Hb Global Advisors Export Controls


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Canadian and U.S. Export Controls - what you need to know

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Hb Global Advisors Export Controls

  1. 1. CANADIAN AND U.S. EXPORT CONTROLS: WHAT YOU NEED TO KNOW U.S. Aerospace Supplier Mission: 3 May 2011 Montreal, QuebecHB Global and Canadian Export Consulting Services Dominique Babin & Thomas Jones 1
  2. 2. OUTLINEHistory of Canada-U.S. Export ControlsU.S. Export ControlsCanadian Export ControlsAlignment, differences and reconciliation 2 Canadian Export Consulting Services
  3. 3. History of Canada-U.S. Export ControlsUnique RelationshipApril 1941 – The Hyde Park DeclarationUntil 1954 U.S. export control list used as basis for Canadian controlsHundreds of DND-DOD Agreements & ArrangementsDefence Production Sharing Arrangement (DPSA) – 1957Defence Development Sharing Arrangement (DDSA) – 1963North American Defence Industrial Base (NADIB) (mid 1980’s)Joint Certification Program (JCP) -1985Controlled Goods Program (CGP) – 2001Canadian Export Controls: Major Amendments 3 Canadian Export Consulting Services
  4. 4. History of Canada-U.S. Export ControlsLicences required for USML goods to CanadaPre-1999 Canadian Exemptions were broader in scopePost-1999, full USML licence-free trade endedMore positive note, EAR goods/technology remain licence-freeto Canada 4 Canadian Export Consulting Services
  5. 5. U.S. Export ControlsGeneral U.S. export control regulations cover almost everything U.S. controls re-exports of US-made goods U.S. also controls almost everything made in other countries using U.S. goods/technology 5 Canadian Export Consulting Services
  6. 6. U.S. Export Controls Furthermore…Export control violations are seriousSignificant fines and incarcerationMost foreign-made products of US technology are subject tosome form of U.S. export controlsWhen they are required varies within the EAR and ITARAuthorisations = licences-agreements-exceptions-exemptionsU.S. rules could inadvertently affect your company 6 Canadian Export Consulting Services
  7. 7. U.S. Export ControlsITAR Administration US companies expending huge costs on compliance programmes US companies have moved export controls to the legal departments Broad and diverse ITAR interpretations have resulted Inconsistent ITAR interpretations 7 Canadian Export Consulting Services
  8. 8. U.S. Export ControlsExtraterritorial Application of the ITAR US ITAR laws apply broadly US made parts, components, hardware, software, technology controlled All US ITAR items are subject to US re-export controls In-country and country-to-country transfers controlled Controls apply to: – US manufactured end-items and components; – US components incorporated into non-U.S. end items – Non-U.S. end items produced using US technology “Authorisation” to export or re-export, and in most cases, to transfer in-country “Authorisations” are licences, agreements or exemptions 8 Canadian Export Consulting Services
  9. 9. U.S. Export ControlsNationality: The Unforeseen Outcome ITAR fix of 2001 created unexpected results Persons born prohibited countries (Part 126.1) affected US law requires 3rd country nationals be identified Defence articles/services are licensed to identified countriesand persons (deemed exports) ITAR appears to be moving away from country of birth asbeing a major factor in determining nationality Federal Register proposed amendment dated 11 August 2010 Not a panacea! 9 Canadian Export Consulting Services
  10. 10. U.S. Export ControlsBy way of illustration… A Western national, born in Iran, emigrates to a Western country with her parents at 6 months of age At 18 years of age, she becomes a citizen of her adopted country Individual receives all of her education in the Western country, graduating with an engineering degree from a domestic University Domestic defence company hires the 26 year old engineer to manage the manufacturing of a military radio The radio is based partially on a U.S. design 10 Canadian Export Consulting Services
  11. 11. U.S. Export Controls126.5 Comprises Four Components The 4-in-1 Exemption…main elements of 126.5 –Exports to the US (126.5(a)) –Exports to Canada (126.5(b)) –Defence Services to Canada (126.5(c)) –Re-exports/re-transfers from Canada/in Canada (126.5(d)) How to make the most of126.5…A Practical Guide/6 Step Process 11 Canadian Export Consulting Services
  12. 12. U.S. Export ControlsProposed Amendment to ITAR Direct result of President Obama’s Export Control Reform effort U.S. industry losing ground in trade One of the proposed amendments is to allow dual-nationals access to ITAR goods and technology However, there is a lot of work to be done in order to reach this objective 12 Canadian Export Consulting Services
