Canada-Ukraine Free Trade Agreement annual report to Parliament on responsible business conduct for the year ended December 31, 2024

Pursuant to the CUFTA Implementation Act, s.15.1

Table of contents

• Message from the Minister
• Context – Canadian business in Ukraine
• Canada’s approach to responsible business conduct
  • Canada’s National Contact Point (NCP) for RBC
  • Canada Ombudsperson For Responsible Enterprise (CORE)
• Recent engagement and future direction
  • Recent engagement
  • Future direction

Message from the Minister

As Minister of International Trade, it is my pleasure to present this first annual report to Parliament on how Canada is working to ensure Canadian companies operating in Ukraine are complying with the responsible business conduct (RBC) principles and guidelines cited in the modernized Canada-Ukraine Free Trade Agreement (CUFTA). The first CUFTA came into force on August 1, 2017, and was an important milestone in Canada’s bilateral relationship with Ukraine.  Building on the success of that initial agreement, and on stronger ties between our two nations, Canada and the Ukraine announced the launch of negotiations for the modernization of CUFTA on January 27, 2022.  Prime Minister Trudeau and President Zelensky signed the modernized CUFTA on September 22, 2023, in Ottawa.  Bill C-57, An Act to Implement the 2023 Free Trade Agreement between Canada and Ukraine, received Royal Assent on March 19, 2024, and the Agreement entered into force on July 1, 2024.  This report, to be made to Parliament on an annual basis during the first 30 sitting days of each calendar year, is a requirement stipulated in Section 15.1 of the Act.

The Government of Canada expects Canadian companies active abroad to abide by all relevant laws, to respect human rights in their operations, to conduct due diligence in their business relationships and to adopt best practices and internationally respected guidelines on RBC, including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.

Canada’s approach to RBC remains balanced, and includes preventative measures, legislation in select areas, and access to non-judicial dispute resolution mechanisms.

Global Affairs Canada (GAC), through the Trade Commissioner Service (TCS), offers tools and guidance to support Canadian companies active abroad in adopting world-leading responsible business practices with the intent to position Canada as a leader internationally on RBC.  A formal training program specifically for RBC ensures our trade commissioners (TCs) have the necessary knowledge and information to advise Canadian companies on RBC challenges and risks in their markets of interest.  Other members of the Government of Canada’s International Trade Portfolio, including Export Development Canada (EDC) and the Canadian Commercial Corporation (CCC), have integrated robust RBC due diligence into their service offerings.  Canadian companies seeking advocacy support from the TCS, financial support from EDC or contracting support from CCC with respect to business in Ukraine must first sign a declaration attesting that they have not been convicted or sanctioned for violations including bribery, corruption and human rights.    

Canada’s OECD National Contact Point (NCP) for RBC and the Canada Ombudsperson for Responsible Enterprise (CORE) are mandated to promote the OECD Guidelines and to provide non-judicial dispute-resolution mechanisms that are often more accessible, faster and more cost-efficient than traditional judicial avenues.

These examples are by no means exhaustive.  This first report to Parliament includes a host of actions and initiatives underway that underscore how the Government of Canada is supporting Canadian businesses in Ukraine in upholding the RBC guidelines cited in CUFTA.  As the international community contemplates Ukraine’s rebuilding in the years ahead, we can look to strengthen RBC collaboration across the Government of Canada and with non-government and Ukrainian stakeholders, with a view to encouraging interested Canadian companies to responsibly participate in Ukraine’s enormous rebuilding effort. 

Our goal remains that Canadian companies operating abroad continue to build on Canada’s reputation as a global leader in responsible business conduct. 

Sincerely, 

Maninder Sidhu

Minister of International Trade

Context – Canadian business in Ukraine

In 2021, Canada’s census indicated that an estimated 1.3 million people in Canada self-reported as having some Ukrainian heritage.  Canada is home to the second largest Ukrainian diaspora population in the world (after Russia).  Canada was the first country (along with Poland) to recognize Ukrainian independence in 1991.  Prior to Russia’s full-scale invasion of Ukraine on February 24, 2022, these deep historical and people-to-people ties had been developing into strong commercial relations, including significant investment in Ukraine by Canadian companies.

