THE STANDING SENATE COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE
OTTAWA, Wednesday, November 28, 2018
The Standing Senate Committee on Foreign Affairs and International Trade, to which was referred Bill C-47, An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments), met this day at 4:15 p.m. to give consideration to the bill.
Senator A. Raynell Andreychuk (Chair) in the chair.
The Chair: The Standing Senate Committee on Foreign Affairs and International Trade is meeting today to continue our examination of Bill C-47, An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments).
Before I turn to our witnesses today, I am going to ask senators to introduce themselves, starting on my left.
Senator Boehm: Peter Boehm, Ontario.
Senator Bovey: Patricia Bovey, Manitoba.
Senator Dean: Tony Dean, Ontario.
Senator Saint-Germain: Senator Saint-Germain from Quebec.
Senator Massicotte: Paul Massicotte from Quebec.
Senator MacDonald: Michael MacDonald, Nova Scotia.
Senator Greene: Stephen Greene from Nova Scotia.
The Chair: I’m Raynell Andreychuk from Saskatchewan.
We have by video conference two witnesses that we are pleased were able to accommodate us at this time, Mr. Kevin Wolf, former U.S. Assistant Secretary of Commerce for Export Administration, U.S. Department of Commerce; and also by video conference, from Vancouver in this case — Mr. Wolf is from Washington — Professor and Canada Research Chair in the Department of Political Science at the University of British Columbia.
In person, we have Mr. James Fergusson, Deputy Director at the Centre for Defence and Security Studies, Department of Political Studies, University of Manitoba.
I welcome all of our witnesses to the committee. Our usual procedure is to have short opening statements and then senators will place questions to our witnesses.
I’m going to start in the order that I introduced our witnesses. I should advise our witnesses that we have your biographies, lengthy biographies, that have been distributed, so we don’t want to take up the time of the committee to fully introduce you. Thank you for providing the information in advance.
Mr. Wolf, I’m trusting that the video conferencing is going to work, so welcome to the committee.
Mr. Wolf, I presume you can hear me, and we look forward to your presentation.
Kevin Wolf, Former U.S. Assistant Secretary of Commerce for Export Administration, U.S. Department of Commerce, as an individual: Thank you for inviting me. As mentioned, I was the assistant secretary of commerce for export administration during the Obama administration, which meant I was primarily responsible for the administration of the dual-use export controls, but as a result of several fundamental reforms to our export control system, also developed responsibility for most military items.
As a result of all those years of work, of rethinking what an export control system should be, and implementing some substantial changes, I have perspective on systems. I was also very active in the negotiation and testified several times before the U.S. Congress regarding the creation of the new Export Control Reform Act that became law just this August.
When I was in government, Canada was, by both law and policy, our most important ally with respect to export control trade policy. I met annually on a formal basis and then informally quite often with my counterparts in the various agencies within the Canadian government there and here, and elsewhere in the world. I am delighted to be able to help give you the perspective that I bring with my background to help however I can with your legislation.
With that brief introduction, I will stop and look forward to answering whatever questions you have. By the way, the positions and anything that I say today are not on behalf of anyone else, my law firm or any clients. They are just the positions, views and comments of Kevin, former government official.
The Chair: Thank you, Mr. Wolf. That was concise.
Mr. Byers, the floor is yours.
Michael Byers, Professor, Department of Political Science, University of British Columbia, as an individual: Good afternoon, I’m going to speak in English today, but I am quite capable of answering your questions in French.
I began my exposure to the issues of arms control and arms trade back in 1992 when I was a summer student in the legal office of the department of what was then External Affairs in Ottawa. Back in 1992, some initial discussions were taking place with regards to an arms trade treaty.
At that time, Canadian diplomats were working very hard to prevent some large arms-exporting countries from leaving loopholes in the draft treaty that would have allowed for the diversion of arms through third countries. I tell you this simply to say that I think Canada and Global Affairs Canada have a long and proud history in trying to ensure transparency with regards to arms transfers and thus to reduce the human suffering that results from illicit trade.
I also want to start by congratulating the Canadian government for amending this draft legislation during its time before the House of Commons. The draft that was passed at first reading in the House of Commons had two major loopholes and, as a result of the excellent work of the Standing Committee on Foreign Affairs and International Development, one of those loopholes has been closed. I won’t speak to that loophole at any length, apart from saying it was a loophole that allowed the minister to maintain and exercise her discretion, even in the face of evidence of a serious risk of serious human rights violations or violations of international humanitarian law. It was a loophole that was inconsistent with the Arms Trade Treaty, which is mandatory in this regard.
The bill that you have before you, adopted on third reading in the House of Commons, fixes that particular problem, so I would like to congratulate your counterpart committee in the House of Commons for having done excellent work here in persuading and recommending an amendment that brings the draft into much better compliance with the international treaty that we’re talking about.
The second loophole is something I want to address here. I’m particularly glad that Mr. Wolf is here, because it’s a loophole that concerns his country.
The Arms Trade Treaty requires that countries that ratify it treat exports to all other countries equally and mandates that its obligations be consistently applied.
In the case of Canada — and Canadian civil servants have confirmed this in previous testimony — we will not be applying the export control regime that you are addressing with regards to exports to the United States as a result of a defence production agreement that goes back to the 1950s between the two countries.
This is significant because more than half of Canada’s arms exports go either to the United States or through the United States, often as components that are incorporated into systems that are put together in the United States and exported abroad. So we’re talking about more than half of Canadian arms exports being exempt from the legislation as it currently stands before you.
As I said, this is inconsistent with the treaty. If we leave the United States out of the scope of this legislation, and this legislation acquires Royal Assent, Canada’s statute will be in violation of the Arms Trade Treaty that it purports to implement. That’s not anything parliamentarians should wish, to deliberately or consciously adopt a statute to implement a treaty that, at the moment it acquires the force of law, it is inconsistent with the treaty.
I have a suggestion here: that your committee propose an amendment to the bill that sets a timeline for the Government of Canada to introduce a reporting mechanism so that all arms transferred to the United States and all components for weapons transferred to the United States and other military systems be recorded and published in the same way as exports to all other countries. That would be a crucial first step. It wouldn’t bring us into full compliance, but it would be better.
I will close by saying that this recommendation of a reporting regime for exports to the United States is exactly what the human rights policy adviser to the previous Canadian foreign minister, Stéphane Dion, recommended in the Globe and Mail newspaper not quite one year ago, an article by Andrew Stobo Sniderman, making this recommendation, identifying the existence of this loophole and saying that a reporting mechanism would be one important way to close that gap.
That’s it for now. I would gladly take any questions you might have.
The Chair: Thank you, Mr. Byers.
James Fergusson, Deputy Director, Centre for Defence and Security Studies, Department of Political Studies, University of Manitoba, as an individual: Thank you for the opportunity to address the committee on issues concerning Bill C-47. My focus is on the defence industrial and technology side of the equation, the companies that will bear a significant burden, potentially above the burden entailed by existing defence export controls.
My first observation specifically regarding the legislation is that it appears as a solution looking for a problem. To my knowledge, existing defence export controls and legislation have largely been successful in ensuring Canadian-produced defence goods are well controlled. I believe the committee should be very careful in recognizing any additional administrative burdens, whether in terms of costs or time, that this new legislation may create.
