The Canadian Regulatory Environment

An article on Canadian regulatory environment runs the risk of glazed over eyes all around. Yes, the regulatory process can be daunting, but Canadian business cannot afford to ignore it. A recent report done by the Canadian Federation of Independent business, in concert with KPMG, estimates the country’s regulatory burden “costs Canadian businesses nearly $6,000 per employee per year, with the cost falling heaviest on small businesses.” It was not as high for larger companies, but still costly. It found that compliance costs are higher in Canada than in the U.S. in all size categories except for the largest, that is, those with 100 or more employees. Employee costs for those businesses in Canada were pegged at $1,146 per employee and in the U.S. it was $1,278.

Consider costs from the proliferation of regulations impacting Canadian business that use chemicals. The Chemical Management Plan’s first phase cost the taxpayers $300 million. The second phase announced in October of 2011 has a tab of $500 million, which is just the cost on the government side. This will be followed by yet a third phase. Consider the enormous costs associated with the time and effort related to data collection for companies in all sectors including paints and coatings, plastics, fertilizers, oil and gas, cosmetics, etc.

Then there is the cost of ongoing regulatory compliance for existing regulations related to health, safety and environment. This is the stuff of which Associations of every stripe are consumed by on a daily basis. We cannot ignore the nature of the regulatory environment and must seek ways to ensure that it does not stifle important industry sectors. A full and complete understanding of how the system works allows us to negotiate better regulations for industry over the long term.

It should be noted that Section 91 and 92 of the Constitution Act delineates federal and provincial powers and there are numerous regulations imposed via provincial statues. These statutes go through essentially the same process as federal regulations and often seek to align with federal statues where appropriate. That said, this article will focus primarily on federal regulations.

Canada’s regulatory regime has been here since Confederation and it is not going anywhere. However, it is evolving and changing to adapt to the times and the policies of the government of the day. There are more than 20,000 regulations on the books in Canada and it is a safe bet that there are more to come. The paint and coatings industry is well aware of the preponderance of regulations at the federal and provincial levels impacting operations.

Regulations are in effect a manifestation of a company’s social license to operate. Most companies have gone even further on this continuum and embraced sustainability and corporate social responsibility measures beyond regulations. They want to show the public that they fully understand the growing demands to reduce their environmental footprint.

In theory regulation is a necessary foundation of market economies. An effective regulatory system provides consistency, fairness, and transparency, and supports innovation, productivity, and competition. An effective regulatory system is not just for protective purposes. Regulation is often an enabler. For example, in the economic sphere, it establishes the rules for fair markets, reduces barriers to trade through alignment with trading partners, clarifies conditions for the use of new products, services, and technologies, and fosters new investment. However, in practice it often achieves the opposite when poorly executed.

The nature of regulations in Canada is such that they are subordinate legislation that also includes orders, directives, tariffs, bylaws and proclamations. The Statutory Instruments Act governs federal regulations and these instruments are “made in the exercise of a legislative power conferred by or under an Act of Parliament or for the contravention of which a penalty, fine or imprisonment is prescribed.” For the paints and coatings sector there are a number of Acts of Parliament that drive regulations, primary among them is the Canadian Environmental Protection Act (CEPA) controlling such things as chemical management, the use of toxic substances, pollution prevention plans, hazardous waste, enforcement and compliance measures. Environment Canada has close to 20 Acts of Parliament and there are more than 60 regulations flowing from just one Act, The Canadian Environmental Protection Act. A number of them impact the coatings sector such as the VOC regulations for architectural coatings and another for automotive refinishing products, implemented in 2009.

The Ministry makes regulations responsible for a governing statute, which in turn produces a draft regulation that is reviewed by the Clerk of the Privy Council (the most senior non-elected official in Government) in consultation with the Minister of Justice. The proposed regulations are published in the Canada Gazette Part I along with a Regulatory Impact Analysis Statement outlining the various impacts of regulations including those on industry. At this stage it is open for public comment. This is the stage at which opportunity exists for industry associations, non-governmental organizations and the public in general to make their views known.

More recently the Government of Canada committed to protecting and advancing the public interest by

It realized the overwhelming drag regulations can have on people and the economy and issued a Cabinet Directive on Regulatory Management, which stipulates that government must:

• Protect and advance the public interest in health, safety, and security, the quality of the environment, and the social and economic well-being of Canadians;
• Advance the efficiency and effectiveness of regulation by ascertaining that the benefits of regulation justify the costs, by focusing human and financial resources where they can do the most good;
• Make decisions based on evidence and on the best available knowledge and science in Canada and worldwide;
• Promote a fair and competitive market economy that encourages entrepreneurship, investment, and innovation;
• Monitor and control the administrative burden (i.e., red tape) of regulations on business;
• Create accessible, understandable, and responsive regulation through engagement, transparency, accountability, and public scrutiny; and
• Require timeliness, policy coherence, and minimal duplication throughout the regulatory process by consulting across the federal government, with other governments and jurisdictions in Canada and abroad, and with businesses and Canadians.

Given the foregoing it is incumbent on those involved in regulatory development to remind officials involved in regulating industry of the standard to which they must perform.

It should be noted at this juncture that CPCA is very active well before the official consultation stage and is involved in ‘pre-consultation’ meetings with government. This recognizes the tact that if a regulation has potential impact on the sector it must be clearly defined before it is open to wider consultation with others. For this purpose CPCA has a sector-specific Paint and Coatings Working Group that meets with federal departments extensively throughout the year ensuring industry’s views are represented at the table well in advance of the formal consultations. This sector approach has been lauded by government for the proactive manner in which consultations have been conducted. These have led to positive returns for the paints and coatings industry in Canada.

During the formal consultation period the sector develops comprehensive and formal submissions on specific regulations taking into account the concerns of industry. CPCA has just made two extensive formal submissions, one on the proposed Regulations Limiting the VOC Concentrations in Certain Products and the Proposed Code of Practice for MEKO (2-Butanone Oxime Associated with the Interior Application of Consumer Alkyd Paint and Coating Products). These submissions will ensure that officials gathering information fully understand the regulatory impact from both a business and science-based perspective. This process also includes the need for alignment or harmonization with other countries, especially the United States. Once the regulation is in final form, after the consultation period, a draft Order in Council is prepared for signature by the Governor General. Before it comes into force the regulation must be registered by the Clerk of the Privy Council and published in Part II of the Canada Gazette, as required by the Statutory Instruments Act.