Canada Gazette, Part I, Volume 153, Number 11: Brokering Control List

March 16, 2019

Statutory authority

Export and Import Permits Act

Sponsoring department

Department of Foreign Affairs, Trade and Development

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Issues

The Government of Canada wishes to accede to the Arms Trade Treaty (ATT or the Treaty).

The ATT has its origins in the growing international concern about the direct and indirect consequences of the irresponsible arms trade. These consequences include increased conflict and instability, human rights abuses and negative impacts on socio-economic development, which run counter to Canadian foreign policy objectives. The Treaty came into force in December 2014. As of December 2018, the ATT counted 100 States Parties.

The ATT establishes standards for international trade in a broad range of conventional arms with the goal of ensuring that states have effective national systems to review and control arms trading, and thus provides an opportunity for Canada to further strengthen its export control regime. The full-system conventional arms over which the ATT requires reporting are defined in Article 2(1) as battle tanks; armoured combat vehicles; large-calibre artillery systems; combat aircraft; attack helicopters; warships; missiles and missile launchers; and small arms and light weapons. Article 10 of the ATT requires that each State Party take measures to regulate brokering taking place under its jurisdiction for the full-system conventional arms that fall under the scope of Article 2(1) of the Treaty.

On December 13, 2018, An Act to amend the Export and Import Permits Act (EIPA) and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments) [the Act] received royal assent. It not only amended the EIPA to establish controls over brokering in Canada, but also created a legal obligation for the Minister of Foreign Affairs to consider certain assessment criteria, such as human rights violations or terrorism, among others, before authorizing export and brokering permits. After the consideration of any mitigation measures, should there remain a substantial risk of these negative consequences, the Minister will be required to deny the permit.

Canada must now develop regulations to ensure full compliance with the ATT.

Objective

The ultimate objective of this package of proposed regulations is for Canada to accede to the ATT in full and demonstrable compliance.

Description

The following regulations are proposed:

Brokering

• 1. The Brokering Control List would consist of a list of goods and technologies, outlined in the ATT and drawn from the Export Control List, that would be controlled for the purposes of regulating brokering in the international arms trade. The proposed Brokering Control List would cover all military goods and technologies listed in Group 2 of the Export Control List, including ATT items that would be replicated in a separate Group 9 (see below for more information on Group 9). In addition, any other Export Control List item, including dual-use items, likely to be used as weapons of mass destruction would also be included in the proposed Brokering Control List.
• 2. The Brokering Permit Regulations would establish that an individual or organization must apply for an individual brokering permit for each of the goods to be brokered by using a form provided by the Minister of Foreign Affairs. This form would need to be signed by the applicant and would contain certain “tombstone” information, e.g. basic contact information about the broker and the parties involved in the transaction, as well as a description of the items to be brokered and the proposed end use of these items. Individual permits would be assessed by the Export Controls Operations Division on a case-by-case basis.
• 3. The Regulations Specifying Activities that Do Not Constitute Brokering would list the activities which would not be considered brokering, e.g. transfers between affiliates of a corporation (i.e. where there is no transfer of ownership of goods) and transactions by Canadians who work abroad and are directed to broker by their non-Canadian employer. These Regulations include a limitation whereby it would not apply to ATT items.

Enhanced reporting on ATT exports to the United States (U.S.)

• 4. The Order Amending the Export Control List (Arms Trade Treaty) would amend the Export Control List to create a new group (Group 9) in its schedule that would set out in detail, in a distinct and identifiable group, the eight ATT categories of full-system conventional arms. ^{footnote 1} It would also amend section 2 of the Export Control List to require permits for the export of all items in the new Group 9 to the United States.

Regulatory development

Canada’s approach

In order to develop its regulations enabling accession to the ATT, Canada has consistently looked to the international context to develop its approach. Global Affairs Canada has undertaken thorough benchmarking to learn from the experiences of like-minded countries and to ensure that Canada’s brokering controls and reporting methods are effective, while minimizing the burden on Canadian businesses. This research has informed and helped refine this proposed package of regulations. Should these regulations be adopted, Global Affairs Canada would continue to look to the international context to ensure that Canada’s brokering controls and reporting methods remain efficient and effective over time, and remain in line with those of like-minded countries.

