Canada: Frequently Asked Questions On International Transactions – A Regulatory View

Last Updated: October 17 2011
Article by Martin G. Masse and Thomas Slade

Q. What are some special considerations that must be taken into account when the international transaction involves the shipment of goods?

When counselling clients in cross-border transactions involving the international sale of goods, special attention must be taken to ensure that the goods are not subject to export control licences. In analysing the potential returns of a transaction, parties should be advised to take into account the impact of customs, anti-dumping and countervailing duties.

"Export controls" refers to the broad category of laws and regulations imposed by state government controlling the exports of certain sensitive goods. Controlled goods generally include defence articles and services by aerospace and defence industries. It also includes encryption and other products and technologies that could have both a military and non-military use (commonly referred to as "dual use" products and technologies). Export controls also refer broadly to the trade restrictions imposed by a country on exports to sanctioned countries or persons.

Until recently, companies involved in the international sale of products often discounted the importance of export controls on the belief that they only affected companies involved in weapons related goods and technology. That has changed. The range of export controls and economic sanctions has grown to capture the export of a wide range of dual use technology and products, including the extraterritorial transfer of sensitive technical data.

In the event that an international transaction involves the sale or transfer of specialized goods, equipment or technology, it is important to turn your mind to whether these might be subject to the export control laws of the state of the vendor/exporter. If they do, most jurisdictions will require that the exporter/vendor obtain an export license. In order to do so, most jurisdictions will require it to produce a credible certificate from its importer/purchaser that it will be the end user, and that it will not subsequently transfer the subject goods. Even with an end user certificate, an export license may still be refused if the export control regulator has reason to doubt the credibility of the purported end user.

Determining whether a good is subject to export controls is often not an easy proposition because it not uncommon for export controls regimes to be byzantine. In the US, for example, there are several different agencies administering and enforcing export controls (Bureau of Industry and Security, Directorate of Trade Control, Office of Foreign Assets Control, Commerce Department, State Department and Treasury Department) pursuant to a host of rules, statutes and other free standing regulatory instruments (including the Export Administration Regulations, International Traffic and Arms Regulation, Title 31 of the Code of Federal Regulations and Commerce Control List).

Getting the answer right is important. A breach of export controls regulations usually involves significant fines and potential criminal liability. Non-complying companies could also find themselves "debarred" and prevented from obtaining future export licences.

In addition to important export control questions, lawyers advising parties to international transactions involving the shipment of goods must also take into account customs duties. Customs duties are the duties and other trade restrictions imposed on the importation of foreign goods into a country. While multilateral and bilateral trade agreements have sought to reduce the scope and quantum of customs duties, it remains that customs duties can be significant, depending on the type of good, the country of import and the country of export.

It is important when advising clients to assess the potential impact of these duties on the importer of the goods (who is responsible for the payment of customs duties). In order to do so, the "origin" of the good must be established. The assessment of the country of origin of goods sounds simple enough, but in an era of diversified and complex supply chains, the assessment can be complicated and can involve the analysis of sophisticated trade agreements and domestic legislation. In addition to the origin of a good, the level of custom duty will depend on its classification (usually in relation to a tariff classification system in the country of import) and the valuation of the good for custom purposes. Again, the issues of classification and valuation can be quite tricky. Failure to get it right can add significant costs to the transaction.

In addition to the payment of custom duties, exporters and importers need to verify if goods are subject to anti-dumping and countervailing duties ("AD" and "CVD"). These are temporary duties imposed on specific goods from certain foreign states when they are found to be injuriously dumped or subsidized. The rate of AD and CVD can be quite high (sometimes more than 200% of the export price of a good) thus increasing the importance of determining whether such measures are in place in the country of importation in relation to the specific goods being shipped.

Customs regimes not only impose the payment of duties, they often include a requirement to pay administrative monetary penalties (AMPs) if customs declarations accompanying imported goods are improperly filled out. Again, these can be significant, particularly if mistakes have been widespread and over a long period of time. As a result, when an international transaction involves the acquisition of a foreign business, it is important to include, as part of the due diligence process, a review of the target company's import and export practices to ensure that there is no outstanding liability for export control violations, unpaid duty, or unpaid AMPs.