  13. 13. U.S. Export ControlsProposed Amendments to ITAR (Cont’d) Parts 124 and 126 being proposed for amendment Will permit transfers to dual-national employees Applies to licences and agreements Responsibility of foreign approved entity (e.g., employer) to implement measures 13 Canadian Export Consulting Services
  14. 14. U.S. Export ControlsProposed changes will affect Canadian HRs. They include: That the foreign employer screen the employee; and That employers of 126.1 employees conduct additional due diligence; and That employers be required to determine whether the 126.1 employees “might have substantive contacts 1 in their countries of birth”1. “Substantive contacts include, but are not limited to, recent or regular travel to such countries, recent or continuing contact with agents and nationals of such countries, continued allegiance to such countries, or acts otherwise indicating a risk of diversion.” 14 Canadian Export Consulting Services
  15. 15. The Canadian Legislation – an overviewExport and Import Permits Act– Export Control List– Area Control ListDefence Production Act– Controlled Goods = certain strategic goods included in the Export Control List– Controlled Goods RegulationsCustoms Act and Criminal Code– Canada Border Services Agency (CBSA) and the RCMP 15 Canadian Export Consulting Services
  16. 16. Alignment of US and Canadian RegimesUS and Canada adhere to the same multilateral agreementsregarding exportsUS and Canada agreed in 2001 to add certain elements thatare only controlled by the US and Canada (Item 5504 of theECL)The re-export from Canada of US-origin goods requires anexport permit (see next slide)In-country transfers of strategic goods and technology arecovered by the Controlled Goods regime 16 Canadian Export Consulting Services
  17. 17. Re-export AuthorisationsA Canadian export permit is required for all goods listed in the ECL,including goods that originate from the U.S. – Export to the U.S.: no permit required in most cases – General export permit No 12Section 3 of the Export Permits Regulations requires to submit, withthe export permit application, a U.S. re-export authorisation for: – US-made goods classified under the US Munitions List (USML); – non-US-made goods incorporating any US-made goods classified under the USML; and – non-US-made goods manufactured, in whole or in part, using US origin technical data classified under the USML. 17 Canadian Export Consulting Services
  18. 18. Main Differences between US and Canadian RegimesUnited States CanadaExtraterritorial Not extraterritorialHeavy administrative fines and Nominal fines under the Customscriminal prosecution Act and limited criminal prosecutionLeans heavily on direct Leans heavily on voluntaryenforcement action complianceU.S. country policies based on Canadian country policies baseddomestic, self-interests and almost exclusively on internationalinternational agreement (e.g., UN) agreements (e.g., UN) 18 Canadian Export Consulting Services
  19. 19. Main Differences between US and Canadian RegimesUnited States CanadaDenials of export privileges based No such laws exist in Canada –in law everyone has the right to request Minister to issue a permitDeemed export rule applies No deemed export ruleVoluntary disclosures based on Voluntary disclosures policylaw based, not legislatedControl lists based partially on Control lists almost exclusivelymultilateral agreement and based on multilateral agreementspartially on domestic interestsDomestic registration programme Domestic registration programme(basic for USML-ITAR) (more prescriptive than ITAR registration) 19 Canadian Export Consulting Services
  20. 20. Practical Advice to US InvestorsIdentify ITAR components correctlySet the standards – but understand local laws andadjustKnow your Canadian partner/subsidiary (due diligence)Ensure your Canadian partner/subsidiary commits toyour standards – as adjusted (Contracts, policies)Ensure your Canadian partner/subsidiary meets thesestandards (monitoring, audits) 20 Canadian Export Consulting Services
  21. 21. HB Global and CECS: How we can helpWe have over 50 years of combined experience in export controlsWe understand the rules on both sides of the borderWe can help you structure your business and projects to meet bothexport control regimesWe can provide expert training for staff in Canadian and U.S. exportcontrols, enforcement and the Controlled Goods ProgramWe can provide timely and valuable audits and capture problem areasor potential problems earlyWe can anticipate problems and get them addressed before theybecome major issuesWe can resolve issuesWE CAN ALLOW YOU TO GROW YOUR BUSINESS IN AND FROMCANADA 21 Canadian Export Consulting Services
  22. 22. Canadian and U.S. Export Controls: What you need to know QUESTIONS? 22 Canadian Export Consulting Services