Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Exporters May Be Required To Complete An Export Declaration Even If The Goods Do Not Require An Export Permit

Posted in Border Security, Exports

Many Canadian companies do not know that exporters (or their freight forwarder) must complete an export declaration (Form B 13A) for any export of goods and/or technology to any country (except the United States & Puerto Rico and the U.S. Virgin Islands) valued over  at $CDN 2000 or more (subject to regulated exceptions).  The B 13A Form may be filed electronically using Canadian Automated Export Declaration (CAED) process, which allows the government to review the information and conduct a risk assessment and enables Statistics Canada to compile export trade data. The reporting requirement is found in section 95 of the Customs Act and the Reporting of Exported Goods Regulations.

Even small sized packaged can be valued over $2000 (most shipping containers exceed the threshold). The Canada Border Services Agency (“CBSA”) conducts a risk assessment as to whether the goods should have an export permit or are destined for a sanctioned country or person.  If the package/shipment does not include an export declaration, the CBSA may detain the goods and, thereby, delay the transportation of the goods to its destination.

The general rule is that all goods valued at or over $CDN 2000 must be reported.  That being said, certain goods are not required to be reported on an export declaration. The exempted goods are listed in sections 6 and 7 of the Reporting of Exported Goods Regulations and are further explained in CBSA D-Memorandum D20-1-1, Export Reporting. Provided that the following goods are not prohibited goods or restricted goods (that require an export permit), the following limited classes of goods may be exported without being reported by the exporter:

  • personal and household effects, other than those of an emigrant, that are not for resale or commercial use;
  • conveyances that would, if they were imported, be classified at the time of importation under tariff item No. 9801.10.00, 9801.20.00 or 9801.30.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff;
  • cargo containers that would, if they were imported, be classified at the time of importation under tariff item No. 980l.10.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff;
  • reusable skids, drums, pallets, straps and similar goods used by a carrier in the international commercial transportation of goods;
  • goods exported by diplomatic embassy or mission personnel for their personal or official use;
  • personal gifts and donations of goods, excluding conveyances;
  • goods that were imported into Canada and are exported from Canada after being transported in transit through Canada enroute to a non-Canadian destination;
  • goods that were manufactured or produced in Canada and that are exported from Canada for the purpose of being transshipped through another country to another Canadian destination;
  • goods exported for repair or warranty repair that will be returned to Canada;
  • goods for use as ships’ stores by a Canadian carrier;
  • goods manufactured or produced outside Canada and removed for export from a bonded warehouse or sufferance warehouse;
  • goods, other than goods exported for further processing, that will be returned to Canada within 12 months after the date of exportation; and
  • goods that are described in or come within the scope of a written arrangement made between the Government of Canada and the government of another country

The reporting MUST take place before the goods are shipped (the attempt to export).  The minimum time frames for reporting exports to the CBSA are as follows:

  • For goods exported by mail: not less than two hours before the goods are delivered to the post office in Canada that accepts mail for export;
  • For goods exported by marine vessel: not less than 48 hours before the goods are loaded onto the vessel;
  • For goods exported by aircraft: not less than two hours before the goods are loaded on board the aircraft;
  • For goods exported by rail: not less than two hours before the railcar on which the goods have been loaded is assembled to form part of a train to be exported. Railcars are loaded at different places and then moved to a rail yard where the cars are assembled into a train to begin its journey from Canada;
  • For goods exported by any other mode of transportation: immediately before the exportation of the goods. In the case of goods being exported by highway or any other mode not previously mentioned, they must be reported immediately before being exported, which means before the conveyance that is transporting the goods crosses the border or leaves Canada.

If the CBSA randomly detains your goods (or is informed about the export by a competitor or disgruntled employee or another person and selects the goods for inspection), you will be asked to provide information about the goods.  This could delay the export weeks, months or years.  It is possible that the detained goods will be seized as forfeit and destroyed.

For more information, on August 19, 2016, the Canada Border Services Agency (“CBSA”) posted on its web-site a “Checklist for Exporting Commercial Goods from Canada”.  On January 25, 2016 (updated August 19, 2016), the CBSA also published a “Step-by-Step Guide to Exporting Commercial Goods from Canada“.  In June 2017, the CBSA made further updates to its web-page “Exporting Goods From Canada: A Handy Guide“.

For more information, contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com.

Trading with China – New Reasons To Be Wary!

Posted in Aerospace & Defence, Agriculture, Anti-Trust/Competition Law, Antidumping, Controlled Goods Program, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Energy, Environment, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Imports Restrictions, Intellectual Property, Labour, Legal Developments, Trade Agreeements, Trade Remedies

Yesterday, August 2, 2017, President Trump signed into law H.R. 3364, the “Countering America’s Adversaries Through Sanctions Act”.  The general press is covering this story by writing about Russia’s initial retaliation taking the form of cutting the staff authorized at the U.S. embassy in Moscow and the seizure of certain U.S. diplomatic property within Russia.  When it comes to international traders, the impact on dealing with Russia, but also Iran and North Korea, takes the form of enhanced compliance efforts.

The new law will provide more in the way of direct and indirect sanctions. A direct sanction arises because the person (or company/entity) is listed by one of the relevant U.S. agencies on the appropriate blocked persons list. A secondary sanction arises because a blocked person (individual or entity) owns or has a controlling ownership in a company not otherwise listed as blocked. Of course, additional headaches exist when there is U.S. content in the good being sold, so the impact is on both exports and imports.

Those already seeking to do business with Russia or Iran will not find anything unusual in these new sanctions.  The existing sanctions regimes regarding those two countries change only to the extent of those on whom the sanctions may be imposed.  The potentially big change comes with regard to North Korea. It is commonly understood that much of the economic support which North Korea receives internationally comes from relationships fostered with the government of China, driven, in large measure, by their common border. Bearing in mind the extensive amount of trade going on between U.S. and Chinese companies, in the face of this new law, American companies would be wise to undertake much more due diligence in their dealings with their Chinese buyers and sellers than has been the case in the past.

The enforcement agency for U.S. economic sanctions is the Office of Foreign Assets Control or OFAC. In August 2014, OFAC issued “Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked”.  See https://www.treasury.gov/resourcecenter/sanctions/Documents/licensing_guidance.pdf.  The document is one page in length, but when read in conjunction with OFAC’s Frequently Asked Questions,  the information helps clarify the degree of complexity which can arise.  See https://www.treasury.gov/resourcecenter/faqs/Sanctions/Pages/faq_general.aspx#basic.

Most of the pages in the new law detail limitations put on the President by Congress to minimize the likelihood that sanctions on Russia, in particular, will be eased unilaterally by Presidential action.  However, what this new law means for international traders is that, in a relatively short period of time, new lists of blocked parties may be issued, and, of course, those lists are already frequently updated.  Some of the reports in the new law are demanded within 90 days of enactment and others at 180 days and others even later. Beside listing persons (individuals and companies ) as blocked, denial of visas, penalties and seizure of assets is authorized. When it comes to North Korea, the use of forced labor to make goods is specifically called out. Of course, those familiar with the Trade Facilitation and Trade Enforcement Act of 2016 recall its enhanced measures for dealing with assertions of goods made by forced labor. Nevertheless,  the prohibition on importation of goods made by forced labor has been on the books since 1930!

