Canada’s largest industry association has put illicit trade at the centre of its policy agenda, and it is asking the federal government to stop treating the problem as a narrow policing matter and start treating it as a structural threat to the country’s economy. Canadian Manufacturers & Exporters (CME) argues that smuggling, counterfeiting, tax evasion, and the misuse of manufacturing equipment have grown into a sophisticated, multi-sector challenge that drains public revenue, distorts competition, endangers consumers, and erodes confidence in Canada as a secure and reliable place to do business. CME frames a modern, coordinated response not as a cost but as an investment in fair markets and long-term industrial strength.
“Illicit trade today is bigger, faster and more global, and gaps in enforcement are harming Canadian manufacturers that play by the rules,” said Dennis Darby, President and CEO of CME. That sentence captures CME’s central grievance: the businesses being hurt most are the ones doing everything correctly. When illicit operators dodge duties, taxes, and safety standards, they do not merely break the law in the abstract; they undercut the prices, margins, and market share of compliant Canadian companies that absorb the full cost of regulation. The result is a competitive playing field tilted against legitimate industry.
What CME means by illicit trade
Illicit trade is an umbrella term, and policymakers too often see only its most visible fragment. CME describes a problem that spans counterfeit consumer and industrial goods, contraband tobacco and illegal nicotine products, smuggled or diverted goods that evade duties and taxes, and the misuse or diversion of legitimate manufacturing equipment into illegal production. These are not isolated phenomena. They are connected by common enablers: gaps in border enforcement, uneven regulatory oversight across product categories and jurisdictions, underinvestment in detection technology, and global supply chains that have become long, fast, and opaque enough to hide illicit flows inside legitimate ones.
The “manufacturing equipment misuse” element is one of CME’s more distinctive contributions. Industrial machinery (the presses, fillers, rolling equipment, and packaging lines that legitimate factories use) can be acquired, repurposed, or diverted to produce counterfeit or untaxed goods at scale. A cigarette-rolling machine or a pill press is a productivity tool in one context and the engine of an illegal enterprise in another. By naming equipment diversion explicitly, CME pushes the conversation beyond the border and into the supply chain for the means of production itself, where oversight is thinner and the stakes, in public-health terms, can be severe.
Why this is an economic argument, not just a law-enforcement one
CME’s strategic move is to reframe illicit trade as an economic-policy problem with four interlocking consequences, each of which a coordinated response could address.
The first is lost government revenue. Every smuggled carton, counterfeit part, or untaxed nicotine pouch represents excise duty, sales tax, and income tax that never reaches public coffers. That foregone revenue is not trivial. Contraband tobacco alone is estimated to cost Canadian governments roughly a billion dollars a year in lost tax revenue, and the picture at the provincial level is stark. In Alberta, contraband cigarette sales generated close to $430 million in gross revenue between 2021 and 2023 while costing the province more than $262 million in tobacco tax over the same period. Five provinces studied lost a combined $316 million in a single year. These are dollars that would otherwise fund hospitals, roads, and the very enforcement agencies tasked with policing the problem, a self-reinforcing shortfall in which the failure to collect undermines the capacity to collect.
The second consequence is the distortion of fair competition. This is the heart of CME’s case and the reason it speaks for manufacturers specifically. A legitimate manufacturer pays for compliant materials, certified processes, worker safety, environmental controls, excise stamps, and taxes. An illicit operator skips most or all of those costs. The two then compete for the same shelf space and the same customers, but on radically unequal terms. The contraband tobacco market illustrates the scale of the resulting displacement: illicit product now accounts for an estimated 29 per cent of the market in Alberta, 38 per cent in Nova Scotia, 45 per cent in Manitoba, and 52 per cent in New Brunswick. When more than half of a category’s sales in a province occur outside the legal market, the compliant manufacturers in that category are not competing at a disadvantage; they are being squeezed out of their own market. The same dynamic, CME argues, plays out across counterfeit goods and other untaxed product lines, even where the data is less precise.
The third consequence is the chilling effect on long-term investment. Manufacturing is capital-intensive and decisions are made over horizons of years or decades. A company weighing whether to build a plant, expand a line, or commit to a product category in Canada must factor in whether it can earn a fair return, and that calculation degrades sharply when a meaningful share of the market is captured by operators who ignore the rules. Persistent illicit competition signals to investors that the market is not properly policed, that returns are uncertain, and that compliant capital is, in effect, subsidizing the enforcement failures that let illicit capital thrive. Over time this discourages exactly the kind of patient, large-scale investment that builds industrial capacity and good jobs.
