Canada Prepares to Implement New Export Controls and Brokering Requirements
On March 16, the Canadian government published proposed regulations supporting amendments to Canada’s Export and Import Permits Act (EIPA) that, among other things, create a new control regime for Canadians engaged in “brokering” related to transactions involving the movement of certain controlled goods, services or technology from one foreign country to another. This is the first time Canada has imposed such controls and companies that may be potentially involved in such transactions should be reviewing the new regulations carefully.
The EIPA amendments and new regulations also implement other changes required as a result of Canada’s accession to the United Nations Arms Trade Treaty, including new permit and reporting requirements for certain goods and technology transfers to the United States.
Canada and the UN Arms Trade Treaty
On December 13, 2018, An Act to amend the Export and Import Permits Act (EIPA) and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments) (the “Act”) received royal assent. The Act enables Canada to join the 2014 UN Arms Trade Treaty (the “ATT”) that sets out standards for international trade in a broad range of conventional arms with the goal of ensuring that states have effective national systems to review and control arms trading.
New Human Rights Criteria for Issuing Permits
The Act establishes controls over brokering and creates new legal obligations for the Minister of Foreign Affairs to consider certain assessment criteria before granting either export or brokering permits – these include violations of international humanitarian or human rights law or international conventions relating to terrorism or transnational organized crime, and acts of gender-based violence or violence against women and children. The Minister is authorized to deny the permit if there is a substantial risk of any of these negative consequences.
New Controls Over “Brokering”
To facilitate full implementation of and compliance with the ATT, Canada has developed a number of proposed regulations. These include a Brokering Control List, Brokering Permit Regulations, regulations specifying activities that do not constitute brokering (exclusions), and two proposed regulations on enhanced reporting requirements for ATT exports to the United States.
Pursuant to the draft regulations, subsection 2(1) of the amended EIPA will define “brokering” to include “arranging or negotiating a transaction that relates to the movement of goods or technology included in a Brokering Control List from a foreign country to another foreign country.” Note that, significantly, the reference to a “foreign country” means countries other than Canada. Consequently, the movement of items into or out of Canada is not captured within the newly-established definition of “brokering.”
Furthermore, with respect to brokering activities involving technology, a “transaction that relates to the movement of technology” will, pursuant to subsection 2(1.1) of the EIPA, include a transaction that relates to the disclosure of its contents. Although the government’s summary of the amendments notes that a “transaction that relates to the movement of technology” must include the disclosure of the contents of that technology and not just the passage of the technology itself (e.g. on a USB key that remains unopened) from one place to another, this does not appear to be explicitly reflected in text of the amendments.
The proposed Brokering Control List consists of a list of goods and technologies for which a brokering permit is required. It covers all military goods and technologies listed in Group 2 of the Export Control List, any other Export Control List item, including dual-use items, that is likely to be used as weapons of mass destruction, as well as the eight ATT categories of full-system conventional arms that form the new Group 9 under the Export Control List. The Group 9 items will also require permits for export to the United States.
While Canadian business has enjoyed permit-free export and transfer of most military items to the United States since World War II, compliance with Article 13 of the ATT will require that Canada now report on its export of full-system conventional arms, including those shipped to the United States. To satisfy this ATT obligation, Canada has created the eight ATT categories of full-system conventional arms that will require a permit to be exported to the United States. The permit-free movement of other military goods and technology to the United States will remain intact.
The amended EIPA will prohibit unauthorized brokering by any Canadian company or individual whether in Canada or abroad. In practice, the broad application of these prohibitions means that unauthorized brokering will be a criminal offence, and that brokering obligations will be applicable both domestically and on an extraterritorial basis. The proposed Brokering Permit Regulations will establish the regulatory framework for the issuance of brokering permits. Applicants for brokering permits will be able to leverage the Export Controls On-Line (EXCOL) platform that is currently the dedicated website used for export permits. In addition, a General Brokering Permit has been proposed for use in conducting brokering activities in pre-defined low-risk circumstances and to select low-risk destinations.
Next Steps and Implementation
The industries and entities potentially affected by the EIPA amendments and proposed regulations include Canadian defence, security and aerospace industries, as well as companies that manufacture, export and/or broker military and dual-use goods and technologies, and those companies providing related technical and after-sale services.
The proposed regulations are open for comment for a 30-day period, until April 15, 2019. Comments will be reviewed and considered prior to finalization of the draft regulations. The finalized regulations are anticipated to be published in June, with an entry into force date some 30 days after that.