New General Export Permit Promises More Flexibility for Transfers of Dual-Use Goods and Technology
The Government of Canada (“Canada”) has issued General Export Permit No. 41 – Dual-use Goods and Technology to Certain Destinations (“GEP 41”) which came into effect August 12, 2015. By eliminating the necessity of applying for and obtaining an individual export permit for many dual-use items, GEP 41 should be of significant assistance to many companies engaged in exports or transfers of controlled goods and technology.
Companies engaged in cross-border transfers of controlled goods, software, data and other technology should carefully review this new GEP to determine whether it is compatible with their processes for supply, sourcing and research and development. However, it is important to note that GEP 41 is both more restrictive and narrower than other general export permits.
What is a GEP?
Usually, an item on Canada’s Export Control List (“ECL”) can only be exported from Canada upon applying for and being granted an export permit from the Export Controls Division (“ECD”) of the Department of Foreign Affairs, Trade and Development (the “Department”). This process can be both time consuming and cumbersome. In addition, the resulting permits often strictly define the items to be exported. Such a process is generally not conducive to just-in-time delivery of product to foreign customers or to the sharing of data and technology in research and development with foreign business partners abroad.
This process can be avoided through the use of general export permits (“GEPs”). GEPs provide exporters the ability to ship or transfer, under certain conditions, specifically delineated items to specifically delineated destinations. Depending upon the specific GEP, conditions can include notifying ECD prior to engaging in any transfers or shipments, filing periodic reports of exports and transfers, and following proper record-keeping controls. The use of a GEP should also be noted on the company’s export declaration in applicable circumstances.
What is the Scope of GEP 41?
GEP 41 cancels and replaces two previous GEPs which had become outdated and too restrictive, General Export Permit No. 29 - Eligible Industrial Goods and General Export Permit No. 30 - Certain Industrial Goods to Eligible Countries and Territories (collectively, the “Legacy GEPs”). The Legacy GEPs were originally implemented in 1994.
There are two important differences between GEP 41 and the Legacy GEPs. First, GEP 41 amends the list of eligible destinations to reflect the changing nature of Canada's strategic partners globally, removing former partners, such as Hong Kong, while adding several new NATO States (such as Poland, the Czech Republic, and the Baltics). Second, the Legacy GEPs only applied to a narrow list of industrial goods within Group 1 of the ECL. This list was not updated or otherwise changed to reflect the changes in structure and format of the ECL, and as such concordance was also an issue.
What can be exported?
GEP 41 creates a general rule from which it then carves out significant exemptions. Generally, GEP 41 applies to “dual-use” and certain strategic goods. Dual-use goods are those with both military and civilian uses, and are covered in part by the Wassenaar Convention. These goods are included in Group 1 of the ECL. Examples of dual-use items include certain types of aircraft, computers and chips, sensors, protective equipment, information security items, various industrial components (such as flanges and gaskets), and radar assemblies.
In addition to these dual-use items, GEP 41 applies to certain strategic goods covered by ECL items 5504.2.a to 5504.2.g. These are items usually associated with satellite systems and spacecraft.
The Schedule to GEP 41 lists 46 categories of dual-use items which do not qualify for GEP 41. These exempted goods and technology include, inter alia, all cryptographic (information security) items, items subject to US International Traffic in Arms Regulations (“US ITAR”), items containing US ITAR components, and items based on US ITAR goods or technology.
Several of the items listed in the exceptions, for example, cryptographic items, are subject to their own GEPs. However, the terms and conditions of those GEPs are generally more restrictive than GEP 41, and reflect the increased scrutiny that cryptographic goods are placed under. These are General Export Permit No. 45 (Cryptography for the Development or Production of a Product), which allows for the export of certain cryptographic items that are used for the development or production of a product, and General Export Permit No. 46 (Cryptography for Use by Certain Consignees), which allows for the transfer of finished products containing controlled cryptography to affiliates.
What are the permissible destinations?
GEP 41 provides an exhaustive list of destination countries:
Australia, Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Republic of Korea, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom or the United States
These nations are deemed to be countries with largely similar export control regimes, are all parties to the Wassenaar Agreement, and are generally considered allied nations. As such, Canada has determined that providing a streamlined process for exports of dual-use and strategic goods and technology to these destinations will not pose a strategic security threat.
Restrictions on Use and Re-export
While GEP 41 provides a streamlined export process for the above destinations, exporters must be diligent and confirm that the goods and technology will be used in those recipient countries and not be re-exported or used in non-listed destination countries. GEP 41 explicitly provides that transfers of goods or technology to be used in non-eligible destinations is not authorized. If an exporter knows that the goods will eventually be re-exported or used in non-eligible destination they cannot take advantage of GEP 41. This differs from the Legacy GEPs, which provided for the export of qualifying items to listed eligible destinations, without any limitations on subsequent destinations where goods or technology could be used.
GEP 41 Reporting Requirements
Prior to the first qualifying export of a calendar year, an exporter seeking to use GEP 41 must report to the ECD:
- their name, address, telephone number and, if any, their facsimile number and electronic mail address, and
- if the resident of Canada is a corporation, the business number assigned to the corporation by the Minister of National Revenue, the name of a contact person, the contact person’s address, telephone number and, if any, facsimile number and electronic mail address.
ECD also requires periodic reports from exporters using GEP 41. Every exporter using GEP 41 must, within 30 days of January 31 or July 31, provide to ECD:
- the name, address and telephone number of each consignee and, if any, the consignee’s facsimile number and electronic mail address,
- if the consignee is a corporation, the name and title of a contact person who has knowledge of the export or transfer, and the contact person’s telephone number and, if any, facsimile number and electronic mail address,
- a description of each good or technology exported or transferred and its ECL item number, and
- the quantity and value of each good or technology exported or transferred by country of destination.
Every resident of Canada exporting under GEP 41 must retain, for six years after any exportation or transfer of technology, the following records:
- the date of the export or transfer,
- the name and address of each consignee,
- the quantity and value of the export or transfer,
- the name and any part number or unique identifier of the good or technology, as well as a description of the good or technology and its technical specifications,
- the item number of the ECL in which the good or technology is referred to, and a comparison of the technical specifications set out in the item with the technical specifications of the good or technology,
- a written statement from each consignee which identifies the country of end-use of the good or technology and an indication as to whether or not the consignee is the end-user or a distributer, or if neither, a description of the consignee’s role in the transaction, and
- a copy, if available, of any contract between the resident of Canada and each consignee and any invoice or export or shipping document relating to the export or transfer.
An exporter must provide such records within 15 business days of any request by ECD.
Time will tell whether Canadian companies will embrace GEP 41 as an effective means of avoiding an otherwise cumbersome process for applying for and obtaining individual export permits. Those engaged in cross-border transfers of controlled goods, software, data and other technology should carefully review this new GEP to determine if it can bring new efficiencies to their supply, sourcing, and research and development activities.