Tuesday 27 September 2016

Could Canadian Extra Territorial Export Rules Be Coming?



As a Canadian working for a US multi-national, I have long been familiar with the extra territorial application of US export law. US export controls, whether ITAR or EAR sectors, apply not just to the physical movement of goods from the US, but also the future re-export of those goods to a third country. They can even control goods not made in the US, if they are made with sufficient US content or US ownership.
Canadian export rules, in contrast, have focused on the simple physical movement of goods from Canada to a second country. There have not really been controls on foreign made Canadian content goods, or even subsequent re-exportation of Canadian goods. There is a limited scope offence of “diversion”, whereby a Canadian commits an offense by assisting in diversion. However, this is limited to automatic firearms and the few countries listed on the area control list[i]. Similarly, there are no real controls over what your foreign subsidiary does. For example:

Canadian subsidiary in Country A sells goods to Country B, that would have required a permit had they shipped from Canada.

The good news is the role of Compliance Manager in Canada tends to be a little simpler than the equivalent role in the US.
In light of a recent development, however, there are signs this could change. Here is the development:
In 2012 Canadian company Streit sold armoured vehicles to Libya and Sudan[ii]. This was done through their UAE facility (manufactured and shipped from UAE). Had these vehicles exported from their Canadian facilities it almost certainly would have required an export permit. This was recently denounced by a UN panel, prompting a Canadian government response. A good blog post with links to relevant articles can be found here:

What interests me the most, is what may come of all this. A couple key comments I have seen lead me to speculate that extra territorial application may get added to the Canadian rules in the near future.

Defence Minister Saijan said “we will be bring(ing) in regulations” when discussing the topic of Canadian subsidiaries operating abroad in “fragile states”[iii].

Global Affairs Canada spokesperson Francois Lasalle said this about the UN report: “the armoured vehicles were manufactured and shipped by the company's branch in the United Arab Emirates, and therefore the sale is outside of the federal government's arms export regulatory regime”. However, they followed up with this key statement:
“there will be "more rigour and transparency for Canada's export controls system," and that legislation will be coming this fall[iv]

In a September 24 article in the Globe and Mail, the following observation is made:
“A parliamentary committee is preparing to take a hard look at the export controls Canada places on foreign sales of military goods and whether sanctions and embargoes meant to stop arms shipments by Canadians have sufficient teeth[v]

In light of imminent legislation to make Canada compliant with the recently signed Arms Trade Treaty – a key Liberal platform piece, this is something we may want to pay attention to….


P.S. - how ironic would it be if Canada does implement some extraterritorial measures, in light of the Canadian law called the Foreign Extraterritorial Measures Act, which was passed to block other countries from imposing their rules on subsidiaries in Canada!




[i] The Export and Import Permits Act has two key diversion offenses: Sections 15(1) and 15(2):
http://laws-lois.justice.gc.ca/eng/acts/E-19/page-7.html#docCont
[ii] http://www.cbc.ca/news/politics/streit-statement-south-sudan-1.3731184
[iii] http://www.cbc.ca/news/politics/streit-loophole-sajjan-1.3719273
[iv] http://www.cbc.ca/news/politics/streit-south-sudan-1.3711685
[v] http://www.theglobeandmail.com/news/politics/commons-committee-to-scrutinize-arms-export-controls/article32042251/

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