The latest round of sanctions now demands that American companies seek many more details from their Chinese buyers and sellers.  The key is clearly understanding both who owns the party with whom you are dealing, but also who are that party’s customers/suppliers and whether any of those persons are blocked or any blocked person holds an ownership interest in the vendor (direct or indirect) with whom you are dealing.  To make the needed determination, OFAC draws a distinction between entities which are “owned” by a blocked party, and those which are only “controlled” by a blocked party. Either way, OFAC’s guidance makes clear that if you are dealing, even remotely, with blocked parties, appropriate due diligence is mandated.

The basic position of OFAC is if a blocked person does not own 50% of more of the entity, that entity is not considered blocked.  However, American traders should be careful they are not dealing with a blocked person representing a non-blocked person. One cannot deal with a blocked person, until authorized to do so by OFAC by way of a license being granted.

OFAC also aggregates ownership stakes, meaning if you have two blocked persons whose combined ownership interest is 50% of more, the entity which they own is also considered blocked.  If the blocked person has an ownership interest in an entity through another entity or entities, then you again get into indirect ownership considerations, and also illustrates the impact of secondary sanctions.

To make its point, OFAC includes some examples in its FAQs:

Example 1: Blocked Person X owns 50 percent of Entity A, and Entity A owns 50 percent of Entity B. Entity B is considered to be blocked. This is so because Blocked Person X owns, indirectly, 50% of Entity B. In addition, Blocked Person X’s 50 percent ownership of Entity A makes Entity A a blocked person. Entity A’s 50 percent ownership of Entity B in turn makes Entity B a blocked person.

Example 2: Blocked Person X owns 50 percent of Entity A and 50 percent of Entity B. Entities A and B each own 25 percent of Entity C. Entity C is considered to be blocked. This is so because, through its 50 percent ownership of Entity A, Blocked Person X is considered to indirectly own 25 percent of Entity C; and through its 50 percent ownership of Entity B, Blocked Person X is considered to indirectly own another 25 percent of Entity C. When Blocked Person X’s indirect ownership of Entity C through Entity A and Entity B is totaled, it equals 50 percent. Entity C is also considered to be blocked due to the 50 percent aggregate ownership by Entities A and B, which are themselves blocked entities due to Blocked Person X’s 50 percent ownership of each.

Example 3: Blocked Person X owns 50 percent of Entity A and 10 percent of Entity B. Entity A also owns 40 percent of Entity B. Entity B is considered to be blocked. This is so because, through its 50 percent ownership of Entity A, Blocked Person X is considered to indirectly own 40 percent of Entity B. When added to Blocked Person X’s direct 10 percent ownership of Entity B, Blocked Person X’s total ownership (direct and indirect) of Entity B is 50 percent. Entity B is also blocked due to the 50 percent aggregate ownership by Blocked Person X and Entity A, which are themselves both blocked persons.

Example 4: Blocked Person X owns 50 percent of Entity A and 25 percent of Entity B. Entities A and B each own 25 percent of Entity C. Entity C is not considered to be blocked. This is so because, even though Blocked Person X is considered to indirectly own 25 percent of Entity C through its 50 percent ownership of Entity A, Entity B is not 50 percent or more owned by Blocked Person X, and therefore Blocked Person X is not considered to indirectly own any of Entity C through its part ownership of Entity B. Blocked Person X’s total ownership (direct and indirect) of Entity C therefore does not equal or exceed 50 percent. Entity A is itself a blocked person, but its ownership of Entity C also does not equal or exceed 50 percent.

Example 5: Blocked Person X owns 25 percent of Entity A and 25 percent of Entity B. Entities A and B each own 50 percent of Entity C. Entity C is not considered to be blocked. This is so because Blocked Person X’s 25 percent ownership of each of Entity A and Entity B falls short of 50 percent. Accordingly, neither Entity A nor Entity B is blocked and Blocked Person X is not considered to indirectly own any of Entity C through its part ownership of Entities A or B.

The outcome, of course, could change if one learns the blocked person (or a downstream entity) has previously sold its interest in the person with whom you are conducting business and the remaining ownership interest is less than 50%. However, that divestiture must take place entirely outside of U.S. jurisdiction and not involve any U.S. person.   Nonetheless, one would be wise to question any remaining ownership interest to make sure the information being provided is accurate and complete, and the change in ownership is neither a sham transaction nor presented so as to evade the U.S. sanctions.

To summarize, there are direct sanctions which arise when the person (individual or company) with whom you are intending to do business is listed by the U.S. government as a blocked person. That determination can be made by appropriate screening and applies whether one is buying or selling goods or services. Sticking to the China supplier example, the more difficult challenge is the secondary sanctions context, i.e., to identify whether your intended Chinese supplier is sourcing any product (parts or finished goods) from or any product is sold to North Korea and figuring that out requires many more questions to be asked and the responses to be properly evaluated before a final decision is made whether the transaction can go forward and be compliant!

The bottom line is if you are dealing with a buyer or seller that has any blocked person involved in any way, it is critical to carefully and fully vet the transaction, before determining the deal can be concluded. Of course, retaining the documentation which establishes the manner in which due diligence was conducted is also critical.

August Civic Holiday: Survival Guide For Canada-US Cross Border Travel

Posted in Agriculture, Border Security, Customs Law, GST/HST, Immigration law, NEXUS, Personal Comments, Proceeds of Crime/Money Laundering

The August Civic Holiday long week-end will be here soon.  Canadians travel outside Canada to visit friends and family and to shop.  The Canada Border Services Agency (“CBSA”) is on the lookout for contraventions of the Customs Act and other border laws.

Here is our survival guide to make sure the CBSA is happy with your declaration and does not seize your goods, vehicle and/or NEXUS card:

  1. Be nice to CBSA and United States Customs & Border Protection officers.  They are working on the long week-end.  Also, if you are nice to them and understand they are just doing their job, the experience may be more pleasant (and the visit with the officers may be shorter and less difficult).  Also, understand that the CBSA protects Canada’s borders.  They are not the Welcoming Committee.  Do not expect them to act like a Walmart Greeter.
  2. Do not bring guns or prohibited weapons to Canada.  Tell the Primary CBSA Officer about any weapons and ammunition in the vehicle.  If you bring guns/weapons and forget to tell the CBSA, your time in Canada may be spent in a holding cell and jail cell and you may leave with a summons to appear and criminal conviction.
  3. Know about personal exemptions that are permitted by the CBSA.  You still must declare all goods (even if you are entitled to a personal exemption).  Let the CBSA apply the exemption.  Entitlement to an exemption does not mean you do not have to say anything.
  4. Organize your receipts before you arrive at the border. If you have gone shopping, organize all your receipts (that is, all the receipts of all people in the vehicle) together. The most common mistake is forgetting a receipt and under-declaring to the Primary CBSA Officer the value of the goods purchased outside Canada. Another mistake is that Dad does not know all the purchases and understates the value purchased by everybody in the vehicle.  Make sure to add up all of your receipts before you drive to the border – preferably using a written list and a calculator app.  Yes, you may be sent to the cashier — but you will not be delayed by seizure paperwork.  See “Do Not Pass GO: Forgetting Your Receipts Gets You A Ticket To Secondary Inspection”.
  5. Declare any gifts or things received for free and allocate an amount to those items.  If you took the soaps and coffee from the hotel room, add a small value for these items.
  6. Declare any purchases of alcohol or tobacco products to the Primary CBSA Officer. Canada restricts the number of alcohol and tobacco items that may enter duty-free.  If you are clearing out the cupboards in a cottage or house in the United States, please be careful to count the litres of alcohol before you reach the border and make a proper declaration of volume and value.  We have written an article just on alcohol and tobacco declarations – Alcohol and Tobacco: Two Things That Cause The CBSA To Not Apply Common Sense
  7. Declare goods purchased at the duty free store.  Buying at a duty-free store does not mean the goods are exempt from duties.  Also, the CBSA gets the records of the purchases at the duty-free store because you provide the store your license plate number or name.  The Primary CBSA Officer knows that you purchased duty free when they input your information into their computer.
  8. Remember to convert your added receipts into Canadian dollars.  This is the second most common mistake.  Canadians inform the CBSA officer of the United States (or Euro or other currency) amount and do not adjust the amount upward to reflect foreign exchange.  The CBSA will hold you to the number provided and, if it has not been converted, will take the position that you under-declared the value.
  9. If you shopped at a store in the United States that accepted Canadian dollars at par, be in a position to provide evidence.  The CBSA will default to converting your receipt into Canadian dollars.  The CBSA does not know all the stores that accept Canadian dollars at par.  A photograph of a sign or a note from the store will be necessary to prove to the CBSA that you were allowed to pay using Canadian dollars.  Know that the CBSA will use the Bank of Canada rate for their conversion.
  10. If you have more than $CDN 10,000 in your possession (adding up all the Canadian dollars and all the other currencies converted into Canadian dollars), declare to (that is tell) the Primary CBSA Officer that you have currency over $10,000.  The CBSA takes the position that you have the obligation to inform them even if they do not ask you the question.  If you fail to inform them, the CBSA could seize all of the money and take the position that it is proceeds of crime.  If the CBSA accepts that it is not proceeds of crime, they will impose a penalty for failure to declare the currency in the amount of either $250, $2500 or $5,000.  If you have made this mistake before, the CBSA can seize all of the money and not give it back to you. Do not use the NEXUS lane is you have currency over $CDN 10,000.
  11. Don’t forget to tell the Primary CBSA Officer about any food that you have.  It is best to not bring any food that is not permitted (e.g., fruits, vegetables, dairy, eggs, poultry, etc.). Check to see what food is not allowed – because if you bring it, your travel time will be extended due to the time spent in lines at the border.  The fines are significant for not declaring food.  For example, failure to declare food in Canada is $800.  Before you travel it is best to clean the vehicle in case you have a bag of Cheerios in the back seat.
  12. Don’t forget your children.  The CBSA will want to see the identification for your children travelling with you.  If both parents are not crossing the border with the children (only one parent is with the children), the CBSA may want to see custody documentation or a letter from the other parent that permission has been granted for the children to come to Canada.
  13. Don’t forget to declare your pets in the vehicle.
  14. Make sure that your medications are in prescription bottles or are not restricted in Canada.  Certain medications and health products are prohibited or imports are restricted.  Canadians who shop outside Canada may not be entitled to bring certain medications and/or health products back to Canada or may be limited in the number of pills that may be imported.
  15. If you have a NEXUS Card, but there is at least one person in your vehicle that does not have a NEXUS card, do not use the dedicated NEXUS lane.  The CBSA will take away your NEXUS Card for a breach of the program rules.  We have written an article on when you should not use the NEXUS lane – When Are You Not Permitted To Use The NEXUS Lane
  16. Make sure that if you plan to travel with your NEXUS Card, you also have your passport.  It is a rule of the NEXUS Program.
  17. Make sure that if you travel with your NEXUS Card and plan to use the NEXUS lane, that every NEXUS Card holder has up-to-date information in the CBSA’s computerized records.  If you have received a new driver’s license or passport, you must update the information with the NEXUS program.  You will get pulled over to update the information if this has not been done.  To avoid delays, update the information online before traveling.
  18. If you have commercial goods in the vehicle, do not use the NEXUS lane.  It is a breach of the NEXUS Program rules to use a NEXUS lane when you have commercial goods (that is, goods for your business).
  19. If you have teenagers, have the talk with them about drugs.  It is really embarrassing and is a negative event if your child is arrested at the border.  The rule must be that they not bring any drugs and that they look in their pockets (clothing and bags) to make sure that drugs are not being transported across the border.
  20. If you are visiting Canada, declare to the Primary CBSA Officer all goods you plan to leave/use in Canada.  If you are bringing gifts for your host or a friend, you must declare them.  If you are bringing food or alcohol you plan to consume in Canada, declare it.
  21. Be truthful.  The CBSA Primary and Secondary CBSA Officer may ask unexpected questions.  Rather than be offended by the question, just answer the questions truthfully.  The examination may take longer if you argue with the CBSA officer about the questions they are asking.  If the CBSA does not believe  your answers, it may lead to a Secondary Inspection to find out what you are hiding.
  22. Know that the CBSA can examine laptops, smart phones, iPhones, etc. The CBSA can ask for your passwords.  See Can the CBSA Ask For Passwords? Don’t bring your electronic devices if you do not want the CBSA to look at the contents of your harddrive or emails or social media history.
  23. The CBSA are not very sympathetic.  Their view is that everyone must get in the long line up.  Cutting the line if you use the NEXUS lane and do not have NEXUS membership, you will be sent to Secondary Inspection and your visit with the CBSA will be lengthened.  It would have been a lot shorter to use the long line up.
  24. If you have criminal convictions in your home country, and have not been pardoned and have not obtained a waiver, you may not be admissible to Canada.  The CBSA may not allow you into Canada depending on the conviction.
  25. If you are not a genuine tourist, the CBSA may not allow you to enter Canada.  For example, if the CBSA sees your car is full and you have too many clothes for the week-end, the CBSA may think you are moving to Canada for work.

There are many other mistakes that could be listed – these are the most common.  Hope you have happy travels and let the other people spend time in the CBSA’s Secondary Inspection Area.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com.

How To Start A Trade Compliance Program? Who, What, When, Where, How Questions To Ask

Posted in Aerospace & Defence, AMPs, Border Security, Canada's Federal Government, Canada-EU CETA, Canada-Ukraine FTA, Corporate Counsel, Cross-border trade, Currency Reporting, Customs Law, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Government Procurement, NAFTA Renegotiations, Proceeds of Crime/Money Laundering

The trade landscape is changing for many Canadian companies. Canada is involved in the renegotiation of NAFTA.  The Canada-Ukraine Free Trade Agreement comes into effect on August 1, 2017.  The Canada-EU CETA enters into provisional effect on September 21, 2017.  The Government of Canada is updating export controls and economic sanctions laws and Global Affairs policies. The Canada Border Services Agency is detaining goods that are suspected of violating Canada’s export controls and economic sanctions laws.  The Royal Canadian Mounted Police are investigating alleged violations of Canada’s Corruption of Foreign Public Officials Act.  While many of these changes present unique opportunities for Canadian organizations, many also generate or enhance existing trade compliance requirements.

There is so much going on and businesses need to catch up on compliance before mistakes are made.  Organization must be proactive and reactive. We often see clients getting themselves into trouble (with significant financial, operational, and reputational consequences) because their success gets ahead of them.  The best time to start a compliance program is before attempting to enter a new market or selling to a new client/customer. The best time to develop or update your compliance program is when your organization decides to:

(1) enter or develop new business in a new market [this could include direct business development or development through a joint venture partner, representative or agent];

(2) purchase from new suppliers; or

(3) sell to new customers or clients.

In other words, the best time to act is NOW.

