By: Scott Gearity
1. Reform makes exporting transitioned items from the US to Canada especially simple
A key feature – perhaps the key feature – of Export Control Reform is that many items which were once controlled (or assumed to be controlled) under the International Traffic in Arms Regulations have or will instead come under the scope of the Export Administration Regulations.
One of the major differences between the ITAR and the EAR is in how these two bodies of regulations determine export license requirements. With the ITAR, each export of a defense article requires a license, unless the transaction specifically qualifies for an exemption. By contrast, the most common EAR export authorization is No License Required. The vast majority of EAR-controlled items may already be exported from the US to Canada NLR. With reform, this treatment is extended to include the military items no longer included on the US Munitions List and now classified in 600 series Export Control Classification Numbers. In other words, many military commodities which used to require Department of State licenses for export from the US to Canada (or perhaps qualified for the ITAR’s Canadian exemption) may now be exported for ultimate end-use in Canada without a license.
This is a big change that makes exporting some military items from the US to Canada much easier. But it is also consistent with the longstanding US policy of granting Canada favorable treatment under the EAR. Canada is the only country to which 600 series items in general may be shipped NLR.
2. Reform also means easier movement of transitioned items within Canada
Want to send ITAR-controlled goods across Toronto for heat treatment? Or to Vancouver for testing? What about selling surplus to potential buyers elsewhere in Canada? The State Department may view such actions as retransfers, requiring their approval.
But just as the export of USML to Commerce Control list transitioned items is eased by reform, so is the movement of these items within Canada. In general, as long as a Canadian firm avoids transferring an EAR-controlled item for a problematic end-use or end-user or with knowledge that the other party will reexport the item contrary to the EAR (e.g. to Europe without a license or qualifying license exception), it is possible to retransfer most EAR-controlled goods (including 600 series items) without specific US Government authorization.
3. You might be able to say goodbye to the “see-through rule”
From the perspective of the Canadian purchaser of US-origin parts and components, another major benefit of ECR is the EAR’s more reasonable approach to determining which Canadian-made products are subject to US reexport controls as a result of their integrated US-origin content. Under the ITAR’s infamous “see-through rule,” burdensome State Department regulations may apply to a Canadian-origin product – any Canadian-origin product (including entirely commercial ones) – based on the incorporation of even a single, minor ITAR-controlled part.
The EAR takes a different approach. The general rule is that reexports of products made in Canada are subject to the EAR only if they incorporate more than a certain proportion of US-origin controlled content (25 percent for most countries or 10 percent for Cuba, Iran, North Korea, Sudan and Syria). For Canadian equipment, software or technology with US-origin 600 series content, this general rule applies as well, with one important exception – when the destination is under US arms embargo (i.e. is included in Country Group D:5) the Canadian product is always subject to the EAR. This does not necessarily mean it requires a Department of Commerce reexport license, but it does mean that if the destination of your product incorporating 600 series content is a place like China, Venezuela or Vietnam, the EAR is relevant to the reexport transaction.
4. US exporters are now (sometimes) required to provide you with ECCNs
It can be difficult for Canadian purchasers to reliably obtain US export control jurisdiction and classification information from their US suppliers. Those same Canadian companies are sometimes surprised to learn that there has been nothing in the ITAR or the EAR which generally requires US companies to provide that information.
Now, with ECR, there is, at least when it comes to 600 series items. According to EAR §758.6(b), the ECCN “must be printed on the invoice and on the bill of lading, air waybill, or other export control document that accompanies the shipment from its point of origin in the United States to the ultimate consignee or end-user abroad.”
5. Nothing is changing about the ITAR’s Canadian exemption
Many items are transitioning from the USML to the CCL, but by no means everything. Whether the goods you purchase from the US will move off the USML depends on exactly what they are, though it is already clear that more parts, components and materials are being removed from ITAR control in some areas (e.g. ground vehicles, surface vessels) than others (missiles, explosives & energetic materials).
And what if the items of interest to you remain subject to the ITAR? The status quo applies. Some of those defense articles may be eligible for export to Canada (and retransfer within Canada) under the existing Canadian exemptions at ITAR §126.5. And aside from some minor revisions to mirror the restructuring of the USML, the Canadian exemptions remain essentially unchanged from its pre-ECR state.