The fourth consequence is reputational and systemic: the erosion of confidence in Canada’s regulatory environment and, by extension, in Canada as a trading partner. In an era when supply-chain security has become a central concern for Canada’s allies and customers, and when the country is working to position itself as a dependable alternative to less secure sources of supply, visible weaknesses in enforcement carry strategic costs. If counterfeit or diverted goods can move through Canadian channels, or if illicit production can flourish domestically, partners may question the integrity of Canadian supply chains. Restoring rigour, CME argues, is part of strengthening Canada’s position as a secure and reliable trading partner at a moment when that reputation is a genuine economic asset.
Public health and safety: the human cost behind the economics
Although the framing is economic, CME is careful to connect illicit trade to tangible harm to people. Counterfeit goods are, by definition, made outside the safety and quality regimes that govern legitimate products. Counterfeit electrical components, automotive parts, batteries, pharmaceuticals, and personal-care products can fail catastrophically, and consumers usually have no way of knowing they have bought a fake. Contraband tobacco and illegal nicotine products evade not only taxation but also the labelling, age-verification, and product-standard rules designed to protect public health and keep these products away from young people.
There is also a criminal-enterprise dimension that elevates the stakes. The profits from illicit trade rarely stay within a single illegal niche. Canadian authorities have long noted that revenue from contraband tobacco is used to finance other serious organized crime, including weapons and drug trafficking, and the RCMP has estimated that roughly 175 criminal organizations in Canada are involved in trading or selling contraband tobacco. Illicit trade, in other words, is not a victimless accounting problem. It is a funding stream for networks that cause broader social harm, which is part of why CME insists that a credible response must be coordinated across agencies rather than confined to any single department or border function.
Four priorities for a modern, coordinated response
CME does not stop at diagnosis. It sets out four priority areas where it believes federal action would deliver measurable results, and the through-line connecting them is coordination: across agencies, across jurisdictions, and with Canada’s most important trading partner.
The first priority is to build on Canada’s existing Border Plan and ensure it delivers measurable results. CME calls for more stable, predictable funding rather than one-off injections; modern screening technology capable of detecting concealed and counterfeit goods; expanded inspection capacity at ports of entry; and an enforcement mandate that reaches beyond the high-profile priorities of fentanyl and irregular migration. The point is not to displace those priorities but to recognize that a border resourced and equipped only for certain threats will, by design, miss the smuggled and counterfeit goods that flow through the same channels. A border plan that treats illicit trade as a first-order objective, with the tools and staffing to match, would close gaps that illicit operators currently exploit.
The second priority is to deepen cooperation with the United States and among domestic agencies. Illicit trade does not respect the seams between jurisdictions; it lives in them. CME calls for more intelligence sharing, joint task forces, and coordinated investigations that span the Canada-U.S. border and the patchwork of federal, provincial, and territorial authorities within Canada. Because so much illicit product either crosses the border or is destined for cross-border markets, a Canadian response that does not align closely with American counterparts will always be working with one hand tied. Joint task forces and shared intelligence allow enforcement to follow the supply chain rather than stopping at a line on a map, and they make it harder for illicit operators to exploit differences in how each jurisdiction polices the problem.
The third priority is to improve oversight of high-risk goods and equipment to prevent their diversion into illicit production and distribution. This is where CME’s focus on manufacturing equipment misuse becomes a concrete policy ask. CME argues for tighter visibility over the machinery, inputs, and goods most prone to being repurposed for illegal manufacturing, so that legitimate equipment does not quietly become the backbone of counterfeit or contraband production. Better oversight here is preventive: rather than chasing finished illicit goods after they reach the market, it aims to choke off the productive capacity that creates them in the first place. It also protects the many legitimate businesses that buy and sell such equipment by ensuring the market is not tainted by bad actors operating in the same space.
The fourth priority is to reduce demand and disrupt illegal nicotine and online markets through public education, stronger enforcement, and better national coordination. Enforcement alone cannot solve a problem sustained by consumer demand, particularly when illicit products are dramatically cheaper than their legal equivalents: a carton of legal cigarettes can cost around $163, while an illegal carton may sell for $30 to $55. CME therefore pairs enforcement with public education to shrink demand, and it singles out online channels, where illegal nicotine and other illicit products increasingly change hands beyond the reach of traditional retail oversight. Coordinating the response nationally, rather than leaving provinces to act in isolation, prevents the displacement effect in which a crackdown in one jurisdiction simply pushes illicit activity into another.