Q. How do I minimize the risk that an international transaction is sidelined by a foreign regulator?

In all commercial transactions, it is important to account for the possibility that a form of governmental approval or regulation critical to the deal may be required to give effect to all, or part of, the transaction. These regulatory approvals, which can include the grant of a specific licence to carry on the business contemplated in the deal, the authorization to conclude the transaction (particularly in the case of a foreign investment or takeover) or transfer an important asset, or the inspection and approval of imported products, can often only be obtained after a transaction is completed. As such, government approvals are not unlike a force majeure, because both have the potential to completely derail a transaction.

Given the potential impact of regulatory approvals, it is important to include a government approval clause in commercial agreements. When dealing with an international commercial arrangement, and the potential requirement to obtain of approval of an unfamiliar foreign government, it is even more important to have a properly crafted government approval clause.

To be effective, government approval clauses should, to the extent possible, identify the specific government approvals which will impact the transaction. The clause should identify the party or parties whose responsibility it is to bear the legal costs, filing costs and any other costs for obtaining the government approvals in question. The clause should identify the extent to which the parties must exercise best efforts to obtain the approval (for example, by negotiating changes to the structure of the agreement, or complying with information or inspection requests from regulators).

The clause should also identify the consequences of non approval. In particular, it should address whether parties are required to bring (and pay for) a legal challenge to a negative governmental decision. Ultimately, the governmental approval clause should specify the circumstances when the failure to obtain a specific governmental approval triggers the termination of the agreement. In some cases, the need for a regulatory approval may be so important to a transaction (particularly involving the acquisition of all, or part of, a foreign business) that it requires parties to hold separate their assets until such time as the approval is obtained, given the difficulties of trying to "unscramble the egg" after the fact.

Q. How do I protect my client in the event of non-performance or breach of an international contract?

Parties typically enter an agreement confident about the future of their business relationship. Notwithstanding this, it is essential that international commercial agreements contain clearly drafted dispute resolution and choice of law provisions. Without such clauses, a party to an international agreement could see its rights and obligations under the agreement defined in an unfamiliar foreign court based on unfamiliar foreign laws.

The most common approach to dispute resolution in international commercial agreements has been the inclusion of a mandatory arbitration clause, on the theory that it leads to a binding, quick and efficient result, in an informal, private process by a decision-maker who is an expert in the area at issue.

An arbitration clause can, and often does, form part of the international commercial agreement itself, though it can also be in a separate stand alone agreement. When the clause forms part of the agreement, it is "separable", that is to say that it is viewed as a distinct agreement, separate from the remainder of the agreement that survives if the agreement is terminated or rescinded.

In drafting the terms of the dispute resolution clause, parties should keep in mind the four essential functions of an arbitration clause:

  1. it must produce mandatory consequences for the parties;
  2. it must exclude the intervention of state courts in the settlement of the conflict, at least before an award is issued;
  3. it must empower the arbitrator to settle the dispute likely to arise between the parties; and
  4. it must allow for the most efficient and rapid procedure leading to an award that is judicially enforceable1. While these principles are helpful, they provide only a starting point for drafting an effective clause.

Arbitration clauses can be a basic, comprehensive or complex. A basic clause, which is usually used for routine commercial arrangements, will contain, at a minimum, a provision that makes clear that arbitration is the model to resolve disputes. It should also make clear that the arbitration is final and binding, which means that national courts should give effect to the arbitral award but that they cannot hear matters that are within the scope of the arbitration clause.

The basic clause should then also set out what is arbitrable. If the intention is to limit arbitration to the interpretation of the contract, this narrow scope should be set out. This is usually achieved by stipulating that only disputes "arising out of" an agreement are arbitrable. If, instead, the intent is to have the parties submit all disputes resulting from the business relationship, including tort claims, broader language indicating that all disputes "in any way related to" the agreement are arbitrable.

Finally, in a basic clause, the parties should determine whether the arbitration will be subject to an institutional process such as that administered by the International Chamber of Commerce ("ICC"), London Court of International Arbitration ("LCIA"), American Arbitration Association, ("AAA") or Stockholm Chamber of Commerce ("SCC"). The other alternative is to be subject to an ad hoc arbitration process. Choice of an institutional arbitration benefits from the availability of an institutional structure and pre-established and tested rules of procedure, but there are expensive fees to pay. Ad hoc arbitrations are cheaper but there no institutional quality controls. If opting for ad hoc, it is important to establish the applicable rules of procedure, (usually the ICSID rules, which are not tied to a specific arbitration institution). Otherwise, the procedural rules will be determined by the law of the country where the arbitration takes place.

