On May 7, 2016, the Canadian government announced that it will begin the regulatory process to remove Belarus from the Area Control List (ACL) - a regulation to the Export and Import Permit Act (EIPA). The export of any goods and the transfer of any technology to countries listed on the ACL, currently Belarus and North Korea, is prohibited without first obtaining a permit. Such permits are only issued in rare circumstances. Up until now, Canada’s restrictions against transfers to Belarus have been significantly broader in scope than those imposed by the United States and European Union. Their repeal presents new opportunities for Canadian businesses to now access a market that has been off limits for the past ten years.
Initial Imposition of Canadian Restrictions
Belarus was first added to the ACL in December 2006 as a result of Canada’s concern that the Belarusian government was violating basic human rights and freedoms - namely political rights and the freedom of expression. Belarus’ placement on the ACL essentially prohibited anyone in Canada from (i) transferring any goods or technology to Belarus or (ii) causing any item that appears on the Export Control List (ECL) to be transferred to Belarus, regardless of where the item was shipped from (commonly known as a diversion ban).
The timing of these measures was initially intended to dovetail with US and EU sanctions on more than 170 Belarusian individuals and entities which included travel bans and asset freezes, although there are fundamental differences between these measures and those of Canada.
How Canada’s Approach Differs from the United States and European Union
There are distinct differences between Canada’s approach on this issue compared with that of the United States and European Union, which relate directly back to the nature of the original government action. Against common misconception, Canada has never formally sanctioned Belarus. It has only placed it on the ACL. The measures adopted by Canada were in the nature of export controls, not economic sanctions, and never required any individual or company to be placed under either an asset freeze or a travel ban.
This confusion has played no small role in creating legally difficult situations for US, EU, and other non-Canadian multinational companies with a Canadian presence. In many instances, these and other Canadian companies who viewed compliance with US and EU sanctions against Belarus as being sufficient and did not think to review Canadian export control measures, often found themselves in contravention of Canadian law when engaging in transfers from Canada to Belarus. Further, Canadian companies who structured transactions with their foreign subsidiaries that were in full compliance with US and EU law may have been in violation of the Canadian diversion ban for causing the shipment of ECL-controlled goods to Belarus from anywhere in the world.
This was a particular challenge for software development and IT outsourcing, a vibrant and growing sector in Belarus. It is important to note that even though Belarus will be removed from the ACL, permits must still be obtained to export ECL-controlled information security items or transfer any related technology from Canada to destinations other than the United States. A number items related to software development and IT outsourcing continue to be controlled for export or transfer, including information security items (encryption and decryption) and cybersecurity items, such as intrusion software, IP network surveillance systems, and all related software and technology. These export control measures are more aggressive than those of the United States, especially since the United States has not implemented cybersecurity controls.
Repeal of Export and Transfer Bans – Recognition of Progress
The Canadian government’s recent decision recognizes that the Belarusian government has made some progress in key areas, including releasing numerous political prisoners, conducting a presidential election, and participating in mediation efforts regarding Ukraine and the Crimean Region. The Canadian government has also noted that its decision was also made to harmonize Canada’s approach with that of the United States and European Union that have already taken steps to repeal or significantly curtail their economic sanctions on Belarusian nationals.
Moving Forward – Carefully Monitor Repeal Process
Despite Belarus being removed from the ACL, Canada will continue to strictly control the transfer of goods, technology, software, and services that are identified on the ECL to all destinations. The controlled items are categorized into the following seven groups, and require a permit to export:
- Group 1 (dual-use, including encryption, cybersecurity, sensors, computers, sensitive materials)
- Group 2 (military)
- Group 3 (nuclear)
- Group 4 (nuclear dual-use)
- Group 5 (miscellaneous, including all U.S.-origin items and any items intended for restricted end uses)
- Group 6 (missile and navigation)
- Group 7 (chemical and biological weapons)
As an interim measure while the regulatory process to remove Belarus from the ACL is underway, Global Affairs Canada has announced it will be issuing export permits on request as a matter of course for any good or technology that is not listed within one of the seven aforementioned groups. Such permits will be issued in the normal course and this is intended to begin the process of normalizing commercial relations while the relatively slow regulatory process continues in due course. This interim measure is effective immediately.
Though the new policy clarifies that the ACL will be amended to remove Belarus, and that the Canadian government will, as a normal course grant permits for non-ECL goods and technology, there is no mention of the diversion ban. As such, until Belarus is formally removed from the ACL, companies should be careful regarding transactions with Belarus and Belarussian individuals and entities.
Belarus is a country emerging from a decade of economic sanctions and export controls, and eager for closer ties to Europe and the West. Given the state of its economy, there is now significant opportunity for Canadian companies to engage in trading, investment, and research and development with the Belarussian business community. Under this new policy, the Canadian government has eliminated the major roadblock for Canadian business, and put Canadian firms back on a level playing field with those of our allies.