The international defence marketplace relative to Canadian policy is highly competitive and any additional burdens on companies selling to allies and like-minded nations relative to the existing sanction regimes could well undermine export opportunities for Canadian firms, resulting in their greater dependence upon the Canadian market which, as I’m sure you know, is insufficient in terms of spending to sustain and expand Canada’s defence, industrial and technological capacity.
Second, it is important in considering this legislation that a clear understanding of the realities of Canada’s defence industrial and technological base. While the legislation before you does provide the minister with the ability to establish a list of countries to permit exports, I think it is important for the legislation to be more specific, especially with regard to an exemption for the United States.
As a function of the comparatively low level of Canadian defence spending in general, and capital spending in particular, this base significantly depends upon exports, especially to the American market, where it’s estimated that over 50, if not 60, per cent of Canadian defence goods are sold.
Moreover, the Canadian defence industrial base is not only dependent on relatively unfettered access to the American market; it is integrated in significant ways with the American defence industrial base, which has been recognized in American legislation.
The current nature of Canada’s defence industrial base is the product of several factors related to low Canadian defence investments. As Dr. Byers mentioned, the defence production-sharing arrangements, initially signed in the 1950s, provide that Canadian companies will be treated as American companies in U.S. defence procurement. Canada’s offset strategy — initially industrial and regional benefits, and now industrial and technological benefits — is premised on obtaining American prime defence contractors’ direct investments into Canada, either through the establishment of prime subsidiaries or partnering with Canadian domestic firms for domestic economic reasons, and in order to generate export opportunities down the road for these firms, U.S.-owned or Canadian.
The net result over time of low defence capital spending, the DPSA arrangement and Canadian offsets was a base that evolved into the second-tier production, sub-systems, parts and component suppliers — and not only significantly dependent upon access to the formal U.S. defence market, but also became integrated into the supply chains of U.S. primes. Even in the few cases of a Canadian prime capability, the integrated nature of the North American defence industrial base is clearly evident. For example, it is estimated that roughly 80 per cent of the parts or sub-systems components in the Canadian-produced light-armoured vehicle, owned by U.S. firm General Dynamics, is actually of American origin.
The removal of the American exemption in the context of this situation for the industry would have a dramatic and likely disastrous impact on Canadian defence firms, whether American or Canadian-owned, undermining Canada’s comparative advantage in the U.S. market and leaving these firms dependent on Canadian spending, which is simply insufficient to sustain them.
As a result, the economic objectives evident in Canada’s current defence policy, Strong, Secure and Engaged, and the 2018 defence investment plan would be undermined. Whether such a decision would have unforeseeable broader impacts on the vital Canada-U.S. defence relationship is also something that should not be ignored.
In this regard, I would add that consideration should be given to specify an exemption to Canada’s NATO allies, or at least to ensure that Canada’s legislation is in harmony with our allies to ensure a level and transparent playing field.
Finally, it’s important for the committee to recognize that Canada’s industry, regardless of ownership, produces few traditional defence goods for export, per se; instead, as sub-system component producers, Canadian production resides largely in the dual-use area.
While there is no easy solution to defining defence goods today, consideration must be given to ensure no unintended damage is done to Canada’s defence industrial capacity and its competitiveness. For example, Canadian firm participation in the U.S.-led F-35 alliance-based consortium is grounded upon cost and technological competitiveness. Any additional costs generated by export legislation could impact Canadian participation, with domestic economic implications.
In conclusion, it is important to recognize that the costs of export controls are borne by Canadian companies and great care needs to be taken to ensure that these costs do not undermine the viability of these key Canadian economic and technology assets.
I look forward to answering any questions.
The Chair: Thank you, Mr. Fergusson.
We will go to senators’ questions.
Senator Saint-Germain: Thank you, all three of you, for very interesting presentations. We appreciate that you took the time to be with us at short notice.
I have two questions, and both are for Mr. Wolf. The Arms Export Control Act is a key statute in U.S. munitions export control law. The Department of State implements this statute through the International Traffic in Arms Regulations. First, what are the steps a U.S. military good or technology typically goes through before being exported?
Second, even though the United States has not ratified the ATT, to what extent is the U.S. export control system consistent with the principles and standards included in the agreement regarding the export of conventional arms?
Mr. Wolf: I’m happy to help. There are actually two primary statutes governing the export of military and dual-use items, the Arms Export Control Act, which has been in effect for several decades, and then, since August, the Export Control Reform Act, which is the statutory authority for all dual-use items and less sensitive military items, which are largely parts and components.
That’s as a result of the changes I described and for which I was largely responsible during the Obama administration; namely, moving the jurisdictional responsibility of most military parts and components from the State Department to the Commerce Department. When thinking about the authorization required of the government before exporting a military or dual-use item, it’s important to keep both in mind.
The general policy philosophy of dividing the two — and I’ll answer your question — was to leave to the responsibility of the State Department, the U.S. munitions list and the ITAR you mentioned under the authority of the Arms Export Control Act to items that provide a significant military advantage to the United States, and to treat uniquely military but less sensitive items — largely parts and components in the supply chain — to the responsibility of the Commerce Department.
The first step when exporting is for the exporter to first determine whose regulations govern, whether the State Department’s regulations or the Commerce Department’s. The significance of that is that, with the State Department’ regulations, there are additional obligations that exist that do not exist under the commerce regulations. There are brokering obligations. There are obligations to control items abroad, even if very small amounts of U.S. content are in a foreign-made item, for example.
Under the Commerce Department’s regulations, it’s a little bit more liberal, particularly with respect to Canada, frankly, in the sense that there are licensing obligations worldwide, except that under the Commerce system, there are significant exceptions for NATO and other close allies.
The process is that after a company decides which regulations govern, they submit a licence application to either State or Commerce, or, on the Commerce Department side, determine whether an exception exists, if it’s to a NATO or another close ally. Then, when the licence is received at the State Department for a munitions list item, it is referred out to various departments within states, such as the Human Rights Group and the Economic Bureau. Then the same application is referred to the Defense Department, to the Defense Technology Security Administration, which is the point of contact for getting input from all the other various parts of the Defense Department about whether there is a national security concern associated with that particular export.
If the State Department and the various parts of the Defense Department agree that there is not a national security or foreign policy concern, which includes human rights considerations with that end user and that end use, then the State Department electronically issues an authorization back to the applicant. The authorizations apply not only to physical exports but also to re-exports from third countries. U.S. law, unlike most laws, is extraterritorial in that the U.S. law applies to U.S.-origin items, wherever the item is in the world, no matter how long ago it was exported from the United States.
That’s the same under the Commerce Department system, which has a similar process. When an application comes in, the Commerce Department will refer it to the same groups within the State Department — human rights, economic policy, et cetera — and then they will also forward it to the Defense Department, the same agency that will do the same review about whether the intelligence, history or the foreign policy with respect to that entity or the nature of the technology is of such a concern that we should deny the application.
If there is a disagreement, then there is a process for appealing up to various layers of political leadership. If there is an agreement on either an approval or an issuance with conditions, then, electronically, Commerce will issue the authorization.
Under the Commerce regulations, the big difference is, as I mentioned, exceptions in that sometimes items that otherwise would require a licence, if it’s to a particular end user and use in an allied country, then companies can self-certify that an item is authorized for export without needing to ask permission from the Commerce Department.
With respect to your second question about the Arms Trade Treaty, that exercise was led by my colleagues at the State Department, but I was active behind the scenes.
