Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, proximity to the U.S. market, highly skilled work force, and abundant resources. Canada encourages foreign direct investment (FDI) by promoting stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 44 percent of total FDI. As of 2020, the amount of U.S. FDI totaled USD 422 billion, a 5 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 570 billion, a 15 percent increase from the previous year.
Canada attracted USD 61 billion inward FDI flows in 2021 (the highest since 2007), a rebound from COVID-19-related decreases in 2020 according to Canada’s national statistical office.
The United States-Mexico-Canada Agreement (USMCA) came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA supports a strong investment framework beneficial to U.S. investors. Foreign investment in Canada is regulated by the Investment Canada Act (ICA). The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security. In March 2021, the Canadian government announced revised ICA foreign investment screening guidelines that include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The guidelines followed an April 2020 ICA update, which provides for greater scrutiny of foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.
Despite a generally welcoming foreign investment environment, Canada maintains investment stifling prohibitions in the telecommunication, airline, banking, and cultural sectors. The 2022 budget proposal included language that could limit foreign ownership of real estate for a two-year period (to cool an overheated market and lack of housing for Canadians). Ownership and corporate board restrictions prevent significant foreign telecommunication and aviation investment, and there are deposit acceptance limitations for foreign banks. Investments in cultural industries such as book publishing are required to be compatible with national cultural policies and be of net benefit to Canada. In addition, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.
Canada has taken steps to address the climate crisis by establishing the Canadian Net-Zero Emissions Accountability Act that enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050 and issuing the 2030 Emissions Reduction Plan that describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
8. Responsible Business Conduct
Canada defines responsible business conduct (RBC) as “Canadian companies doing business abroad responsibly in an economic, social, and environmentally sustainable manner.” The Government of Canada has publicly committed to promoting RBC and expects and encourages Canadian companies working internationally to respect human rights and all applicable laws, to meet or exceed international RBC guidelines and standards, to operate transparently and in consultation with host governments and local communities, and to conduct their activities in a socially and environmentally sustainable manner.
Canada encourages RBC by providing RBC-related guidance to the Canadian business community, including through Canadian embassies and missions abroad. Through its Fund for RBC, Global Affairs Canada provides funding to roughly 50 projects and initiatives annually. Canada also promotes RBC multilaterally through the OECD, the G7 Asia Pacific Economic Co-operation, and the Organization of American States. Canada promotes RBC through its trade and investment agreements via voluntary provisions for corporate social responsibility. Global Affairs Canada and the Canadian Trade Commissioner Service issued an Advisory to Canadian companies active abroad or with ties to Xinjiang, China in January 2021. The Advisory set clear compliance expectations for Canadian businesses with respect to forced labor and human rights involving Xinjiang.
Canada is active in improving transparency and accountability in the extractive sector. The Extractive Sector Transparency Measures Act was brought into force on June 1, 2015. The Act requires extractive entities active in Canada to publicly disclose, on an annual basis, specific payments made to all governments in Canada and abroad. Canada joined the Extractive Industries Transparency Initiative (EITI) in February 2007, as a supporting country and donor. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng .
Canada is working toward reconciliation between Indigenous and non-Indigenous peoples including through the settlement of historical claims. The claims, made by First Nations against the Government of Canada, relate to the administration of land and other First Nation assets. As of March 2018 (the latest data provided by Canada), the Government of Canada has negotiated settlements on more than 460 specific claims. Hundreds of specific claims remain outstanding including 250 accepted for negotiation, 71 before the Specific Claims Tribunal, and 160 under review or assessment.
Corruption in Canada is low and similar to that found in the United States. Corruption is not an obstacle to foreign investment. Canada is a party to the UN Convention Against Corruption, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Inter-American Convention Against Corruption.
Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by Canadian companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it was not involved. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years to receive assistance from the Trade Commissioner Service.
10. Political and Security Environment
Canada is politically stable with rare instances of civil disturbance. In January and February 2022, however, various groups of protestors occupied large parts of the downtown core of Ottawa and blocked commercial trade at several U.S.-Canada ports of entry. The initial protest movement of several hundred individuals claimed to be focused on the reversal of cross-border vaccine mandates. The movement attracted thousands of additional followers with a spectrum of political philosophies and grievances including far right extremist and anti-government groups. The protestors hindered hundreds of millions of dollars in daily two-way trade causing production slowdowns at several factories on both sides of the border. Many Ottawa residents complained of acts of harassment, desecration, and destruction by the protestors including deafening horn honking. The federal government invoked the never-before-used Emergencies Act to provide additional police powers to end the protests. Some commentators characterized the protests as a demonstration of growing politization within Canada.
