In light of the COVID-19 pandemic, many businesses in Canada are experiencing an increase in demand to import or export COVID-19 related products or technology. Although the pandemic is causing companies to operate on limited funds, compliance with Canada's import and export controls is still required as controls have not been relaxed. As customers demand quick deliveries, it is more important than ever for businesses to understand the trade control rules that apply to their products or technology.
This bulletin provides an overview of relevant Canadian export and import controls that businesses should thoroughly understand to ensure compliance in this unique COVID-19 environment.
The Export and Import Permits Act establishes controls on the export of goods, technology and software listed on the Export Control List ("ECL") through an export licence permitting process. An application for and approval of an export permit is required for a listed item to be exported or transferred from Canada. In addition to more obvious items such as munitions or chemicals, the ECL includes so-called dual-use goods that have both a military and also a civilian purpose. This includes items such as personal protective equipment and certain computers.
While not specific to COVID-19, on May 1, 2020, amendments to the ECL will come into force that add new goods, technology and software to the list, such as magnetic random access memories, and remove from control certain other items, such as robots capable of full three-dimensional image processing in real time. As of May 1, exporters whose technology is not currently subject to controls may have their shipments significantly delayed and refused by the buyer because of the change in control coverage and a failure to make this determination prior to the shipment.
As discussed below, Canada also imposes certification and licence requirements under other legislation to control the export of certain medical items from Canada.
Export Control Compliance Considerations in Light of COVID-19
Exporters of medical goods and devices, software and technology may be experiencing an increase in demand due to COVID-19. With many customers demanding urgent delivery, it is imperative to determine whether an item is controlled to facilitate seamless exportations. The ECL contains many exceptions for controlled items used for medical-related purposes. However, it is crucial to determine control status well before shipment.
Exporters of medical goods and devices, software and technology must also determine whether a certificate or licence issued under the Food and Drugs Act is required. The certificate and licensing requirements will depend on the recipient of the item and the intended use (e.g. a clinical trial), among other considerations. Failure to obtain the proper licences under either law could result in severe civil or even criminal liability.
Also, Canada has not relaxed its sanctions regime and dealing with sanctioned entities, including their subsidiaries and agents, even regarding COVID-19 related items is still prohibited unless a sanctions authorization permit is obtained.
Export Controls Apply to Remote Working
Canada's export control scheme applies to technical data and technical assistance (e.g. training) and information necessary for the development, production or use of an item listed in the ECL. For these 'intangible' items, an export permit may be required simply by an employee providing technical data to foreign buyers or, for example, off-shore training on controlled medical devices or products from their home, either by email or over the phone.
With many businesses working remotely, compliance departments and managers need to ensure their employees are not inadvertently exporting such intangible, controlled data or information without first securing an export permit.
The Export and Import Permits Act also establishes an Import Control List, which requires listed items, such as certain chemicals, to hold a permit for importation into Canada. Businesses importing chemicals, such as those required for reagent testing, should determine whether an import permit is required.
Canada also imposes import controls under the Customs Tariff in the form of tariffs, which vary in amount depending on the tariff classification number applicable to the item. It is essential, prior to importing an item, to use the correct tariff clarification number. A failure to do so could result in the costly misapplication of tariffs that were not meant for the item. For example, as mentioned in our Trade Update, certain emergency medical supplies may qualify for duty free entry if imported under the correct tariff code and will either be consumed or destroyed during the emergency or re-exported when no longer required. Canada Border Services Agency has also provided custom duty payment deferrals as described in our Trade Update .
Import controls in the form of licences or certification requirements may also apply to COVID-19 related items. For example, most importers of N95 masks must hold a Medical Device Establishment Licence. Also, depending on the drug and purpose for which the drug is imported, importers may also need to hold an establishment licence on which the foreign manufacturer of the drug must be listed.
COVID-19 is causing extraordinary change in the way businesses conduct their cross-border operations. Supply chain and just-in-time delivery challenges are being exacerbated by the country-wide shift to remote work and in some cases reduced workforces. In the face of these challenges, understanding, managing and complying with the changing rules and procedures governing cross-border trade controls is more essential than ever. When developing strategies to manage such an environment, it is important that trade compliance be top of mind, as overlooking or not properly understanding a control requirement can result in unacceptably costly delays or shortages that will affect not only buyers and their suppliers, but also first-responders and the most vulnerable.