The comment we often get is that Canadian companies do not know where to start in developing a compliance program.  The first step is to identify the risks.  For example, start by asking a few basic questions, such as:

  1. Does your business sell goods or technology or services outside Canada? If yes, where does your company sell goods or technology or services?
  2. Does your business source materials, parts or finished goods from companies located outside Canada or from companies that source from outside Canada?
  3. Are any of those countries subject to Canada’s economic sanctions? Currently, Canada imposes multi-lateral sanctions pursuant to the United Nations Act against 12 countries (Central African Republic of Congo, Eritrea, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, South Sudan, and Yemen) and Al Qaida/Taliban/Terrorist entities.  Canada imposes unilateral sanctions (somewhat coordinated with major trading partners) pursuant to the Special Economic Measures Act against 9 countries (Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan, Syria, Ukraine and Zimbabwe).
  4. Are any of the countries you sell to, or buy from, known transshipment points to any of the sanctioned countries?  For example, the United Arab Emirates is a known transshipment point for Iran.  China is a known transshipment point for North Korea.  Switzerland is a known transshipment point for Iran and Syria.
  5. What does your company sell?  This seems like a basic question, but sometimes the technical people in the organization have to help provide a detailed answer.
  6. Are any of those goods made with U.S-origin components? See Don’t Be Surprised If The  Components of the Goods Being Shipped Triggers Export Controls of Economic Sanctions Concerns
  7. Do you require an export permit to sell those goods or technology or services (because you need goods/technology to provide the services)?
  8. Are those goods or technology or services subject to targeted international sanctions?
  9. What access do you provide to restricted goods or technology? Will any of your transactions or interactions with vendors, purchasers, representatives, agents, partners, etc. in country employees, etc. permit access to any restricted goods or technology?
  10. Who do you sell to?  Are you selling to foreign officials or dealing with foreign officials when selling the goods or technology or services?  Are you selling to designated persons subject to Canada’s economic sanctions (on a Canadian list in a regulation – unfortunately, Canada does not have a consolidated list and you must review various regulations).
  11. Who do you buy from? Are you purchasing from designated persons?
  12. How well do you know your customer/client/vendor/partner/agent?  Is your customer or client or vendor or partner or agent a front for a sanctioned country or a sanctioned person? Is your customer/client/vendor/partner/agent related to or working for or on behalf of a foreign official?  Is your customer/client/vendor/partner/agent controlled directly or indirectly by a designated person subject to Canada’s export controls or sanctions?
  13. How are you selling goods or technology or services? Are you selling via an agent or foreign representative or subsidiary?  Can these intermediaries get your business into trouble with the Canadian authorities? Could these intermediaries offer bribes to foreign public officials in order to increase their business (to make more money from you)? How are you protecting against this type of activity?
  14. How are you paid (or how will you pay) and in what currency?  Are the banks and financial institutions subject to Canadian economic sanctions?  Do the transactions go through another country that imposes economic sanctions?  Are the transactions in a foreign currency (such as United States dollars) that may be transferred through a foreign financial institution?
  15. How do you pay your agents and representatives?  Is it is cash (do you know where the money goes)? Is there a large upfront payment or budget? Is it a percentage commission of what is sold (so there is an incentive to bribe foreign public officials)?  Does the name on bank accounts match the name of the person you are paying?  Is there something unusual about the payments? Do you have a formal agreement that clearly sets out responsibilities and obligations?
  16. How is your compliance? What are you doing in terms of due diligence?  Do you conduct periodic reviews of your compliance to ensure everything is working?  Do you conduct training? Do you use end-use certificates and due diligence checklists?
  17. When was the last time you reviewed recent developments?  See Canada Has Made Important Changes To The Export Control List And Export Controls Guide: It is Time To Update Company Export Controls
  18. Do you know what paperwork you must file when goods are exported or imported? For example, do you have to notify the CBSA about the export of the goods?  What is the value of the goods to be shipped?  See Checklist for Exporting Commercial Goods From Canada
  19. Can you find all the relevant paperwork for a particular transaction quickly?  If you cannot find documents, you may not be able to respond to governmental authorities? If you cannot find documents, documents may be missing for a reason (that is to cover-up wrongdoing).
  20. Who do you trust?  Have you retained a trusted legal advisor who is ready to assist if you are faced with time-sensitive government requests for information?  This cost effective step could make the difference between a seamless and effective response and a costly, reputation damaging, operation stopping regulatory non-compliance issue.

An effective compliance program requires that you ask the hard questions and find that the answers are satisfactory.  If you cannot answer a question and have no process to answer questions, you will have problems when questions are raised. The enforcement officials will not accept that “I never considered this” to be the appropriate answer to a possible breach of Canada’s laws.

For more information about compliance or to request assistance in developing a compliance program, please contract Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com or Heather Innes at 416-350-1234 or at heather@lexsage.com.

Canada Announces Canada-EU CETA Cheese Quota Rules

Posted in Agriculture, Canada's Federal Government, Canada-EU CETA, Cross-border deals, Cross-border trade, Customs Law, Imports Restrictions, origin

Retailers, distributors, restaurants, domestic producers and others have been anxiously awaiting the Government of Canada’s announcement on the process for Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) cheese quota.  The Canada-EU CETA was originally to be provisionally implemented on July 1, 2017 and this start date was delayed due to a disagreement over Canada’s proposed approach to the allocation of the Canada-EU CETA cheese quota. The provisional implementation date is now scheduled to be September 21, 2017 (barring any new obstacles).

On August 1, 2017, the Government of Canada announced the “Opening of the application period for the new [CETA] tariff rate quotas (TRQ) for cheese” and Notice to Importers, SER No. 895 (August 1, 2017) “CETA Cheese Tariff Rate Quota” and Notice to Importers, SER No. 896 (August 1, 2017) “CETA Industrial Cheese Tariff Rate Quota”.  These documents set out Canada’s process to allocate the hard negotiated new/additional EU cheese quota (that is new cheese quota over what is already available). It is not known whether the European Union is happy with the allocation method.  If not, this may be the first dispute under the Canada-EU CETA.

The CETA cheese quota process favours domestic manufacturers (many located in Quebec) and small to medium sized enterprises.  It cannot be said with certainty whether the entire new EU CETA cheese quota will find its way to the eager tummies of Canadians. Before the cheese can arrive, there is a new process for the allocation of the CETA cheese quota to quota holders that must take place. Whether the EU will be upset will depend in large part on how the CETA cheese quota process runs and who gets the allocations on October 2, 2017 and subsequent years.

The Canadian CETA cheese quota rules announced today include:

  1. Imports of cheese into Canada are subject to import controls under the Export and Import Permits Act and Import Control List.
  2. Importers who obtain tariff rate quota will be able to import EU-origin cheese duty-free.  Non-EU-origin cheeses (e.g., Swiss cheese or American cheese) cannot be imported under this process.
  3. Global Affairs Canada will oversee the process to allocate tariff rate quota for EU cheese and the issuance of specific import permits.
  4. Any person who receives tariff rate quota must apply for and obtain a specific import permit for the cheese to be imported. The import permit will require information about the exact quantity of cheese being imported in the shipment.
  5. The Canada-EU CETA contains rules of origin for cheese.  The cheese must originate in the EU (according to the Canada-EU CETA rules of origin) in order to qualify under the EU cheese quota.  Rules of origin are based on H.S. classification numbers.  One of the rules of origin for cheese is:

    “A change from any other chapter, except from dairy preparations of subheading 1901.90 containing more than 10 per cent by dry weight of milk solids, provided that:
    (a) all the material of Chapter 4 used is wholly obtained, and
    (b) the net weight of non-originating sugar used in production does not exceed 20 per cent of the net weight of the product.”

    Check the specific rules of origin for the type of cheese you wish to import.

