On July 1, 2010, the Competition Bureau’s new Enforcement Guidelines on “Product of Canada" and “Made In Canada” Claims (the “Guidelines”) took effect. The Guidelines apply to all goods sold in Canada, including those that are imported from outside Canada. The Guidelines are designed to assist in evaluating compliance with misleading advertising prohibitions and the identification of Canadian content requirements in the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act.
In the past, “Made in Canada” claims could be made as long as the product met a 51% threshold of Canadian content and had its last substantial transformation in Canada. The new Guidelines draw a distinction between “Made in Canada” and “Product of Canada” claims.
The essential rule is now as follows, set out in items 3.2.1 and 3.2.2 of the Guidelines:
The Bureau will generally not challenge a representation that a good is a “Product of Canada” under the false or misleading representation provisions of the Act if these two conditions are met:
a) the last substantial transformation of the good occurred in Canada; and
b) all or virtually all (at least 98%) of the total direct costs of producing or manufacturing the good have been incurred in Canada.
The Bureau will generally not challenge a representation that a good is “Made in Canada” under the false or misleading representation provisions of the Act if these three conditions are met:
a) the last substantial transformation of the good occurred in Canada;
b) at least 51% of the total direct costs of producing or manufacturing the good have been in Canada; and
c) the “Made in Canada” representation is accompanied by an appropriate qualifying statement, such as “Made in Canada with imported parts” or “Made in Canada with domestic and imported parts”. This could also include more specific information such as “Made in Canada with 60% Canadian content and 40% imported content”.
The Guidelines go on to advise that use of specific terms that reflect the limited production, manufacturing, or other activity that took place in Canada would be most appropriate (for example “Assembled in Canada with foreign parts” or “Designed in Canada”). Terms such as “produced” or “manufactured’” are likely to be considered synonymous with “Made in Canada” and should also, according to the Guidelines, comply with the above “Made in Canada” requirements. Sellers must also be cautious of implicit declarations (such as logos, pictures or symbols) that could be considered to give the same general impression to the public that a product is “Made in Canada” as an explicit declaration.
The major change in the “Made in Canada” claim is the addition of paragraph (c). Forcing Canadian manufacturers to highlight any degree of foreign inputs is a radical change. How can it be argued that it is false or misleading to state without qualification that a product manufactured in a Canadian plant with 75% Canadian content is “Made in Canada”?
Having to state in advertising materials that a good sold in Canada contains imported parts may be problematic for many companies who benefit from purchasers buying their products because they are considered “Canadian”. However, on the bright side, these provisions could be used against competitors falsely claiming or inferring Canadian status.
The Guidelines indicate that the civil provisions of the Competition Act, paragraph 74.01(1)(a) will be applied if manufacturers do not meet the new Guidelines. The Bureau’s remedies include the right to levy AMPS (Administrative Monetary Penalties) of $10 million for a first offence and to order “restitution”. Very scary indeed!
What is particularly interesting about the new rules, specifically the new 98% requirement for “Product of Canada” claims, is that they are coming at a time when the Federal Government is considering watering down its “Product of Canada” food labeling rule (which requires 98% of the ingredients to be Canadian) as it led to ludicrous results and many complaints by food processors and local farmers. It will be interesting to see whether the manufactured products rules will also result in numerous complaints and a call for a loosening of the requirements. Certainly, many leading associations, including the Canadian Manufacturers and Exporters, are gravely concerned by the new Guidelines.
There was nothing wrong with the 51% rule for the many Canadian-made products which incorporate some foreign inputs. How intrusive is it to force a Canadian manufacturer with a major plant in Canada who uses 25% imported parts to add the cumbersome wording “Made in Canada with 25% foreign parts”? By any common sense interpretation of the phrase, the 75%-25% product is indeed “Made in Canada”.
It must be borne in mind that these are only Guidelines and do not have the force of law. One must wonder if the Bureau could win a contested case in the 75% - 25% situation described above.
In our view, the Bureau’s issuance of a Bulletin (May 21, 2010) dealing with its intentions regarding implementation indicates that it acknowledges the major impact of the amended rules. It reads in part:
In all events, if the Bureau receives a complaint specifically regarding a potentially deceptive “Made in Canada” or “Product of Canada” claim following the July 1, 2010 implementation date, the Bureau will consider a number of factors before taking action. They may include:
- The nature of the products and the representations involved; · Whether the claims being made 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 by the company in complying with the Guidelines by the implementation date, including the volume of non-compliant products in the supply chain to be relabeled, and product turnover rates.
In order to ensure an effective and fair industry transition, and consistent with past practice when introducing new enforcement guidelines, for the six-month period following the July 1, 2010 implementation date, the Bureau confirms that it will only consider enforcement action in circumstances of bad faith. Specifically, in the transitional period, the Bureau confirms that, in the absence of bad faith, the Bureau will limit its response in cases of apparent non-compliance to education and warning letters consistent with the options outlined in the Bureau’s Conformity Continuum.
It is seemingly appreciated that there is a radical change here which will cause a lot of concern to Canadian businesses.