Canada | Free Trade | Trade Disputes | International Taxation | Monetary Law | Mexico | Sanctions | Cybersecurity | China | ESG Standards | Carbon Emissions | Forced Labor | World Trade Organization | Intellectual Property | Private Law | Affilia Practical Advice

Affilia would like to thank André-Philippe Ouellet, Affilia Collaborator, and Bernard Colas, as well as the Affilia team, for preparing this forecast.

This year will be characterized by significant unpredictability due to the new Trump administration in the United States and a leadership vacuum in Canada that will culminate in elections in 2025. Despite this instability, Affilia anticipates the following trends and developments for the coming year:

Canada in Troubled Waters

In 2025, Canada will face severe economic turbulence. Canada will be particularly affected by the redefinition of U.S. foreign policy, including trade policy. The Trump administration has already launched a series of investigations and consultations, with reports due by April 1st, covering issues such as dumping, new tariffs, reducing the U.S. trade deficit, renegotiating CUSMA and so on. President Trump has also initiated an investigation on China’s compliance with the Phase I agreement concluded under its previous administration. In 2025, access to U.S. public procurement markets will be hindered by new Buy America-type laws, while the United States considers withdrawing from treaties such as the WTO Agreement on Government Procurement.

In 2025, U.S. foreign policy is set to become more belligerent, with trade issues serving as a backdrop. In all cases, e.g., Canada, Greenland, or Panama, gaining access to major trade routes and waterways is a key objective of the Trump administration. This is further compounded by the United States’ desire to reduce its trade deficit and maintain its technological supremacy.

U.S. tariff threats related to fentanyl and immigration will be used as leverage to extract trade concessions from Canada in relation to CUSMA, with its renegotiation possibly pushed forward to 2025 instead of 2026. However, unless the U.S. takes dramatic action, the agreement, even if negotiations  falter, is unlikely to end before 2036.

In 2025, one thing is becoming increasingly certain: beyond the 25% tariffs announced by the Trump administration, Canadian businesses will face further threat of tariffs, the possible after-effects of Canada’s countermeasures, and further disruptions already evident at the border. The Canadian government will consult with businesses, allowing them to advocate for their interests.

It is conceivable that in 2025, some members of the U.S. Congress may attempt to revoke the tariff powers delegated to the President. If American industrials succeed in garnering enough support among lawmakers, they could push Congress to pass legislation aimed at limiting or repealing these powers. Although numerous legal challenges could be filed against the tariff measures implemented by President Trump, U.S. courts have historically defended executive authority on foreign trade, making judicial overturns unlikely.

New Free Trade Agreements

In terms of new trade agreements, Canada is expected to finalize negotiations in 2025 for a trade deal with the Association of Southeast Asian Nations (ASEAN) and sign the Canada-Indonesia free trade agreement, following the conclusion of talks in 2024. In the Americas, Canada is also on track to sign a free trade agreement with Ecuador by the end of 2025, and Costa Rica should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In Europe, Canada is considering relaunching negotiations with the United Kingdom and should  continue to encourage the 10 EU member states that have not yet ratified the Comprehensive Economic and Trade Agreement (CETA) to finalize the process.

By the end of September 2025, businesses required to report under the federal plastics registry must submit their report for the year 2024.

Canada’s Trade Disputes

In 2025, Canada will have to face the United States over ongoing trade disputes. First, Canada will need to defend the Online News Act before a USMCA panel. The United States claims that the measures imposed on its tech giants, including the fees they will have to pay to fund Canadian media, violate CUSMA. The new Trump administration has announced that it will launch investigations into tax measures that “disproportionately” affect American companies worldwide.

China has also recently begun consultations at the WTO in response to Canadian tariffs on electric vehicles, aluminum, and Chinese steel. In addition, China initiated an anti-dumping investigation into Canadian canola exports, which Canada sees as a retaliatory move against measures it implemented in disregard of WTO rules. In 2024, Canada launched consultations over Chinese batteries and semiconductors, which are expected to result in the imposition of tariffs and, ultimately, new trade disputes in 2025.

In terms of investment law, the arbitrators in TransCanada v. USA (Keystone XL) ruled that NAFTA’s sunset clause protection only applies to disputes arising before 2020. In 2025, attention will be on the Ruby River Capital v. Canada case to determine whether the arbitrators uphold this interpretation, which significantly curtailed the protection investors benefited from under NAFTA.