  6. The new EU cheese tariff rate quotas will normally extend from January 1 to December 31 inclusive. However, since the agreement is being been provisionally applied as of September 21, the quantity available to allocate under each TRQ (that is, (1) High Quality Cheese/Producer/Distributor/Retailer TRQ and (2) Industrial Cheese/Further Producers TRQ) in 2017 will be prorated on the basis of the number of days remaining in the year.
  7. Global Affairs Canada has established a process to apply for CETA cheese quota.
  8. The application deadline for 2017 CETA cheese quota is September 8, 2017. The application form can be found on the Global Affairs website.  A sworn affidavit and a letter from an independent qualified professional must accompany the application. In addition, the applicant must provide a monthly breakdown of their activities in the cheese sector.
  9. The applications must be sent to Global Affairs Canada.
  10. The 2017 CETA cheese quota allocations will be announced on October 2, 2017.
  11. Immediately after the 2017 CETA cheese quota is announced, the allocation process for 2018 CETA cheese quota will commence. The application deadline for 2018 CETA cheese quota is October 2, 2017.
  12. Global Affairs Canada will look at activity in the October 1 to September 30 period each year when deciding to allocate CETA cheese quota.
  13. There are two categories of cheese TRQs: (1) High Quality cheese; and (2) Industrial cheese.
  14. Failure by an applicant to provide any information requested by Global Affairs Canada, or failure to comply with any condition of an allocation or permit issued pursuant to the EIPA, may result in the rejection of the application for an allocation under the CETA cheese TRQ, the reduction or cancellation of an allocation issued pursuant to the EIPA, or the cancellation of associated permits.
  15. High quality cheese covers cheese included in Items 141 to 157 on the Import Control List.
  16. The access quantity for the CETA high quality cheese TRQ will be phased in over five years, in six installments:
2017 745,299 kilograms The amount of 2,667,000 has been prorated for September 21 – December 31
2018 5,333,000 kilograms
2019 8,000,000 kilograms
2020 10,667,000 kilograms
2021 13,333,000 kilograms
2022 and after 16,000,000 kilograms

17. The TRQ allocation method allows for new entrants each year. “New Entrant” means:

“For the first five years following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s cheese TRQ under the World Trade Organization (WTO).

As of Year six following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s WTO cheese TRQ or did not receive an allocation of the TRQs established under CETA in the preceding yearA new entrant keeps this status for 3 years.”

18. During the phase-in period from 2017 to 2021, at least 30 percent of the TRQ will be available to new entrants every year. After the end of the phase-in period from 2022 and in subsequent years, at least 10 percent of the TRQ quantity will be available for new entrants. As a result, the new entrants quota for High Quality Cheese is as follows:

 

2017 223,589 kilograms
2018 1,599,000 kilograms
2019 2,400,000 kilograms
2020 3,200,100 kilograms
2021 3,999,900 kilograms
2022 and after 1,600,000 kilograms

 

  1. This means that 70% of the CETA High Quality cheese quota will go to existing cheese quota holders.
  2. CETA High Quality Cheese quota will be allocated between two groups: (1) Cheese manufacturers (an establishment that manufactures cheese in its own provincially-licensed or federally-registered facility. “Small/medium-sized Cheese Manufacturer” means a cheese manufacturer whose annual use of milk for cheese production is 50,000,000 litres or less); and (2) Distributors (an establishment that buys cheese and resells it to other businesses) and retailers (establishment that buys cheese and sells it directly to final consumers).
  3. Global Affairs Canada will allocate CETA High Quality Cheese quota as follows: (1) 50% to cheese manufacturers group; (2) 50% to distributors and retailers group, (3) 30% to small and medium sized enterprises (an eligible applicant whose allocation under its group and pool would amount to less than 20,000 kilograms); and (4) 20% to large distributors and retailers.
  4. The amounts to be allocated are:

 

Cheese Manufacturers Large Distributors and Retailers Small and Medium Distributors and Retailers
2017 372,650 kilograms 149,060 kilograms 223,590 kilograms
2018 2,666,500 kilograms 1,066,600 kilograms 1,599,900 kilograms
2019 4,000,000 kilograms 1,600,000 kilograms 2,400,000 kilograms
2020 5,333,500 kilograms 2,133,400 kilograms 3,200,100 kilograms
2021 6,666,500 kilograms 2,666,600 kilograms 3,999,900 kilograms
2022 and after 8,000,000 kilograms 3,200,000 kilograms 4,800,000 kilograms

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The Canada-Ukraine Free Trade Agreement Is Now In Effect: What Questions Should Importers/Exporters Ask?

Posted in Uncategorized

On August 1, 2017, the Canada-Ukraine Free Trade Agreement (“CUFTA”) enters into effect. The CUFTA is a trade in goods agreement (that is, it does not cover services and investment). Canada has agreed to reduce most customs duty rates to “free” or 0% immediately upon implementation on goods that meet the rules of origin.  Pursuant to Chapter 2 of the Canada-Ukraine FTA, each party shall reduce or eliminate customs duties on goods originating in either party in accordance with the tariff elimination schedules in Annex 2-B.  In Article 1 of Annex 2-B, Canada agrees to eliminate customs duties on all goods in Chapters 1-97 of the Harmonized System that provides for Most-Favoured-Nation rate of duty, with the exception of any goods Canada has listed in Annex 2-B (which is a short list).  We have prepared a chart that sets out H.S. Chapters and which Chapters become duty-free immediately upon implementation.

Some of the Ukraine-origin goods that Canadian importers may look forward to importing on a duty free basis are:

  • Ukrainian beer;
  • Ukrainian vodka;
  • Ukrainian chocolate;
  • Pysanka/pysanky;
  • Table cloths;
  • Ceramics;
  • Clothes;
  • Toys;
  • Copper; and
  • Walking sticks.

Some of the Canadian-origin goods that Canadian exporters may look forward to exporting are:

  • grain,
  • canola;
  • beef,
  • pork;
  • fish;
  • wines/ice wines;
  • maple syrup;
  • softwood lumber;
  • animal feed;
  • medications;
  • cosmetics and skin care;
  • cars;
  • mining equipment;
  • semi-trailers;
  • air compressors;
  • tires;
  • asphalt;
  • plastics; and
  • etc.

The rules of origin in CUFTA are important in determining whether a good is Ukraine-origin or Canadian origin.  Just because a good is shipped from Ukraine does not mean that it is originating for the purposes of the CUFTA.  It is necessary to carefully review Chapter 3 of the CUFTA regarding rules of origin and origin procedures.

Another area where there may be significant business between Ukraine and Canada is in the area of e-commerce.  Chapter 8 of CUFTA addresses e-commerce.  Canada and Ukraine have both agreed to not apply a customs duty, fee or charge on a product delivered electronically (which is defined to mean “delivered through telecommunications, alone or in conjunction with other information and communication technologies”).

What questions should Canadian importers be asking prior to exporting to Ukraine?

