In brief
The government of Canada recently announced a significant 45-day consultation on economic security, which remains open until 23 September 2024. The purpose of the consultation is to consider measures to strengthen Canada’s “economic security and supply chain resilience” against the threat of “protectionist and nonmarket policies and practices” and “economic threats or coercion.” This alert provides an overview of recent legislative and policy measures focused on Canada’s economic security, which the result of the consultation aims to enhance.
Key takeaways
The consultation follows similar announcements initiating consultations on trade measures in response to the surplus supply of Chinese electric vehicles (EVs) (which has resulted in 100% tariffs applied to Chinese EVs and a 25% tariff on Chinese-origin steel and aluminum), the collection of smelt/cast information on aluminum imports, the collection of melt/pour information on steel imports and significant amendments to the Investment Canada Act. The dates on which the amendments to the Investment Canada Act will come into force are staggered, with the first set of amendments to come into effect in September 2024 and the second set expected to come into effect in 2025. The consultation also overlaps with the consultations on the United States-Mexico-Canada Agreement (USMCA), open until 31 October 2024, where Canadians have an opportunity to share their experiences under the agreement in advance of the joint review scheduled for 2026.
The consultation
The government has proposed measures that would be implemented into existing Canadian statutory regimes or new legislation or policy. All of the proposed measures appear to aim to defend against unfair trade practices, bolster national security, and defend against economic and foreign military threats. A close examination of the proposals suggests that they appear to target the following industries/materials: steel, aluminum, EVs, critical minerals, semiconductors and related technology, and internet and telecommunications infrastructure.
The proposed measures include the following:
- Suspension of benefits (non-surtax): This means suspending nontariff benefits under Canada’s free trade agreements to retaliate against trade actions that harm Canada . The backgrounder suggests that Canada could tackle its trading partners’ unfair actions with reciprocal treatment or, in other words, a “tit-for-tat” approach to trade. A relevant example, which — if replicated in the future — could be subject to a trading partner’s suspension of benefits, is China’s import prohibitions on Canadian pork and canola (resolved in 2019 and 2022, respectively) alleging noncompliance with sanitary and phytosanitary measures.
- Enhancing the enforcement of trade remedies: This means enhancing current anti-circumvention proceedings and the enforcement of existing legislation. In Budget 2024, the government announced the creation of a novel “Market Watch Unit” with the Canada Border Services Agency, tasked to monitor and update trade remedy measures annually. Additionally, the government has introduced regulatory amendments requiring steel importers to report country of melt and pour data as of 5 November 2024.
- Introduction of investigative powers/review bodies: The government has suggested the creation of administrative or quasi-judicial investigations or reviews to achieve “economic resilience” objectives without proposing further details. Many precedents exist under Canadian law for review bodies tasked with determining economic outcomes for proposed transactions, such as the Impact Assessment Agency of Canada, the commissioner of competition’s merger review process and references made to the Canadian International Trade Tribunal, whether regarding safeguard measures or other economic inquiries.
- Introduction of restrictive supply-based policy measures: These are policy measures that restrict incentives and other trade/investment benefits in critical or strategic sectors in transactions with entities that pose risks related to Canada’s essential economic and national security interests. A more recent example of a policy measure restricting transactions is the government of Canada’s May 2022 prohibition on Canadian telecommunications service providers from deploying Huawei and ZTE products and services in their 5G networks.
- Expanding Canadian incentives and tax credits: The government is considering expanding existing (or creating new) incentives to improve the ability of businesses in key sectors to compete globally. The government provides the example of Canadian critical minerals projects, where the government has invested in sustainable energy and transportation infrastructure to support the development of key mineral deposits.
- Expanding Canada’s unilateral export controls: The government is proposing the use of more unilateral export controls on dual-use technologies and import controls on strategic/critical items under the Export and Import Permits Act. Additionally, it is proposing enhanced monitoring of imports/exports of certain products. The government recently introduced unilateral export controls on quantum computers and advanced semiconductors under Item 5506 of the Export Control List.
- Introduction of export duties on critical products: The government is proposing unspecified amendments to the Special Economic Measures Act or the Export and Imports Permit Act, or the introduction of new legislation to levy duties on exports or create restrictions on the export of products in strategic sectors, like critical minerals, either in response to other countries’ trade actions or for Canada’s economic security. This follows public comments made by the minister of natural resources following the release of Canada’s critical minerals strategy in 2022 that certain critical minerals could be subject to export restrictions in the future. With respect to existing export tariffs, Canada applies tariffs to certain exported goods to effect its obligations under free trade agreements. For example, Canada applies tariffs to skimmed milk powder, milk protein concentrate and infant formula in accordance with the export restrictions under the USMCA.
- Investing in critical minerals supply chain resilience: The government is proposing measures to address price volatility and diversification in critical minerals supply chains, including financing from Export Development Canada or the Business Development Bank of Canada for targeted domestic investments and strategic projects abroad. Foreign investment in Canadian critical minerals is increasingly under scrutiny, especially investments from Chinese persons. For example, Canada ordered three Chinese companies to divest their investments in Canadian lithium mining companies in 2022 on the grounds that the investments were injurious to Canada’s national security under the Investment Canada Act. Canada appears to be seeking homegrown options to finance new or existing projects, including public-private strategic holdings of specific critical minerals or associated materials that could impact Canadian national security in the case of shortages.
Making submissions
Businesses making submissions in response to the consultation must file them with the Ministry of International Trade and Economic Development by 23 September 2024. Submissions must include the following information:
- Company/organization name
- Address
- Telephone number
- Contact person
- Views on the proposed questions
- Any additional relevant information
- An indication of whether any information provided is commercially sensitive
Parties can seek confidentiality protection for their submissions by including a request for partial or full nondisclosure, or that personal identifiers or other sensitive information be removed prior to publication.
Submissions may be sent electronically to TPSS-Consultations@international.gc.ca.
Alternatively, submissions may be sent as hard copies by mail to the following address:
Strategic Trade Policy Unit
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario K1A 0G2
Business impact
The potential measures proposed by the government foreshadow significant changes to a number of Canadian statutory regimes, including those that govern sanctions, trade remedies, foreign investment and export controls. This suggests the potential for amendments to a number of federal laws and policies (e.g., the Special Import Measures Act; the Export and Import Permits Act; the Customs Tariff; the Canadian International Trade Tribunal Act; the Investment Canada Act; the Special Economic Measures Act; the Security of Information Act; the National Security Guidelines for Research Partnerships; and the Policy on Sensitive Technology Research and Affiliations of Concern).
Each of the potential measures, in one form or another, is responding to geopolitical conflicts and national security concerns, which may foster rising protectionism and regionalism in an economic climate that has historically benefitted from globalization. Canadian businesses should carefully review the proposed measures and consider how the proposed amendments could affect strategic business plans, supply chains and the potential for increased compliance costs that typically accompany increased regulation.
Baker McKenzie’s Canadian Antitrust, Competition and Foreign Investment, and International Trade and Customs practices have significant experience in competition- and trade-related government advocacy and are well placed to assist businesses with making submissions to the Ministry of International Trade and Economic Development.
