Canada and the United States enjoy a unique trading relationship that encompasses the world’s largest exchange of goods and services. It annually provides $1.6 trillion in bilateral trade and investment and supports millions of jobs in each country.
The leading sectors for U.S. exports to Canada include:
- Aerospace and defense
- Defense equipment
- Education and training
- Energy and renewable energy
- Information and communications technology
- Medical devices and equipment
Still, shipments from the U.S. to Canada are exports, which means U.S. exporters need to consider export compliance. The good news for U.S. companies is that export control regulations are significantly less restrictive for Canada which enjoys a special status due to the high volume of trade between our nations, a long history of government-to-government trade cooperation, and the extensive integration of U.S. and Canadian industrial bases across several sectors.
From a market development perspective, the ease in exporting to Canada means that Canadian companies are drawn to U.S. producers for goods and services. If a Canadian company is trying to source parts or materials, it’s often much easier to import those items from the U.S. than from other countries.
If you are seeking to build your export market in Canada, the first step is to review the regulations that are relevant to your business and industry. Let’s recap Canadian export guidelines under the Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) administered by the Directorate of Defense Trade Controls (DDTC).
The EAR and Canada
Under the EAR, relatively few items need a BIS license for export to Canada. License requirements in the EAR are largely driven by the “reason(s) for control” assigned to a given item, in combination with whether those controls are applicable to the destination country. Some reasons for control – such as missile technology, national security, nuclear nonproliferation, regional stability, and crime control – trigger a license requirement to most or all countries. However, Canada is the only country that does not require licenses for these reasons.
That is not to say that U.S. exporters never require a license for a shipment to Canada, but these situations tend to be atypical. For example:
- A license is required to ship human pathogens, zoonoses, toxins, animal pathogens, genetically modified microorganisms and plant pathogens identified in ECCNs 1C351, 1C353, and 1C354 and other items controlled for chemical & biological weapons (CB Column 1) reasons to Canada.
- Firearms, shotguns, and other items controlled for the reason of firearms convention (FC Column 1) generally require a license for export to Canada.
- Some other, rather uncommon commodities such as equipment for human executions (ECCN 0A981), implements of torture (ECCN 0A983), surreptitious listening devices and software (ECCNs 5A980 and 5D980), and certain spacecraft (ECCN 9A515.a.1-4) require a license for export worldwide, including to Canada.
- Dozens of Canadian companies and individuals are on U.S. restricted parties lists. Depending on the details of the transaction, a license may be required to export to or engage in other activities with these persons.
- If an item will merely transit Canada enroute to another country, the exporter should generally apply the controls applicable to the country of ultimate destination, which will usually be more stringent.
ITAR and Canada
A substantial amount of trade is conducted between the U.S. and Canada for military items and goods for defense aerospace manufacturing and production. These categories are subject to a greater degree of export control restrictions under the ITAR.
In a unique step, the Canadian government, to an extent, has extended its own export control list to cover U.S.-origin items, even when they would not otherwise be captured on the Canadian list. Canada’s Export Control List encompasses “all goods and technology of United States origin” and explicitly references the ITAR by name. This is unusual and no other country has effectively adopted U.S. extraterritorial controls in this manner. The Canadian government strives to maintain its favored treatment from the U.S. and has demonstrated that its own export control laws govern reexports of U.S.-origin items from Canadian territory.
While ITAR controlled items do generally require a license, there are relatively broad Canadian exemptions that allow for certain transactions involving Canada to be conducted without a license, if the conditions of the exemption are met. The three types of Canadian exemptions in the ITAR are:
- Exports from the U.S. to Canada (see below)
- Temporary imports from Canada into the U.S., and then back to Canada
- Retransfers within Canada, in which a Canadian entity may make initiate a change in end use or end user, or temporarily transfer an item to another entity within Canada
The export exemption for items sent from the U.S. to Canada applies if important conditions are met:
- The item can only be exported to an eligible party, which includes Canadian federal and provincial government agencies and organizations that are registered entities with the Canadian government under the Controlled Goods Program.
- The item must be for end use in Canada or the U.S. items cannot be purchased under this exemption and then shipped to another country, such as to Germany or South Korea.
- Supplement No.1 to Part 126 of ITAR contains an extensive list of items that are excluded from the exemption. Exporters should check their export item against this list to ensure it is not on this list.
- The Canadian exemption is not all encompassing. In particular, certain levels of technology and many defense services are excluded from eligibility.
The Cuba Issue
Cuba has long been covered by comprehensive U.S. sanctions prohibiting most trade between Cuba and the U.S. However, Canada does not have sanctions in place for Cuba and it conducts some amount of trade with the island nation.
Under the applicable Office of Foreign Assets Control (OFAC) sanctions regulations, U.S. companies, and their Canadian subsidiaries, are generally prohibited from conducting or facilitating trade with Cuba, either indirectly or directly. Complicating matters for U.S.-owned or controlled companies in Canada, Canada has a blocking statute that instructs Canadian companies that in some cases they are not allowed to comply with U.S. sanctions against Cuba. This conflict between U.S. and Canadian laws and sanctions has created numerous problems for U.S. companies operating in Canada, so export professionals on both sides of the border should be alert to this issue.
Where to Get More Information
For more information on exporting to Canada, check out the following websites:
- BIS Canada Export Control Information
- ITAR Canadian Exemption
- Global Affairs Canada
- Canadian Controlled Goods Program
Canada is a thriving market for U.S. exports and although it holds special status, U.S. export regulations are inherently complex and change frequently. Staying current can seem like a never-ending process. ECTI covers exporting to Canada in all of our live seminars and many of our on-demand e-seminars. Non-U.S. attendees can access this material at our live seminars conducted outside the U.S. and through our non-U.S. e-seminars. Check out our latest tools & resources here.
ECTI can help you easily stay current with the ever-changing landscape of export regulations. Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.