Vol. 149, No. 13 — July 1, 2015

Registration

SOR/2015-163 June 19, 2015

AERONAUTICS ACT

Regulations Amending the Canadian Aviation Security Regulations, 2012 and the Designated Provisions Regulations (Air Cargo)

P.C. 2015-847 June 18, 2015

His Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to sections 4.71 (see footnote a) and 4.9 (see footnote b) and paragraphs 7.6(1)(a) (see footnote c) and (b) (see footnote d) of the Aeronautics Act (see footnote e), makes the annexed Regulations Amending the Canadian Aviation Security Regulations, 2012 and the Designated Provisions Regulations (Air Cargo).

REGULATIONS AMENDING THE CANADIAN AVIATION SECURITY REGULATIONS, 2012 AND THE DESIGNATED PROVISIONS REGULATIONS (AIR CARGO)

CANADIAN AVIATION SECURITY REGULATIONS, 2012

1. Paragraph 2(k) of the Canadian Aviation Security Regulations, 2012 (see footnote 1) is replaced by the following:

2. Section 3 of the Regulations is amended by adding the following in alphabetical order:

“threat item”
« article dangereux »

“threat item” means any of the following goods that are in a shipment of cargo but are not listed on the air waybill or other similar control document issued in respect of that cargo:

3. Part 11 of the Regulations is replaced by the following:

PART 11

AIR CARGO

OVERVIEW

Overview

668. This Part sets out requirements for cargo on passenger flights and supplements subsections 4.85(3) and (4) of the Act.

APPLICATION

Application

668.1 This Part applies to the following persons:

TRANSPORTING CARGO BY AIR AND TENDERING CARGO FOR TRANSPORTATION BY AIR

Requirement to screen cargo

669. For the purposes of subsection 4.85(3) of the Act, cargo to be transported by an air carrier on a passenger flight must be screened by the air carrier for threat items in accordance with security measures, unless the cargo was tendered to the air carrier for transportation by air as secure cargo.

Tendering of secure cargo — regulated agents and certified agents

670. For the purposes of subsection 4.85(4) of the Act, cargo must not be tendered for transportation by air as secure cargo unless

Tendering of secure cargo — known consignors

671. A person, other than a person referred to in subsection 4.85(4) of the Act, must not tender cargo for transportation by air as secure cargo unless the person

Cargo security information

672. (1) A person must not tender cargo for transportation by air as secure cargo unless the cargo is accompanied by the information referred to in subsection (2), (3) or (4), as applicable, in any paper or electronic format.

Tendering under paragraph 670(a)

(2) If the cargo is tendered by a person referred to in paragraph 670(a), the information that accompanies the cargo must include

Tendering under paragraph 670(b)

(3) If the cargo is tendered by a person referred to in paragraph 670(b), the information that accompanies the cargo must include

Tendering under section 671

(4) If the cargo is tendered by a person other than a person referred to in subsection 4.85(4) of the Act, the information that accompanies the cargo must include

Inaccurate information

673. A person who provides any of the information required under section 672 must ensure that the information is accurate and complete.

SCREENINGS

Authority to screen

674. A person must not screen cargo for the purposes of this Part unless the person is

Screening for threat items

675. (1) If a person screens cargo for threat items in order that it may be tendered for transportation by air as secure cargo, the person must

Authorized access

(2) An individual who is not one of the person’s authorized cargo representatives is permitted in the designated area if

Escort limit

(3) For the purposes of paragraph (2)(d), the person must ensure that the authorized cargo representative does not escort more than ten individuals at one time.

STORAGE AND TRANSPORT REQUIREMENTS

Storage requirements

676. (1) If cargo has been screened in order that it may be tendered for transportation by air as secure cargo, a person who stores the cargo must

Authorized access

(2) An individual who is not one of the person’s authorized cargo representatives is permitted in the designated area if

Escort limit

(3) For the purposes of paragraph (2)(d), the person must ensure that the authorized cargo representative does not escort more than ten individuals at one time.

Transport requirements

677. If cargo has been screened in order that it may be tendered for transportation by air as secure cargo, a person who transports the cargo must, in accordance with security measures,

CARGO SECURITY COORDINATORS AND AUTHORIZED CARGO REPRESENTATIVES

Application

678. Sections 679 to 681 apply to the following persons:

Cargo security coordinator — designation

679. (1) A person referred to in section 678 must designate a cargo security coordinator who is responsible for coordinating and overseeing compliance with the regulatory requirements that apply to the person and for acting as the principal contact between the person and the Minister with respect to aviation security matters.

Cargo security coordinator — restriction

(2) The person must not designate an individual as cargo security coordinator unless that individual is one of the person’s authorized cargo representatives and one of its senior managers or supervisors.

Authorized cargo representative

680. (1) A person referred to in section 678 must not designate an individual as one of the person’s authorized cargo representatives unless the individual

Background check

(2) If the individual undergoes a background check for the purposes of paragraph (1)(b), the person must ensure that the background check includes

Canadian criminal record check

681. A person referred to in section 678 must, at least once every five years, conduct a Canadian criminal record check on any of its authorized cargo representatives that do not have a security clearance.

REPORTING OF SECURITY INCIDENTS

Reporting of security incidents

682. A person referred to in section 678 must immediately notify the Minister if the person

RECORD KEEPING

Cargo security information

683. A person who tenders cargo for transportation by air as secure cargo must keep a copy of the information referred to in subsection 672(2), (3) or (4), as applicable, for at least 90 days after the day on which the person ceases to be in possession of the cargo.

Training record

684. (1) A person referred to in section 678 must keep a training record, in any paper or electronic format, for each of the person’s authorized cargo representatives.