To answer your question directly, the primary purpose was to ensure that everything the U.S. system did was consistent based upon my understanding of the treaty with the obligations under the treaty.
The question raised in the opening comment about being inconsistent in light of an exception that exists for Canada is an interesting one, frankly, in that I had never discussed it or thought about it. The reason for that, I suspect, is that Canada and the U.S. export control system, both on the military and the dual-use side, is in a country group of one for U.S. export controls considerations. One of my primary objectives, frankly, in moving the less sensitive parts, components and related technology over to the Commerce Department system was to literally completely eliminate any licensing obligations for bilateral trade between the United States and Canada. That doesn’t exist for any other country. England, Australia and Japan all have individual licensing or licence exception requirements.
It was for the sake of the North American defence trade relationship and the other trading treaties and policies that were described before to eliminate regulatory burdens because of absence of concern with how Canadian companies and the Canadian government would treat or control U.S. origin defence or dual-use items.
I have three-minute, 30-minute, three-hour and three-day versions of every answer, so I will stop there and leave you to the next question.
The Chair: I think that was more than three minutes, but I think it was necessary.
Senator Bovey: I want to thank you all. I very much appreciate your perspectives.
Mr. Byers, I want to pick up on your comment about the loophole. I think you’re going to find that many of us wonder how we control what we’re selling to the United States. Perhaps you could talk a bit more about what you would recommend by way of an amendment and what you think the consequences of that would be.
My second question is for anybody to respond to. My colleagues will know I’m a little hung up on the CCC, the Canadian Commercial Corporation, and what they stand for. They work with Canadian exporters to secure international contracts. They’ve been asked by Minister Carr to analyze the risk assessments and transaction due diligence by the end of this month to ensure human rights, transparency and responsible business conduct that are the core guiding principles for the Canadian Commercial Corporation.
I’d like your thoughts on what that risk assessment should contain. Do any of you have any advice to us on that? Those are my two questions.
The Chair: We’ll start with Mr. Byers on the specific question, and you can elaborate on the second part. Everyone else, feel free to jump in. Thank you.
Mr. Byers: If I can address the second question quickly first, I believe that the human rights analysis done at Global Affairs Canada should precede the signing of any contract by the CCC. I think at the moment the process is backwards. You can have a $14-billion contract signed before the full process of review takes place in Global Affairs Canada. Therefore, you have governments in the awkward position that the current government is in right now with respect to the LAV 6s and Saudi Arabia. So, yes, the process should be changed in terms of the order in which those things take place.
To address the first question, may I remind people that there was a change of administration in the United States not quite two years ago. I think this is significant.
The administration that Mr. Wolf was working for was pretty good on these issues. For instance, in early 2017, when the Nigerian military killed several hundred civilians, perhaps accidentally, in an air strike, the Obama administration blocked the sale of Super Tucano ground attack aircraft out of human rights concerns.
When the Trump administration came in, one of the first things they did in this field was to remove that block and to allow the sales to go forward. This is significant for Canada because the engines on those airplanes are made by Pratt & Whitney Canada.
We’re in a situation where, under our current system, we’re at the mercy of whatever administration there is in the United States and whatever degree of concern or lack of concern it has with respect to human rights and international humanitarian law. As a sovereign country, I think we should guard ourselves against these kinds of changes and perhaps occasional failings on the part of our friend and neighbour to the south.
In terms of the amendment I recommend, I take Professor Fergusson’s concerns about doing something abrupt that would be costly and difficult for the Canadian defence industry. I would suggest perhaps an amendment that sets out a five-year transition period to full reporting on the export of arms and components to the United States. However, that wouldn’t bring us into full compliance with the Arms Trade Treaty and that is still unfortunate. We should be in full compliance, but having full reporting would be the first stage of getting there and it would enable a fulsome discussion in this country, both among politicians, industry and the general public, as to whether or not we should actually have a full export control regime for exports to the United States, or whether some compromise halfway between where we are now and what the treaty requires could be acceptable.
Where we are now is unacceptable. It’s a clear violation of the Arms Trade Treaty. I would suggest that we should not ratify the treaty if we allow this current large loophole with regards to more than half of our exports to persist.
Senator Bovey: Mr. Fergusson or Mr. Wolf, do you have anything to add?
Mr. Fergusson: With regard to the Canadian Commercial Corporation, I’m not an expert in terms of their specific dealings in support of Canadian industry to obtain export opportunities overseas which reside both in the civil and the military sector at times.
However, the Canadian Commercial Corporation, lacking any evidence that there is a problem, is well aware of Canadian policy. They don’t operate in a vacuum where they think only in terms of business. As a government agency, they are well versed, from my experience in talking to some of the members of the corporation over time, in what Canadian policy is with regard to the position of any country in the world with regards to human rights violations.
If you suddenly want to shift the process again, the question then becomes how much time, in a competitive world, will be layered on to try to exploit potential opportunities for Canadian firms.
I don’t think there’s any great risk here at all. I think one of the great problems not necessarily with this legislation but with Canada and export controls in the world, is we really aren’t a problem. This is what I meant by “this is a solution looking for a problem.” We aren’t a problem. Yes, American policy, like our policy, will change with governments on the margins. You can’t predict where they’ll change.
By and large, however, we are lock step with our ally to the south, as we are with our NATO allies, in terms of our visions for a future stable world, which is why I think both governments have supported the Arms Trade Treaty. It’s a treaty not designed to deal with us. It’s designed to attempt to deal with other problems in the world where they really do exist.
Senator Bovey: Thank you.
The Chair: Mr. Wolf, do you have anything to add?
Mr. Wolf: Without getting into specifics of providing advice on Canadian policy, when I said that I met annually with my Canadian counterparts, it was more than just me. It was our counterparts in the Defense Department and the State Department with our counterparts in Canada. The objective of those meetings, which generally went all day and had follow-up meetings, was to align, to the extent humanly possible, our export control rules, policies, terms, definitions and structures with the objective of reducing regulatory burden and, to the extent there was a specific policy concern about an issue to discuss, to try to get to a sense of alignment. It was completely informal. None of it was required by statute or law.
Our goal, speaking from the perspective of myself and my colleagues, given the nature of the relationship — and I realize you have concerns in the other direction with the change of administration, but from an historic perspective — was to keep the regulatory burden for Canadian companies as low as possible in this. To the extent there was an issue of concern regarding policy, trade, terms, burden or re-export obligations, we tried to address it bilaterally, informally and always to the mutual agreement of both sides. That’s only my experience, I realize, but I present it for your future analysis.
Senator Massicotte: Thank you to all three of you for being here. I’ll start with Mr. Wolf.
I presume the U.S. legislation permits the Defense Department to cancel or freeze a permit where it’s found the end user or end use is not consistent with the application of the permit. Is that accurate?
Mr. Wolf: Both on the military and the dual-use side, the administration — the State Department and the Commerce Department — absolutely have that authority. There’s an aggressive enforcement regime behind both the dual-use and military controls, with special agents in the U.S. and abroad, and a wide range of enforcement authorities to be able to stop a licence and then bring civil, criminal or other actions in order to stop diversion if an export was inconsistent with the terms of the original authorization.
Congress doesn’t have that authority, as such. There are dollar levels set in the Arms Export Control Act that impose notification requirements on Congress, depending on whether it’s to a NATO or non-NATO ally, or whether it’s major defence equipment or not. There’s a different dollar amount with respect to firearms, which is much lower. Congress has the ability to agree to a motion of disapproval to stop a licence, but in terms of after a licence has been issued, the ability to revoke it and enforce it is left up to the administration, not to the Congress.
