What You Need to Know Before Using “Product of Canada” and “Made in Canada” Claims

In short, very little has changed in the Bureau’s most recent guidelines. Despite the passage of time, the criteria remain the same. It is important to note that the guidelines issued by the Bureau pertain only toconsumer products that are not food items, as food products fall under the responsibility of the Canadian Food Inspection Agency.

The relevant statutes enforced by the Bureau include:

• the Competition Act; (the “CA”);
• the Consumer Packaging and Labelling Act;
• the Textile Labelling Act.

What criteria does the Bureau apply to determine whether a claim is false or misleading?

The Bureau applies the general impression test, taking into account both the literal meaning and the overall impression conveyed by “combination of words, visual elements, illustrations and overall layout”. Any promotional material, regardless of the medium used, may be assessed. This may include product labels, websites, social media, printed or broadcast media, and even oral representations.

If the Bureau concludes that a claim creates the impression that the product is Canadian or was made in Canada, it will then apply the specific criteria outlined below.

To support compliance, it is helpful to have a clear understanding of these criteria. The following discussion therefore offers some insight into the meaning and scope of the elements outlined above.

What is a direct cost of production or manufacturing?

In its guidelines, the Bureau offers several indications as to what may constitute a direct cost of production or manufacturing. These include:

• Material costs incurred in producing or manufacturing the product;
• Labour costs incurred that relate to the production or manufacturing of the items and that can be reasonably attributed to the production or manufacturing of the product.

The Bureau notes in its guidelines that the Canadian content threshold is 98% for a “Product of Canada” claim and 51% for a “Made in Canada” claim. From this, we can infer that qualifying costs must necessarily relate to Canadian materials or components, or to a service supplied or performed in Canada.

In certain circumstances, the characterization of a cost as direct may be relatively straightforward, such as the cost of acquiring raw materials used in the manufacture of a product. In other circumstances, however, this characterization may require a more detailed analysis. In our view, a number of factors may be relevant in assessing whether a cost qualifies as direct, including the extent to which the cost varies with production volume, its treatment for accounting purposes, and the manner in which it is recorded in the entity’s financial statements.

The Bureau also specifies that overhead expenditures are generally not included in the calculation unless they relate directly to, and can be reasonably attributed to, the production or manufacturing of the good.

What is a substantial transformation?

In its guidelines, the Bureau defines substantial transformation as follows:

“Goods are substantially transformed where they undergo a fundamental change in form, appearance or nature such that the goods existing after the change are new and different goods from those existing before the change.”

This definition is broad and leaves room for interpretation. The following case therefore offers some insight into how the Bureau applies the concept of substantial transformation.

The Moose Knuckles Case (2016)

In 2016, the Bureau filed an application with the Competition Tribunal against Moose International Inc. (known for selling Moose Knuckles coats), alleging the non-compliant use of the “Made in Canada” claim. The Bureau argued that the claims created a false or misleading general impression, particularly because the last substantial transformation did not occur in Canada. The coats in question were almost entirely manufactured outside of Canada. Only decorative elements and accessories, such as zippers and buttons, were affixed in the company’s Canadian facilities. The Bureau maintained that simply attaching zippers did not change the product’s appearance or nature and therefore did not constitute the last substantial transformation.

Ultimately, the parties entered into a consent agreement, and no decision was issued by the Competition Tribunal on this point. Moose International Inc. agreed to donate $750,000 to charitable organizations, publish a corrective notice on its website for one year, modify its claims to include the qualifier “Made in Canada with Canadian and imported components,” and implement a compliance program within the company.

The key takeaway from this case is that substantial transformation is, in the Bureau’s view, a criterion as important as direct cost and the qualifying statement. These three criteria must each be met independently. Substantial transformation must reflect a meaningful change in the product and cannot be limited to a minor modification of the item.

If I Do Not Meet the Criteria, Can I Use Other Canada-Related Claims?

Other claims may be used to highlight an activity or aspect of the product that is connected to Canada. For example, it is possible to use statements such as “Designed in Canada,” “Packaged in Canada,” or “Assembled in Canada,” provided that they are accurate.

The general impression test still applies. It is therefore essential to ensure that any such claim is truthful and sufficiently precise so as not to mislead or deceive consumers.

What Are the Potential Consequences of Improper Use of “Product of Canada” or “Made in Canada” Claims?

Using these claims without meeting the applicable criteria may lead to the opening of an investigation by the Competition Bureau and the filing of proceedings before the Competition Tribunal, as seen in the Moose International Inc. case. In addition, since June 20, private parties may, upon obtaining leave (s. 103.1(1) CA), initiate proceedings before the Competition Tribunal regarding deceptive marketing practices, thereby opening the door to further potential actions. In such cases, the public interest will need to be demonstrated (s. 103.1(6.1) CA).

Finally, section 52 CA provides that the promotion of a good or service using a false or misleading material representation, made knowingly, constitutes an offence that may give rise to a claim for compensatory damages under section 36 CA.

Most recently, a class action was filed against several grocery retailers alleging non-compliant use of “Product of Canada” and “Made in Canada” claims on certain products. This action is based on provisions of both the CA and the Québec Consumer Protection Act (CPA). It is therefore important to note that liability does not rest solely with manufacturers, but could also extend to retailers and resellers. In practice, the scope of impact may extend to entities that display or use this type of claim in consumer-directed materials

A thorough analysis, a well-integrated compliance program, and targeted training for the relevant individuals can reduce—or even eliminate—this risk.

Our competition law team can assist you in identifying your needs and helping you carry out your project in compliance with the applicable regulatory framework, as well as defending your interests should a dispute arise.

Disclaimer

This bulletin does not constitute legal advice. It is always advisable to consult a lawyer to obtain a complete analysis of your specific situation and tailored recommendations.