Required information

(2) A training record for an authorized cargo representative must include

Retention period

(3) Subject to subsection (4), the person must keep the training record for at least five years.

Retention period — cessation of duties

(4) If one of the person’s authorized cargo representatives ceases to act as an authorized cargo representative, the person must keep the training record for at least 90 days after the day on which the authorized cargo representative ceases to act in that capacity.

Background check record

685. (1) If an individual undergoes a background check for the purposes of paragraph 680(1)(b) and is designated as a person’s authorized cargo representative, the person must keep a record in respect of the background check that contains

Retention period

(2) If the individual ceases to act as the person’s authorized cargo representative, the person must keep the record for at least 90 days after the day on which the authorized cargo representative ceases to act in that capacity.

Ministerial access

686. A person who keeps a record or information under this Part must make the record or information available to the Minister on reasonable notice given by the Minister.

[687 to 738 reserved]

4. Schedule 4 to the Regulations is amended by adding the following after the reference “Section 545”:

Column 1


Designated Provision		 Column 2

Maximum Amount Payable ($)
Individual		 Column 3

Maximum Amount
Payable ($)
Corporation
PART 11 — AIR CARGO    
Section 671 5,000 25,000
Subsection 672(1) 5,000 25,000
Section 673 5,000 25,000
Section 674 5,000 25,000
Paragraph 675(1)(a) 5,000 25,000
Paragraph 675(1)(b) 5,000 25,000
Paragraph 675(1)(c) 3,000 10,000
Paragraph 675(1)(d) 5,000 25,000
Paragraph 675(1)(e) 5,000 25,000
Paragraph 675(1)(f) 5,000 25,000
Paragraph 675(1)(g) 5,000 25,000
Subsection 675(3) 5,000 25,000
Paragraph 676(1)(a) 5,000 25,000
Paragraph 676(1)(b) 3,000 10,000
Paragraph 676(1)(c) 5,000 25,000
Paragraph 676(1)(d) 5,000 25,000
Paragraph 676(1)(e) 5,000 25,000
Paragraph 676(1)(f) 5,000 25,000
Subsection 676(3) 5,000 25,000
Paragraph 677(a) 5,000 25,000
Paragraph 677(b) 5,000 25,000
Subsection 679(1) 5,000 25,000
Subsection 679(2) 5,000 25,000
Subsection 680(1) 5,000 25,000
Subsection 680(2) 5,000 25,000
Section 681 5,000 25,000
Section 682 5,000 25,000
Section 683 3,000 10,000
Subsection 684(1) 3,000 10,000
Subsection 684(3) 3,000 10,000
Subsection 684(4) 3,000 10,000
Subsection 685(1) 3,000 10,000
Subsection 685(2) 3,000 10,000
Section 686 5,000 25,000

DESIGNATED PROVISIONS REGULATIONS

5. Schedule 4 to the Designated Provisions Regulations (see footnote 2) is amended by adding the following after item 4:

Item Column 1



Designated Provision		 Column 2

Maximum Amount
Payable ($)
Individual		 Column 3

Maximum Amount
Payable ($)
Corporation
5. Subsection 4.85(4) 5,000 25,000

COMING INTO FORCE

6. These Regulations come into force on October 17, 2016.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Screening cargo is important to ensure that aircraft, their passengers and their crews are safe from terrorist attacks. Active screening of all air cargo by air carriers to detect improvised explosive devices is slow and impractical and would result in bottlenecks, delays, additional costs and uncertainty for shippers, freight forwarders, air carriers, manufacturers and consumers. Shippers need to be given the authority to screen their own goods. In order to do so, there must be a regulatory framework in place to establish, maintain and enforce a security program that international partners will recognize.

Description: The Regulations Amending the Canadian Aviation Security Regulations, 2012 and the Designated Provisions Regulations (Air Cargo) [the amendments] outline the rules of a voluntary program for shippers (known consignors) and third-party service providers such as truckers, warehouse operators, and freight forwarders (certified agents and regulated agents) who wish to screen, transport or store secure air cargo intended to be flown on passenger flights. This program is voluntary in the sense that the requirements apply only to those shippers and third-party service providers who choose to participate and have been approved for acceptance into Transport Canada’s Air Cargo Security Program.

Cost-benefit statement: The amendments are expected to significantly reduce potential delays and costs associated with shipping air cargo on passenger aircraft under Canada’s Air Cargo Security Program. Delay reductions associated with the known consignor provisions are estimated to be worth $60 million over 10 years. Known consignors are expected to benefit from more reliable cargo securing options, while other shippers benefit from the reduced systemic burden on air carriers and other members of the Air Cargo Security Program’s screening capacities. Avoided and reduced screening fees for known consignors and other shippers could reach $223 million. Costs of $17.5 million are expected to be incurred by Transport Canada and other Government agencies for inspector training, incremental inspections, processing and approving known consignor and certified agent applications, as well as other known consignor implementation and administration activities. Given the voluntary nature of the program, it is assumed that all known consignor and certified agent participation costs (e.g. improved fencing, locks and employee security clearances) will be offset by the benefits of participation (avoided screening fees and delays, and the ability to handle secure cargo for certified agents), resulting in a net savings for each known consignor and certified agent.

Transport Canada estimates that the amendments will result in a net benefit to Canadians of $202 million over 10 years.

“One-for-One” Rule and small business lens: The amendments only result in administrative costs for those businesses that voluntarily participate in the air cargo supply chain as known consignors. However, given that under the new regulatory regime, shippers still have the option of shipping by air without participating as known consignors (and without incurring administrative costs), administrative costs associated with voluntary participation are not considered an administrative burden for the purposes of the “One-for-One” Rule. In any case, Transport Canada has sought to minimize these administrative costs to those necessary to maintain the integrity of the air cargo supply chain.