Senator Massicotte: Does that happen frequently where a permit is retracted?
Mr. Wolf: Within the administration it’s infrequent. If that happens it’s in connection with a law enforcement action which would lead to some sort of civil or criminal imposition. I don’t have data or statistics. It was not infrequent, maybe monthly or so. Given the wide range of enforcement resources and how seriously the U.S. government — then and now, frankly — takes enforcement of the rules, it was not an uncommon event.
It’s not public, by the way. You won’t see public information about that, because generally it would be in the context of an action taken by the administration to stop a shipment.
Senator Massicotte: What happens to the supplier? The supplier may have signed a multi-year contract to supply certain munitions or equipment and has a legal obligation under the contract to continue supplying that. The state then decides he’s in contravention and they therefore cancel the permit. I presume the contractor is then exposed to significant damages from his customers. Is that the case? How do you deal with that?
Mr. Wolf: Generally in contracts there’s a force majeure clause, which says that through an act unrelated to the contracting party’s actions they’re unable to perform, then there’s no liability thereafter. Government action and the need for permission from the government is a standard clause inserted, so if the government were to say, “Thou shalt not export anymore,” contractual liability does not get created in light of those standard clauses.
Senator Massicotte: That’s what I would have expected.
I’ll ask Professor Byers this question: We’re being told in Canada about a situation with Saudi Arabia, if I could mention the name, where it is difficult to annul the contract, irrespective of the end user or end use, because of this contractual obligation by the supplier and we’re worried about the damage they could suffer.
I would have presumed that the contract has this force majeure clause. How do you interpret our behaviour and our response to that issue whereby it looks like the contractor may not be exposed?
Mr. Byers: Thank you for that question. I’m as mystified as you are.
I know there are two contracts in question. One is between General Dynamics Canada and the Canadian Commercial Corporation. The second contract is between the Canadian Commercial Corporation and the Saudi Arabian government, more specifically, the security services there. There are two contracts. One is between a private company and a Crown corporation. The second is between a Crown corporation and a foreign government, so essentially a government-to-government contract.
I would certainly hope the contract with General Dynamics has a force majeure clause in it. I haven’t seen the contract, but it would be bad drafting if it did not.
With regard to the state-to-state contract, there’s a similar principle to force majeure that exists at the level of public international law, particularly in a situation where there are United Nations reports concerning serious human rights violations and violations of international humanitarian law by one of the contracting parties — in this case, Saudi Arabia in Yemen.
I have suggested in the Globe and Mail that the government should use this concept — it’s called ius cogens — if it wanted to get out of the situation without having to pay a large penalty. I haven’t had any response to that suggestion, but certainly there is scope for significant lawyering here to avoid a penalty. I suspect the issue is more a question of reputation and political will with respect to damaging Canada’s arms industry going forward in terms of whether we’re seen as a country that can be relied upon to deliver through thick and thin.
Again, that’s a very quick legal analysis. I think the government is putting forward a bit of a smoke screen on this issue.
Senator Massicotte: Mr. Fergusson, any comments?
Mr. Fergusson: Not exactly. I’m not aware of the contract. I would tend to agree with Dr. Byers. I find the position a little puzzling, but I think there are considerations of Canadian reliability that the government can’t ignore, nor should it ignore. That would be irresponsible and lack due diligence on their part.
Senator Massicotte: The minister told us yesterday that, even with the U.S. being excluded relative to the process, they are still in conformance with the treaty, per se. In other words, your comment earlier was that the way we treat shipments to the United States is in contravention of the treaty. However, the minister made it clear — that is not the case. Even with this exception, they are in conformity with the treaty. Mr. Fergusson, do you agree with that opinion by the minister?
Mr. Fergusson: Yes, I would. It’s as simple as that. I think they are in conformity with the treaty. Given, as Mr. Wolf has pointed out, the co-operation and harmonization, if you will, between Canada and the United States is a key point to take into consideration in recognizing our adherence to the new treaty.
Senator Massicotte: Mr. Byers, any further comments?
Mr. Byers: I’ve read the treaty provision requiring a comprehensive application of the export control regime and having an exception is not comprehensive. It is not consistent with the standard rules of international treaty interpretation set out in the 1969 Vienna Convention on the Law of Treaties. I disagree with the minister on this.
You may have been told, and it would have been misleading, that there’s no problem because there’s an exception written into the Arms Trade Treaty for defence production agreements. However, that exception is only among states party to the Arms Trade Treaty and the United States is not a party so that exception is not available.
With all respect to the minister, she should go back to her lawyers and ask them to reinterpret that requirement of comprehensive application.
Senator Massicotte: Thank you to all of you.
Senator Dean: Thank you. A question to Mr. Byers, although others might want to chime in on this. I want to return to your views on reporting on U.S. exports.
In the absence of export permits, reporting would seem to offer some kind of middle ground or compromise. We raised this with the minister yesterday at this committee. The minister told us that Statistics Canada tracks all exports, including U.S. exports, based on declarations made to the CBSA.
I took from her remarks that she seemed willing to look at Stats Canada data on U.S. exports and to think about the possibility of including it in the broader report. What is your reaction to that? Maybe others have a reaction to it also.
Mr. Byers: I have not seen the detail in the Stats Canada information, but it is important to note here that the government is collecting some of this information already, and therefore the concerns that professor Fergusson has about this imposing a huge burden may be somewhat exaggerated.
I would suggest that responsible companies are keeping track of what they are exporting already. They have this information. They work very closely with the Canadian government. These are, after all, weapons and components for things that kill people. We expect a certain degree of record-keeping and information-sharing already.
To require that all the information about U.S. exports is in the report and is publicly available, so we know exactly how much is going, we know exactly what is involved, and we also can then see whether it has been further transferred to other countries, either as a weapon or as a component of a weapon system. That’s essential information.
As I said, that will not bring us into full compliance with the Arms Trade Treaty, but it will enable us to have a fulsome discussion in this country about how we then come into compliance with some kind of export control regime that balances our international obligations with our very important defence partnership with the United States. It’s a very good first step, if it were to occur. I strongly suggest that this committee consider recommending an amendment such as this.
Senator Dean: Are there any other thoughts from other witnesses?
Mr. Fergusson: Several comments. One, it should be recognized that under the DPSA arrangement with the United States, Canada was tasked or accepted the responsibility to track defence trade between the two countries. Roughly 25 years ago, the department — arguing for resource reasons — simply stopped. So there is a mechanism that is already in place, which isn’t Stats Canada.
The important problem is, yes, Stats Canada tracks through CBSA. You can track what is going across, but when is it a defence good and when is it not a defence good when you have integrated supply chains? This is no different from the defence industrial area — whatever that is today, because we tend to operate on a model of the past and not a model of the present — of trying to understand the complicated nature.
It’s analogous to the auto industry, with goods moving back and forth across the country, which end up as an integrated system somewhere, which may or may not have the defence application, and how then do you keep track on this?
You can have a company in Canada that is providing widgets to a prime in the United States or to a second-tier supplier in the United States, which is then providing it to a prime. That supplier doesn’t know it’s a defence good, and wouldn’t know it’s a defence good, so it’s really complicated.