International Taxation and Monetary Law

In 2025, the consensus on international taxation reached under the OECD will be undermined by the Trump administration, which has announced that the United States will not join the two pillars deal negotiated at the OECD. With the U.S. opting out, many countries may hesitate to implement the 15% minimum tax rate.

On the international monetary law front, it is possible that the United States may attempt to impose agreements on its partners similar to the Plaza Accords (1985) or the Louvre Accords (1987). These agreements had forced allies such as Japan, West Germany, and Canada to intervene in the foreign exchange market to drive down the value of the U.S. dollar, thus making imports more expensive for Americans, in an effort to reduce the U.S. trade deficit.

Mexico

In 2025, the investment climate is likely to worsen due to the US efforts to reduce imports from Mexico and the growing threat to judicial independence in Mexico, resulting from a controversial reform that would require federal judges to be elected by popular vote. This raises the risk of Mexican courts exhibiting a greater bias in favor of domestic interests.

Despite losing a CUSMA dispute initiated by the United States regarding the ban on GMO corn, Mexico is unlikely to lift this ban in 2025.

Economic Sanctions and National Security

In 2025, the United States is set to expand the scope of its sanctions regime while working to maintain its technological dominance. The U.S. President has recently called for an investigation into technologies and intellectual property related to China and other “rival” states. Canada is likely to align with this sanctions framework to ensure continued support from the United States. Companies with subsidiaries or business dealings in the U.S. should closely monitor the addition of businesses to the Entity List (which restricts the sale or purchase of certain technologies) and the Unverified List.

In January 2025, the Outbound Investment Security Program was enacted, requiring U.S. companies to report certain transactions (both purchases and sales) or investments. In some cases, these transactions will be prohibited, particularly those involving artificial intelligence, semiconductors, and quantum computing. These restrictions will apply to Chinese entities, as well as foreign entities, including Canadian ones, with significant ties to China (e.g., a majority of Chinese stakeholders).

Should hostilities in Ukraine come to an end in 2025, it is likely that the West will ease some of its economic sanctions to encourage Russia to adhere to a potential peace agreement. However, sanctions targeting the prohibition of technology transfers will likely remain in place, even in the event of a resolution to the Ukraine conflict. Canada should also follow the United States’ lead and lift some of the sanctions imposed on Syria within the year.

Cybersecurity

The amendment to the Investment Canada Act is set to take effect in 2025, along with the Cybersecurity Act, which has garnered support from all federal parties. Under this legislation, telecommunications companies will be banned from using suppliers deemed high-risk, such as Huawei.

China’s Ambivalent Relationship with Canada

Trade tensions between China and the West, including Canada, are expected to intensify in 2025. The United States is likely to implement measures against China while pressuring Canada and Mexico to either mirror these actions or adopt similar measures. In addition, China will face an increasing number of trade restrictive measures in 2025 from developing countries such as Brazil and Turkey.

Environmental, Social, and Governance (ESG) Disclosure

Since January 2025, the Canadian counterpart of the ISSB (International Sustainability Standards Board), the Canadian Sustainability Standards Board, has made the Canadian Sustainability Disclosure Standards (CSDS 1 and CSDS 2) voluntarily applicable. These standards, based on the international IFRS 1 and IFRS 2 norms, are designed to improve the transparency and comparability of sustainability-related information.

The EU has recently adopted a new Corporate Sustainability Due Diligence Directive (CS3D), which will be gradually transposed into the national laws of EU member states starting this year. This Directive imposes strict due diligence requirements on companies regarding the environmental and social impacts throughout their supply chains. However, the EU is expected to adopt an omnibus regulation in 2025 to codify, streamline, and, in some cases, ease ESG obligations.

Carbon Emissions Reporting and Deforestation

Starting in 2026, companies doing business in California will be required to disclose their Scope 1 and 2 emissions (2025 emissions), while Scope 3 emissions will need to be disclosed starting in 2027. The California Air Resources Board (CARB) is expected to finalize the disclosure standards by July 2025.

In 2025, more countries are expected to introduce carbon adjustment mechanisms. The United Kingdom will follow the European Union’s example, and Australia may follow. However, Canada is unlikely to adopt such a scheme in the near future.

In April 2025, the International Maritime Organization (IMO) is expected to adopt a carbon emissions tax on maritime freight. It is likely that conventional maritime fuel will be taxed between USD 60 and 300 per tonne, though the exact scope of the measure still needs to be agreed upon by member states.

