Canada’s International Technology Transfer Restrictions

This article briefly discusses the legal framework in Canada relating to the export control of goods and technology. Parties should examine whether they are covered under any of the relevant Canadian export control restrictions and, if so, whether a permit can be obtained from the appropriate Canadian authority.

Continuing security concerns in North America in a post-9/11 environment have resulted not only in heightened scrutiny of individuals crossing boundaries, but also closer monitoring and control of the cross-border flow of goods, services and technology. As technology in particular becomes an increasingly important component of international business practices – for instance through cross-border licensing agreements and outsourcing contracts – it is important to keep in mind the regulatory restrictions that may apply to the export of technology.

The principal statute under which Canada imposes controls on the international transfer of goods is the Export and Import Permits Act (EIPA). The EIPA creates three lists that contain restrictions on imports and exports of goods: (i) the Export Control List; (ii) the Import List; and (iii) the Area Control List.

The Export Control List (ECL) requires a permit to be obtained if goods fall under any of the following eight groups of goods: (1) dual use goods; (2) munitions; (3) nuclear nonproliferation; (4) nuclear-related dual use; (5) miscellaneous; (6) missile technology regime; (7) chemical and biological weapons non-proliferation; and (8) chemicals for the production of illicit drugs.

Groups 1, 3, 4, 6 and 7 of the ECL cover strategic items which could contribute to chemical, biological and nuclear weapon proliferation as well as development of conventional weapons. Groups 2 and 6 contain goods defined as "controlled goods" under the Defence Production Act. The Controlled Goods Registration Programme (CGRP) requires companies or persons having access to "controlled goods", or who may possess, examine or transfer "controlled goods", to be registered under the CGRP. With respect to exports, a prerequisite for an export permit for "controlled goods" is that the exporter must be registered under the CGRP.

The items in Group 1 and Group 2 of the ECL, including the related technology, follow the list of items under the Lists of Dual Use Goods and Technologies, and Munitions List agreed to between countries as part of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement). Both Canada and the United States are participating States to the Wassenaar Arrangement. The Wassenaar Arrangement requires that participating States promote transparency and act responsibly regarding the export of conventional arms, and dual-use goods and technologies, and contains lists of goods, the export of which are to be regulated by the participating States.

The Import Control List contains a list of goods that require a permit to be obtained in order to be imported. The Import Control List currently covers certain guns and ammunitions, steel products, apparel products and other agricultural products. The Area Control List contains a list of countries to which export of any and all goods is restricted and requires a permit. Currently, Myanmar and Belarus are the only two countries on the Area Control List.

The export of certain "technology" is also covered under the ECL. "Technology" is defined as specific information necessary for the development, production or use of a controlled product. The information may take the form of technical data or technical assistance. "Technical data" in turn may take the form of blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, or manuals and instructions. "Technical assistance" may take the form of instruction, skills, training, working knowledge, and consulting services.

In general, the export of technology required for the "development", "production", or "use" of a product listed in one of the groups of the ECL is also covered by the ECL. For the purposes of Group 1 of the ECL, the relevant technology remains covered by the ECL even when applicable to any uncontrolled item. The export restrictions generally do not apply to technology which is the minimum necessary for the installation, operation, maintenance (checking) and repair of the items which are not covered by the ECL, or whose export has been authorized. In addition, the export controls do not apply to technology that is already in the public domain.

To provide an example of the operation of the ECL, one kind of technology that may be covered by the ECL and therefore prohibited from being exported without the requisite permits, is encryption (or cryptographic) technology. Encryption is a method of storing information in an unintelligible form that can only be accessed by the intended recipient. Cryptography, or data encryption, is an important part of maintaining the security of the data, and information technology products often contain encryption-related aspects. Encryption technology may be covered by the ECL because it is a dual-use technology that has both civilian and military applications. Group 1 of the ECL covers a number of products, such as computers and related equipment and software, and technologies, that use cryptography or perform cryptographic functions. At the same time, items that are generally made available to the public by being sold, without restriction, from retail outlets, and are designed for installation by the user without any further assistance from the supplier, and whose cryptographic functionality cannot easily be changed by the user, are excluded from the export restriction that applies to "information security" equipment, "software", systems, etc.

Thus, when a software or other product or technology that is to be exported from Canada contains elements relating to encryption, it is necessary to examine the implications under the ECL and determine whether a permit for exportation is required to be obtained from the Canadian Government.

As noted above, in situations where a product or technology is covered by the ECL, in order to export the product or technology, an export permit needs to be obtained. Export permits are of two kinds: (1) General Export Permits (GEPs) which authorize exportations of goods that would otherwise require an export permit thereby eliminating the need to obtain a specific export permit; and (2) individual export permits which an exporter needs to apply for and obtain in order to export a product or technology covered under the ECL.

The Canadian Government has issued a number of GEPs that apply to a range of products and situations. One of the most commonly used GEPs is GEP No. 12, "United States Origin Goods". GEP No. 12 applies to the export from Canada of any goods of United States origin as described in Group 5 of the ECL, but does not authorize exportation to any country listed in the Area Control List or to any of the following countries: Cuba; Democratic People’s Republic of [North] Korea; Iran; and Syria. By virtue of GEP No. 12, even though goods of United States origin are covered by the ECL, the export and re-export of most goods of United States origin is possible (other than to the enumerated destinations) without the need to obtain a specific permit. In addition, under a bilateral arrangement with the United States, export permits are not required for a majority of ECL items when shipped to a final destination and for end-use in the United States. However, if the ECL items are not for consumption in the United States but are only transiting the United States for export to other destinations, an export permit is required for all items based on the country of final destination.

An individual export permit may be obtained from the Export and Import Control Bureau of International Trade Canada through an application process. The application requires certain information about the exporter as well as the product to be provided. However, the procedure for different categories differs slightly. The processing time for an application may be as short as 10 business days but for certain items, such as military and strategic items, the processing time may extend to as much as six weeks or longer.

If a required permit is not presented, the Canada Border Service Agency may detain the relevant goods at the border. Furthermore, criminal and civil penalties are also possible for the violation of Canadian export control legislation and may include maximum fines of CAD 25,000 and up to one year imprisonment for less severe offences and up to 10 years in prison with no maximum fine for the most severe infractions.

Thus, one of the aspects that importers of goods and technology from Canada must consider is, whether the product or technology is covered by the ECL, and if so, whether the export permit has been obtained from the Export and Import Control Board or whether any existing General Export Permit or bilateral agreement applies to the product or technology under consideration that would eliminate the necessity to obtain a permit for the exportation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.