Consultations

Global Affairs Canada has proactively consulted stakeholders interested in this proposal. There are, broadly speaking, three main groups of stakeholders: the Canadian defence, security and aerospace industries; Canadian civil society organizations, including academics, whose work focuses on the global arms trade, human rights, and conflict prevention and mitigation; and Canadian firearms owners and users. These groups were consulted during the recent online consultation entitled “Global Affairs Canada’s proposed strengthening of Canada’s export controls regime,” that was undertaken from December 13, 2018, until January 31, 2019. In addition to this online consultation, Global Affairs Canada met with representatives from the stakeholders mentioned above through a series of meetings, workshops, webinars and roundtable discussions that took place across the country between December 13, 2018, and February 11, 2019. Beyond these recent consultations, these groups of stakeholders were actively consulted in the parliamentary process for the amendments to the Export and Import Permits Act and in the negotiations of the ATT.

The Canadian defence, security and aerospace industries include companies that manufacture, export and/or broker military and dual-use goods and technologies (i.e. goods with both a civilian and military purpose). It also includes companies that provide related technical and after-sale services. The 2018 State of Canada’s Defence Industry (PDF), a report published jointly by Innovation, Science and Economic Development Canada and the Canadian Association of Defence and Security Industries, states that “the defence industry contributed close to $6.2B in GDP and 60,000 jobs to the Canadian economy in 2016.” Industry representatives, such as the Canadian Association of Defence and Security Industries, have publicly supported Canada’s accession to the ATT on numerous occasions, speaking in favour of an implementation of the ATT that does not lead to new undue regulatory or administrative burdens for manufacturers. Industry representatives welcomed the fact that the ATT will provide common rules for exporters across all States Parties, thereby encouraging a level playing field for arms manufacturers on the global stage. With regard to brokering controls, during both parliamentary consideration of the Act and during the recent public consultations, industry has expressed some views on their scope and their potential unintended impacts. They have also asked questions on when actions crystallize into brokering, thus triggering the requirement for authorization. Industry has not indicated concerns with regard to the costs of brokering controls, but has asked that the new controls be in line with those of Canada’s allies.

Canadian civil society organizations whose work focuses on the global arms trade, human rights, and conflict prevention and mitigation have generally welcomed Canada’s desire to accede to the ATT. In the course of the debate on the amendments to the Export and Import Permits Act, they have urged the Government of Canada to apply further rigour in its assessments of Canada’s international arms exports and to regulate all aspects of the arms trade more deeply and extensively. During the legislative process, they expressed concerns about the existing practice of not requiring permits for the export of ATT items to the United States. During both parliamentary consideration of the Act and during the recent consultations, they have asked the Government to increase its transparency by reporting on these exports with at least the same level of rigour as exports to all other destinations. Their other main concern was around the application of the ATT assessment criteria and the overriding risk test, which was initially to be developed through regulation. This concern was considered, and a decision was taken to respond to this concern by placing these elements of the ATT in the legislation rather than in regulation. In addition, civil society organizations have expressed support for Canada’s proposed brokering controls themselves, as part of its implementation of the ATT requirements. Civil society organizations have also underlined the importance that the proposed brokering controls be as rigorous as export controls.

Canadian firearm owner groups have expressed concerns that the ATT could be used to re-introduce a gun registry and that ATT reporting requirements might include details on individual gun owners, thus leading to a de facto gun registry. Officials have sought to clarify that neither the ATT nor its implementation in Canada would result in such changes.

Modern treaty obligations and Indigenous engagement and consultations

Modern treaty obligations have been considered and are not affected by this proposal.

Instrument choice

The objective of this package is to bring Canada into full and demonstrable compliance with the ATT ahead of its accession.

