Yesterday, Foreign Affairs and International Trade Canada's
Export Controls Division (ECD) launched its "Consultation on
the International Interpretations of the Wassenaar Arrangement
Cryptography Note by Wassenaar Arrangement Participating
States." These consultations will be of particular
significance for companies engaged in the export or transfer from
Canada of encryption goods, software or technology or items that
have been designed or modified to use or work with encryption.
Encryption controls have been a challenge for many Canadian
software and hardware vendors. Category 5 — Part 2 of
Canada's Export Control List identifies information
security items that require a permit in order to be exported from
Canada to destinations other than the United States. Because the
threshold for control is very low — key lengths in excess
of 64 bits (in the case of symmetric algorithms) — many
vendors have been surprised to learn that the export or transfer of
their encryption goods and technology requires a permit before
shipment to their foreign customers. Often, they first discover
this when the Canada Border Services Agency detains these goods
just prior to export. Failure to obtain a permit prior to exporting
or transferring controlled goods or technology can attract
Mass Market Exemption
Many vendors who may be aware of the encryption controls are of
the view that they qualify for an exemption because the encryption
functionality of their product is based on open source, publicly
available encryption libraries or because their product or
technology is "mass market." With regard to this latter
basis, the ECL's Cryptography Note provides an exemption for
encryption items if they meet all of the following
they are generally available to the public by being sold,
without restriction, from stock at retail selling points by means
of over-the-counter transactions, mail order transactions,
electronic transactions, or telephone call transactions;
their cryptographic functionality cannot be easily changed by
they are designed for installation by the user without further
substantial support by the supplier; and
when necessary, details of the items are accessible, and will
be provided, upon request, to Canadian authorities in order to
ascertain compliance with the above conditions.
These encryption controls and exemptions are based on the 1996
Wassenaar Arrangement on Export Controls for Conventional Arms
and Dual-Use Goods and Technology agreed to by Canada, the
United States, and 38 other Participating States. These
requirements are incorporated into the domestic laws of
Participating States and then subject to the interpretation and
enforcement policies of each state.
Contrast With U.S. Interpretation
In the past, the ECD has narrowly interpreted this exemption in
many cases to be restricted to retail transactions with consumers.
This is to be contrasted with the experience of many vendors in the
United States who appear to be able to qualify their encryption
items for the mass market exemption based on a broader
interpretation employed by the U.S. Department of Commerce under
the review procedures for mass market encryption commodities and
software set out in Section 742.15(b)(2) of the U.S. Export
Because of the administrative burden and delays imposed by
having to obtain permits prior to shipment of controlled goods or
transfers of related technology, and its impact on the just-in-time
business models employed by many, a more liberal interpretation of
the mass market exemption in the United States and other countries
can put Canadian software and hardware vendors at a competitive
disadvantage in their export markets.
The ECD's consultations have been launched with a view to
seeking input on the mass market exemption from Canadian companies
that have obtained either (i) a formal government ruling from the
United States or another Wassenaar Participating State in respect
of an item assessed as complying with its mass market exemption;
(ii) supplemental information issued by a Participating State's
export control authority clarifying any of the provisions of the
mass market exemption, including a presentation, briefing, or
correspondence issued by the government authority.
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