Recalls lead to stiff trade rules

Potential new Canadian importation regulations could leave in-house counsel and corporate executives scrambling for their dictionaries to make sure they have a clear understanding of the difference between onerous and onus.

Once they’ve got thorough and accurate data on the regulations, they can begin to help importer clients and their suppliers navigate some potentially choppy legislative waters which, if not piloted properly, could lead to severe penalties, or the end of their business.

In April 2008, the Canadian government introduced legislation to impose significant responsibilities on importers and their foreign suppliers with regard to products — primarily those dealing with human health and safety. This may include testing and requirements that products meet safety guidelines in Canada, which may be stiffer than those from abroad.

Bills C-51 and C-52, the Consumer Products Safety Act, were partly in response to high-profile recalls affecting toys, food, and pharmaceuticals. The bills died on the order paper with the October 2008 Canadian federal election. The re-election of a Conservative government in Canada should be read as a sign that the legislation could reappear.

The legislation has been controversial and is being fought primarily by vitamin and health food suppliers. The new laws’ application is wide-ranging and presents many pitfalls for importers, and for counsel trying to help clients navigate potential changes. Potential is the watchword at this point, says John Boscariol, head of McCarthy Tétrault LLP’s international trade and investment law group, with the word is legislation will be back on the Parliamentary order paper. “They are coming back,” says his Ottawa-based colleague Brenda Swick. “They’ll be revived and reintroduced back into Parliament.”

Both say in-house counsel must be ready to assist their companies in meeting the regulations. And, it’s going to cost them some money, but the outlay at the front end will be much less than having to pay for violations. “There are financial penalties for these things,” Boscariol says. “Sometimes it’s $100, sometimes it’s $100,000. What hits is the reputational impact, having their name in the headlines. They don’t want to be viewed as rogue companies or assisting terrorists. It just attracts additional government scrutiny.”

Boscariol recommends in-house counsel:

• suggest the designation or hiring of a compliance officer;

• develop a company manual and update it as regulations change;

• create a training program so staff — especially key staff — know what they’re dealing with;

• perform internal audits to ensure compliance; and

• report mistakes to the government as soon as they are found.

In addition to fines, says Swick, there’s the potential for the loss of licences provided by the Canadian Food Inspection Agency. “Your reputation doesn’t matter if you can’t get a licence.”

The advent of the new regulations may mean a sea change from the way in-house counsel have operated in the past. The legislation is written broadly, which in itself creates a need for extra diligence for counsel, Swick says. “They are purposely drafted that way to allow the bureaucrats to draft the regulations. . . . The devil here is clearly going to be in the regulations.”

Several Canadian importers in the food, consumer product, and drug sectors were contacted for this piece but were reluctant to discuss the bills until they become law. Swick says that may be too late for their clients. “Read the legislation. Get the compliance plan in order, and don’t wait for there to be problems.” She adds that in-house counsel in the past have been reluctant to deal with problems until the damage is done.

But, says Jackie Crichton, vice president for food safety and labelling for the Canadian Council of Grocery Distributors, it’s the regulations and not the legislation that will set the tasks in-house counsel need to address. The same goes for dealing with foreign suppliers. "Once known, in-house regulatory affairs generally work with in-house legal council and respective associations during the consultation process."


The new rules demand that due diligence be shown to have been done. And indeed, due diligence is a defence in the face of the legislation, stated a 2008 Blake Cassels & Graydon LLP article, “Ottawa sends importers a clear message: Know your products,” by Cliff Sosnow and Elysia Van Zeyl.

“You must take this seriously,” Swick says of the legislation. “You need to get systems into place to comply. You have to be very proactive. They’re so broad that they affect every conceivable industry except telecommunications.

“In addition, notices to importers are published by the Import Controls Bureau on any new developments in relation to specific import controls, and these are distributed to interested parties.”

Department of Foreign Affairs and International Trade spokesman Michael O’Shaughnessy, says counsel can avail themselves if regular consultations are done with industry stakeholders. Those are done on a commodity sector basis, he says. However, despite the recent high-profile Menu Foods recall of tainted pet food, the legislation does not address pet products.

The regulations impose strict guidelines on importers to be read to produce a paper trail for products, notes the Blakes article. That’s because the bill gives the minister of health the power to order an importer or manufacturer to conduct tests and submit documentation showing compliance. The minister may also require the importer to produce records from international suppliers.

As foreign regulations differ from those in Canada, and equivalent regulations may not exist, such paper trails may not exist. Furthermore, importers would also have to track to whom products were sold and produce those for the minister when demanded. Failure to meet any of these requirements would be an offence under the legislation.

“A large part of this is putting the responsibility on the importer here in Canada,” Boscariol says, adding the legislation could be seen as protectionist. “It’s cloaked as consumer protection but it’s designed to protect Canadian companies making the same product.”

“Thus,” says the Blakes article, “in the absence of full co-operation by foreign suppliers, importers may have to choose between conducting tests themselves and providing the requisite information, facing penalties, or choosing new sources of supply from co-operating foreign suppliers.”

Importers who violate the regulations face fines of up to $1 million, while those convicted of a criminal offence could see penalties of up to $5 million. If counsel cannot get foreign suppliers to adhere to Canadian regulations, those exporters may look elsewhere which also impacts importers. For example, Boscariol says: “The Chinese exporters can ignore all of this but at the end of the day, their products aren’t going to get into Canada.”

And, says Swick, one has to question how that is going to affect ports such as Vancouver when B.C. has been pushing to become more involved with Chinese markets. Which brings us back to that front-end layout. Boscariol suggests in-house counsel work on with their clients. It’s no longer a just case of getting product off the boat and to market, he explains.

There are a number of web sites that may help. The Export and Import Controls Bureau maintains a section on the DFAIT web site which provides general information on the products which are subject to import controls. The bureau portion of the DFAIT web site also contains information on how companies can apply for an import permit, in circumstances in which a permit is required.

The Canadian Food Inspection Agency’s web site is specifically geared to notices of interest to importers who want to perform due diligence searches in relation to food and consumer safety concerns.

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