Some time ago, Canada finally decided to join the United Nations Arms Trade Treaty (the “Treaty”), becoming the last NATO and G7 country to do so. However, before it can be accepted into the Treaty, it must make significant changes to its trade control regime. As a result, the Government has made, and will be making more, changes to the laws that apply to exporters, importers and brokers.

The Treaty aims to regulate international trade in conventional arms (everything from small arms to battle tanks, combat aircraft and warships) by requiring signatories to implement robust controls over conventional arms trade.

Compliance with the Treaty requires Canada to introduce a new legislative scheme controlling arms brokering, and make significant changes to the current export control system. To do so, Canada has amended the Export and Import Permits Act (“EIPA”) and has published proposed Regulations. The proposed Regulations are expected to come into force as early as May 15, 2019.

If you are involved in the international trade in conventional arms, whether as an exporter, importer or broker, it is important that you familiarize yourself with the legislative changes affecting that trade.

Amendments to the Export and Import Permits Act (EIPA)

The most significant change is the imposition of license requirements for brokering transactions in conventional arms. Brokering is defined as the arrangement or negotiation of a transaction relating to the movement of goods or technology on the Brokering Control List, discussed below, from one foreign country to another foreign country.

The EIPA now prescribes that the Government will not issue an export or brokering permit if there is a substantial risk that the proposed transaction would result in any of the negative consequences enumerated in the Treaty, which include the risk that the items would undermine peace and security or could be used to commit or facilitate serious violations of humanitarian or human rights law, among others.

The EIPA now prohibits unauthorized brokering, such as brokering without a permit. This prohibition has extraterritorial reach, applying both inside and outside of Canada to Canadian citizens, permanent residents and organizations (e.g., public bodies, body corporates and partnerships).

Further, the EIPA now allows larger fines to be imposed upon summary conviction, with the maximum allowable fine increasing from $25,000 to $250,000.

Proposed Regulations

Canada has published six new regulations that may come into force as soon as May 15, 2019. The first four regulations address brokering, while the last two establish a new group of controlled items under the Export Control List and a General Export License. The following is an overview of the six regulations proposed:

Brokering Control List

This list sets out the items that require a brokering permit, all of which are already included in other areas of the Schedule to the Export Control List. Dealers and distributors who engage in arms brokering will be required to consult this new list, and a failure to do so could result in a conviction under the EIPA.

Brokering Permit Regulations

This regulation prescribes the information a permit application must contain, including such details as a description of the goods or technology, where the goods are coming from and going to, the final destination, and a copy of an end-use certificate, if available.

General Brokering Permit No. 1

Not every item on the Brokering Permit List requires an individual permit. The Regulations set out General Brokering Permit No. 1, which removes the need to apply for individual permits every time a person or organization engages in brokering. This permit allows any person or organization to broker any item in Group 2, munitions, and any items listed on the Brokering Control List to be imported into select low risk locations, including the United States, United Kingdom, Japan, Germany and the Republic of Korea. Note that use of this permit imposes the obligation to report to the Canadian Government twice a year regarding the use of the brokering permit.

List of activities not constituting brokering

The Regulations exempt two activities from the definition of brokering. The first is transfers between affiliates of a company, that is, where both companies are either controlled by the same corporation or one is controlled by the other. This exemption is only applicable when the receiving affiliate is the end user of the goods transferred. The second exception is for Canadians outside of Canada who engage in brokering activities after being instructed to do so by their employer, and over which they have no control. This exception applies in situations where a Canadian employee is working for a foreign corporation. Note that this exception does not apply to full-system conventional arms.

Establishing Group 9 under the Export Control List

The regulations establish a new Group under the Export Control List which lists the goods subject to the new licencing obligations. The items in this Group will include battle tanks, small arms and light weapons and missiles and missile launchers, among others. Items in this Group currently require an export permit to all countries except for the United States. Following the coming into force of these regulations, these items will also require a permit when exported to the United States. However, General Export Permit No. 47, discussed below, removes the need to apply for such individual export permits.

General Export Permit No. 47

A new General Export Permit (“GEP”) will be established to minimize the impact of the new export permit requirement for Group 9 items entering the Unites States. GEP 47 will include not only items in Group 9, but also non-restricted and restricted firearms and ammunition. Use of this permit imposes an obligation on the exporter to report on the export of such items to the Export Controls Operation Division twice per year. Note that exports to the United States of prohibited firearms will still require individual export permits.

The changes flowing from Canada’s decision to join the Treaty are substantial. They create an entirely new prohibition and a new licensing scheme. For those involved in exporting, distribution or brokering, it is important to read and understand these legislative changes to determine if and how they affect your business.