The amendments provide all approved businesses, including small businesses, with the opportunity to screen and secure their own cargo, reducing shipment delays and the need for third-party screening charges. By reducing the systemic burden on air carrier and regulated agent screening capacities, the amendments are also expected to reduce delays and shipping charges for those small businesses for which full participation does not make sense.

Domestic and international coordination and cooperation: The amendments allow Transport Canada to further the promotion and pursuit of international cooperation, collaboration, sharing of best practices, and the negotiation of mutual recognition arrangements between key trading partners in order to have the best possible Air Cargo Security Program and supporting regulatory framework.

Because of Canada’s unique geography and industry profile, creating identical programs to those of our international partners is not feasible. However, Transport Canada has consulted with the United Kingdom, the United States and Australia, and feedback on the amendments has been favourable. Transport Canada endeavours to create a Canadian program, supported by regulations, by adopting the best practices of Canada’s international partners. The Regulations are also consistent with the International Civil Aviation Organization (ICAO) standards and recommended practices for air cargo and the secure supply chain.

Background

Civil aviation remains a favoured target of terrorist attacks. Airports, aircraft and passengers offer the kind of high-profile targets that terrorists seek, and damage to a nation’s civil aviation sector can cripple a nation’s economy and sense of security. The events of October 29, 2010, when explosive devices were found in air cargo packages bound for the United States from Yemen, underscored the importance of continuously enhancing air cargo security regimes, echoing domestic and international recommendations and commitments, including

Budget 2010 provided funding of $95.7 million to enhance air cargo security in Canada. Phase one has been completed, including putting in place security measures made under the Aeronautics Act (see footnote 5) to introduce requirements for air carriers and other members of the Air Cargo Security Program. These measures addressed security gaps and brought Canada in-line with its key trading partners.

Air cargo shipments at Canadian airports total $100 billion annually. Over 400 million kilograms of cargo are moved on passenger aircraft. Eighty percent of all air cargo departing Canadian airports is destined for international destinations (non–United States). The International Civil Aviation Organization, the Universal Postal Union and the World Customs Organization all have standards in place for the security of all cargo and mail placed aboard an aircraft. Canada’s key trading partners, including the United States and the European Union, require all cargo destined for their airports to be secure. This highlights the importance of keeping cargo moving efficiently across borders. Inconsistency with international standards could put Canadian trade at risk.

Alignment of Canada’s Air Cargo Security Program with those in other jurisdictions, especially the United States and the United Kingdom, has been a consistent priority throughout the development of the program. On May 31, 2012, the Government of Canada announced the Canada–United States Action Plan on Perimeter Security and Economic Competitiveness, under which Canada and the United States agreed to mutual recognition with respect to their air cargo security programs. This means that cargo shipped on passenger aircraft need only be screened once at the point of origin and not in the other country, thereby reducing delays and economic costs associated with screening the cargo twice.

In Canada, approximately half of all cargo that is transported by air travels on passenger flights.  The security measures made under the Aeronautics Act establish the standard and means by which cargo must be secured.

Issues

Enhanced screening requirements will soon be introduced in Canada. In the absence of an internationally equivalent program to enable cargo screening throughout the air cargo supply chain and maintain the security of that cargo until it is delivered to a passenger aircraft, air carriers and approved members of the program would be required to actively screen all air cargo. Active air carrier screening of all air cargo is slow and impractical and would result in bottlenecks, delays, additional costs and uncertainty for shippers, freight forwarders, air carriers, manufacturers and consumers. Shippers need to be given the authority to screen their own goods. In order to do so, there must be a regulatory framework and program in place for the maintenance and enforcement of air cargo security that international partners will recognize.

Objectives

The Government of Canada is committed to maintaining a secure and efficient air cargo system. The expected outcomes of the amendments are the secure, timely and efficient domestic and international movement of air cargo. There will be a decreased reliance on in-airport screening, allowing for an efficient flow of goods.

The objectives of the amendments are to

Description

Pursuant to sections 4.71 and 4.9 of the Aeronautics Act, the amendments outline the rules of a voluntary program for shippers (known consignors) and third-party service providers such as truckers, warehouse operators, and freight forwarders (certified agents and regulated agents) who wish to screen, transport or store secure air cargo intended to be flown on passenger flights. The amendments, effective October 17, 2016, allow for the creation of new categories of participants at the program level and put in place requirements on how cargo tendered by such parties must be transported and stored in the secure supply chain. The current registered shipper category will be replaced with two participant categories: known consignors, who will be subject to the amendments if they wish to screen and tender their goods as secure air cargo, and account consignors, who are not covered by these amendments. (see footnote 6) Third-party service providers, such as truckers, warehouse operators and freight forwarders, will also be covered by the amendments and will be required to register with the program in order to be authorized to handle secure cargo. Under the new regulatory regime, these service providers can choose to become either regulated agents or certified agents, depending on whether the entity screens the cargo to make it secure (regulated agent), or handles secure cargo only (e.g. storing and transporting it) once it has been secured by another member of the Air Cargo Security Program.

Since participation in the Air Cargo Security Program is voluntary, shippers will not need to become part of the secure supply chain to continue to have goods shipped by air. Cargo originating from an unknown shipper would need to be screened by a member of the Air Cargo Security Program or an air carrier and could travel domestically and internationally on passenger flights.