In the summer of 2025, it will be important to pay attention to the classification of countries based on their deforestation risk—low, medium, or high—so as to understand the potential impact on Canada under the European regulation aimed at combating deforestation. This regulation is set to be enforced from December 2025 onwards (June 2026 for small businesses).

Forced Labour

Canadian companies subject to disclosure requirements must submit their annual report on efforts to address the risks of forced labor and child labor by May 31, 2025. Companies should not expect the same patience from the Canadian government as last year, since this obligation is no longer new.

In 2025, Canada’s regulations on forced labor are expected to be tightened under increasing pressure from the United States, which has criticized Canada’s inaction and stressed the need to address imports linked to forced labor under CUSMA. Canada is likely to adopt measures similar to those in the United States, including by designating high-risk regions, such as Xinjiang, and requiring importers to prove that goods are not linked to forced labor (i.e., a rebuttable presumption). Additionally, new regulations on forced labour entered into force in the EU at the end of 2024. The United Kingdom is also expected to update its regulatory framework in 2025 to align with the EU and US measures.

World Trade Organization (WTO)

2025 will be a moribund year for the WTO, as the term of its Director-General, Ngozi Okonjo-Iweala, has been extended for another four years. Affilia’s team does not foresee any significant developments at the WTO ahead of the next Ministerial Conference in 2026. No new members are expected to join the organization in 2025, as Comoros and Timor-Leste, became members last year. However, negotiations with Uzbekistan and Azerbaijan are expected to move forward, while Ethiopia and Iraq have resumed their long-suspended accession negotiations.

Dispute resolution is still ongoing among the 53 members of the MPIA, including China and the EU. China is suing the EU over measures taken by the EU against electric vehicles, while the EU is challenging Chinese measures targeting brandy and dairy products.

Finally, progress on the ratification of the agreement on overfishing and illegal fishing  subsidies  should be closely monitored. The agreement is expected to reach the required quorum of 111 members to enter into force in 2025, with 88 members having already ratified it.

Intellectual Property

In 2025, to comply with its CUSMA obligations, Canada is expected to enhance patent protection by introducing a patent adjustment system that would extend patent terms if it were proven that the patent was registered after an unreasonable delay. In the European Union, attention should also be given to the expansion of the Bolar exemption, which allows generic drug manufacturers to begin the necessary research for producing a generic version before the original patent expires.

Private Law

In the realm of private law, it is important to highlight that the United Nations Commission on International Trade Law (UNCITRAL) working group on insolvency law is set to finalize its guidelines on asset identification in insolvency proceedings, along with a model law, by the summer of 2025.

Affilia’s Practical Advice

Given these anticipated developments for 2025, Canadian businesses would be wise to:

1. Strengthen and maintain their relationships with American suppliers and clients, while identifying and implementing solutions to mitigate and share the impacts of trade tensions between business partners;
2. Engage actively, either directly or through professional associations, in the various government consultations regarding U.S. trade policy and possible Canadian countermeasures;
3. Develop new trade partnerships to diversify exports, particularly with countries and regions where Canada is actively negotiating free trade agreements (Indonesia, ASEAN, and Ecuador);
4. Carefully track the developments in economic sanctions imposed by Canada and the United States, particularly the inclusion of companies on the Entity List (restricting the sale/purchase of specific technologies) and the Unverified List, as well as new U.S. restrictions on investments in advanced technologies in relation to China;
5. Exercise caution if sanctions are lifted against Syria or Russia, in the event of a peace agreement, and prepare for possible economic retaliation from China in the event of strained Canada-China relations;
6. Closely monitor the situation in Mexico and refrain from engaging in this market until the country provides sufficient guarantees regarding the independence of its judicial system and the protection of foreign investments;
7. Prepare for the growing implementation of carbon border adjustment mechanisms by the EU and the UK, along with new disclosure requirements in California, and anticipate potential increases in maritime transport costs due to the forthcoming carbon tax on shipping;
8. Check Canada’s classification on the European list of deforestation-risk countries and take the necessary steps to comply if exporting to the EU;
9. Establish proactive measures to prevent and mitigate the risks of forced labor and child labor within the supply chain, and ensure compliance with the May 31, 2025 deadline for submitting the annual report detailing the actions taken to meet these requirements;
10. Adopt the Canadian Sustainability Disclosure Standards and closely monitor the EU countries’ implementation of the new CS3D Directive, which applies to non-European companies meeting certain criteria;

For more information on these developments and the potential impact that these trade regulations, economic sanctions, and ESG standards may have on your business, feel free to contact Affilia.