You start to talk about the resources, because contrary to Dr. Byers, within the competitive nature not just of the global marketplace, or our defence marketplace — which is really our allies in the United States — in that competitiveness, small burdens make a great deal of difference to the survival of companies. When you start to add these burdens, because the companies will have to report they and will have to try to sort out when they are and when they aren’t, that will have legal ample indications for them and it will have administrative burdens on them. That might be enough to cause significant damage to our companies and break supply chains.
It’s like the Super Tucano, the example that Dr. Byers gave. Notwithstanding trying to understand the particular context of the example of killing civilians from an air strike in a country where there is an insurgency going on, and all the difficulties those things raise, for companies today, if Pratt & Whitney Canada won’t provide the engines, then they will find someone else who will do it. That will then affect global market opportunities.
In terms of investment, if you think in terms of off sets or industrial technological benefits, one of the objectives of that program is not simply to get companies to invest in Canada, but also to ensure that the companies in Canada do have more than just a national product mandate.
What is going to start is going to happen is increasingly American primes, starting to access Canada’s small defence market in this situation, will start to realize it’s pointless because we can’t give them a global mandate, because there are now too many restrictions. We can do it cheaper elsewhere. That will start to unravel the entire integrated nature.
Let me raise one last point. When we talk about the defence integration in North American between Canada and the United States, it is a mirror of the deeper economic integration between Canada and the United States. It’s not something separate and it has spillover affects that are difficult to know and track. We end up with anecdotal evidence rather than systematic evidence because it’s simply too difficult right now to figure it all out.
Senator Dean: One quick response. We have heard about the regulatory burden from manufacturers. If there is a pre-existing, already-collected data set from Statistics Canada — it’s happening already; I don’t know the frequency of it — to some extent that burden might already exist. Would it not be helpful to those who would want more information made public on exports across the U.S. border to have more access to data that is already being collected with some regularity by Stats Canada? That’s the question.
I’m not suggesting that be enhanced, that there be any burden placed on manufacturers that doesn’t exist today, but just that data that is being gathered and to some extent reported could be incorporated into that reporting data associated with arms exports. That’s the only question.
Mr. Fergusson: The problem is the lack of fidelity in the Stats Canada data, as far as I understand it. You need to have some fidelity in terms of specific defence goods, dual-use goods and destination. As far as I know — and I’m not an expert particularly on that data set and what is available to the public domain or to government agencies — and if there is nothing wrong with it, exactly what fidelity do you get out of it? What is it really going to tell us? I have doubts.
Senator Dean: Let’s take a look and see what is in there.
The Chair: Mr. Byers would like to add something. I see his hand up.
Mr. Byers: Could I just point out that protecting human rights is always a burden on governments and industry. Protecting human rights does take an effort. It does take time, and it does cost money, but Western democracies choose to protect human rights as a policy and as an ethical position.
The second thing I would like to say, and, yes, Professor Ferguson is right, there is a problem with dual-use systems and a widget is a widget and perhaps that is not so important to track down. But a high-technology turboprop engine for an aircraft that you know is going to Sierra Nevada Corporation to be incorporated into a ground attack aircraft, that sort of thing is relatively easy to follow and we should be following it and we should be publishing it.
The last thing to say is that the argument that if we don’t do it, someone else will is the worst argument I have ever heard, because that could justify just about anything. We should be doing what is right and what is required by the international treaty that this government has committed to ratify.
The Chair: Thank you.
Senator MacDonald: I’ll pose this question to all three of you, and feel free to answer. Article 7 of the Arms Trade Treaty outlines criteria that states should follow when issuing defence export permits. We know that several major states, like Russia, China and the U.S., are not adherents to the treaty. But those states that are parties to the treaty will self determine whether they are complying with the treaty.
How will self-policing by states better prevent the flow of illicit arms through conflict zones?
Mr. Fergusson: The answer is that it won’t.
Senator MacDonald: No.
Mr. Fergusson: It’s as simple as that. It won’t. Countries are responsible or they are not responsible. In my view, in the case of Canada and the United States and our allies, our core allies, we have a level of responsibility. We do take into account human rights in the decisions that are made.
In terms of the specific issues surrounding arms trade on conventional weapons, which the UN is trying to target, as I keep trying to emphasize, that is not Canada. That’s one of the problems with this.
It’s about self-regulation at the end of the day, because it’s an agreement between sovereign states. It might have a marginal impact, but it’s not going to significantly change the politics and the economics behind defence trade.
This is not about, “Well, someone else is going to do it, so why shouldn’t we do it?” It’s about recognizing the marketplace will bear and what costs we are willing to bear, relative to the at times marginal differences between us, the United States and our NATO allies, in terms of whether we should sell arms to other governments.
By and large, anecdotal answers don’t really capture the reality of the general consensus and agreement among all the nations.
But companies will do what companies do. This committee and the government when it implements this — because I assume it will go ahead — needs to be sensitive to those realities, rather than simply ignore them on the basis of anecdotal evidence.
Mr. Byers: Two decades ago, then-Foreign Minister Lloyd Axworthy hosted a negotiating conference in Ottawa for a convention to ban anti-personnel landmines. The United States, Russia and China did not participate, and they have not ratified the subsequent Ottawa Treaty. It’s not dissimilar from the situation concerning the Arms Trade Treaty.
You might wonder how that is going to change the situation concerning anti-personnel landmines. The interesting thing is that, two decades later, not only has the use of landmines gone down or disappeared among the parties to the treaty, but the use of landmines by non-parties has also gone down, because the adoption of the treaty by many states, not all, has changed what is regarded as acceptable from a moral and political perspective internationally.
With regards to the Arms Trade Treaty, no one is naive enough to think that the really big countries, like China and Russia, are going to participate in this, but we’re doing it as a group of mid- and small-sized democracies to change the narrative and what is acceptable at the international level. That’s why the Canadian government wants to ratify this treaty. It’s not because it’s going to change the world instantly, but it will change what is considered acceptable in the long term and thus save very many innocent lives.
Mr. Wolf: I’ll echo the two previous groups of comments. To add from my perspective, from the American perspective, the issue of compliance and having an export control system in place by foreign countries was a very important criterion in the decisions whether to approve or deny a particular application, whether on the commercial side and on the military side. I realize the leverage is different from the United States, but we would use that leverage of the American economy and the defence trade in order to encourage countries to adopt policies we agreed with.
One of the reasons why U.S. law is extraterritorial, in that it applies to the items wherever they are in the world, is to assert American values, particularly on the human rights side, and also on other defence trade issues, wherever the items are in the world. That can be used as leverage to get other countries to abide by our principles and to adopt their own domestic systems. The absence of a system was often a significant reason for a decision to deny.
I realize that changes from administration to administration. I’m just giving you the perspective of how I viewed the issue with respect to the answer to your question, in addition to the ordinary diplomatic means, messaging and treaty arrangements, et cetera.
Senator MacDonald: I’ll ask another question later, if there’s time.
The Chair: We are running out of time.
Mr. Wolf, you talked about NATO and our commitments with NATO. Does this impact in any way our relationship with NORAD? We haven’t had that on the record yet.
Mr. Wolf: That’s not something I dealt with, so in terms of the arrangements on NORAD, that’s not something I was responsible for. I will defer NORAD-specific comments to other experts. I was an expert in defence trade and dual-use items, not with the arrangement generally.