Known consignors

The current Air Cargo Security Program does not allow shippers to screen and secure their goods when they are intended to be transported by air. The amendments allow persons (the consignors or originators of the goods) to become known consignors at the program level and to screen and tender their goods as secure cargo to either members of the Air Cargo Security Program or directly to air carriers. (see footnote 7)

The amendments cover the following areas in relation to known consignors:

  1. Facility security (i.e. physical security requirements such as access control);
  2. Personnel security (i.e. background checks and screening requirements for personnel responsible for air cargo);
  3. Chain of custody (i.e. the storing and transporting of secure air cargo);
  4. Training (i.e. requirements based on job functions);
  5. Screening; and
  6. Record keeping (i.e. the information required to accompany secure air cargo, training records, background checks).

Air cargo screened by a known consignor will be identified as secure. Certain information will therefore have to accompany the cargo, either electronically or in paper format.

It will be an offence for a known consignor to tender secure air cargo unless the cargo was screened for threat items stored and transported in accordance with the Regulations and maintained in a secure manner. In addition, known consignors will be required to ensure only authorized cargo representatives have access to air cargo. An authorized cargo representative is an employee of the known consignor, who is trained to perform his or her duties, and who possesses a security clearance or has undergone a background check that demonstrates he or she does not pose a risk to aviation security. The known consignor will also be required to designate a cargo security coordinator who is responsible for coordinating and overseeing compliance with the regulatory requirements that apply to the known consignor and for acting as the principle contact between the known consignor and the Minister of Transport with respect to aviation security matters.

Certified agents and regulated agents

Currently, third-party service providers are regulated as agents of the air carrier or member of the Air Cargo Security Program to whom they provide services. The amendments require that entities such as cargo operators, warehouse operators and trucking companies, be designated as members of the secure supply chain, depending on their role with respect to the secure air cargo. (see footnote 8) Under the new regulatory regime, service providers could apply to become either regulated agents or certified agents, depending on whether

The Regulations clarify the authority for regulated agents to screen for threat items. The amendments also cover the following areas in relation to certified and regulated agents:

  1. Facility security (i.e. physical security requirements such as access control);
  2. Personnel security (i.e. background checks and screening requirements for personnel responsible for air cargo);
  3. Chain of custody (i.e. the handling and transporting of secure air cargo);
  4. Training (i.e. requirements based on job functions);
  5. Verification screening (i.e. the requirement to screen in order to verify that the cargo was screened by a known consignor, that access was restricted and that the cargo was not tampered with; and
  6. Record keeping (i.e. the information required to accompany secure air cargo, training records, background checks).

The certified agent and regulated agent will be required to add certain data to the information that accompanies secure cargo, either electronically or in paper format.

All voluntary program participants will be required to ensure that only authorized cargo representatives have access to air cargo. An authorized cargo representative must be an employee of the certified agent or regulated agent, be trained to perform his or her duties, and possess a security clearance or have undergone a background check that establishes that the person does not pose a risk to aviation security. Program participants will also be required to designate a cargo security coordinator who will be responsible for coordinating and overseeing compliance with the regulatory requirements that apply to the certified agent or regulated agent and for acting as the principle contact between the certified agent or regulated agent and the Minister of Transport with respect to aviation security matters.

New regulatory regime

In the following illustration, the first two scenarios depict the program that is currently in place, namely that cargo can be screened/secured by the air carrier or regulated agent (currently called “approved participant”). The amendments allow for the third scenario to become possible, with the screening occurring at the shipper (known consignor) level. Any screened/secure cargo (see solid green boxes) will need to be handled securely by another member of the secure supply chain (i.e. the air carrier, regulated agent, known consignor or certified agent).

In the illustration above, the first scenario shows cargo that arrives at the air carrier in a state where the security of the cargo could not be verified.

In the illustration above, the first scenario shows cargo that arrives at the air carrier in a state where the security of the cargo could not be verified. In this situation, the air carrier screens the cargo before placing it on an aircraft. The second scenario shows that a regulated agent (currently called “approved participant”) received cargo from a shipper that had not screened the cargo. In this case, the regulated agent screens the cargo to make it secure before forwarding it to the air carrier. On receipt of this cargo, the air carrier verifies the chain of custody and, if satisfied, places the cargo on the aircraft. If not satisfied, the air carrier re-screens the cargo as depicted in scenario 1. The third scenario shows a known consignor screening the cargo to make it secure at source before handing it over to another member of the secure supply chain, in this case a certified agent. This scenario will be possible starting October 17, 2016. On receipt of the secure cargo from a known consignor, a certified agent or regulated agent will verify the secure status of the cargo and maintain the chain of custody before forwarding the cargo to the air carrier. The air carrier will also verify the secure status of the cargo before placing the cargo on the aircraft. At any step in the supply chain, if the secure status of the cargo or the chain of custody cannot be verified, the cargo will have to be screened and secured before the air carrier can place it on an aircraft.

Regulatory and non-regulatory options considered

In 2009, a number of options as to how Canada’s air cargo regime might look were developed and reviewed, reflecting highly diverse approaches to screening and secure supply chain management. These ranged from complete responsibility on the part of industry for virtually all aspects of air cargo security to complete government-managed security on-site at airports, comparable to that provided by the Canadian Air Transport Security Authority (CATSA) for passenger and baggage screening.

