The Issue
The imposition of tariffs on Canadian goods by the US Government raises significant concerns for workers in the Canadian manufacturing industries. One of those concerns is that businesses currently producing goods in Canada for sale into the US market wil move some or all of their production to the US – effectively “off-shoring” production – leading to job losses in Canada.
The current response by the Canadian Government has been to impose retaliatory tariffs1 – with other measures potentially forthcoming. This approach has merit – but does not effectively target “off-shoring” or businesses currently operating in Canada who are planning to shift production (and jobs) out of Canada and into the US.
A different approach is necessary to address this problem. The Foreign Extraterritorial Measures Act, R.S.C., 1985, c. F-29 (“FEMA” or the “Act”) could, in certain circumstances, be a useful tool to address this problem.
The Proposal
FEMA is a piece of federal legislation that empowers the Attorney General to identify and prohibit businesses in Canada from complying with “measures” taken by foreign states that adversely affect Canadian interests in relation to international trade/commerce in Canada or that infringe Canadian sovereignty.
FEMA allows the federal government to identify foreign measures that interfere with Canadian trade and business. A measure can be a formal law or the judgment of a court – but it can also include informal instructions or communications by any agency, department, or level of government. Measures include “laws, judgments and rulings made or to be made by the foreign state or foreign tribunal and directives, instructions, intimations of policy and other communications issued by the foreign state or foreign tribunal.”This is very broad language.
Once a measure has been identified, the federal government (specifically the Attorney General (“AG”) with the concurrence of the Minister of Foreign Affairs) can explicitly prohibit individuals and companies operating in Canada from complying with that foreign measure. In that case, the AG issues an order specifying the foreign measure and prohibiting compliance with the measure (“blocking order”). The blocking order may be directed to individuals or to a broad class.
The blocking order needs to be served on the specified persons.
It then becomes a federal offence for those persons to comply with the measure. Violators can be prosecuted with a summary conviction or indictable offence – with penalties up to $1,500,000 for companies and $150,000 and 5-years imprisonment for individuals.
This approach relies entirely upon existing legislation. Each step of the FEMA process is entirely within the jurisdiction of the federal government – blocking orders are eventually tabled as a routine proceeding in parliament. This means that FEMA can be applied quickly – requiring only an order by the Attorney General – and without the need for new
legislation or legislative amendments.
Analysis
Application of FEMA to US Tariffs
In the context of US tariffs, FEMA could be applied to target “off-shoring” from Canada to the US. If the Attorney General identifies US measures that instruct businesses operating in Canada to “off-shore” production to the US – the government could impose a blocking order prohibiting compliance with that measure. This would make it an offence under the Act for businesses currently carrying on business in Canada to “off-shore” production to the US in response to the US Government’s recent measures.
Blocking orders serve as deterrents for businesses considering “off-shoring” production. They place an external cost on moving production – this cost can take the form of financial penalties, imprisonment, or any other the consequences that conviction for a federal offence may have on a company or individual. These penalties would disincentivize “offshoring”, counteracting the financial pressures created by US trade policies.
The broad definition of measures provides significant leeway for the Attorney General to identify foreign measures. For example, it includes “intimations of policy,” a category of communication that could be easily understood to include written and oral statements of US policy by individuals within the US Administration.
Once the Attorney General has identified the relevant “off-shoring” measures, they would be able to impose a blocking order prohibiting compliance – making “off-shoring” production a federal offence. This would put a price on “offshoring”. It would be within the Attorney General’s discretion to determine whether to target specific individuals or corporations, target a specific industry (such as automotive parts manufacturers), or target a very broad class (such as all manufacturers operating in Canada).
This application of FEMA can be put into effect almost immediately – subject only to the identification of a specific US measure and which businesses operating in Canada will be targeted by the blocking order. FEMA does not require any legislative action or amendment to be effective. It could be applied relatively quickly and offers the ability to apply it very narrowly or target whole industries.
Reporting Requirements under FEMA
FEMA can also impose reporting obligations on businesses operating in Canada. For example, the Foreign Extraterritorial Measures (United States) Order, 1992, SOR/92- 584 (the “1992 Order”) was imposed in response to US legislation affecting trade between Canada and Cuba. The 1992 Order imposed an obligation on Canadian corporations and their directors to report “any directive, instruction, intimation of policy or other communication relating to an extraterritorial measure of the United States in respect of any trade or commerce between Canada and Cuba” from a “person who is in a position to direct or influence the policies of the Canadian corporation.” This mandated that businesses operating in Canada report communications from their US affiliates and management – in addition to measures from the US government.