Canada continues to stand resolute in its support of Ukraine’s sovereignty and territorial integrity and remains committed to strengthening relations with Ukraine on all fronts, including trade.   

In February 2024, the World Bank estimated the cost to rebuild Ukraine would reach over US$480 billion, a figure that increased from US$411 billion in 2023 and continues to grow.  Allies and members of multilateral forums are constantly reminded of the magnitude of the rebuilding effort, the largest since World War II, and one that will require extensive engagement and investment by the private sector.  Since President Volodymyr Zelensky’s 2019 election on a platform of democratic reform and anti-corruption, Ukraine has been taking steps to address long-standing issues with corruption.  Civil society organizations continue to hold the government to account, and multilateral donors remain clear in their expectations that Kyiv continue strengthening trust and transparency mechanisms to demonstrate how donor funds are being deployed.  Despite global recognition by the OECD^{Footnote 1} and others (including, for example, Transparency International in its 2023 Global Transparency Index) of Ukraine’s positive progress^{Footnote 2}, corruption is still broadly viewed as a key risk of doing business there. 

Canada-Ukraine Trade  

In 2023, Canada’s merchandise exports to Ukraine totalled $525.4 million^{Footnote 3}, with military vehicles and parts; arms and munitions; and machinery, mechanical, electrical, and electronic appliances or equipment occupying the top three categories on the export list.  In 2022, Canadian direct investment in Ukraine totalled $102 million.   

While the conflict in Ukraine continues, Canadian companies are assessing future opportunities to participate in the reconstruction of Ukraine.  Several large Canadian firms with capacity and interest in the Ukrainian market have also participated in Ukraine-focused events such as the June 2023 Ukraine Recovery Conference in London, UK, and the November 2023 and 2024 Rebuild Ukraine conferences in Warsaw.  

The Canada-Ukraine Chamber of Commerce hosts a Rebuild Ukraine conference in Toronto each year, attracting over 300 participants from the public and private sectors.  The third such conference, held in December 2024, focussed on investment into Ukraine.  A resounding message of the 2024 conference was the shared understanding expressed by Ukrainian officials and business representatives of the critical nature of trust in building an environment sustainable for foreign investment.  The degree to which Ukraine can attract the necessary investment in its reconstruction will be driven in part by the success of its institutional and democratic reform agenda.

 GAC, through its TCS, promotes Canada’s commercial interests in Ukraine.  The TCS does this by providing Canadian companies with market intelligence, introducing them to contacts such as potential buyers and government officials, helping companies access partnership opportunities and providing information to manage risks as well as tools and guidance to support them in adopting world-leading responsible business practices.  Current priority sectors in Ukraine include defence, engineering and construction, agrifood, life sciences, information and communications technology (ICT), and energy (conventional and renewable).   

Canada’s approach to responsible business conduct

The OECD defines RBC as “the positive contributions that multinational enterprises can make to economic, environmental and social progress and to minimize the difficulties to which their operations may give rise.”  As such, an enterprise’s RBC framework integrates the management of risks to the environment, people and society with the core of a business’ activities. 

RBC makes a company more resilient by alerting them to potential supply chain risks – operational, financial and legal – so risks can be prevented or addressed.  RBC can also lead to investment attraction, increased brand value and employee and customer retention as more consumers look to buy ethically made goods, and employees want to work for companies that prioritize their workers and their impact on the environment and society. 

The Government of Canada expects Canadian companies active abroad to align with Canada’s priorities such as the respect for human rights, diversity and inclusion, gender equality, the rights of Indigenous peoples and commitment to climate change targets.  Since 1999, Canada’s Corruption of Foreign Public Officials Act (CFPOA) has also made it illegal for a Canadian to induce or incent a foreign public official when doing business abroad.^{Footnote 4} 

GAC launched its RBC Strategy in April 2022, titled Responsible Business Conduct Abroad: Canada’s Strategy for the Future.  This strategy sets priorities for the Government of Canada, through the TCS and partners, to support Canadian companies abroad to: 

• Identify and mitigate risks; 
• Adopt world-leading responsible business practices; 
• Gain a competitive advantage and ensure long-term success abroad; and 
• Contribute to a strong, sustainable and inclusive economy. 