Due, in part, to the recommendations of the Standing Senate Committee on National Security and Defence and the findings of the Final Report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, which emphasize the need for regulations specific to air cargo security as well as the need to have the legal certainty of a Canadian regulatory framework in place for international trading partners, non-regulatory options were given limited consideration. It is crucial that all participants in the air cargo industry be held to the same standard, which cannot be accomplished through non-regulatory options. Air carriers and freight forwarders are already subject to the requirements of the security measures made under the Aeronautics Act regarding the screening and handling of secure air cargo, which is the baseline scenario for the amendments. The secure supply chain cannot be enhanced or remain secure if similar requirements are not imposed for all participants. A regulated regime will ensure that all entities handling air cargo face comparable requirements, together with meaningful oversight and enforcement. Furthermore, in order for Canada to be aligned with its international trading partners, an air cargo security program, supported by a regulatory framework, must be in place.

Industry participant accreditation regime

Accreditation regimes in the United Kingdom, Australia and the United States were assessed and individual elements were considered for inclusion in a Canadian regime.

Similar to the amendments adopted, the accreditation regime option would have involved a scheme wherein participants applied to the voluntary regime and were validated by independent accreditors, with the entire program being overseen by Transport Canada, although at arm’s length.

Two options were considered: one that involved full regulation and another that involved a combination of regulatory and non-regulatory options.

Option 1: An enhanced air cargo security regime, with direct Government certification of all screeners except for shippers. Shippers would be accredited by freight forwarders and cargo screening facilities, with an accreditation regime to govern shippers and third-party service providers seeking to become participants in the secure supply chain.

Option 2: An enhanced air cargo security regime, with a focus on a comprehensive cargo screening agenda that would see direct Government certification of anyone screening cargo to make it secure (consignors, freight forwarders, independent cargo screening facilities, etc.) and an accreditation regime for third-party service providers seeking to become participants in the secure supply chain.

Both options required that cargo — once screened — would be stored and transported in a manner that would prevent unauthorized access until it was placed on an aircraft. Both options also featured at least some degree of continuing regulation and related compliance provisions and were considerably more substantial and comprehensive than the status quo in that they provided for the establishment of a new regulatory regime governing screening and supply chain security and related oversight.

However, an accreditation regime also carries with it some disadvantages. It is burdensome to administer and more expensive for participants, and generally requires more training of the accreditors. There is potential for inconsistency in reporting and inspecting. In addition, an accreditation regime would have involved a new way of doing business, which could mean a cultural shift, bringing along with it a potential operational delay and market adjustment while the system was implemented. One of the most significant disadvantages would have been the perception that Transport Canada was delegating its authority to industry, with less direct oversight of participants.

Adopted option: Regulation of all parties directly by Transport Canada

This option features an enhanced air cargo security regime, with the focus on a comprehensive cargo screening agenda that will see direct Government certification of anyone screening cargo and anyone handling secure cargo.

This will be the least expensive option with the least amount of burden, both for Government and for industry. This option will clearly consolidate control of screening in the hands of the Government, eliminating the perception that Transport Canada may be delegating its authority to industry. Furthermore, this option will not preclude the addition of an accreditation regime for non-screening agents or a training regime in the future, should the need arise. Finally, given that Canada’s international partners are moving towards increased regulation, it is a sound decision to create a similar, comprehensive program in order to assure partners that air cargo security is a priority.

Benefits and costs

Transport Canada has conducted an analysis of the benefits and costs of the amendments. The analysis is complicated by recently introduced changes to the regulatory framework for air cargo security in Canada, including the security-sensitive measures made under the Aeronautics Act, which require air carriers to secure all air cargo before loading on a passenger aircraft.

In the absence of the amendments, achieving a level of security equivalent to that in other jurisdictions (e.g. the United States) would require air carriers or approved members of the program to screen all air cargo before loading it on to a passenger aircraft. This “baseline scenario” would have resulted in cargo bottlenecks, delays, and higher security screening fees for all shippers.

Benefits

The amendments provide shippers with the option of shipping by air as known consignors, and enable third-party service providers to handle secure cargo as either certified agents or regulated agents. Benefits of the amendments will be driven primarily by known consignor participation, and will

Known consignors: Reduced shipment delays and risks

The amendments will enable known consignors to screen their own cargo, significantly reducing any potential for delays associated with air carrier or regulated agent screening. Assuming that 1 000 to 1 500 known consignors account for between 30% and 50% of air cargo volumes, Transport Canada estimates that the resulting delay reductions will yield benefits of $60 million over 10 years.

Transport Canada has consulted with internal and external subject matter experts, including those in other jurisdictions (the United States and the United Kingdom) that have implemented similar programs, and has identified a number of other potential benefits for known consignors:

Other shippers: Reduced shipment delays

While more significant benefits are likely to accrue to known consignors, other shippers are also expected to benefit from the resulting reduction in systemic demand for air carrier and regulated agent screening services. This decreased demand is expected to reduce delays and cargo bottlenecks for other shippers. Transport Canada estimates that the resulting delay reductions will yield benefits of $30 million over 10 years.

Lower cost of screening air cargo

The amendments are expected to lower the demand for air carrier and regulated agent screening services, and are expected to result in lower fees for these services, relative to the baseline scenario.

For other shippers (non-known consignors), Transport Canada assumes that an average screening fee of $0.15 per kilogram would be levied by air carriers and regulated agents, consistent with fees in other jurisdictions with similar programs and with input from Canadian stakeholders. In the absence of the amendments, demand on air carrier and regulated agent screening capacities would have been higher. Transport Canada also expects that the associated screening fees would have been higher ($0.20 per kilogram, by assumption) and the amendments, therefore, are expected to result in savings for other shippers. The amendments are expected to save other shippers $62 million over 10 years.

For known consignors, this security screening fee will be avoided and replaced with internal costs of complying with the amendments (e.g. improved fencing, security clearances). Assuming a $0.20 per kilogram baseline screening fee, Transport Canada estimates that known consignors will avoid screening fees of $161 million over 10 years.

