canadian applicant requests it to do so. Licenses will not be granted or renewed to firms that do not have at least 80 percent Canadian control, represented both by shareholding and by representation on the firms' board of directors. The CRTC has come under pressure from Canada’s traditional broadcasters to impose Canadian content requirements on “over-the-top” (OTT) providers such as Netflix, iTunes, and Google Video. The CRTC has not found sufficient cause to pursue regulatory restrictions on OTT providers, but has pledged to closely monitor the impact of OTT providers on the Canadian broadcasting environment.
Canada allows up to 100 percent foreign equity in an enterprise to publish, distribute and sell periodicals but all foreign investments in this industry are subject to review by the Minister for Canadian Heritage, and investments may not occur through acquisition of a Canadian-owned enterprise. No more than 18 percent of the total advertising space in foreign periodicals exported to Canada may be aimed primarily at the Canadian market. Canadian advertisers may place advertisements in foreign-owned periodicals, and may claim a tax deduction for the advertising costs, including in cases where the periodical is a Canadian issue of foreign-owned periodical. One-half of advertising costs may be deducted in the case of publications with zero to 79 percent original editorial content, and the full cost of advertising may be deducted in the case of publications with advertising may be deducted in the case of publications with 80 percent or more original editorial content.
This regime is the result of a 1999 U.S.-Canada agreement, which balanced U.S. publishers' desire for access to the Canadian market against Canada's desire to ensure that Canadian advertising expenditures support the production of Canadian editorial content. An April 2010 decision to allow online retailer Amazon to open a Canadian distribution center suggests a willingness to allow foreign investors greater access to cultural industries in exchange for commitments to promote Canadian content.
Investment in the Financial Sector
Canada is open to foreign investment in the banking, insurance, and securities brokerage sectors, but there are barriers to foreign investment in retail banking. Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. Canadian banks have been much more aggressive in entering the U.S. retail banking market because there are no barriers that limit access. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada, which is regarded as a fairly "saturated" market. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.
Chapter 14 of the NAFTA deals specifically with the financial services sector, and eliminates discriminatory asset and capital restrictions on U.S. bank subsidiaries in Canada. The NAFTA also exempts U.S. firms and investors from the federal "10/25" rule so that they will be treated the same as Canadian firms. The "10/25" rule prevents any non-NAFTA, nonresident entity from acquiring more than ten percent of the shares (and all such entities collectively from acquiring more than 25 percent of the shares) of a federally regulated, Canadian-controlled financial institution. The Canadian government raised the 10-percent limit for single, non-NAFTA shareholders to 20 percent in 2001. Several provinces, however, including Ontario and Quebec, have similar "10/25" rules for provincially chartered trust and insurance companies that were not waived under the NAFTA.
The requirement that bank ownership be "widely held" with no more than 25 percent of its shares owned by a single shareholder is said to prevent ownership concentration without discriminating against foreign investors; however, Canadian influence is still exerted through certain requirements of the Bank Act:
Investment in Other Sectors
Commercial Aviation: Canada limits foreign ownership of Canadian air carriers to 25 percent of voting equity. Foreigners may own nonvoting equity subject to the overall requirement that they are not permitted to control a Canadian air carrier. The Canada-EU Aviation Agreement envisions changes to Canadian legislation that will allow up to a 49 percent foreign stake in Canadian airlines. The Canadian government passed an amendment to the Canada Transportation Act in March 2009 that provides the Governor in Council with authority to increase foreign ownership of Canadian airlines to a maximum of 49 percent. This power has not been exercised to date.
General Aviation: No non-Canadian (other than permanent residents) may register a general aviation aircraft for commercial or personal use in Canada.
Energy and Mining: Generally foreigners cannot be majority owners of uranium mines.
Telecommunications: Under provisions of Canada's Telecommunications Act, direct foreign ownership of Type 1 carriers (owners/operators of transmission facilities) is limited to 20 percent. Ownership and control rules are more flexible for holding companies that wish to invest in Canadian carriers. Under these rules, two thirds of the holding company's equity must be owned and controlled by Canadians.
The Canadian government pledged in 2010 to further open its telecommunications industries to foreign investment and is considering three options to liberalize the sector: increasing the ownership limitation to 49 percent, eliminating ownership restrictions for carriers with less than 10 percent market share, and completely removing all ownership restrictions. In December 2011, Canada reiterated its pledge to clarify its telecom policy before the planned 2012 750 mhz spectrum auction.
Fishing: Foreigners can own up to 49 percent of companies that hold Canadian commercial fishing licenses.