The Chair: I have one other question, the minister talked about the fact that the world has changed so much recently. It’s a much more difficult time than, say, 20 years ago when some of us around this table were talking about peace dividends after the end of the Cold War.
In gathering statistics, there has always been this issue of what you should tell and what needs to be kept, not for competitive advantage only — I think Mr. Fergusson has covered that — but for security purposes. You don’t want others outside of your own group, whether it’s NATO or otherwise — that’s one of the things NATO struggles with. I’ve been on the parliamentary side of it. We want the right to know and they say, “If you get to know, then the world gets to know.” There are certain things about the movement of arms, et cetera, that should stay within the confine of the experts or the ministers responsible.
Where do we draw the line on information sharing? Is that no longer valid in this world where everything seems to be somewhere on the Web before we even know about it?
Mr. Wolf: If directed to me, there are two ways to look at that. One is with respect to classified information unrelated, necessarily, to defence items for which there is the Five Eyes arrangement.
With respect to technology, information that pertains to the development or production of military or dual-use items, it’s a risk assessment about the degree of trust that a country has in the other country. With respect to NATO countries and others that are in the multilateral export control regimes, the United States, given the robustness of their export control systems and the general alignment of national security policies, has a high degree of trust. Most types of technology for dual-use in military items are generally approved — not always — with respect to that universe of NATO and regime members.
It’s a function of trust. Absent that, such as with significant diversions, transfers or absence of control by our allied countries, it could change. I don’t know if I answered your question, but that’s the perspective within the allies, as I see it.
The Chair: Thank you. That’s helpful.
We’re about three minutes, I guess, over. Senator MacDonald, do you want to pursue?
Senator MacDonald: We can move on.
The Chair: You generated a lot of interest. Thank you for your responses. I almost have the feeling that you would like to speak in dialogue with each other. I would — and I’m sure the senators would also — like to sit by and hear this full debate, but I think we have heard enough to understand the varying points of view. It has been extremely helpful.
We had the gap with our American colleagues, so that has been very helpful, also. I want to thank all three of you on behalf of the committee.
In this second portion of our meeting, we are continuing our examination of Bill C-47, An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments).
We’re pleased to have and welcome to our committee, from the Canadian Shooting Sports Association, Mr. Steve Torino, President; and Tony Bernardo, Executive Director. We also have Gary Stanley, President of Global Legal Services, P.C.; and Christyn Cianfarani, President and CEO of the Canadian Association of Defence and Security Industries. Welcome to all of you.
As I have already indicated to our panel, we have limited time. We have received witness bios, and they have been disseminated, so the committee is well aware of your backgrounds. We would ask you to start with your opening statements, and then senators would like to pose questions.
We will go in the order I have here, so we will start with Mr. Torino or Mr. Bernardo, who will speak on behalf of the Canadian Shooting Sports Association.
Steve Torino, President, Canadian Shooting Sports Association: Thank you very much, members of this committee, for inviting us to comment on Bill C-47 and to answer whatever questions we can in this regard. I would also like to present some relevant background information that might be pertinent to this bill.
As you said, I am the President of the Canadian Shooting Sports Association. I also chaired the Firearms Advisory Committee for the Liberal government from 1996 to 2006 and co-chaired the advisory committee for the Conservative government until 2014, continuous. I was also an adviser to the Canadian delegation to the United Nations on the Arms Trade Treaty for eight years until 2014.
The Arms Trade Treaty covers not only conventional arms used in conflicts but civilian legal arms, ammunition, accessories and related parts, as well. Since Bill C-47 contains amendments to the Export and Import Permits Act, allowing the accession to the Arms Trade Treaty, it should be stated that Canada is basically a nation of importers of these products, and that any amendments to current policies and practices can have an impact on this $5-billion-a-year industry and its clients.
CSSA’s members are concerned with possible negative effects from the implementation of the ATT and Bill C-47, including a possible curtailment of exports to Canada of currently available civilian firearms, ammunition, related parts and accessories. Canada’s annual imports of civilian firearms, ammunition, parts and accessories exceed some $400 million. It’s quite a bit higher for the past year.
In addition, there is concern in the firearms community of a possible return to a firearm and ammunition registry, alluded to in article 12 of the treaty.
The inclusion of brokering into Bill C-47 appears to be a major amendment to the Export and Import Permits Act and the Criminal Code. To the best of our knowledge, there are no illegal brokers operating in Canada who would be affected by this amendment, and all legal brokers are in compliance with Canadian standards. The thought arises as to what events and subsequent consultations have occurred that would lead to this amendment.
Canada’s rules regarding the import and export of conventional arms and SALWs already exceed the ATT guidelines. I believe they greatly exceed them, from my personal experience. Canada’s practices for export are well established. Canada’s import and export controls exceed UN treaty requirements and are in line with those of our principle allies and partners in the major export controls regimes. It is our experience that Canada’s export controls officials are very involved in analyzing each proposed transfer.
Much of the balance of Bill C-47 seems to be referring to codifying current policies and practices, or creating modifications thereto.
Current world conflicts raise questions as to the efficacy of the controls in the Arms Trade Treaty, when a myriad of weapons appear in the hands of insurgents who are labelled as undesirable to peace in the affected regions. As well, the source of such weapons used in the present series of terrorist attacks worldwide poses similar queries.
Thank you for allowing me to make this presentation. I would pass on the balance of it to my colleague, Mr. Tony Bernardo. Thank you.
Tony Bernardo, Executive Director, Canadian Shooting Sports Association: Thank you, Madam Chair and members of this committee, for the invitation. I hope this is useful to you.
I’m the Executive Director of the Canadian Shooting Sports Association, which is Canada’s largest civilian firearms association. I have been a member of the Firearms Advisory Committee from all the way back to the Honourable Anne McLellan right through to the Honourable Steven Blaney. I was also a member of the minister’s firearms experts technical committee and an NGO participant to the Arms Trade Treaty through my office as an executive member of the World Forum on Shooting Activities, which is an NGO at the Arms Trade Treaty.
I am going to confine my remarks to the actual treaty itself, as opposed to Bill C-47, because the purpose of Bill C-47 is to validate the provisions of the treaty.
The Arms Trade Treaty was supposed to have been passed by consensus. Consensus could not be reached in April 2013, and it was actually passed by a simple majority vote in the United Nations. That’s generally not the way it’s done. In its current version, article 20 of the ATT clearly states that future changes can be passed by a 75 per cent majority of the state parties present for the vote.
Let me read the pertinent sections of article 20, Amendments:
1. Six years after the entry into force of this Treaty, any State Party may propose an amendment to this Treaty. Thereafter, proposed amendments may only be considered by the Conference of States Parties every three years. . . .
3. The States Parties shall make every effort to achieve consensus on each amendment. If all efforts at consensus have been exhausted, and no agreement reached, the amendment shall, as a last resort, be adopted by a three-quarters majority vote of the States Parties present and voting at the meeting of the Conference of States Parties. For the purposes of this Article, States Parties present and voting means States Parties present and casting an affirmative or negative vote. The Depositary shall communicate any adopted amendment to all States Parties.
A simple majority vote by the state parties could change Canada’s current working policies, putting decisions in the hands of state parties who in some cases have serious conflict issues of their own and who could possibly interpret any proposed changes to the ATT in the light of their own issues. This interpretation could and possibly might have unintended and unwanted consequences for Canada, since our controls generally exceed those of most states parties.