Certified agents

For third-party service providers, participation in the secure supply chain as certified agents will enable them to handle secure cargo. Under the baseline scenario, third-party service providers would have been unable to handle secure cargo.

Compliance costs

Costs of the amendments will include initial and ongoing known consignor participation costs, certified agent participation costs, and costs to Transport Canada and other Government agencies.

Known consignor participation costs

Transport Canada has evaluated a range of possible compliance costs associated with known consignor participation, using analyses from the United States and surveys of Canadian stakeholders, including

It is expected that known consignor participation costs will be offset by the benefits of participation — including reductions in delays and avoided air carrier / regulated agent screening costs.

Taking the above compliance elements into consideration, Transport Canada estimates that known consignors will bear costs of $60 million over 10 years, which will be offset by the reduction in screening fees described above.

Certified agent participation costs

Transport Canada has evaluated a range of possible compliance costs associated with the handling of secure cargo. Many third- party service providers already meet the requirements of certification (e.g. facility security), and costs will therefore be limited to application costs. An additional 50 to 100 third-party service providers are assumed to become certified agents, and are expected to bear costs similar to those borne by known consignors (excluding cargo packing and chain of custody).

It is expected that certified agent participation costs will be offset by the benefits of participation — the ability to handle secure cargo.

Taking the above compliance elements into consideration, Transport Canada estimates that certified agents will bear costs of $4 million over 10 years.

Transport Canada and other Government agencies

Costs to Transport Canada and other Government agencies are estimated to be $17.5 million over 10 years for inspector training, incremental inspections, the known consignor, certified agent and regulated agent application process and approval, as well as other implementation and administration activities related to known consignor participation.

Distributional impacts

The amendments provide consignors with the option of becoming known consignors, and approved participants and third-party service providers with the option of becoming certified agents and regulated agents. As participation in the program is voluntary, Transport Canada anticipates that significant costs will only be incurred where a compensating benefit exists. Residual benefits are also expected accrue to other shippers, due to the systemic reduction in the burden on existing screening capacities.

Benefits are expected to be greatest for those shippers who are able to ship cargo as known consignors, and in particular (a) high volume shippers; (b) those shippers whose cargo is most sensitive to delay or damage if screened by a third party; and (c) those shippers who already meet most of the requirements (e.g. facility security) required for compliance as known consignors (thus reducing the cost of participation). Some shippers (e.g. some low volume shippers) may not find it cost effective to participate as known consignors and may incur a higher per-unit screening cost (than per-unit costs incurred by known consignors), but are nevertheless expected to benefit from a lower cost than under the baseline scenario.

Transport Canada does not anticipate significant regional impacts. Many consignors currently ship cargo on passenger aircraft through a small number of high volume air cargo “gateways” — the Toronto, Vancouver and Montréal (Pierre Elliot Trudeau) airports — and several lower volume airports — Calgary, Ottawa, Edmonton and Halifax. Given the voluntary nature of the program, Transport Canada expects that it will result in a net benefit across regions.

Cost-benefit statement
Costs, Benefits and Distribution 2014 2023 Total (present value) Annualized
A. Quantified impacts (in dollars)
Benefits  
Reduction in cargo delays (known consignors) $8,622,041 $8,222,831 $60,009,083 $8,543,943
Reduction in screening fees (based on $0.20 per kilogram baseline fee) [known consignors and other shippers] $23,526,364 $44,059,673 $223,160,088 $31,772,976
Total quantified benefits $32,148,404 $52,282,504 $283,169,172 $40,316,920
Costs
Participation costs (known consignors) $19,602,558 $8,092,423 $59,793,297 $8,513,220
Certified agent application costs (existing third-party service providers) $52,423 - $48,994 $6,976
Other certified agent participation costs $2,362,477 $269,673 $3,904,958 $555,978
Transport Canada and other government department/agency costs $2,544,898 $2,475,890 $17,454,111 $2,485,073
Total quantified costs $24,562,356 $10,837,986 $81,201,360 $11,561,247
Quantified net benefits $7,586,048 $41,444,517 $201,967,812 $28,755,673
B. Qualitative impacts
Benefits  
Known consignors
  • Reduced likelihood of damage due to physical screening by other supply chain participants
  • Liability management (e.g. in the event of unlawful interference with civil aviation)
  • Fewer insurance claims for loss or damage
  • Fewer invalidated guarantees for damaged goods
Certified agents Ability to handle secure cargo

“One-for-One” Rule

The “One-for-One” Rule does not apply to the amendments. The amendments only result in administrative costs for those businesses that voluntarily participate in the air cargo supply chain as known consignors. However, given that shippers will still have the option of shipping by air without participating as known consignors (and without incurring administrative costs), voluntary administrative costs associated with participation are not considered administrative burden for the purposes of the “One-for-One” Rule. In any case, Transport Canada has sought to minimize these voluntary administrative costs to those necessary to maintain the integrity of the air cargo supply chain.

Small business lens

There are no additional costs imposed on small businesses as a result of the amendments; therefore, the small business lens does not apply. The amendments provide all approved businesses, including small businesses, with the opportunity to screen their own cargo, reducing the demand for existing screening capacities, which is expected to reduce screening charges, and shipment delays. By reducing the systemic burden on air carrier and regulated agent screening capacities, the amendments are also expected reduce delays and shipping charges for those small businesses whose full participation does not make sense.

However, consideration has been given to small businesses in the development of the amendments. Industry will be informed, and compliance promotion activities will be provided. Outreach sessions were held in cities across the country over the summer and fall of 2013 to help reach out to new stakeholders, including small businesses, and to inform them of how they can be involved in the program. Transport Canada has planned for additional outreach sessions in 2015 and 2016 now that the new program requirements have been finalized.