Beyond these basic provisions, comprehensive arbitration clauses go further and deal with practical considerations such as the method of appointment and number of arbitrators, the location of the arbitration, the requirement that arbitrators be impartial and independent and that they have certain professional qualifications (if necessary). While the wording "final and binding" is usually sufficient to allow a Court to enter a judgment based on an arbitral award, it is useful to have a specific clause stipulating that courts can do so, particularly if enforcement in the U.S. is contemplated. Finally, the issue of costs and interest payable on arbitral awards can be spelled out.

Complex arbitration clauses may cover such additional issues as the rights to discover the other party, confidentiality of the documents and pleadings exchanged, and the procedure for multi-party arbitrations.

Distinct from the arbitration clause, which governs the who, how and where of arbitrations, an important element of the dispute resolution provisions of an international contract is the choice of law provision. The choice of law provision establishes the law which will be applied by the arbitrator in determining the substantive issues in dispute. Choice of law provisions work best when they simply and unequivocally state the governing law.

Q. How do I ensure that getting involved in an international arrangement does not expose my client to penalties under anti-corruption laws?

Despite all the recent attention to surrounding anti-bribery enforcement, anti-corruption legislation is not new. The U.S.'s Foreign Corrupt Practices Act (FCPA) is one of the oldest and the most known, mainly due to its far reaching impact. It prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the United States from corruptly paying or offering to pay, directly or indirectly, money or anything of value to a foreign official, a foreign political party or official, or a candidate for foreign political office for purposes of influencing any act or decision (including a decision not to act) of such official in his or her official capacity, inducing the official to do any act in violation of his or her lawful duty, or to secure any improper advantage in order to assist the payor in obtaining or retaining business for or with any person, or in directing business to any person.

The United States is far from alone in targeting corrupt practices. The UK Bribery Act came into force on July 1, 2011. The UK Bribery Act is stricter than its quarter-century old US counterpart, in that it reaches beyond dealings involving foreign officials and applies to conduct between private individuals and businesses. Also, those who accept bribes are equally liable as those who offer bribes. Unlike the FCPA, there is no exception for money paid to facilitate the performance by a foreign official of a routine government task.

Generally speaking, anti-bribery laws are meant to be given wide scope. The FCPA contains broad third-party payments provisions by which the actions of foreign subsidiaries and other third parties (such as agents, consultants, distributors, joint venture partners, etc.) can result in FCPA liability to a parent company or the entity engaging the third-party. In other words, companies are not immune from FCPA liability by doing business abroad through others. Moreover, the target of the payment need not be a government official. The FCPA has been applied recently to include state owned enterprises. Moreover, enforcement activities are not limited to dealings with officials in "third world" countries. Recent enforcement activities have focussed on emerging economies such as China.

Given this broad scope, companies dealing internationally should create or revise compliance programs and ensure foreign sales agents are properly trained to guard against corruption. To avoid a potential prosecution, businesses should continually review accounts for unusual payments, inflated invoices, high commissions, and general lack of transparency. Foreign sales agents should be monitored in practice and consideration should be given to the history of corruption in a country and the reputation of a particular consultant. When possible compliance problems are found, they should be reported to the appropriate regulator in order to attract leniency should penalties be assessed. Similarly, a whistleblower policy should be place to promote self-reporting within an organization.

In additional to internal measures, when a business enters into a relationship with a foreign party, the agreement should acknowledge the applicability of the appropriate anti-corruption law. These compliance representations should be put in all agreements, contracts and renewals of contracts with all foreign agents and distributors. Rights to conduct audits of the foreign party's books and records to ensure compliance with representations should also be included. Should a party breach anti-corruption laws, the non-offending party should ensure it has the right to terminate the business relationship. Care should also be taken at the outset to have pre-screening and due diligence procedures for foreign agents as well as a review of what is being done to maintain third-party relationships.

"La clause d'arbitrage pathologique", Commercial Arbitration Essays in Memoriam Eugenio Minoli, U.T.E.T. 1974 at 130 as cited in Robert M. Nelson, Nelson on ADR (Carswell 2003).

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2011 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Martin G. Masse
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.