Article 10 of the ATT requires that Canada regulate the brokering of full-system conventional arms defined in Article 2(1) of the ATT. There are no instruments other than regulations that could be used to create such a framework for brokering controls that meets Article 10 of the ATT. The Minister of Foreign Affairs is also proposing to make the General Brokering Permit No. 1 a ministerial regulation that will offer brokers access to a streamlined permit for brokering to low-risk destinations. This ministerial regulation, discussed in its own Regulatory Impact Analysis Statement, should be considered as part of the broad suite of measures preparing Canada for accession to the ATT.

Article 13 of the ATT requires that Canada report on its export of full-system conventional arms as defined in Article 2(1) of the ATT. An amendment to the Export Control List to add these full-system conventional arms as controlled items, including those shipped to the United States, is the only mechanism to allow for the capture of accurate data on the exports of these military goods.

However, the reciprocal permit-free movement of most military items between Canada and the United States has been in place since World War II, pursuant to various arrangements between the two governments. A series of Exchanges of Notes between Canada and the United States of America stemming from the Hyde Park Agreement of 1941 reference the need and the general principles required for greater economic and defence integration. One such Exchange of Notes dated October 26, 1950, states that “barriers which impede the flow between Canada and the United States of goods essential for the common defence efforts should be removed as far as possible.” The combined proposed regulatory amendments to the Export Control List and the creation of the new General Export Permit No. 47 are not intended to alter this existing and long-standing permit-free movement of such military goods. Canada continues to benefit from its close defence and security relationship with the United States and continues to have confidence in the highly rigorous nature of the U.S. export control system.

Consequently, the Government believes that it continues to be in Canada’s best interests to ensure an expedited process for the movement of military goods between Canada and the United States. Therefore, in parallel with the proposed amendments to the Export Control List that would require permits for the export of all Group 9 items to the United States, the Minister of Foreign Affairs proposes to create a general export permit (the proposed General Export Permit No. 47, discussed in its own Regulatory Impact and Analysis Statement). This general permit would allow Canadian companies and residents intending to export the majority of goods to be listed in the proposed Group 9 of the Export Control List to do so without applying for an individual permit if they pre-notify Global Affairs Canada of their intent to export these items in a calendar year and subsequently report semi-annually on their exports.

Regulatory analysis

Benefits and costs

Benefits

This proposal would enable Canada to be in a position to accede to the ATT. It also offers other benefits related to the ATT. If enacted, these regulations would increase the rigour of Canada’s export control regime by regulating brokering in the international arms trade in a way that minimizes the burden on Canadian business and the Government. This proposal would also enable Canada to report on all its international arms transfers that fall under the ATT, including exports to the United States.

This package of proposed regulations would also offer benefits that go beyond Canada’s accession to the ATT. If adopted, this proposal would showcase Canadian leadership by providing full transparency on Canadian exports of military goods and setting an example for other states to follow. This proposal would also contribute to the growth of an essential international norm on the responsible arms trade and effective international cooperation in this area. Finally, these proposed regulations would demonstrate the higher standard Canada will be held to, thus showing Canada to be a safer destination for the import of sensitive goods and technologies.

Government costs

For Government, the cost to administer the new brokering regime would be approximately $640,000 annually to hire three new staff to support the implementation of an arms brokering control regime in Canada, and to review brokering permit applications, conduct policy and regulatory work, and provide business intelligence. Some of these costs would be attributed to making minor changes to adapt Global Affairs Canada’s IT system for brokering licences. There are no costs to Government emanating from the amendment to the Export Control List.

Industry costs

Brokering

Any person or organization in Canada or any Canadian citizen, permanent resident or organization that is incorporated, formed or otherwise organized under the laws of Canada or a province, that is acting outside of Canada and wishes to broker can currently do so without applying for any permit. Since these persons or organizations have no obligations to apply for brokering licences now, the proposed brokering regulations would impose incremental costs on business. A detailed review of each regulation being proposed highlights the costs each one imposes or minimizes:

1. Brokering Control List: Pursuant to the changes that the Act makes to the Export and Import Permits Act, this regulation establishes a list of the items for which companies would need to apply for a brokering permit. Organizations and persons that might wish to broker military or other Export Control List items, including dual-use items, likely to be used as weapons of mass destruction would need to determine if the items they seek to broker from one third country to another third country are included on the proposed Brokering Control List. If so, they would need to apply for a brokering permit. The costs that would be imposed by this regulation are principally of an administrative nature (i.e. reading the Brokering Control List to determine whether a permit is required for a given brokering transaction).
2. Brokering Permit Regulations: Organizations and individuals who wish to broker any goods featured on the Brokering Control List would be required to apply for a permit. The costs that would be imposed by this regulation are mainly of an administrative nature (i.e. providing information and applying for an individual brokering permit). Some costs come under the form of time, i.e. waiting for the permit application to be processed by Global Affairs Canada, uncertainty related to the length of time for the permit to be assessed, and the risk that the permit could be denied. There would be no fee for the permit.
3. Regulations Specifying Activities that Do Not Constitute Brokering: This proposed regulation would list a set of activities that may appear to be related to brokering, but are excluded from the definition of brokering provided in the Export and Import Permits Act. Organizations or individuals undertaking these activities would not need to apply for a brokering permit. This regulation would mitigate the costs imposed by the proposed Brokering Permit Regulations, and would enable the Government of Canada to prioritize the scrutiny of actual arms brokering activities as opposed to ancillary activities.

Overall costs to industry of the proposed brokering regime are expected to be low. Based on consultations and benchmarking against the experience of partners with similar brokering regimes as what is proposed for Canada (e.g. the European Union and Australia), it is anticipated that 15 companies would likely be affected by the brokering regulations, and that each would submit an average of two permit applications per year. The previously mentioned ministerial General Brokering Permit No. 1 would offer brokers a streamlined permit that could be publicly accessed and used without an individual application, provided that brokers undertake brokering activities to eligible countries and meet the terms and conditions of this general permit. This streamlined permit is expected to mitigate the need for approximately 50% of individual permit applications. In other words, without the General Brokering Permit No. 1, companies that broker would otherwise be expected to submit an average of four permit applications per year. For more information, please consult the separate Regulatory Impact Analysis Statement for General Brokering Permit No. 1.

Furthermore, companies that export military goods are likely to be those which already broker such goods in the current unregulated environment. As a result, they already have the appropriate staff structure (such as trade compliance specialists) in place to apply brokering controls, and the information required for brokering permits (e.g. the broker’s particulars, those of the parties involved in the transaction, details on the items to be brokered, and information related to end use) would not require additional efforts to generate. Finally, the proposed brokering regulations are designed to resemble export controls. The latter are well-known by exporters, which will minimize new costs to industry. For instance, the brokering regulations would employ the same IT system (known as EXCOL), and would refer to existing Government of Canada documents that are well known to exporters of arms (such as the item groups of the Export Control List or the Export Controls Handbook).

Export Control List amendment

Canada currently controls all ATT listed items for export to all destinations, other than the United States. Controls on the export of ATT items to the United States are currently limited to items such as prohibited firearms and certain missiles. While all ATT items are captured in different parts of Group 2 of the Export Control List, in order to capture all ATT items in one distinct and identifiable group, a new Group 9 (Arms Trade Treaty) of the Export Control List is being proposed. Therefore, ATT items would be captured under both Group 2 and Group 9. The incremental costs to business of the proposed Order Amending the Export Control List (Arms Trade Treaty) would apply to individual permits for the export of ATT items (that require reporting under Article 13 of the ATT) to the United States that do not already require individual export permits (prohibited firearms, prohibited weapons, prohibited devices and items in Export Control List 2-4.a., including bombs, torpedoes, and missiles). These costs would be essentially negated by the above-mentioned proposed General Export Permit No. 47 (see “Instrument choice”). Readers may wish to consult the Regulatory Impact Analysis Statement on the General Export Permit No. 47 for more information about the costs associated with this measure.