Canadian importers should get ready to take advantage of the CUFTA benefits. It is time to start asking questions, such as:

  1. What goods do I currently import from Ukraine?
  2. What new goods would I like to import from Ukraine?
  3. Do those goods that I currently import or would like to import from Ukraine meet the rules of origin in the CUFTA?
  4. What is the H.S. classification of the good to be imported from Ukraine? (You need the answer to this question in order to review Canada’s commitments for duty elimination/duty reduction)?
  5. Are the goods that I import/wish to import within Canada’s Schedule of duty elimination/duty reductions commitments in CUFTA? (If the answer is yes, then the goods may not be duty free immediately, if the answer is no, you still must ask questions about origin before knowing if the goods are duty-free immediately upon implementation)
  6. What is the rule of origin in CUFTA applicable to that good based on that H.S. classification number?
  7. Do the goods originate in Ukraine according to the CUFTA rules of origin? (you may need more information or assistance from customs counsel to answer this question)
  8. What is the applicable duty rate of the goods?
  9. Who within my organization must update computerized records and databases so that customs documentation will be correct after provisional implementation?
  10. What changes need to be made within our computerized record keeping programs and databases?
  11. Has there been a meeting with the customs broker and freight forwarded to make sure that they have updated computerized records and databases?
  12. Do I have the necessary Certifications of Origin from suppliers of Ukrainian-origin goods?
  13. What is the value for duty for customs purposes of the goods to be imported? (This would be a good time to revisit the issue and consider whether kits comprise Ukrainian-origin goods and non-Ukraine origin goods)?
  14. What documentation do I need before I can import this good?
  15. Do I require other governmental certification approvals for the goods I import/plan to import from Ukraine?
  16. Are there any sanitary or phyto-sanitary requirements?
  17. Are there any Canadian labelling or marking requirements for the goods?
  18. What record keeping requirement do I have to implement under Canadian law to maintain CUFTA benefits that I claim?
  19. Do I require quota to import the goods?
  20. Are the goods subject to antidumping or countervailing duties (applies to some steel products)?
  21. Are any of the persons with whom I want to do business subject to economic sanctions pursuant to the Special Economic Measures (Ukraine) Regulations?
  22. Are there other restrictions on doing business with Ukraine (including Crimea) pursuant to the Special Economic Measures (Ukraine) Regulations?

There are many other important questions to ask – hopefully this gets you started asking questions.

What questions should Canadian importers be asking prior to exporting to Ukraine?

Canadian exporters should get ready to take advantage of the CUFTA benefits. It is time to start asking questions, such as:

  1. Are any of the persons with whom I want to do business subject to economic sanctions pursuant to the Special Economic Measures (Ukraine) Regulations?
  2. Are there other restrictions on doing business with Ukraine (including Crimea) pursuant to the Special Economic Measures (Ukraine) Regulations?
  3. Are the goods that I wish to sell to Ukraine likely to be re-exported to Russia?
  4. Can I get an end-use certificate setting out who is buying the goods, where the goods will be used and for what purpose the goods will be used?
  5. What goods do I currently export to Ukraine?
  6. What new goods would I like to export to Ukraine?
  7. Do those goods that I currently export to or would like to export to Ukraine meet the rules of origin in the CUFTA?
  8. Do the goods have U.S-origin components? Do I need an export permit to export the goods to Ukraine?
  9. What is the H.S. classification of the good to be exported to Ukraine?
  10. Are the goods that I export/wish to export within Ukraine’s Schedule of duty elimination/duty reductions commitments in CUFTA?
  11. What is the rule of origin in CUFTA applicable to that good based on that H.S. classification number?
  12. Do the goods originate in Canada according to the CUFTA rules of origin? (you may need more information or assistance from customs counsel to answer this question)
  13. What is the applicable duty rate of the goods?
  14. Who within my organization must update computerized records and databases so that customs documentation will be correct after provisional implementation?
  15. Do I need to provide an export declaration to the Canada Border Services Agency when I sell to Ukraine?
  16. What changes need to be made within our computerized record keeping programs and databases?
  17. Has there been a meeting with the customs broker and freight forwarded to make sure that they have updated computerized records and databases?
  18. Can I make the necessary Certifications of Origin or get certifications of origin if I am a resupplier?
  19. What is the value for duty for customs purposes of the goods to be exported?
  20. What documentation do I need before I can export this good?
  21. What record keeping requirement do I have to implement under Canadian law to maintain CUFTA benefits that I claim?
  22. Are the goods subject to a quota restriction in Ukraine?

There are many other important questions to ask – hopefully this gets you started asking questions.

What questions should Ukrainian exporters be asking prior to exporting to Canada?

  1. Are the goods that I want to export to Canada originating in Ukraine according to CUFTA rules of origin?
  2. Can I provide a certification of origin with respect to the goods?
  3. What is the tariff classification number under Canada’s Customs Tariff for the goods I will ship to Canada?
  4. Do I have to register for Canadian GST/HST purposes?
  5. Do I have to register to collect any provincial sales taxes (will I sell into British Columbia, Manitoba or Saskatchewan)?
  6. What Incoterm should I use with respect to shipments to Canada (if I do not want to get into the Canadian tax system)?
  7. Do my goods meet Canada’s regulatory standards or do my goods meet mutual recognition requirements in the CUFTA?
  8. Do I need testing certificates or are the standards certified by the manufacturer?
  9. Do my goods meet Canada’s labeling requirements?
  10. What paperwork is required for the importer to easily import the goods into Canada?
  11. Does Canada impose any import restrictions with respect to the goods?
  12. What do I need to do to ensure that the Canada Border Services Agency will release the goods in a timely manner?
  13. What is the Partners in Protection Program? Are there steps I can take to become an approved exporter in a FAST program so my goods will be considered to be low risk?
  14. What volume of goods do I expect to export to Canada – should I operate in Canada via a branch office or a Canadian subsidiary?
  15. Are there Canadian income tax consequences to my normal way of selling into markets?
  16. Should I register my trademarks in Canada?
  17. How can I protect my intellectual property in Canada?
  18. Do Canada’s consumer protection laws apply to my goods?
  19. What reporting requirements are there for goods in Canada with respect to recalls in Canada and outside Canada?
  20. Will sales representatives who wish to travel to Canada need to obtain a visa?

There are many other important questions to ask – hopefully this gets you started asking questions.

If you require further information, please contact Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com.  There are many other articles posted about the Canada-EU CETA on the LexSage website.

Canada Commences Review Of Carbon Welded Steel Pipe Order After WTO DSB Panel Report

Posted in Antidumping, World Trade Organization

In December 2016, Canada lost a World Trade Organization (“WTO”) dispute (Canada – Anti-Dumping Measures on Imports of Certain Carbon Steel Welded Pipe from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (DS482)) concerning the Canadian International Trade Tribunal injury determination in the Carbon Steel Welded Pipe case NQ-2012-003 (which involved Chinese Taipei, the Republic of India, the Sultanate of Oman, the Republic of Korea, Thailand, the Republic of Turkey and the United Arab Emirates and the subsidizing of carbon steel welded pipe originating in or exported from the Republic of India, the Sultanate of Oman and the United Arab Emirates).

On July 21, 2017, pursuant to paragraph 76.1(1)(b) of the Special Import Measures Act, the Minister of Finance asked the Canada Border Services Agency (“CBSA”) and the  Canadian International Trade Tribunal (the Tribunal) to review its finding of December 11, 2012, in Inquiry No. NQ-2012-003, that certain carbon steel welded pipe originating in or exported from Chinese Taipei was threatening to cause injury to the domestic industry having regard to the WTO panel report. This request was not published online by the Minister of Finance and as a result, parties were not given an opportunity to comment.

It is unclear why the Minister of Finance isolated the request to only Chinese Taipei when a producer in the United Arab Emirates (Conares) also achieved a 0% dumping margin in the original dumping investigation.  The WTO case was brought by Chinese Taipei and the United Arab Emirates was a third party who participated in the WTO DSB process, the WTO DSB Panel Report analysis would also apply to Conares.