Electric Power Generation and Distribution: Regulatory reform in electricity continues in Canada in expectation that increased competition will lower costs of electricity supply. Province-owned power firms are interested in gaining greater access to the U.S. power market. Since power markets fall under the jurisdiction of the Canadian provinces, they are at the forefront of the reform effort. Several Canadian provinces have introduced initiatives to encourage the development and implementation of renewable sources of electricity.
Ontario’s efforts to implement a feed in-tariff renewable energy program as part of the Green Energy and Green Economy Act of 2009 has been opposed by U.S. suppliers of equipment and services. Under the program, the Ontario Power Authority provides a guaranteed tariff for energy produced through renewable means (including wind, solar/photovoltaic) on the condition that suppliers use a provincially-mandated percentage of local content (equipment, services, etc.) in their generating activity. U.S. companies contend that the program’s domestic content requirement is a disincentive to purchase from U.S. suppliers. An investor-state claim was filed under NAFTA Chapter 11 against the Canadian government in July 2011 by a Texas-based renewable energy firm, claiming the program violates Canada’s obligations under NAFTA to provide investors with fair and equitable treatment.
Real Estate: Primary responsibility for property law rests with the provinces. Prince Edward Island, Saskatchewan, and Nova Scotia all limit real estate sales to out-of-province parties. There is no constitutional protection for property rights in Canada. Consequently, government authorities can expropriate property after paying appropriate compensation.
Privatization: Federal and provincial privatizations are considered on a case-by-case basis, and there are no overall limitations with regard to foreign ownership. As an example, the federal Department of Transport did not impose any limitations in the 1995 privatization of Canadian National Railway, whose majority shareholders are now U.S. persons.
Federal and provincial governments in Canada offer a wide array of investment incentives that municipalities are generally prohibited from doing. None of the federal incentives are specifically aimed at promoting or discouraging foreign investment in Canada. The incentives are designed to advance broader policy goals, such as boosting research and development or promoting regional economies. The funds are available to any qualified Canadian or foreign investor who agrees to use the monies for the stated purpose. For example, Export Development Canada can support inbound investment under certain specific conditions (e.g., investment must be export-focused; export contracts must be in hand or companies have a track record; there is a world or regional product mandate for the product to be produced).
Several provinces have developed initiatives aimed at attracting foreign investment. The Province of Quebec launched its “Plan Nord” (Northern Plan) in May 2011. Plan Nord is a 25 year, C$80 billion investment initiative aimed at developing a 1.2 million square-kilometer territory in Northern Quebec. Much of this investment will go toward renewable energy, infrastructure, and natural resource development projects. Quebec’s government has instructed its main investment arm, Investissement Quebec, to attract and partner with foreign investors to develop projects under Plan Nord.
Provincial incentives tend to be more investor-specific and are conditioned on applying the funds to an investment in the granting province. As an example, AdvantageBC operates a provincial incentive program that registers foreign companies in British Columbia’s International Business Activity program, and assists them in obtaining a full refund of provincial corporate income tax. Specific sectors and foreign banks are eligible, as are some employees of the registered company.
Provincial incentives may also be restricted to firms established in the province or that agree to establish a facility in the province. Government officials at both the federal and provincial levels expect investors who receive investment incentives to use them for the agreed purpose, but no enforcement mechanism exists.
Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax credits. Incentive programs in Canada generally are not oriented toward export promotion. Provincial incentive programs for film production in Canada are available to foreign filmmakers.
Canada's Ranking in Selected Business Indices
TI Corruption Index
CPI Score 8.7
Heritage Economic Freedom
Overall Score 80.8
WB Ease of Doing Business
(MCC Indices Not Applicable)
The Canadian dollar is fully convertible. The Canadian government provides some incentives for Canadian investment in developing countries through Canadian International Development Agency (CIDA) programs. Canada's official export credit agency, the Export Development Corporation (EDC), provides political risk insurance to Canadian companies with investments in foreign countries and to lenders who finance transactions pursued by Canadian companies abroad.
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 ones after reaching agreement with the former owners.
Canada is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Canadian government has made a decision in principle to become a member of the international Center for the Settlement of Investment Disputes (ICSID). However, since the ICSID legal enforcement mechanism requires provincial legislation, the federal government must also obtain agreement from the provinces that they will enforce ICSID decisions. Although most provinces have endorsed the agreement, full agreement is unlikely in the foreseeable future.
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.