11. Labor Policies and Practices
The federal government and provincial/territorial governments share jurisdiction for labor regulation and standards. Federal employees and those employed in federally regulated industries, including the railroad, airline, and banking sectors, are covered under the federally administered Canada Labor Code. Employees in other sectors are regulated by provincial labor codes. As the laws vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics, such as minimum wage and benefit requirements.
Although labor needs vary by province, Canada faces a national labor shortage in skilled trades professions such as carpenters, engineers, and electricians. Canada launched several initiatives such as the Global Skills Visa to address its skilled labor shortage, including through immigration reform, the inclusion of labor mobility provisions in free trade agreements, including the Canada-EU CETA agreement, the Temporary Foreign Worker Program (TFWP), and the International Mobility Program. The TFWP is jointly managed by Employment and Social Development Canada (ESDC) and Immigration, Refugees, and Citizenship Canada (IRCC). The International Mobility Program (IMP) primarily includes high skill/high wage professions and is not subject to a labor market impact assessment. The number of temporary foreign workers a business can employ is limited. For more information, see the TFWP website: https://www.canada.ca/en/employment-social-development/services/foreign-workers.html
The impact of COVID-19 on the labor force has yet to be fully realized. As of February 2022, the unemployment rate was 5.5 percent, below the pre-COVID 5.7 percent reported in February 2020. Statistics indicate women and marginalized communities were disproportionately affected by job and other economic losses during the height of the pandemic. The Canadian government administered an emergency wage benefit in response to a significant increase in unemployment caused by the pandemic. Many minority groups including women and Indigenous populations have experienced notable employment gains since the depths of the pandemic.
Canadian labor unions are independent from the government. Canada has labor dispute mechanisms in place and unions practice collective bargaining. As of 2015 (the most recent year of available data), there were 776 unions in Canada. Eight of those unions – five of which were national and three international – represented 100,000 or more workers each and comprised 45 percent of all unionized workers in Canada (https://www.canada.ca/en/employment-social-development/services/collective-bargaining-data/labour-organizations.html). Less than one third of Canadian employees belonged to a union or were covered by a collective agreement as of 2015. In June 2017, Parliament repealed legislation public service unions had claimed contravened International Labor Organization conventions by limiting the number of persons who could strike.
In March 2022, 3,000 Canadian Pacific Railway workers participated in a 2-day strike and concurrent lockout over wage, benefit, and pension concerns. The parties agreed to binding arbitration following federal government mediation.
In August 2021, 9,000 Canadian border agents went on strike over pay and work conditions. The Canadian government and border agents reached a tentative agreement on a new contract following the one-day strike.
In 2021, Mexico was the United States’ second largest trading partner in goods and services. It remains one of our most important investment partners. Bilateral trade grew 482 percent from 1993-2020, and Mexico is the United States’ second largest export market. The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 184.9 billion (2020 per the International Monetary Fund’s Coordinated Direct Investment Survey).
The Mexican economy averaged 2.1 percent GDP growth from 1994 to 2021, contracted 8.3 percent in 2020 — its largest ever annual decline — and rebounded 5 percent in 2021. Exports surpassed pre-pandemic levels by five percent thanks to the reopening of the economy and employment recovery. Still, supply chain shortages in the manufacturing sector, the COVID-19 omicron variant, and increasing inflation caused the economic rebound to decelerate in the second half of 2021. Mexico’s conservative fiscal policy resulted in a primary deficit of 0.3 percent of GDP in 2021, and the public debt decreased to 50.1 percent from 51.7 percent of GDP in 2020. The newly appointed Central Bank of Mexico (or Banxico) governor committed to upholding the central bank’s independence. Inflation surpassed Banxico’s target of 3 percent ± 1 percent at 5.7 percent in 2021. The administration maintained its commitment to reducing bureaucratic spending to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.
The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020 with Mexico enacting legislation to implement it. Still, the Lopez Obrador administration has delayed issuance of key regulations across the economy, complicating the operating environment for telecommunications, financial services, and energy sectors. The Government of Mexico (GOM) considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment (FDI) to Mexico.
Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company Pemex have contributed to ongoing uncertainties. The three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) maintained their sovereign credit ratings for Mexico unchanged from their downgrades in 2020 (BBB-, Baa1, and BBB, lower medium investment grade, respectively). Moody’s downgraded Pemex’s credit rating by one step to Ba3 (non-investment) July 2021, while Fitch and S&P maintained their ratings (BB- and BBB, lower medium and non-investment grades, respectively. Banxico cut Mexico’s GDP growth expectations for 2022, to 2.4 from 3.2 percent, as did the International Monetary Fund (IMF) to 2.8 percent from the previous 4 percent estimate in October 2021. The IMF anticipates weaker domestic demand, ongoing high inflation levels as well as global supply chain disruptions in 2022 to continue impacting the economy. Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth. Recent efforts to reverse the 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7 but still subject to injunctions in lower courts), the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE, further increase uncertainty. These factors raise the cost of doing business in Mexico.