When Canada enters this treaty, we would be subject to any changes made by the other nations, without much say on our part on the final outcome. This can be viewed as not necessarily the best situation to maintain our decision-making abilities in a sovereign Canada.
It is our recommendation to include language in Bill C-47 that would remove the spectre of this legislation creating new domestic firearm laws or a future firearms registry in keeping with the commitment of this government.
Thank you are very much for your time and the opportunity to address the committee. I’ll close my remarks.
Gary Stanley, President, Global Legal Services, P.C.: If I may, in the interests of time, I would like to simply summarize my opening statement.
My name is Gary Stanley. I’m President of Global Legal Services in Washington, D.C., a law firm that primarily advises both U.S. and non-U.S. companies on U.S. export and re-export control matters. I want to note that I consider testifying before this committee to be one of the highlights of my 40-year legal career. I sincerely appreciate the opportunity to do so.
My legal practice, my law firm involves the full panoply of export control matters, including assisting companies with preparing licence applications under the U.S. system, advising them on how to strengthen their compliance programs and, yes, on occasion, assisting them, representing them in civil enforcement proceedings when they have run afoul of the rules.
I am very proud to say that I currently count many Canadian companies among my firm’s clients. These run the gamut from small to quite large, and they produce items as wide-ranging as control software for gas turbine engines, space-related robotics, and printed circuit boards. On some occasions, they have U.S. companies as suppliers and on others as customers. I believe this has provided me with a close-up view of how U.S. and Canadian export controls affect, on a daily basis, the integrated North American defence industrial base.
I mention in closing an incident that occurred in 2003 when I first formed my current law firm. I was approached by a Canadian company who was very frustrated. They felt they were not on a level playing field. This was a Canadian company manufacturing printed circuit boards, not something in and of themselves that are lethal, that kill people, but when they would attempt to go to America and market their services, many American companies would say, “Well, you’re in Canada and, if we do business with you, that is inevitably going to get us involved in U.S. export controls, a lot of paperwork and, all other things being equal, we will do business with another American company.” Again, that was 2003.
The Canadian company felt strongly enough about this that they wanted to retain me in order to allow them to say to these U.S. companies, “Mr. Stanley will assist you free of charge. We’ll pay to help you manage this compliance burden.”
Since then, as Mr. Wolf has described, many things have changed about U.S. export controls. At that time, in 2003, all printed circuit boards for military systems would have been controlled under the ITAR. There was, even then, an ITAR exemption in trade with Canada. However, in my experience and indeed with the experience of this Canadian company, many said the ITAR Canadian exemption in section 126.5 is a minefield of compliance. We just prefer to apply for a licence. If we have to apply for a licence, we’d prefer to deal with an American company.
I bring all this up because I have a sense on many occasions there is a belief that if some controls are good, more controls are better. I have gone through, with Mr. Wolf, our experiences with export control reform. I would welcome the opportunity to discuss with this committee a report that former Secretary of Defence Robert Gates led in the mid-2000s that examined U.S. export controls and in many respects the unintended negative consequences of those controls — negative consequences in the sense of damage to interoperability among allies, damage to the ability of the U.S. to obtain the best world-class technology, and damage to our defence base in terms of not gaining the economies of scale of being able to market freely abroad.
Last September, I believe the French government announced that they were going to pursue a non-U.S. defence procurement policy because they wanted to avoid having U.S. re-export controls on French-made systems.
I’m not saying that export controls are not necessary. They obviously are. But I do think one needs to consider the cost benefit of any particular proposal.
I welcome your further questions and, in my case, as well as Mr. Wolf’s, my views are my own. They do not necessarily represent the views of my clients or anyone else.
The Chair: Thank you, Mr. Stanley. Now we’ll turn to Christyn Cianfarani, President and CEO at Canadian Association of Defence and Security Industries.
Christyn Cianfarani, President and CEO, Canadian Association of Defence and Security Industries: Good afternoon. Since most of the technical terms are in English, I am going to make my comments in that language. However, please do not hesitate to ask your questions in the language of your choice.
Good afternoon and thank you for inviting me to speak to you on Bill C-47 and the United Nations Arms Trade Treaty or UN ATT.
CADSI is the national voice of more than 900 defence and security companies. Our members take pride in delivering world-class products and services to the Canadian Armed Forces, Canadian Coast Guard and Canadian security providers.
To set the context for my remarks, I’d like to begin by giving you a few facts about Canada’s defence industry.
According to Statistics Canada, our industry contributes to the employment of 60,000 Canadians and generates $10 billion in annual revenue. The perception that it is made up of huge, faceless corporations manufacturing weapons is simply incorrect; 90 per cent of defence firms are small- or medium-sized. The defence industry is rich in STEM, pays wages 60 per cent higher than the manufacturing average, and invests four and a half times the manufacturing average in research and development, some $400 million per year.
Innovation, Science and Economic Development Canada has broken the sector down into 21 different categories. You will see that is a diverse industry in which firearms, ammunition, missiles, rockets and other munitions — the primary target for non-proliferation under the UN ATT — make up only 5 per cent of industry sales. I will note, however, that the way this bill is written could be interpreted to apply to the entire industry, the other 95 per cent, everything from landing gear to gaskets.
But the key statistic for today’s purposes is that 60 per cent of our industry’s revenue comes from exports. What that tells us is that Canadian companies are succeeding in a highly competitive global market where protectionism is not only accepted but common. This export profile is one of the reasons why Bill C-47 is so important to our firms.
In CADSI’s view, the UN ATT will further strengthen what is already a very strict Canadian export control regime — here it is, printed back to front so as not to waste paper — a regime that our members comply with fully. We feel that accession to the UN ATT will help raise the bar globally for other countries who are not up to Canada’s high standards.
CADSI called on the Government of Canada two years ago to accede to this treaty. I also appeared before the House of Commons Standing Committee on Foreign Affairs last year and spoke in support of Bill C-47.
As you may be aware, Bill C-47 has been recently amended to place the criteria used to review exports into the legislation itself, rather than into regulation as originally proposed. That means that Canada is going above and beyond what is required in the UN ATT. It also means that clearly defining some of the terms and concepts in this bill, such as “implements of war,” is critical.
I also want to offer a word of caution regarding the eventual application of Bill C-47. The bill, as written, would prevent the granting of export permits for controlled goods if there is a substantial risk that the good could be used to commit human rights violations. Our assumption is that this amendment means that Global Affairs Canada will need to revise existing internal processes to assess applications and/or develop new ones. We hope this does not mean lengthier permit approval times and we urge the government to ensure that the department is properly resourced to carry out these functions.
We’ve already noticed a shift in the export permit approval process. The number of permits for military goods and services that didn’t meet the government’s own processing service standard of 40 days has increased from 65 permits in 2016 to 228 permits in 2017. If the number of permit applications that fail to meet the government’s service standards continues to grow over several years, it could have a lasting negative impact on Canadian industry and on Canada as a nation with which to do business.
It’s also very important for the government to communicate to industry, as early and as clearly as possible, how comfortable it is exporting to a specific country or end user. Export permits are the final step in the approval process, not the first, and it can take months or even years to reach this stage. It’s in no one’s interest for companies to be wasting time and money on deals that are effectively non-starters.
Our companies, 90 per cent of which are SMEs, are not experts in foreign policy nor human rights practices. They do not have the resources to make judgments in this arena, particularly as practices and policies vary widely around the world and seem to be changing more quickly than ever. We strongly feel that the government needs to work with companies to improve communication and transparency in this respect.
