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

1. CANADIAN AND U.S. EXPORT CONTROLS:
WHAT YOU NEED TO KNOW
U.S. Aerospace Supplier Mission:
3 May 2011
Montreal, Quebec
HB Global and Canadian Export Consulting Services
Dominique Babin & Thomas Jones
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2. OUTLINE
History of Canada-U.S. Export Controls
U.S. Export Controls
Canadian Export Controls
Alignment, differences and reconciliation
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3. History of Canada-U.S. Export Controls
Unique Relationship
April 1941 – The Hyde Park Declaration
Until 1954 U.S. export control list used as basis for Canadian controls
Hundreds of DND-DOD Agreements & Arrangements
Defence Production Sharing Arrangement (DPSA) – 1957
Defence Development Sharing Arrangement (DDSA) – 1963
North American Defence Industrial Base (NADIB) (mid 1980’s)
Joint Certification Program (JCP) -1985
Controlled Goods Program (CGP) – 2001
Canadian Export Controls: Major Amendments
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4. History of Canada-U.S. Export Controls
Licences required for USML goods to Canada
Pre-1999 Canadian Exemptions were broader in scope
Post-1999, full USML licence-free trade ended
More positive note, EAR goods/technology remain licence-free
to Canada
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5. U.S. Export Controls
General
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
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6. U.S. Export Controls
Furthermore…
Export control violations are serious
Significant fines and incarceration
Most foreign-made products of US technology are subject to
some form of U.S. export controls
When they are required varies within the EAR and ITAR
Authorisations = licences-agreements-exceptions-exemptions
U.S. rules could inadvertently affect your company
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7. U.S. Export Controls
ITAR 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
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8. U.S. Export Controls
Extraterritorial 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
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9. U.S. Export Controls
Nationality: 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 countries
and persons (deemed exports)
ITAR appears to be moving away from country of birth as
being a major factor in determining nationality
Federal Register proposed amendment dated 11 August 2010
Not a panacea!
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10. U.S. Export Controls
By 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
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11. U.S. Export Controls
126.5 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
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12. U.S. Export Controls
Proposed 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
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13. U.S. Export Controls
Proposed 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
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14. U.S. Export Controls
Proposed 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.”
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15. The Canadian Legislation – an overview
Export and Import Permits Act
– Export Control List
– Area Control List
Defence Production Act
– Controlled Goods = certain strategic goods included in the Export
Control List
– Controlled Goods Regulations
Customs Act and Criminal Code
– Canada Border Services Agency (CBSA) and the RCMP
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16. Alignment of US and Canadian Regimes
US and Canada adhere to the same multilateral agreements
regarding exports
US and Canada agreed in 2001 to add certain elements that
are only controlled by the US and Canada (Item 5504 of the
ECL)
The re-export from Canada of US-origin goods requires an
export permit (see next slide)
In-country transfers of strategic goods and technology are
covered by the Controlled Goods regime
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17. Re-export Authorisations
A 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 12
Section 3 of the Export Permits Regulations requires to submit, with
the 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.
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18. Main Differences between US and
Canadian Regimes
United States Canada
Extraterritorial Not extraterritorial
Heavy administrative fines and Nominal fines under the Customs
criminal prosecution Act and limited criminal
prosecution
Leans heavily on direct Leans heavily on voluntary
enforcement action compliance
U.S. country policies based on Canadian country policies based
domestic, self-interests and almost exclusively on international
international agreement (e.g., UN) agreements (e.g., UN)
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19. Main Differences between US and
Canadian Regimes
United States Canada
Denials of export privileges based No such laws exist in Canada –
in law everyone has the right to request
Minister to issue a permit
Deemed export rule applies No deemed export rule
Voluntary disclosures based on Voluntary disclosures policy
law based, not legislated
Control lists based partially on Control lists almost exclusively
multilateral agreement and based on multilateral agreements
partially on domestic interests
Domestic registration programme Domestic registration programme
(basic for USML-ITAR) (more prescriptive than ITAR
registration)
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20. Practical Advice to US Investors
Identify ITAR components correctly
Set the standards – but understand local laws and
adjust
Know your Canadian partner/subsidiary (due diligence)
Ensure your Canadian partner/subsidiary commits to
your standards – as adjusted (Contracts, policies)
Ensure your Canadian partner/subsidiary meets these
standards (monitoring, audits)
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21. HB Global and CECS: How we can help
We have over 50 years of combined experience in export controls
We understand the rules on both sides of the border
We can help you structure your business and projects to meet both
export control regimes
We can provide expert training for staff in Canadian and U.S. export
controls, enforcement and the Controlled Goods Program
We can provide timely and valuable audits and capture problem areas
or potential problems early
We can anticipate problems and get them addressed before they
become major issues
We can resolve issues
WE CAN ALLOW YOU TO GROW YOUR BUSINESS IN AND FROM
CANADA
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22. Canadian and U.S. Export Controls:
What you need to know
QUESTIONS?
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