The 1992 Order also prohibited compliance with US measures and communications from their US parents relating to those measures. It applied “whether or not compliance with that measure or communication is the only purpose of the act or omission.” This expands the scope of what behaviour can be prohibited by blocking orders.
A similar blocking order in the present circumstances would prevent businesses from using other pre-texts to evade blocking orders. Compliance with US measures – or communications relating to those measures – does not need to be the sole purpose of the “off-shoring” to be prohibited by a blocking order. It is sufficient that compliance with the US measures or communication was a factor in the decision to “off-shore” production in order to contravene FEMA.
A copy of the 1992 Order is included as Appendix A to this memo.
Proposed Amendments to FEMA
FEMA’s effectiveness in the context of US tariffs could be improved with legislative amendments. There are three simple ways in which FEMA could be amended to improve its ability to effectively target “off-shoring.”
First, FEMA could be amended to explicitly identify US “off-shoring” instructions as unenforceable measures.10 FEMA could be amended to amend the definition of a measure to include US “off-shoring” instruction, inducements, or threats and provide special powers to specifically prohibit compliance with these instructions. This may make enforcement – including prosecution – easier.
Second, FEMA could be amended to increase the penalties for violating a blocking order. The current penalties for FEMA violations are limited in scope. While a $1,500,000 fine is not insignificant, it may not be a sufficient deterrent for the largest manufacturing businesses – whose “off-shoring” would cause the greatest harm to the Canadian economy and workers.
Third, FEMA could be amended to permit a court that orders the payment of a fine to order the seizure and sale of property in Canada owned by the person who contravenes a blocking order. This would improve the federal government’s ability to enforce fines currently allowed under FEMA and would make it more difficult for “off-shoring” businesses to escape penalties. The manufacturing assets that were previously used to manufacture in Canada could be seized to satisfy a judgment.
Example language for these amendments is included as Appendix B to this memo.
FEMA’s Intersection with Customs Tariff
FEMA does not directly interact with the Customs Tariff, S.C. 1997, c. 36 (“Customs Tariff”). However, in some cases the application of FEMA and the Customs Tariff overlap. Section 53 of the Customs Tariff empowers the Governor in Council to make orders “for the purpose of … responding to acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.” Section 53 orders have the power to suspend rights and privileges under a trade agreement; impose additional, targeted tariffs on specified goods; include goods on the Import Control List; and the impose duties on specified goods.
In many cases, US government measures under FEMA will also constitute acts, policies or practices of the US government for the purposes of section 53 of the Customs Tariff. As with FEMA blocking orders, section 53 orders rely on existing legislation and are entirely within the jurisdiction of the federal government.
Due to these similarities, FEMA and the Customs Tariff can be applied concurrently to address the risk of “off-shoring.” For example, a section 53 order could impose tariffs on or restrict US imports to Canada for businesses which contravene a blocking order. This approach enhances the penalties in FEMA and narrowly focuses section 53 orders on businesses that “off-shore” production.
Example language for this tariff item is included as Appendix C to this memo.
FEMA compliance could also be added as a factor in the United States Surtax Order
remissions process. The current remissions process allows for remissions from retaliatory tariffs where goods cannot be sourced domestically/from non-US sources and in
exceptional circumstances.
Summary of Conclusions
- FEMA is a piece of federal legislation that empowers the Attorney General to identify and prohibit businesses in Canada from complying with “Measures” taken by foreign states that adversely affect Canadian interests in relation to international trade/commerce in Canada or that infringe Canadian sovereignty.
- Process: Attorney General identifies a foreign “Measure” that adversely affects Canadian interests in international trade or commerce involving business carried out in Canada. There is a broad latitude on what counts as a “Measure” – i.e. US President Trump’s directives that companies operating in Canada should move production to the US.
- The Attorney General may make an order prohibiting any person (individual or corporation) from complying with the “Measure.”
- FEMA can be targeted broadly – i.e. prohibit any person at all from complying with the “Measure” – or can be highly targeted – i.e. prohibiting specific individuals or companies from complying with a specific “Measure.”
- Violating the Attorney General’s order is a federal offence. Violations can be prosecuted as a summary conviction or an indictable offence with different penalties for non-compliance. The maximum penalties are $1,500,000 for corporations and $150,000 and 5-years imprisonment for individuals.
FEMA relies on existing legislation. There is no need for new amendments – unless we want to increase penalties for non-compliance. This may be worth pursuing as a further project in the future.
Yours truly,
Jacob Millar
Logie & Associate