In addition, all forms and processes and the Web site will be compliant with the common look and feel of Government and forms will be pre-populated with information or data already available to the Department to reduce the time and cost necessary to complete them. If applicants have previously applied to the program, previous validation numbers are required so that Transport Canada can retrieve previously saved information. In addition, online application modules are under development and will be ready in fall 2016. Electronic data collection will be used, including electronic validation and confirmation of receipt of reports where appropriate, with the expansion of the Secure Supply Chain Information Management System (SSCIMS). Consideration has also been given to small businesses in remote areas, with special consideration to those that do not have access to high-speed (broadband) Internet. In such cases, prospective participants may call the Air Cargo Security Support Centre to request that application forms be sent to them by mail. Clients and participants may also call the Support Centre for any assistance they require. The information could be provided via fax and entered in the database by the Department.

Consultation

The consultation process was conducted in three phases. The first two phases of consultations were conducted with both current and new stakeholders. The third phase was a 60-day consultation period following the prepublication of the draft Regulations in the Canada Gazette, Part I, on November 1, 2014.

November 2011 to July 2012 (current stakeholders)

Small-scale, preliminary consultations were undertaken to engage the current stakeholder community, which consists of air carriers and approved members of the program and certain member associations, such as the Canadian International Freight Forwarders Association Inc. (CIFFA) and the Northern Air Transport Association (NATA). Meetings were also held with other organizations, including the Air Transport Association of Canada (ATAC), the Air Cargo Security Technical Committee, the National Air Cargo Security Training and Awareness Committee (NACSTAC), and the Canadian Trucking Alliance (CTA).

The objectives of this first phase of consultations were to

The proposed policy was very preliminary, but the high-level concept was generally well received. However, Transport Canada did receive a submission from the Canadian International Freight Forwarders Association Inc. (CIFFA) that urged the Department to consider that third-party service providers should be directly regulated by Transport Canada.

The submission was given careful consideration and led to a significant change in policy direction for the program with respect to third-party service providers, which was reflected in the regulatory proposal presented in the second phase of consultations.

July 2012 to October 2012 (current and new stakeholders)

Phase two of the consultations took place with current stakeholders as well as the broader stakeholder community, including shippers, third-party service providers and other interested parties, such as airport authorities, freight forwarders and logistics companies involved in the movement of air cargo, including small businesses. The objectives of the second phase of consultations were similar to those of the first.

Meetings were held in Ottawa, Vancouver, Edmonton, Winnipeg, Yellowknife, Calgary, St. John’s, Halifax, Toronto, Montréal and Moncton with current and new stakeholders beginning on September 6, 2012, and ending on October 17, 2012.

Consultations were also held online beginning on August 28, 2012. Information was posted on the Transport Canada Web site about the proposed regulatory framework, with comments from the public invited. Few comments were received via this forum.

Transport Canada also reached out to relevant federal departments and agencies through the Air Cargo Interoperability Working Group (ACI-WG) and launched the Air Cargo Security (ACS) Awareness Process in an attempt to identify synergy between federal programs with respect to air cargo and to bring the relevant organizations that are involved in the shipment of goods by air, such as the Department of National Defence, Health Canada, the Royal Canadian Mint and Canada Post, into the Air Cargo Security (ACS) Program. The proposed Regulations were presented to the Air Cargo Interoperability Working Group on September 20, 2012, and were met with a positive reaction.

Throughout the second phase of the consultative process, the proposal was generally very well received. The feedback and questions received focused mainly on operational issues, how the program would take shape and what the role of various stakeholders would be in terms of participating in the handling of secure cargo. For the most part, Transport Canada was able to address issues immediately.

Concerns focused mainly on the following areas:

Most concerns have been addressed and Transport Canada continues to work closely with companies to mitigate any possible impacts and concerns. Among the concerns raised, none have required a change to the regulatory proposal per se.

With respect to Canada’s North, Transport Canada has been and will continue to be involved in open dialogues with those stakeholders involved in getting food shipments to northern communities, with a view to finding solutions so that the cost and timely delivery of food to the North are not unduly affected. A northern air carrier working group has been created in order to ensure that Transport Canada is well aware and continues to be aware of the distinct issues affecting northern and remote regions.

With respect to recognizing different credentials, considering that there are differences in mandate for different departments, Transport Canada is committed to avoiding any duplication of administrative burden with other Government departments and is working to find equivalencies between different programs / security requirements, particularly in relation to Canadian-based programs. Such information will be provided to industry as guidance material.

In addition, Transport Canada is also committed to working with companies to determine what their role could be in the secure supply chain and how the amendments apply to their business.

November to December 2014

The most recent phase of consultations took place following the prepublication of the draft Regulations in the Canada Gazette, Part I, on November 1, 2014. The formal consultation period lasted 60 days, ending on December 30, 2014.

In order to ensure maximum stakeholder awareness of the amendments, approximately 12 000 notices were sent out informing stakeholders that comments could be made regarding the amendments following their publication in the Canada Gazette, Part I. This phase of consultations involved interaction with current approved members of the program, as well as the broader stakeholder community, including shippers, third-party service providers, freight forwarders and logistics companies involved in the movement of air cargo.

The objectives of these consultations were to

Thirteen responses were received during the 60-day comment period. The comments received indicated that the draft Regulations were generally well received and supported by stakeholders, with some questions about how these Regulations would work in conjunction with security measures made under the Aeronautics Act. (see footnote 9) Responses to the comments were posted on the Security Regulatory Advisory System (SRAS) and discussed with stakeholders on April 8, 2015, at the Air Cargo Security Technical Committee meeting.