The first pillar of the RBC Strategy is focused on building RBC awareness amongst Canadian enterprises.    

The Strategy’s second pillar intends to increase uptake by Canadian companies of world-leading RBC practices that align with the OECD Guidelines for Multinational Enterprises on RBC and the UN Guiding Principles on Business and Human Rights, including conducting due diligence on their supply chains.     

A third pillar of the RBC Strategy focuses on strengthening the global RBC ecosystem.  This means engaging internationally to strengthen relevant frameworks and standards, building capacity and developing an enabling framework through advancing RBC considerations in trade and investment agreements.  It also means facilitating partnerships and dialogue among diverse stakeholders.  Canada is actively engaged on RBC-related issues in a range of international fora, including the OECD through its Working Party on RBC, the UN and the G7.   

Canada’s approach to RBC – as outlined in the Strategy – is balanced and includes preventative measures, legislation in select areas and access to non-judicial dispute resolution mechanisms.   

In terms of prevention, the Government of Canada aims to provide clear guidance on measures Canadian companies can take to mitigate risks and raise awareness about tools available to adopt RBC best practices.  An RBC training module is required for all TCs before heading out on posting.  The training provides TCs with foundational RBC knowledge and covers scenarios TCs may encounter in market.  Canadian companies doing business in Ukraine are served by the trade section at the Canadian Embassy in Kyiv.  Before receiving any enhanced services, including advocacy with local governments, companies are required to complete a declaration, attesting that they have not been convicted or sanctioned for violations including bribery and corruption or human rights.  Since the coming into force of the modernized CUFTA on July 1, 2024, over 50 Canadian clients were served by the TCS in Kyiv, many of which would have received briefings on RBC risks in market.   

GAC also promotes awareness and adoption of the OECD Guidelines and the UN Guiding Principles across government, working with other departments and Crown corporations to integrate RBC expectations and requirements within relevant programs and services.  The TCS’ International Trade Portfolio partners, EDC and CCC, have robust RBC frameworks in place which assess Canadian companies against integrity and human rights criteria; the successful completion of these due diligence evaluations is a prerequisite to either Crown corporation offering them services.  Both organizations also conduct extensive counterparty due diligence and consider corruption, sanctions, environmental and human rights violations chief among assessment criteria.

When it comes to legislation, Canada has adopted laws addressing critical issues related to RBC such as corruption, transparency and most recently, forced labour.  The July 2020 amendment to the Customs Tariff prohibits the importation of goods that are mined, manufactured or produced wholly or in part by forced labour.  The CFPOA criminalizes the bribery of a foreign public official.  The Extractive Sector Transparency Measures Act (ESTMA) helps deter corruption in the extractive sector by mandating extractive entities active in Canada to publicly disclose, on an annual basis, certain types of payments made to governments in Canada and abroad.  Moreover, the Government is committed to enacting legislation to eradicate forced labour from Canadian supply chains with a view to ensuring Canadian businesses operating abroad do not contribute to human rights abuses.^{Footnote 5}

Finally, the Government of Canada provides two non-judicial dispute resolution mechanisms: Canada’s National Contact Point (NCP) for RBC, and the Canada Ombudsman for Responsible Enterprise (CORE).

Canada’s National Contact Point (NCP) for RBC

Canada’s NCP promotes the uptake and implementation of the OECD Guidelines for Multinational Enterprises on RBC and provides a process for receiving and responding to complaints of Canadian enterprise non-compliance with the Guidelines. Canada’s NCP is a committee of eight federal departments^{Footnote 6}, chaired by GAC and supported by a secretariat within GAC.  Each of the 52 OECD adherent countries, including Ukraine, maintains a National Contact Point (NCP) for RBC.  Canada’s NCP is therefore positioned to address complaints about multinational enterprises operating in Ukraine from Canada, and similarly, Ukraine’s NCP is likewise positioned to address complaints about multinational enterprises operating in Canada from Ukraine. 