On July 28, 2017, the CBSA issued a Notice initiating a review of the final determination of dumping with respect to certain Carbon Steel Welded Pipe originating in or exported from Chinese Taipei. The CBSA will conclude its review by September 29, 2017. The CITT will then conduct a review of its threat of injury finding.  The CBSA schedule is as follows:

August 22, 2017 – Submissions are due from all parties

September 5, 2017 – Reply Submissions are due from all parties

September 29, 2017 – The CBSA will issue its decision

On July 28,2017, the CITT commenced a review of the injury decision (NQ-2012-003R) as requested by the Minister of Finance. The Schedule for the review is as follows:

August 25, 2017 – Notices of Participation are due

October 10, 2017 – The CITT will distribute the Investigation Report

October 24, 3017 by noon – Submissions from all parties are due

November 3, 2017 by noon – Reply Submissions from all parties are due

December 8, 2017 – CITT Decision will be released

On July 28, 2017, the CITT also issued an LE Notice regarding the Carbon Steel Welded Pipe case (NQ-2012-003) asking if an expiry review should be conducted.  Since it is a steel case, an expiry review will undoubtedly be determined to be necessary.  The Schedule for the LE review is as follows:

August 25, 2017 – Notices of Participation are due

October 10, 2017 – The CITT will distribute the List of Participants

October 24, 3017 by noon – Submissions from parties opposing an expiry review (usually importers and foreign producers/exporters, and users of carbon steel welded pipe) are due – Submissions should include concise argument and supporting evidence concerning:

  • the likelihood of continued or resumed dumping and subsidizing of the goods;
  • the likely volume and price ranges of dumped and subsidized imports if dumping and subsidizing were to continue or resume;
  • the domestic industry’s recent performance, including supporting data and statistics showing trends in production, sales, market share, domestic prices, costs and profits;
  • the likelihood of injury to the domestic industry if the finding were allowed to expire, having regard to the anticipated effects of a continuation or resumption of dumped and subsidized imports on the industry’s future performance;
  • any other developments affecting, or likely to affect, the performance of the domestic industry;
  • changes in circumstances, domestically or internationally, including changes in the supply of or demand for the goods, and changes in trends in, and sources of, imports into Canada; and
  • any other matter that is relevant.

November 3, 2017 by noon – Submissions from parties supporting an expiry review (domestic industry) are due

December 8, 2017 – CITT Decision will be released

The expiry review process will occur in 2018 with a decision expected in November or December 2018.

For more information about Canada’s expiry review process or the current reviews, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  It should be noted that Cyndee Todgham Cherniak represented Conares in NQ-2012-003 and the CBSA dumping investigation during which Conares received a 0% dumping margin.

 

Could U.S. Sanctions Against China Affect Canadian Companies?

Posted in Export Controls & Economic Sanctions, U.S. Federal Government

There are news reports that President Trump is considering imposing economic sanctions against China.  U.S. Ambassador to the United Nations Nikki Haley made comments that suggest that sanctions are on the horizon (not quite imminent, but no longer unrealistic).

If the United States imposes economic sanctions against China in response to the perceived/real lack of action curtailing the intercontinental ballistic missile testing by North Korea, Canadian companies (and in particular, Canadian corporations with U.S. ownership or U.S. affiliates who are seeking business opportunities in China) would in all likelihood be impacted.  Even though Canada is a separate country from the United States (no, Canada is not another U.S. state), U.S. economic sanctions laws have extra-territorial application.  A Canadian business that breaches U.S. law (and, in certain cases, individuals who are the officers, directors, shareholders and management) could be the subject of a prosecution in the United States.  For this reason, Canadian companies should not ignore what may happen in the United States and Canadian companies may have to quickly adjust compliance programs and business activities.

Further, Canadian companies should be asking the Government of Canada to do all that it can to ensure that any U.S. shot at China does not hit Canadian businesses and individuals.  Add this to the list of important trade issues to discuss with the United States.

Due to the significant trade Canadian businesses have with China, these new economic sanctions may be the most difficult for Canadian companies to live with.  With the exception of Cuba, most countries against which the United States has imposed unilateral sanctions are not countries with which Canada has significant business ties.  Canada has imposed unilateral sanctions against many of the same countries against which the United States has imposed unilateral economic sanctions. Again, with the exception of Cuba, this will be a case where Canada and the United States are not on the same page.

It is likely that the United States would impose targeted economic sanctions against Chinese entities identified by the United Nations, the United States and others as fronts for North Korean entities through which prohibited and restricted goods are acquired.  It is also likely that the United States would impose targeted economic sanctions against certain Chinese financial institutions who lend funds to the North Korean government and North Korean businesses.  It is possible that Canadian businesses do business with the persons to be designated.

If the United States imposes broad restrictions on financial transactions, this could have a significant impact on Canadian businesses who transact business with China in United States dollars (USD).  Most Canadian businesses buy goods from China and sell goods to China using USD as the currency for the transaction.  Most USD transactions flow through U.S. financial institutions, which will incorporate the new sanctions into their compliance programs.  Any effect of U.S. sanctions on money flows and payment flows would pose significant challenges for Canadian businesses.

If the United States targets particular Chinese business segments (e.g., defence industries), it is possible that Canadian export controls under item 5400 might be affected (slowed down due to the need to obtain U.S. permits and permissions).  The level of impact on Canadian businesses would exponentially increase.

If the United States targets any Chinese government entities or state-owned-enterprises, there could be a spin-off effect on Canadian businesses doing business with those same entities. The level of impact on Canadian businesses would exponentially increase and become more political in nature.

U.S. sanctions may be imposed at a time when Canada is discussing a free trade agreement with China.  At a time when Canadian trade is increasing, the United States may put up hurdles that Canadian companies will have to get over.

Since Canadian politicians may not be able to prevent U.S. economic sanctions against China from being implemented, it is possible that Canada will take steps that it may take under Canadian law. If Canada issues an order pursuant to the Foreign Extraterritorial Measures Act (“FEMA”) to block the US-China sanctions that extraterritorially apply to Canadian companies and nationals, this too would have an impact on Canadian businesses. FEMA was enacted to effectively block U.S. extra-territorial sanctions against Cuba.  FEMA makes it illegal in Canada to comply with specific U.S. sanctions and imposes a requirement of reporting to the Attorney general of Canada instructions to comply with specific U.S. sanctions.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Canadian Government Export Controls Policies Under A Microscope

Posted in Aerospace & Defence, Border Security, Canada's Federal Government, Cross-border deals, Cross-border trade, Export Controls & Economic Sanctions, Exports, Politics

On July 28, 2017, Global Affairs Canada issued a statement of concern relating to escalating violence in eastern Saudi Arabia. In the Statement entitled “Canada concerned by escalating tensions in eastern Saudi Arabia”, Global Affairs stated:

“Canada is concerned by the escalating violence in eastern Saudi Arabia, which has resulted in civilian and security force casualties. We recognize that Saudi Arabia faces security challenges, but we urge local authorities to work with all communities to defuse tensions. All such challenges must be addressed in a manner that abides by international human rights law.

“In light of recent executions and the decision of the supreme court of Saudi Arabia to uphold the death sentences of 14 individuals, Canada reiterates its firm opposition to the death penalty, in all cases, everywhere.

“Canada will continue to closely monitor the situation. Canadians expecting to travel to the region are advised to check Travel Advice and Advisories (www.Travel.gc.ca) for the latest information.”

The words and phrases “Saudi Arabia” and “civilian casualties” and “human rights laws” were enough to trigger renewed questions about the Government of Canada’s export controls polices and approvals of export permits for certain military equipment and technology to certain countries.  The current situation in Saudi Arabia should bring to mind concerns raised only a year ago about whether Canada should approve export permits for military goods and technology destined for use in Saudi Arabia due to the human rights record of the Kingdom of Saudi Arabia.