Comments focused primarily on the following areas:

Overall, industry was very supportive of the proposed regulatory approach. All comments and concerns were given careful consideration, and the changes made following prepublication in the Canada Gazette, Part I, are non-substantive. In response to the comments received, Transport Canada has

Regulatory cooperation

Transport Canada is confident that the amendments will further the promotion and pursuit of international cooperation, collaboration, sharing of best practices, and the negotiation of mutual recognition arrangements between key trading partners in order to have in place the best possible Air Cargo Security Program and supporting regulatory framework. Activities currently include

Canada’s key trading partners, including the United States and the European Union, require all cargo destined for their airports to be secure. In its current form, the Air Cargo Security Program is not considered to be equivalent to programs implemented by Canada’s international partners. In order to meet international standards, 100% of cargo must be screened.

Because of Canada’s unique geography and industry profile, creating an identical program to those of its international partners is not feasible. However, Transport Canada has consulted with the United Kingdom, the United States and Australia, and feedback has been favourable. Transport Canada endeavours to create a program, supported by regulations, that adopts the best practices of its international partners. The Regulations are also consistent with ICAO standards and recommended practices for air cargo and the secure supply chain.

Rationale

The amendments consist of an approach that will align Canada with its international trading partners, create a flexible screening model for the air cargo industry, and benefit Canadians overall, both in terms of the Canadian economy and in terms of security.

As the amendments were being developed, numerous options were considered, including the status quo. The status quo presents the least amount of burden and lowest costs for businesses and the Government. However, it is inconsistent with the main goals of the Air Cargo Security Program and those of international partners. A secure supply chain and air cargo system cannot be attained and recognized by trade and international partners without implementing robust regulations that will ensure all participants involved in the handling of air cargo are held to the same standards.

Since enhanced screening requirements will soon be in place, thus inevitably increasing costs to those who wish to ship their goods via air cargo, the amendments establish a flexible system whereby companies could choose, based on their business models, how and where their goods are screened.

Known consignors are expected to benefit from less costly and more reliable cargo security options, while unknown shippers will benefit from the reduced systemic burden on air carrier and regulated agent screening capacities. As this is a voluntary program, the Regulations are expected to ensure that participation costs will only be incurred where a compensating benefit exists for individual, prospective participants in terms of reduced delays and screening costs. In addition, given that the amendments are largely performance-based, participants will find that they allow flexibility in compliance. It is expected that the Regulations will result in a net benefit to Canadians.

For certified agents, the amendments bring several advantages, including direct certification by Transport Canada. Program participants will receive information directly from Transport Canada instead of through third parties and will be directly inspected by Transport Canada. They are expected to gain a portable, marketable credential to present as a company that can reliably handle secure cargo.

Approved participants under the current system are expected to benefit from clearer authority to screen for threat items as regulated agents.

Airlines are expected to benefit from more screening taking place further down the secure supply chain, which will reduce bottlenecks from screening cargo at the airport.

The amendments present a direction that raises few significant concerns. During the pre-consultation period, the amendments were well received based on preliminary feedback collected from key stakeholders who are involved and have interests in the air cargo industry. Transport Canada has been mitigating and finding solutions to issues presented by stakeholders and will continue to do so. Based on questions and feedback that have been received, Transport Canada is certain that the regulatory framework is flexible enough to accommodate scenarios that have been put forth and different types of stakeholders who wish to participate.

The amendments also aim to maintain the level of security that airlines and their passengers benefit from currently, and will not diminish it in any way.

Implementation, enforcement and service standards

These amendments will come into force on October 17, 2016. Between registration and the coming-into-force date, Transport Canada plans on contacting its list of registered shippers to promote the amendments and outline options for those registered shippers who may be interested in participating in the program. Specific actions at this time may include meeting with prospective participants, answering inquiries, developing and distributing promotional materials, and organizing information sessions to explain the amendments. Transport Canada is also relying on current participants in the program to help with outreach activities with their clients, who will be the known consignors and certified agents who are targeted as the basis of the Regulations, in terms of their potential screening capabilities or interest in handling secure/screened cargo.

With respect to enforcement, upon successful completion of the registration and application process, Transport Canada will issue to known consignors and certified agents a validation number and a screening designation certificate, under section 4.84 of the Aeronautics Act, which is a Canadian aviation document (CAD) as defined in subsection 3(1) of the Aeronautics Act and which will include conditions relating mainly to the screening or transporting / storing of secure cargo.

These amendments will be enforced through the suspension or cancellation of the Canadian aviation document, through the assessment of monetary penalties under section 7.7 of the Aeronautics Act or through judicial action introduced by way of summary conviction as per section 7.3 of the Aeronautics Act.

Implementation, compliance promotion and enforcement activities will be resourced under existing resource capacity and allocated accordingly within the existing departmental reference level.

Once an application is received, the service standard associated with becoming a known consignor or certified agent is expected to be 190 days. This standard is based on a responsive applicant who submits completed forms with the required information in a timely manner. The period between the publication of these Regulations and the coming-into-force date will allow industry participants to submit their applications for approval to the Air Cargo Security Program well before October 17, 2016.

Contacts

Wendy Nixon
Director
Aviation Security Program Development
Transport Canada
Ottawa, Ontario
K1A 0N5
Email: ACSconsultation-consultationSFA@tc.gc.ca

Air Cargo Security Support Centre
Telephone (toll-free): 1-866-375-7342
Fax: 613-949-8502
Email: aircargo-fretaerien@tc.gc.ca