From the cubicle at the end of the hall to the front page…

Note - above image is from Library of Congress, and is public domain[i].

If you’re anything like me, you know what I mean by “the cubicle at the end of the hall”. Those responsible for or involved in Trade Compliance often feel like the unwanted guest at the party. No one is too sure what exactly we do, but they know it’s usually bad news when we get involved! I think sometimes they place us as far as possible from the action, but maybe that’s paranoia!

In all seriousness, most of us have had those conversations over the years when asked “what do you do”. I’m sure I’m not the only one who’s seen glassy eyes in response when I say “NAFTA”, or Customs Compliance. Cross border trade compliance just hasn’t been a well known or understood topic historically. Maybe this sounds familiar to you too:

“So, what do you do?”

“Oh, I look after customs and trade compliance, NAFTA, that sort of thing”

“Hmmn?”

“You know the North American Free Trade Agreement?”

“…”

“Forget it, just pass the crackers please…”

Similarly, many companies that take “compliance” seriously, historically haven’t considered “trade compliance” much. A recent survey by PWC showed that only 32% of companies with a corporate compliance function, include “Export compliance” under the umbrella of “Corporate Compliance”[ii]. (I’m proud to say I work for one of those 32%!).

Well, whether you consider it good news or bad news, I believe things are changing, and changing quickly. Since the beginning of the 2016 Presidential race (which feels like it started in 1916!), I have heard people comment on the benefits/costs of NAFTA that I swear had never heard of it before. Similarly, in Canada right now, it is big news discussing whether or not we will sign the CETA free trade deal with the EU. For those not following, a province in Belgium called Wallonia is sticking to their guns and refusing to ratify, which means the whole agreement may fail. As I write this, my Prime Minister has cancelled his trip to Europe for the signing. I guess there must be a ``Make Wallonia Great Again” movement going on[iii]… A good article on it can be found here:

http://www.economist.com/news/europe/21709330-failure-ceta-heralds-age-vetocracy-if-eu-cannot-do-trade-what-can-it-do

Returning to the US Presidential race, as anyone following knows, deals like TPP and NAFTA have been front and center in the debates. I haven`t seen this level of public discussion on free trade since NAFTA was first debated in the Clinton campaign… (Oh, am I having déjà vu…)

Beyond free trade, several other high profile events have affected trade compliance recently. From the activity in the Ukraine, to Syria, to Cuba, foreign policy decisions seem to be affecting the rules we trade by almost daily.

On the enforcement side, several significant court decisions and US CBP announcements promise to bring trade compliance into the public litigation sphere. For example, the recent court decision on False Claim Act application to Marking Duties:

http://whistleblowerlawinsights.com/2016/10/13/customs-fraud-whistleblower-case-victaulic-appeals-court/

And the recent US CBP statement re: AD/CV duty enforcement:

https://www.federalregister.gov/documents/2016/08/22/2016-20007/investigation-of-claims-of-evasion-of-antidumping-and-countervailing-duties

Based on these developments, we may see a new cottage industry for lawyers. I tried hard to think of an import/export equivalent to “ambulance chasers” but came up empty – any ideas?

As I said earlier: all of this may be good or bad news for you. If you liked your quiet cubicle at the end of the hall, maybe this is bad! However, if you’ve been seeking more exposure in your company, and feel ready for increased challenges, this can only be good for you. Best start catching up on what’s going on: wouldn’t want to be unprepared the next time someone brings a newspaper article to your cubicle and says “hey – isn’t this that stuff you do?”

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[i] http://www.loc.gov/pictures/item/ne0108.photos.198654p

[ii] https://www.pwc.com/us/en/risk-management/state-of-compliance-survey/assets/pwc-soc-2015-chart-pack.pdf

[iii] Fear not – I`m not making a judgement on the value of `Make American Great Again`… just trying to point out how much our profession has been hitting the news lately!

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:

http://www.canada-usblog.com/2016/09/07/questions-are-being-asked-about-application-of-canadas-trade-restrictions-to-sales-by-streit-group/

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!

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[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/