Counterfeit industrial goods: a hidden risk in the supply chain
While contraband tobacco offers the clearest statistics, CME is at pains to stress that illicit trade reaches deep into industrial supply chains in ways that are harder to quantify but potentially more consequential. Counterfeit fasteners, electrical components, bearings, semiconductors, automotive parts, and safety equipment circulate in global markets and can be absorbed into legitimate production without a manufacturer’s knowledge. A counterfeit component that fails in a vehicle, an aircraft, a piece of medical equipment, or an electrical installation does not merely cost money; it can cost lives, and it exposes the legitimate manufacturer whose name is on the finished product to liability for a defect it never introduced.
This is a dimension of illicit trade that rarely makes headlines but weighs heavily on industrial buyers. Manufacturers invest considerable effort in qualifying suppliers and verifying inputs precisely because the cost of a counterfeit slipping through is so high. When enforcement is weak and counterfeits circulate freely, that verification burden grows, raising costs for compliant firms and introducing risk that is difficult to price. It also undermines the brands and intellectual property of Canadian manufacturers whose products are copied and sold by others, eroding the value of the innovation and quality they have invested in building. CME’s call for better oversight of high-risk goods is therefore not only about protecting consumers from dangerous fakes; it is about protecting the integrity of the inputs that Canadian factories depend on and the brands they have worked to establish. In a manufacturing economy increasingly built on specialized, high-value, and safety-critical products, the credibility of the supply chain is itself a competitive asset, one that illicit trade quietly corrodes.
Quebec as a proof point
One of the more useful threads running through the surrounding data is that coordinated action works when it is actually attempted. Quebec is the clearest example. Among the provinces where contraband tobacco has captured enormous market share, Quebec stands out for having driven its illicit share below 20 per cent through sustained, serious enforcement against the illegal market. The contrast with provinces where contraband now rivals or exceeds legal sales is instructive: the problem is not immovable, and the difference between a 20 per cent illicit share and a 50 per cent one is largely a difference in political will and coordinated execution. CME’s recommendations can be read as an argument to generalize the Quebec experience: to apply consistent, well-resourced, cross-jurisdictional pressure nationwide rather than allowing illicit operators to migrate to the path of least resistance.
The technology and intelligence gap
A recurring theme in CME’s analysis is that illicit trade has modernized faster than the systems meant to catch it. Counterfeiters now produce packaging, security features, and excise markings convincing enough to fool casual inspection, and they route goods through complex logistics chains specifically designed to obscure origin and ownership. E-commerce has compounded the challenge: illicit products that once required a physical distribution network can now reach Canadian consumers through online marketplaces, social platforms, and encrypted messaging channels, often shipped in small parcels that are far harder to screen than container freight. The sheer volume of low-value parcel traffic entering Canada gives illicit operators cover, because inspection capacity has not kept pace with the explosion in shipments.
CME’s emphasis on modern screening technology and expanded inspection capacity speaks directly to this gap. Detection tools such as advanced imaging, authentication technologies, and data analytics can help border and enforcement agencies target high-risk shipments without slowing legitimate trade, but they require sustained investment and the trained personnel to use them. CME’s call for stable funding is, in part, an acknowledgement that one-time technology purchases accomplish little without the operating budgets, maintenance, and staffing to keep them effective year after year. Intelligence is the other half of the equation: enforcement that relies on random inspection will always be overwhelmed, whereas enforcement guided by shared intelligence (about routes, networks, and emerging methods) can concentrate scarce resources where they matter most. This is why CME ties technology investment so tightly to cooperation and information sharing; the tools and the intelligence to direct them are two parts of a single capability.
Why now
The timing of CME’s intervention is not incidental. Canadian manufacturers are navigating an unusually turbulent trade environment, with tariff disputes, shifting U.S. trade policy, and broad pressure on margins and competitiveness. In that context, illicit trade compounds an already difficult picture. Manufacturers absorbing higher input costs, tariff uncertainty, and softening demand can least afford to also cede market share to operators who pay none of those costs and follow none of the rules. By tying illicit trade to the broader competitiveness agenda, CME is making the case that enforcement is not a side issue to be handled by police and customs officers alone, but part of the core economic strategy for a manufacturing sector under strain.
There is also a window of policy opportunity. Canada already has a Border Plan and active cooperation with the United States on border security; the infrastructure and political attention now exist to extend that machinery to illicit trade if the government chooses to do so. Stable funding, modern technology.