Canada is abandoning the idea of building its own comprehensive AI rulebook and instead focusing on making existing international regulations work together. After the Artificial Intelligence and Data Act (AIDA) died in Parliament in early 2025 without producing a single enforceable rule, policymakers are reconsidering whether Canada should compete with major economies on regulation or coordinate across borders instead.

Why Did Canada's AI Regulation Fail?

AIDA spent nearly three years moving through Parliament before being shelved when Parliament was prorogued in January 2025. The collapse might seem like a governance failure, but experts argue it actually reveals a deeper problem: Canada's market is simply too small to justify creating yet another regulatory framework that companies must navigate.

The European Union, United States, and China have all enacted sweeping AI regulations because they have the economic leverage to enforce them. The EU AI Act now imposes binding obligations on safety, transparency, and human oversight for high-risk AI systems. The U.S. has signed presidential orders targeting government and sector-specific frameworks. China has taken a centralized approach to align AI with national values. But these divergent rules are already creating friction for smaller nations and their companies.

Canada's own AIDA companion document acknowledged the problem: the country needs a framework to "remain interoperable with international markets," or risk being sidelined. Yet adding another layer of Canadian requirements on top of existing EU, U.S., and other regulations could actually harm Canadian companies rather than protect them.

What's the Real Cost of Competing Regulations?

More than 98 percent of Canada's technology firms are small or micro-sized, with 85 percent having fewer than 10 employees and no dedicated compliance teams. When a Toronto-based AI company must navigate separate documentation requirements, conformity assessment processes, and audit infrastructure in each jurisdiction, the compliance burden becomes prohibitive.

The CEO of Canvass AI, a Toronto-based industrial AI company, testified before the World Trade Organization's Committee on Technical Barriers to Trade that cross-jurisdiction compliance carried one of the highest costs and go-to-market barriers the company faced. This burden is pushing Canadian talent and investment elsewhere. A study of nearly 3,000 venture-backed startups founded by Canadians between 2015 and 2024 found that among high-potential startups launched in 2024, only one-third remained headquartered in Canada.

How Can Canada Lead Without Writing New Rules?

Rather than creating a made-in-Canada regulatory regime, experts propose that Canada should become the country that makes existing rulebooks work together. This coordination approach involves building infrastructure that connects regulatory processes across nations, allowing companies to demonstrate compliance once and have it recognized in multiple markets.

Practical coordination mechanisms include:

• Joint Sandbox Agreements: Companies could test AI systems against multiple regulatory frameworks simultaneously, reducing the time and cost of market entry across jurisdictions.
• Mutual Recognition Pathways: A conformity assessment conducted in one market, such as the EU, could count toward compliance in another, such as Canada, without redundant auditing.
• Shared Documentation Templates: Standardized documentation acceptable across jurisdictions would simplify compliance while maintaining safety standards.

Canada is exceptionally well positioned to lead this coordination effort. Through its 2025 G7 presidency, Canada opened discussions on advancing AI cooperation across member states and built directly on the multilateral framework that Japan had established through the Hiroshima AI Process. Canada also held the first meeting of the Canada-EU Digital Partnership Council, which focused directly on AI coordination and reducing barriers for small and medium-sized enterprises on both sides of the Atlantic.

Japan's AI Promotion Act explicitly lists international cooperation as a core principle and includes provisions for regulatory sandboxes. The United Kingdom's Digital Regulation Cooperation Forum has demonstrated in practice that cross-regulatory support reduces compliance costs, saves time, and gets companies to market faster.

Should Canada Have Any AI Rules at All?

Coordination does not mean abandoning domestic AI governance. Canada has legitimate reasons to establish targeted rules in specific areas where its context demands them. These include online harms, Indigenous data rights, French-language obligations, and federally regulated sectors such as banking, telecommunications, and government use of AI.

The key distinction is between a comprehensive regulatory regime that competes with the rest of the world and a targeted intervention anchored to international standards. Sovereignty over how AI is developed and deployed within Canadian borders is legitimate and important, but it can be protected more effectively by making domestic rules interoperable with global frameworks than by acting alone.

The prorogation that killed AIDA, though unintentional, created a strategic pause. The choice before Canada's government is not between regulating AI and ignoring it. Rather, it is between writing another rulebook that isolates Canada and increases fragmentation that Canadian companies are already paying for, or doing something harder and more valuable: becoming the country that makes the existing rulebooks work together.