As ATT items would be controlled by both Group 2 and Group 9 of the Export Control List, exporters of ATT items to non-U.S. destinations would be encouraged to also self-assess the goods they intend to export in light of the new Group 9 when completing their individual permit application, in keeping with current practice. Around 25 companies apply for permits to export ATT items to non-U.S. destinations. Global Affairs Canada would advise these companies and work with them to ensure that they understand this minor change that should result in no incremental costs (no new field/box will be added to the export permit application).

Small business lens

Small businesses represent a modest part of Canada’s defence, security and aerospace industries in transaction volumes. In data from 2016, Statistics Canada indicated that there were 529 small businesses in the defence and security sector (out of a total of 664 companies). Statistics Canada also reported that, in 2016, these small businesses represented 13.2% of defence industry sales, 17.3% of employment, 15.2% of research and development and 8.2% of exports.

The community of arms brokers is thought to be a small subset of the defence and security industry, and a very small subset of the small and medium-sized enterprise community. As a result, the impacts of the brokering controls on small business are likely to be marginal and will not result in substantial or disproportionate cost impacts for small business.

Small businesses typically do not manufacture the items covered by the proposed Order Amending the Export Control List (Arms Trade Treaty). The most recent data available shows that only seven companies have exported ATT items to destinations other than the United States and that none of these companies are small businesses. However, there are approximately 20 small enterprises that export firearms to the United States. Additional costs imposed by the proposed Order Amending the Export Control List (Arms Trade Treaty) would be mitigated by the proposed ministerial regulation, General Export Permit No. 47 (as described under “Instrument choice”).

In addition, small businesses would benefit from measures that Global Affairs Canada would implement to support all businesses in their efforts at compliance, namely

• providing assistance to applicants who need guidance on permit applications and processes through a telephone helpline;
• updating departmental information resources (such as the Export Controls Handbook);
• designating a dedicated brokering policy officer, as well as new permit officers, some of whom would be dedicated to brokering applications and who could provide targeted advice on brokering controls;
• launching a proactive outreach campaign to inform industry about the new brokering controls, as a way to substantially reduce any need for training by industry; and
• issuing brokering permits free of charge.

One-for-one rule

As described above under “Industry costs,” the proposed Brokering Control List, Brokering Permit Regulations, and Order Amending the Export Control List (Arms Trade Treaty) would increase administrative burden for exporters and brokers of certain controlled items. The one-for-one rule is triggered for the proposed Brokering Control List and Brokering Permit Regulations, as both measures introduce new regulations and increase administrative burden on businesses. The one-for-one rule is triggered for the proposed Order Amending the Export Control List (Arms Trade Treaty), as it increases the administrative burden under existing regulations. However, because these three proposed regulations are required to meet Canada’s international obligations under the ATT, they would therefore be exempted from the one-for-one rule.

Regulatory cooperation and alignment

This package of proposed regulations would enable Canada’s accession to the ATT in a full and demonstrable manner. By acceding to the ATT, Canada would be joining 100 countries (as of December 2018) that are States Parties to the ATT. Many of these states are among Canada’s closest allies and trading partners. Moreover, there is reason to believe that more states will join the ATT over time.

Strategic environmental assessment

In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required. The approved preliminary scan determined that the proposal is unlikely to result in important environmental effects and that further analysis is not required.

Gender-based analysis plus

An assessment indicates that there are no gender-based analysis plus (GBA+) impacts in this package of proposed regulations. However, there are relevant GBA+ considerations in the broader context of Canada’s accession to the ATT. The ATT is the first international treaty that specifically mentions gender-based violence as an outcome to prevent. Therefore, by acceding to the Treaty, Canada would support this objective.

As a demonstration of Canada’s commitment in this regard, the legislative amendments to the Export and Import Permits Act included gender-based violence and violence against women and children as an assessment criterion for export and brokering permits that would be subject to a substantial risk test in the same manner as the other ATT criteria (thus going beyond the ATT requirement in this regard). This change was brought about by the Act, which now places a legal obligation on the Minister of Foreign Affairs to consider this and other criteria before authorizing export and brokering permits.

In light of the above, Global Affairs Canada is considering how to best assess instances of gender-based violence and violence against women and children in export and brokering permit applications.

