Federal Budget 2023: International Trade and Investment Law Analysis
On March 28, 2023, Finance Minister Chrystia Freeland tabled the Liberal Government’s federal budget, A Made in Canada Plan (“Budget 2023”). Budget 2023 outlines a number of measures that will have a significant effect in the international trade and investment domain. Below is a brief summary of the key proposals impacting companies subject to Canada’s economic sanctions, customs, supply chain, forced labour and food and drug regulatory regimes.
Canada and its allies undertook an unprecedented campaign over the last year to apply punitive economic measures on Russia in connection with its further invasion of Ukraine. As noted in our recent client alert, The Sanctions Response to Russia's Invasion of Ukraine – Key Lessons Learned Over the Past Year, Canada’s response to Russia’s invasion highlighted the challenges and vulnerabilities of the Canadian sanctions regime. Budget 2023 reiterates Canada’s intention to play a leading role in efforts to cut Russia off from the global economy and hold Russia accountable for its illegal war on Ukraine.
To further strengthen Canada’s sanctions mechanisms, the federal government proposes:
- targeted changes to the Special Economic Measures Act and Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) to support the effectiveness of the seizure, forfeiture, and disposal framework introduced in 2022 – for further details on this new mechanism and Canada’s first announced case, see Canada announces first use of seizure and forfeiture mechanism against sanctioned persons.
- amendments to the Criminal Code and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to address the evasion of financial sanctions, including the following:
- requiring the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) to disclose information to the Minister of Foreign Affairs, in certain circumstances; and
- setting up obligations for the financial sector to report sanctions-related information to FINTRAC.
- a review of FINTRAC’s mandate to determine whether it should be expanded to counter sanctions evasion – with an update to be provided in the 2023 fall economic and fiscal update. (For more detail on anti-money laundering/ anti-terrorism financing measures proposed in Budget 2023, please see our Budget 2023: Financial Institutions Update.)
Addressing the negative impact of broadly drafted economic sanctions measures on humanitarian activities has been a long-standing challenge for the Canadian government. One stark example is the inability of humanitarian organizations to provide assistance in Afghanistan because of the listing of the Taliban as a terrorist entity under the Criminal Code and the lack of any humanitarian exemption or authorization mechanism under those sanctions measures. The government has attempted to address this issue by introducing certain amendments to the Criminal Code through Bill C-41, which was tabled in the House of Commons on March 9, 2023. Budget 2023 proposes additional funding to Public Safety Canada, the Royal Canadian Mounted Police, Global Affairs Canada, and the Communications Security Establishment to support the delivery of a mechanism under these proposed amendments intended to permit humanitarian assistance and other activities (e.g., to support refugee resettlement) in areas controlled by terrorist entities.
Finally, Budget 2023 proposes the establishment of a new Canada Financial Crimes Agency (“CFCA”). The CFCA will become Canada’s lead enforcement agency against financial crime and is intended to “bring together expertise necessary to increase money laundering charges, prosecutions and convictions, and asset forfeiture results in Canada.” Further details on the structure and mandate of the CFCA are to be provided in the 2023 fall economic and fiscal update.
Customs and Import Measures
On March 2, 2022, Canada became the first country to withdraw the Most-Favoured-Nation ("MFN") preferential tariff for goods that originate in Russia and Belarus, resulting in a 97 percent reduction in imports from the two countries. Budget 2023 proposes going a step further and amending the Customs Tariff to indefinitely withdraw eligibility for MFN tariff treatment for Russian and Belarusian imports so that a 35 percent tariff will apply to these goods on a permanent basis. Companies should continue to carefully monitor the origin of any imported goods as this prohibitive tariff can apply to goods containing Russian and Belarusian components even if they are exported from other countries.
The federal government also intends to amend the Customs Tariff to renew Canada’s General Preferential Tariff and Least Developed Country Tariff until the end of 2034, as well as update these programs to align with Canada’s trade agenda and simplify administrative requirements for Canadian importers.
In addition, Budget 2023 proposes an amendment to the Customs Act to allow the Canada Border Services Agency to transform how low-risk travellers are processed when entering Canada through enhanced use of technology.
Supply Chains and Forced Labour
Budget 2023 reiterates that supply chain management is a critical issue for Canada. The federal government has signaled that it is committed to reducing supply chain vulnerabilities and intends to strengthen Canada’s supply chain infrastructure by shifting the critical supply chains away from dictatorships and towards democracies - a practice commonly referred as “friend-shoring”. Detailed information on the suggested measures in this regard will be released in the coming months with the publication of Canada’s National Supply Chain Strategy. The Strategy will be informed by the recommendations of the National Supply Chain Task Force report.
The federal government stresses the importance of addressing supply chain vulnerabilities through shared Canadian values, including respect for human rights. Budget 2023 announces the intention to “introduce legislation by 2024 to eradicate forced labour from Canadian supply chains to strengthen the import ban on goods produced using forced labour”. Canada has prohibited the importation and distribution of goods made in whole or in part from forced labour since July 1, 2020, so it remains to be seen whether this announcement merely refers to the adoption of 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 is currently at the third reading stage at the House of Commons, or if it indicates that the federal government contemplates more expansive measures beyond reporting obligations.
We note in this regard that while Bill S-211 imposes a prohibition on imports made in whole or in part from child labour, and requires companies and government institutions to submit public reports on the measures and diligence processes they have implemented to prevent and reduce the risk that forced labour or child labour is being used throughout their supply chains, the Bill does not contain any regulatory requirements pertaining to corporate governance, compliance procedures, customs controls, or other due diligence measures regarding the use of forced or child labour. For further details on the recent legislative and regulatory efforts by Canada and other countries to address forced labour and child labour in supply chains, see Forced Labour and Modern Slavery Update – Canadian Firms Now Facing Greater Scrutiny of Their Supply Chains.
Regulatory – Food and Drug
Some notable legislative changes are anticipated in the regulatory space pertaining to natural health products and cosmetics.
Budget 2023 proposes an amendment to the Food and Drugs Act (“FDA”) to extend powers conferred by the Protecting Canadians from Unsafe Drugs Act (Vanessa’s Law) to natural health products. These changes would allow Canadian regulators to take stronger action when health or safety issues are identified with natural health products on the market.
Budget 2023 also suggests amendments to the FDA to ban cosmetic testing on animals. The amendments would prohibit: testing cosmetics on animals in Canada; selling cosmetics that rely on animal testing data to establish the product’s safety, with some exceptions; and false or misleading labelling pertaining to the testing of cosmetics on animals.
For more details on these and other measures, the Budget 2023 documents can be found at the Government of Canada’s Budget 2023 website. McCarthy Tétrault’s International Trade and Investment Law Group will continue to provide updates and analysis as these proposed measures are developed and implemented in the coming months.