Canada Ombudsperson For Responsible Enterprise (CORE)

Established in 2019, the CORE is responsible for: promoting the implementation of the UN Guiding Principles and the OECD Guidelines; advising Canadian companies on their responsible business conduct policies and practices; reviewing complaints received or conducting reviews on the CORE’s own initiative concerning alleged human rights abuses in the mining, oil and gas and garment sectors; offering informal mediation services; and, providing advice to the Minister on any matter relating to its mandate.  

For the year ended December 31, 2024, no active cases were under review by either mechanism involving Canadian companies operating in Ukraine.  Moreover, for the same period, Canada-Ukraine commercial relations did not give rise to known RBC issues requiring the intervention of GAC.

Recent engagement and future direction

Recent engagement

GAC’s RBC efforts in Ukraine remain aligned with the three strategic objectives outlined in Canada’s 2022 RBC Strategy, namely: build enterprise awareness of RBC principles and practices; increase the take-up of internationally leading RBC practices and guidelines by Canadian companies; and, contribute to strengthening the Canada-Ukraine RBC ecosystem.

In 2023, Canada (through GAC) provided support to the U4 Anti-corruption resource centre for specialized research and resources to help ensure that anti-corruption is embedded in Ukraine’s stabilization and reconstruction.  U4 is a leading convenor and knowledge broker that provides practical entry points for countering corruption in international assistance.  Other funding partners include Denmark, Finland, Germany, Norway, Sweden, Switzerland and the United Kingdom.

Since the July 1, 2024 coming into force of CUFTA, GAC has engaged with numerous stakeholders both within and outside the Government of Canada. This is first and foremost to inform a current perspective of the RBC environment facing Canadian businesses seeking opportunities in Ukraine, and second, to bring together a diverse set of perspectives on a regular basis to share observations and maintain a current view of Ukraine’s evolving RBC landscape.

Consultations have also taken place with EDC; the Business Ombudsman for Ukraine (a former Canadian Ambassador to Ukraine); Ukraine’s OECD NCP for RBC; the Business Council of Canada; and Canadian businesses.  All support the conclusion that Ukraine’s business environment continues to undergo positive changes on transparency and accountability fronts. Canadian businesses, while keen to explore opportunities to participate in Ukraine's rebuilding effort, remain cautious in the face of financial risk among other challenges, including corruption. 

A link to Canada’s NCP for RBC has also been added to the CUFTA webpage, providing convenient access to dispute resolution in the event of observed non-compliance with the OECD Guidelines by a Canadian company operating in Ukraine.

Future direction

Strengthening our capacity for awareness-building and increasing take up by Canadian companies of international best practices in RBC 

Canada’s TCs are the eyes and ears of Canadian businesses in markets abroad.  GAC’s Trade Strategy Bureau (specifically, its RBC division) will continue providing important pre-posting RBC training to TCs and coordinating RBC initiatives across GAC’s network of international missions, while strengthening measurement of desired RBC outcomes in alignment with Canada’s RBC Strategy.   

A whole-of-government approach which periodically brings together International Trade Portfolio partners and other select department and agencies specifically on RBC will ensure RBC guidance for Canadian companies remains current and relevant, encouraging the increased adoption of RBC best practices by Canadian companies operating abroad, including supply chain due diligence.   

A similar engagement approach with external stakeholders focused specifically on Ukraine, including the Embassy of Ukraine in Canada, the Canada-Ukraine Chamber of Commerce, the Business Ombudsman for Ukraine and Ukraine’s OECD NCP for RBC will help inform not only this annual report to Parliament, but the Canada-Ukraine RBC ecosystem as well as Canada’s RBC Strategy more broadly.  It will also help inform annual meetings of the Ministerial Joint Commission charged with administering the modernized CUFTA’s chapter dealing with RBC.