The NAFTA prohibits the United States or Canada from imposing export or domestic content performance requirements, and Canada does not explicitly negotiate performance requirements with foreign investors. For investments subject to review, however, the investor's intentions regarding employment, resource processing, domestic content, exports, and technology development or transfer can be examined by the Canadian government. Investment reviews often lead to negotiation of a package of specific "undertakings," such as agreement to promote Canadian products.
Investors have full rights to private ownership.
Foreign investors have full and fair access to Canada's legal system, with private property rights limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Investors from NAFTA countries have mechanisms available to them for dispute resolution regarding property expropriation by the Government of Canada.
Canada has been listed on the U.S. Special 301 Priority Watch List since 2009. Concerns cited in the report relate to Canada’s failure to implement key copyright reforms, particularly the World Intellectual Property Organization (WIPO) Internet treaties, which Canada signed in 1997. The Canadian government reintroduced legislation, the Copyright Modernization Act, in 2011 in an effort to align its copyright laws with international standards and implement the rights and protections of the WIPO Internet Treaties. The Canadian government has also failed to enact legislation that would allow Canadian border enforcement officials the ex officio authority to seize counterfeit goods without a court order. Canada signed the Anti-Counterfeiting Trade Agreement in October 2011, which obligates it to grant border officials ex officio authority, but the implementing legislation has not yet been introduced. U.S stakeholders have expressed strong concerns about Canada’s administrative process for reviewing the regulatory approval of pharmaceutical products, and limitations in Canada’s trademark regime.
The transparency of Canada's regulatory system is similar to that of the United States. 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. The RCC will increase regulatory transparency and cooperation between the United States and Canada and eliminate unnecessary regulatory differences and duplication that hinder cross-border trade and investment. The RCC Joint Action Plan sets out 29 initiatives where Canada and the United States will seek greater regulatory alignment over the next two years. Sectors to be addressed initially include agriculture and food, transportation, health and personal care products and workplace chemicals, the environment, and cross-sectoral issues.
Canada's capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. The World Economic Forum ranked Canada’s banking system as the "most sound" in the world in 2010 and 2011. Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements.
The Canadian banking industry includes 22 domestic banks, 25 foreign bank subsidiaries, 23 full-service foreign bank branches and seven foreign bank lending branches operating in Canada. These institutions manage close to $3.1 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office or branch of the parent bank.
In Canada, the regulation of defensive tactics against hostile takeovers is handled by provincial securities regulators rather than the courts. Provincial authorities refer to the Canadian Securities Administrators' National Policy 62-202 regarding takeovers that seeks to encourage open and unrestricted auctions to maximize target company shareholder value and choice between competing alternatives. The nationality of the bidding entity is not considered by the provincial securities regulators but trigger a federal review under the Investment Canada Act.
While cross-shareholding arrangements are permitted in Canada, the extent of foreign investment and cross-border merger and acquisition activity suggests that they do not pose any practical barriers.
Canada has approximately 100 state-owned enterprises (SOEs), however the vast majority of assets are held by four federal crown corporations: Canada Mortgage and Housing Corporation; Farm Credit Canada; Business Development Bank of Canada; and Export Development Canada. The Treasury Board Secretariat provides an annual report to Parliament regarding the governance and performance of Canada's crown corporations and other corporate interests.
There are no restrictions on the ability of private enterprises to compete with SOEs. The functions of most Canadian crown corporations have limited appeal to the private sector, e.g. the Canadian Space Agency. The activities of some SOEs such as VIA Rail and Canada Post do overlap with private enterprise. As such, they are subject to the rules of the Competition Act to prevent abuse of dominance and other anti-competitive practices. Foreign investors are also able to challenge SOEs under the NAFTA and WTO.
Canada does not have a sovereign wealth fund but the province of Alberta has the Heritage Savings Trust Fund established through province's share of petroleum royalties. The fund's value was approximately $15 billion in 2011. It is invested in a globally diversified portfolio of public and private equity, fixed income and real assets.
Canada encourages Canadian companies to observe the OECD Guidelines for Multinational Enterprises in their operations abroad and provides a National Contact Point for dealing with issues that arise in relation to Canadian companies. Despite the increased level of official attention paid to CSR, the activities of Canadian mining companies abroad remain the subject of critical attention and have prompted calls for the government to move beyond voluntary measures.
Political violence occurs in Canada to about the same extent as in the United States. For example, protests at the G20 Summit in Toronto in June 2010 led to confrontation between police and protesters.