Implementation, compliance and enforcement, and service standards

Implementation

The proposed package of regulations would come into force at the same time as the Act (with a date still to be set by the Governor in Council). Canada would seek to deposit its instrument of accession to the ATT shortly after the final approval of these proposed regulations. There would be a 90-day waiting period before Canada would become a State Party to the Treaty.

As the brokering controls are a new area for Canada, Global Affairs Canada would carefully monitor their implementation to gather information about the brokering community and develop baseline knowledge about its practices. If feedback about an undue cost of brokering controls is expressed, particularly about new low-risk situations, officials from Global Affairs Canada would consider proposing options to the Minister of Foreign Affairs. Such options might include new general brokering permits or other mechanisms to further streamline the permitting process.

Compliance and enforcement

Global Affairs Canada’s Export Controls Operations Division, which is responsible for issuing export and brokering licences, now includes a dedicated compliance section. This unit would promote compliance with the proposed brokering regulations through its regular mechanisms, such as documentation reviews. Global Affairs Canada is currently exploring additional mechanisms to increase compliance, including through communication products and in-person outreach. The Royal Canadian Mounted Police (RCMP) is responsible for the enforcement of brokering controls, while the RCMP and the Canadian Border Services Agency are responsible for the enforcement of export controls.

Service standards

As brokering controls represent a new activity for Global Affairs Canada, service standards have yet to be defined but efforts will be made to keep them as short as possible given the nature of brokering activities. Should this proposed package of regulations be adopted, Global Affairs Canada would work with industry and other stakeholders to identify appropriate service standards for these controls.

Contact

Judy Korecky
Deputy Director
Export Controls Policy Division
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
Telephone: 343‑203‑4332
Fax: 613‑996‑9933
Email: judy.korecky@international.gc.ca

Should members of the public contact Ms. Korecky by email, they are invited to send a copy of their comments to the collective mailbox at expctrlpol@international.gc.ca.

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to section 4.11 ^{footnote a} of the Export and Import Permits Act ^{footnote b}, proposes to make the annexed Brokering Control List.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Judy Korecky, Deputy Director, Export Controls Policy Division, Global Affairs Canada, 125 Sussex Drive, Ottawa, Ontario K1A 0G2 (tel.: 343‑203‑4332; fax: 613‑996‑9933; email: judy.korecky@international.gc.ca).

Ottawa, February 28, 2019

Jurica Čapkun
Assistant Clerk of the Privy Council

Brokering Control List

List

1 The following list of goods and technologies is established for the application of section 4.11 of the Export and Import Permits Act:

• (a) goods and technology referred to in Groups 2 and 9 of the schedule to the Export Control List;
• (b) goods and technology referred to in Groups 1, 3, 4, 6 and 7 or in sub-items 5504(2)(d), 5504(2)(e), or 5504(2)(g) of the schedule to the Export Control List if their properties and any information made known to the broker would lead a reasonable person to suspect that they will be used
  • (i) in the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of
    • (A) chemical or biological weapons,
    • (B) nuclear explosive or radiological dispersal devices, or
    • (C) materials or equipment that could be used in such weapons or devices,
  • (ii) in the development, production, handling, operation, maintenance or storage of
    • (A) missiles or other systems capable of delivering chemical or biological weapons or nuclear explosive or radiological dispersal devices, or
    • (B) materials or equipment that could be used in such missiles or systems, or
  • (iii) in any facility used for any of the activities described in subparagraphs (i) and (ii); and
• (c) goods and technology referred to in Groups 1, 3, 4, 6 and 7 or in sub-items 5504(2)(d), 5504(2)(e), or 5504(2)(g) of the schedule to the Export Control List if the Minister has determined, on the basis of their properties and any additional information relating to such matters as their intended end-use or the identity or conduct of their intermediary or final consignees, that they are likely to be used in the activities or facilities referred to in paragraph (b).

Coming into force

2 This List comes into force on the day on which section 5 of the Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments), chapter 26 of the Statutes of Canada 2018, comes into force, but if it is registered after that day, it comes into force on the day on which it is registered.