Labelling Non-Food Products — Enforcement Guidelines for "Product of Canada" and "Made in Canada" Claims now in Effect
August 3, 2010
Ian K. Bies
Manufacturers and processors making "Product of Canada" and "Made in Canada" claims on non-food products will now have to comply with new guidelines from the Competition Bureau — or risk enforcement action. The enforcement guidelines, which recently came into effect, describe the Bureau’s approach to assessing these claims under the false or misleading representations provisions of the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act.
The guidelines set out the approach the Bureau will take in determining when it will investigate claims for non-compliance, or undertake enforcement action under the false or misleading representations provisions in these acts. The guidelines were released following public consultations last summer on a draft version of the guidelines, and replace the Bureau’s 2002 Guide to "Made in Canada Claims" Enforcement Guidelines.
The guidelines create a distinction between "Product of Canada" and "Made in Canada" claims for non-food products. "Product of Canada" claims are subject to a higher, "all or virtually all" 98 per cent threshold of Canadian content (i.e., at least 98 per cent of the total direct costs of producing or manufacturing the product must have been incurred in Canada). "Made in Canada" claims remain subject to a 51 per cent content threshold, but should be accompanied by a statement declaring that the product contains imported content. In both instances, the last substantial transformation of the product must have occurred in Canada.
With respect to other "Canadian" claims, the guidelines specify that if a product does not meet either of the criteria for "Product of Canada" or "Made in Canada" claims, a more specific term that more accurately describes what part of the production or manufacture occurred in Canada should be used, such as "Assembled in Canada with foreign parts."
The guidelines reaffirm that in determining whether a "Product of Canada" or "Made in Canada" claim is false or misleading, the Competition Act requires that the general impression conveyed by the representation, as well as its literal meaning, be taken into account. The guidelines also point out that the Competition Act and the Textile Labelling Act apply to all forms of representation regardless of medium, including print or broadcast media, Internet, and oral representations.
The Bureau has announced that mere deviation from the guidelines does not mean the Bureau will launch an investigation or take enforcement action. Rather, the Bureau has a variety of tools to achieve compliance, from education and awareness to enforcement action. To determine whether a claim raises any issues, the Bureau will examine all relevant factors on a case-by-case basis. These factors include:
- the nature of the products and the representations involved;
- whether the claims comply with the previous version of the guidelines;
- whether good faith plans and steps have been or are being taken to comply with the guidelines; and
- any genuine challenges experienced in complying by the implementation date, such as the volume of non-compliant products to be relabelled, and product turnover rates.
The Bureau also confirmed that for the initial six-month period following implementation, it will only consider enforcement action in circumstances of bad faith; in the absence of bad faith, the Bureau’s response will be limited to education and warning letters.
McCarthy Tétrault Notes
Country-of-origin labelling is not required by the Competition Act, the Consumer Packaging and Labelling Act, or the Textile Labelling Act, but these acts do prohibit the making of false and misleading representations. Therefore, if a company chooses to label products with country-of-origin information, this information must be accurate.
By introducing a distinction between "Product of Canada" and "Made in Canada" claims, and by using an "all or virtually all" or "at least 98 per cent" threshold for "Product of Canada" claims, businesses may find it more difficult to determine whether their products qualify as "Canadian." Previously, any product could be advertised as Canadian or "Made in Canada" where more than half (i.e., at least 51 per cent) of the total direct costs of producing or manufacturing the goods were Canadian (in addition to the requirement that the last substantial transformation of the goods occurred in Canada).
In determining whether the total direct costs are Canadian, the Competition Bureau recommends that companies investigate the origin of materials. For example, if a company sources materials from a Canadian supplier, but those materials are themselves sourced from a jurisdiction outside of Canada, then the costs of purchasing those materials likely should not be factored in as "Canadian" costs. Costs such as labour, utilities for manufacturing, and depreciation, which are directly related to the manufacture of a product, usually may be included as "Canadian" costs, but general overhead costs usually are not.
As recentamendments to the Competition Act have drastically increased the potential administrative monetary penalties under the civil false or misleading representations provisions, inaccurately labelling products could have significant consequences. A corporation found to have violated those provisions can be ordered to pay up to $10,000,000 for a first order, and an individual can be ordered to pay up to $750,000 for a first order (up from $100,000 and $50,000, respectively).