On an international scale, corruption in Canada is low and similar to that found in the United States. In general, the type of due diligence that would be required in the United States to avoid corrupt practices would be appropriate in Canada. Canada is a party to the UN Convention Against Corruption. Canada is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as the Inter-American Convention Against Corruption.
Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.
It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.
The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.
U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/fcpa/
Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. This country is party to, but generally all countries prohibit the bribery and solicitation of their public officials.
OECD Antibribery Convention: The OECD Antibribery Convention entered into force in February 1999. As of March 2009, there are 38 parties to the Convention including the United States. See: http://www.oecd.org/dataoecd/59/13/40272933.pdf
Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA.
UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 158 parties to it as of November 2011(see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery.
OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 34 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html).
Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 49 member States (48 European countries and the United States). As of December 2011, the Criminal Law Convention has 43 parties and the Civil Law Convention has 34 (see http://conventions.coe.int/).
Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements
Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.
Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.
The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.
Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at http://www.justice.gov/criminal/fraud/. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.
Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.
Some useful resources for individuals and companies regarding combating corruption in global markets include the following:
The FTA and NAFTA guide investment relations between Canada and the United States. Investment relations with other states are governed by Foreign Investment Protection Agreements (FIPAs). These are bilateral treaties that promote and protect foreign investment through a system of legally binding rights and obligation based on the same principles found in the NAFTA. Canada has negotiated FIPAs with countries in Central Europe, Latin America, Africa, and Asia. Canada is actively pursuing FIPA’s with a dozen other countries, including India and China. The Canadian government maintained that it had made significant progress in finalizing its FIPA agreement with China in October 2011, after nearly two decades of negotiations. The Canadian government views China as an increasingly important trade and investment partner, and has worked to improve its relations with the country through a series of ministerial visits beginning in 2009.
Because Canada is a developed country, the U.S. Overseas Private Investment Corporation does not operate in Canada.
The federal government and provincial/territorial governments share jurisdiction for labor regulation and standards. Federal employees and those employed in the railroad, airline, and banking sector are covered under the federally administered Canada Labor Code. Employees in most other sectors come under provincial labor codes. As the laws vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics, such as minimum wage and benefit requirements. Canada is slowly recovering from the economic crisis of 2008-2009 which triggered job losses across the country particularly in manufacturing and construction. Canada's unemployment rate stood at 7.5 percent at the end of 2011, down slightly from 7.6 percent a year earlier but still higher than pre-recession rates of between 6 and 6.5 percent.
The total number of unionized employees in Canada stood at 4.3 million in 2011. Overall union membership reflected a 16 percent unionized rate in the private sector and a 71 percent unionized rate in the public sector.
Tensions have been on the rise between Canadian labor unions and corporations looking to cut costs in difficult economic times. A truck and engine manufacturing company based in Illinois closed its plant in Chatham, Ontario in August 2011, after failing to reach a new collective bargaining agreement with the Canadian Auto Workers Union (CAW). The plant had been idle for more than two years as CAW and the company attempted to negotiate a new agreement. The CAW faced another difficult situation in January 2012 involving a lockout of approximately 450 workers by a Canadian locomotive company, owned by an international manufacturer of construction and mining equipment, and based in London, Ontario. The lockout began after the CAW rejected the company’s proposed contract for the factory’s workers, which would have substantially reduced wages, benefits, and eliminated the worker’s pension plan.
Under the NAFTA, Canada operated as a free trade zone for products made in the United States. U.S. made goods enter Canada duty free.
The United States has long been Canada's top target for foreign investment, and Canada is the third largest recipient of U.S. direct investment after the Netherlands and the United Kingdom respectively.
About 54.5 percent of Canada's foreign direct investment comes from the United States. At the end of 2010, Canada's stock of U.S. FDI was $305.9 billion. U.S. investors with large direct investments in Canada include major automakers (GM, Ford, Chrysler), integrated energy, chemical and mineral producers (e.g., ExxonMobil, ChevronTexaco, ConocoPhillips), financial services firms (e.g., Citibank), and retailers (e.g., Wal-Mart). In terms of inward FDI performance, Canada attracted 1.9 percent of the world’s FDI in 2010.
Canadian residents have become increasingly active as worldwide investors, and their net international liabilities have been shrinking over the past decade relative to national income. The United States is the top destination for Canadian direct investment abroad (CDIA). CDIA stocks in the United States rose 3.5 percent ($8.5 billion) in 2010 to $249.7 billion. The United States' share of CDIA in 2010 was 40.5 percent.
Other major destinations for Canadian FDI are the United Kingdom, other European Union countries, Brazil, Australia and Chile.