Last year, Professor Turp commenced a judicial review of the minister of Foreign Affairs’ approval of export permits to Saudi Arabia and attempted to halt the sale of certain General Dynamics Land Systems Canada light armoured vehicles (LAVs) (see Turp v. Minister of Foreign Affairs, 2017 FC 84).  The Court ultimately dismissed the application for judicial review on the grounds that the Minister has legal authority to issue the permits and had reasonably considered the relevant facts.  We wrote an article about the Federal Court of Canada decision in Turp earlier this year – See Canada’s Minister of Foreign Affairs Has Broad Export Controls Discretion Says Federal Court.

In 2016, Global Affairs posted a March 21, 2016 “Secret” Memorandum for Action to the Minister of Foreign Affairs regarding the sale of light armoured vehicles to Saudi Arabia.  It was posted on the Global Affairs Canada web-site along with an April 11, 2016 Notice.  The Memorandum is significant because it sets out the Canadian process for reviewing politically sensitive export permits, such as those relating to LAV sales to Saudi Arabia.

Fast forward to today.  It should have been expected that reporters and Amnesty International Canada (and other public interest or activist organizations) would raise questions about sales of Canadian goods to Saudi Arabia as soon as the news of the violence in eastern Saudi Arabia broke. Where any Canadian goods used by Saudi Arabia against its own citizens during the current violence?  Is there news media of the government actions and what does the video, footage or photos indicate?  Is there a Canada connection – because you cannot do anything after the goods have been sold and exported to Saudi Arabia?

Steven Chase is a reporter who has followed this issue closely for Canada’s Globe and Mail newspaper.  I have spoken to Steven Chase in the past about Canada’s export controls laws. I expected to see Steven Chase asking all the right questions of all the right people.  On July 28, 2017, Steven Chase and Robert Fife published an online article entitled “Ottawa calls for investigation into Saudi Arabia’s apparent use of Canadian-made armoured vehicles against citizens” in which they detail their investigation into the use of Canadian made LAVs and the government’s statements in response to facts uncovered. Steven Chase and Robert Fife write:

“Military equipment experts consulted by The Globe identified the machines appearing in these videos and photos as Gurkha RPVs, produced by Terradyne Armored Vehicles in Newmarket, Ont., just north of Toronto.”

Steven Chase and Robert Fife went straight to the office of Canada’s Minister of Foreign Affairs and were informed that:

“The government is actively seeking more information about Saudi Arabia’s current efforts to deal with its security challenges, the reports of civilian casualties, and the reports that Canadian-made vehicles have been used by Saudi Arabia in its current security operations,” … “Canada will review all available information as it determines an appropriate course of action.”

Canada’s CBC is also covering this story.  Levon Sevunts published an online article entitled “Ottawa ready to review Saudi arms deal amid crackdown” in which he writes about the following statements made by Global Affairs spokesperson John Babcock:

  • “Minister of Foreign Affairs Chrystia Freeland is “deeply concerned about this situation and has asked officials to review it immediately.”
  • “If it is found that Canadian exports have been used to commit serious violations of human rights, the minister will take action.”
  • “The end use and end user of exports, as well as regional stability and human rights, are essential considerations in the authorization of permits for the export of military goods from Canada.”
  • “The government has expressed its concerns to the Kingdom of Saudi Arabia that its internal security operations be conducted in a manner consistent with international human rights law.”

Canadian aerospace and defence companies should expect changes to Canada’s export controls policies relating to military equipment relating to sales to Saudi Arabia and other countries with human rights abuse concerns.  The human rights record of a government is a consideration (behind the scenes) at Global Affairs Canada, Export Controls Division, when reviewing export permit applications.  Most, if not all, exports of military equipment require an export permit be obtained prior to the export of the goods and technology.  As is set out in great detail in the Memorandum, exports permit applications are reviewed by a number of Canadian government departments and political cases end up on the Minister’s desk (with a research memo and recommendations attached).

There are questions whether foreign subsidiaries or sister companies of Canadian companies are restricted by Canada’s Export and Import Permits Act (the legislation setting out Canada’s export prohibitions and requirements to obtain an export permit).  Changes to Canada’s export controls laws are currently before the government.  See

What the news reports and scrutiny by human rights organizations tell Canadian export controls experts and Canadian companies who make and sell aerospace and defence equipment and technology is that the spotlight has a stronger light now (more than ever before).

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Canada’s Cabinet Can Impose Unilateral Economic Sanctions Against Venezuela Without Parliament Vote

Posted in Export Controls & Economic Sanctions, Exports

On July 26, 2017, Canada’s Minister of Foreign Affairs issued a Statement “Canada Calls on Venezuela to cancel Constituent Authority“.  The Statement contains two interesting sentences:

“Furthermore, Canada welcomes and supports the important actions taken today by the United States to target leaders of the regime. Individuals who are undermining democracy and human rights in Venezuela should be held accountable for their actions.”

On June 26, 2017, the United States imposed economic sanctions against 13 current and former members of Maduro’s administration, freezing their U.S. assets and barring Americans from doing business with them.  Does Minister Freeland’s Statement foretell of Canadian economic sanctions against Venezuelan officials?

It is possible.  Canada has enacted the Special Economic Measures Act, pursuant to which Canada imposes unilateral economic sanctions (multilateral economic sanctions implementing United Nations Security Council Resolutions are imposed pursuant to the United Nations Act).  Currently, Canada imposes multi-lateral sanctions pursuant to the United Nations Act against 12 countries (Central African Republic of Congo, Eritrea, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, South Sudan, Yemen) and Al Qaida/Taliban/Terrorist entities.  Canada imposes unilateral sanctions (somewhat coordinated with major trading partners) pursuant to the Special Economic Measures Act against 9 countries (Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan, Syria, Ukraine and Zimbabwe).  Venezuela is not on either sanctions list.

The country specific sanctions are contained in regulations promulgated by the Governor in Council (meaning the Cabinet).  Regulations are not passed by the Canadian Parliament like a statute.  Regulations are published in the Canada Gazette after being prepared by the Governor in Council.  Usually, a date is provided in the regulation stating when the regulation will come into effect. Through the issuance of regulations, the Government of Canada may impose restrictive measures and prohibitions on what are otherwise legitimate activities. Bank accounts can be frozen, financial dealings blocked and goods for export seized. Economic sanctions are imposed in the pursuit of foreign policy objectives related to international peace and security.

Given the regulatory structure, the Governor-in Council could promulgate the Special Economic Measures (Venezuela) Regulations at any time.  Canada imposes targeted unilateral sanctions that take many forms:

  • country-based or territory sanctions;
  • targeting individual or entity sanctions;
  • targeting a sector of government (e.g., nuclear or military) sanctions;
  • targeting sectors of the economy, including private business (e.g., financial sector, petroleum exploration and production, etc.); and
  • comprehensive embargoes.

That being said, there was a report in the Globe & Mail newspaper in an article written by Michelle Zillio entitled “Canada reviewing U.S. sanctions on 13 Venezuelan government officials” that Prime Minister Trudeau might be tapped as a mediator to their current crisis.  If that is a possibility, Canadian sanctions would be unlikely, because sanctions are a form of punishment for bad behaviour.  But, if a resolution does not seem possible and the Venezuelan people need a form of intervention to persuade the government to act better, then unilateral sanctions could apply pressure.

For more information about Canada’s economic sanctions laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com.  There are additional articles about Canada’s economic sanctions laws on the LexSage website.