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
There are two main SOEs in Mexico, both in the energy sector. Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations. Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent. The Federal Electricity Commission (CFE) operates the electricity sector. While the GOM maintains state ownership, the 2013 constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.
8. Responsible Business Conduct
Mexico’s private and public sectors have worked to promote and develop corporate social responsibility (CSR) during the past decade. CSR in Mexico began as a philanthropic effort. It has evolved gradually to a more holistic approach, trying to match international standards such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact.
Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility strategy. The government has also made an effort to implement CSR in state-owned companies such as Pemex, which has published corporate responsibility reports since 1999. Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance.
In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its Pemex effort to establish transparency and public trust in its energy sector.
Corruption exists in many forms in the GOM and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.
Government and law enforcement officials are sometimes complicit with criminal elements, posing serious challenges for the rule of law. Some of the most common reports of official corruption involve government officials stealing from public coffers, creating fake companies to divert public funds, or demanding bribes in exchange for not prosecuting criminal activity or awarding public contracts. The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors. However, Mexican civil society asserts that the government must take more systematic, effective, and frequent action to address corruption at the institutional level.
Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office to increase its independence. President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019. In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts. The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law. The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct. After seven years of operation, commentators attribute few successes to the SNA. The implementation status of the mandatory state-level anti-corruption legislation varies.
The reform mandated a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption. Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities. Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the federal-state coordinators (“superdelegates”) in charge of federal programs in each state. The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress. The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, SEDENA, and SEMAR, and transferred control of contracting offices in other ministries to the Hacienda. Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture. The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.
Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999. The legislation includes provisions making it a criminal offense to bribe foreign officials. Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption. The government has enacted or proposed laws attacking corruption and bribery, with average penalties of five to 10 years in prison.
Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information. Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow. According to Transparency International’s 2021 Corruption Perception Index, Mexico ranked 124 of 180 nations. Civil society organizations focused on fighting corruption are high-profile at the federal level but are few in number and less powerful at the state and local levels.
Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials. The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.
The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement. Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.Mexico ratified the UN Convention Against Corruption in 2004. It ratified the OECD Anti-Bribery Convention in 1999.
Companies have reported general security concerns remain an issue for those looking to invest in the country. The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas. OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas (https://www.osac.gov/Country/Mexico/Detail).
11. Labor Policies and Practices
Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico’s 56 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. In the formal economy, there exist large labor shortages due to a system that incentivizes informality. Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy, although the recent increases in the minimum wage are leading to increases in entry level wages which are attracting more workers. Shortages of skilled workers and engineers continue due to a mismatch between industry needs and what schools teach. Mexico has one of the lowest female labor participation rates in the OECD, 45 percent to a 76 percent male participation rate among people legally allowed to work (15 years or older). Barriers for female workers include the culturally assigned role for them as caretakers of children and the elderly. Most Mexican workers work for a micro business (41 percent) and 59 percent earn between USD 8.6 and USD 17 per day. The unemployment rate in Mexico has maintained a stable path ranging from 3.5 percent to 4.9 percent (its highest peak during the pandemic). This rate, however, masks the high level of underemployment (14.8 percent) in Mexico (those working part time or in the informal sector when they want full time, formal sector jobs). For 2020 the informal economy accounted for 22 percent of total Mexican GDP according to the National Institute of Statistics and Geography. Informal businesses span across all economic activities from agriculture to manufacturing. In Mexico labor informality also spans across all economic activities with formal businesses employing both formal and informal workers to reduce their labor costs.
On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system. The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.
Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition. The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end during the second semester of 2022. On November 18, 2020 the first phase of the labor reform implementation began in eight states: Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo. On November 3, 2021 the second phase started in 13 additional states, and the third phase will start during 2022 in 11 states. Further details on labor reform implementation can be found at: www.reformalaboral.stps.gob.mx.
Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts. As of March 7, 2022, 3,267 collective bargaining contracts have been legitimized (reviewed and voted on by the workers covered by them), according to the Secretariat of Labor. The reform requires all collective bargaining agreements to be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out. The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining. As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.
The USMCA’s labor chapter (Chapter 23) contains specific commitments on union democracy and labor justice which relate directly to Mexico’s 2019 labor reform and its implementation. In addition, the USMCA’s dispute settlement chapter (Chapter 31) includes a facility-specific labor rapid response mechanism to address labor rights issues and creates the ability to impose facility specific remedies to ensure remediation of such situations.
According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)