Before concluding, I’d like to address one more issue that came out during the house hearings and in these Senate hearings on this legislation, namely the argument that Bill C-47 be amended to require export permits to the United States.
First, it is misinformation to state that we are not in compliance with UN ATT with our American exemption. I would refer to you a great debate that happened in the house hearings on this very subject.
We believe it’s a very bad idea and we unequivocally oppose requiring export permits to the United States. It’s a solution in search of a problem which could be highly damaging to the Canada-U.S. economic and national security relationship. Since the Defence Production Sharing Agreement of 1956, Canadian companies have been permitted to compete for U.S. Department of Defence prime and subcontracts on the same basis as U.S. companies. To supplement this, the U.S. National Defence Authorization Act of 1993 codified defence industrial co-operation between the two countries.
In practice, what this means is that the Buy American Act is waived and the Canadian government does not normally require an export permit for controlled goods destined for the United States. This allows for the kind of movement you heard John Saabas from Pratt & Whitney Canada talk about, 3.5 to 4 million export transactions a month.
This privileged position for our industry is one that the U.K. and Australia have recently sought and obtained to a limited extent. They do not enjoy reduced competitive barriers and duty-free entry for their products as Canada does, but you can be sure that if we relinquish our privileged positions, our allies will be more than happy to stake a claim.
Requiring export permits for Canadian defence goods purchased by the U.S. government would put at risk at least $1 billion per year in Canadian defence industry business. We must remember that these goods cannot leave the United States without passing through the American export regime, international traffic in arms regulations, which, like ours, is one of the world’s toughest. In fact, in terms of extraterritoriality, it is tougher.
More fundamentally, ending permit-free movement would send a signal to our closest ally and partner in NORAD that, after decades of successful defence co-operation, we no longer trust them.
A requirement for export permits to the United States could erode Canada’s defence industry, making Canada more — not less — dependent on the U.S. for defence materiel. It would further constrain Canada’s sovereignty, not strengthen it, as the proponents of ending permit-free movement would have you believe.
I don’t think I need to tell you, senators, that this would be a terrible message to send to the Americans at any time, but especially at this point in the history of the Canada-U.S. relationship.
I appreciate the opportunity to offer our perspective. I’ll be happy to answer any questions you may have.
The Chair: Thank you to all witnesses. We do have a list of senators who wish to pose questions.
Senator Saint-Germain: I have two questions for the Canadian Shooting Sports Association, either for Mr. Bernardo or Mr. Torino.
Do your members use firearms for sport and recreation only, or do you also have exporters among your members? Do any of your members trade in firearms, and are they members of your association in that capacity?
Mr. Bernardo: Are you speaking of individuals?
Senator Saint-Germain: I mean the members of your association, the Canadian Shooting Sports Association. Are they traders or people who use arms for only recreational purposes?
Mr. Bernardo: They’re primarily people who use arms for recreational purposes, but there are some businesses that are members of our association that do import and export firearms.
Senator Saint-Germain: Are you aware that there’s a specific amendment to Bill C-47 that was added by the House of Commons for recreational purposes where no permit for import or export is needed, there is no link with the Arms Trade Treaty? In other words, none of your members will be impeded by the Arms Trade Treaty and by Bill C-47, so you don’t have to worry about that.
Mr. Bernardo: Yes.
Senator Saint-Germain: This amendment to the bill is in paragraph 10.3(9). I have it only in French. I’m sorry, I can read it to you and it will be translated.
For greater certainty, this section applies in respect of a firearm only if the firearm is included in the Export Control List, Brokering Control List or Import Control List and it is the subject of an application for a permit, certificate or other authorization under this act.
For greater clarity, for recreational purposes no trade permit is required and so there is no link with the Arms Trade Treaty or with Bill C-47.
Mr. Bernardo: There are some firearms that are both military and civilian in scope. The importers of those firearms that are coming in are multipurpose. They are covered within that. They do have to get import-export certificates in order to move those.
Again, my comments were more about the actual UN Arms Trade Treaty and how that treaty could morph into something that we don’t want it to be.
Senator Saint-Germain: Yes, but in this treaty, are you aware that there are specific statements which authorize each member country to manage the non-import and non-export, or the recreational use of arms in a way which is respecting the internal laws and regulations? There’s no link to this recreational purpose.
Mr. Bernardo: Yes, we are aware of the provision in the treaty that individual countries have their own set of domestic laws. However, Canada, as Mr. Torino said, is mostly a nation of importers when it comes to firearms. Our firearms come in from all over the world — the recreational ones. As the Arms Trade Treaty matures and they have the conferences every three years where a simple 75 per cent majority can decide how the import-export regime is going to continue, we’re worried that may have some effect on Canada.
Senator Saint-Germain: Thank you. I have a short question for Ms. Cianfarani.
I’m pleased to accept your offer to ask my question in French. You did not refer to an important change made in Bill C-47, regarding brokering control. It will now be necessary to have a permit for brokering transactions that take place between third countries. Do you have any comments to make on that?
Ms. Cianfarani: Correct. We would consider brokering to be one of the single largest new pieces to the current UN ATT, one our current export control regime doesn’t cover. It’s one of the reasons we believe it is actually a good idea to accede to the UN ATT.
Brokering will affect firms. We have not yet been fully consulted on the brokering, which will be defined by regulation. The regulations have not been revealed to us. They will be revealed to us following accession to the UN ATT. We will be working with Global Affairs Canada to define what that will look like and to define the mechanisms used for recording, reporting and managing the brokering system.
We fully expect that will increase the burden on companies to have a brokering control list of some sort, most likely.
Senator Saint-Germain: Mr. Stanley, would you like to add to this same question on the brokering?
Mr. Stanley: My comment would be that prior to the Obama administration’s export control reform initiative, we, in the United States, probably had the most complicated and comprehensive brokering rules in the world. Those have been pulled back somewhat, because we found that what we were trying to do — regulate every broker in every conceivable corner in the world — wasn’t working.
Our current rules in the U.S. provide that brokers who are located in the United States have to register and obtain brokering licences, but we no longer try to regulate someone overseas who simply may be involved in a U.S. transaction.
Senator Saint-Germain: Thank you.
Senator MacDonald: I’ll direct my first question to Ms. Cianfarani.
In your position as President and CEO of the Canadian Association of Defence and Security Industries, I want to say that I do agree with you that requiring export permits in the defence industry for exports to the U.S. is just a ludicrous thing to do. I don’t understand why we would even consider it.
With regards to the minister’s position on this, the Minister of Foreign Affairs spoke to the committee the other day and mentioned that she was raising the bar when it came to issuing permits for Canadian defence and security exports.
We have data that show approvals for Canada defence exports have actually slowed. The department’s own figures indicate that, in 2017, some 413 permit applications were withdrawn and 162 were returned without action.
Is your association aware of these numbers? Do you have any concerns with the approach of Global Affairs Canada when it comes to these numbers?
Ms. Cianfarani: We are aware. It’s a pretty tight relationship between us and Global Affairs with respect to permitting. When permits are stuck in the queue and companies have challenges answering to other nations about where those permits are and when they will be released, we have to coordinate with the government on the situation at hand.
We need to be able to separate the permits into ones where, essentially, the companies have determined they didn’t potentially need a permit. There could be dual use, where they have applied for a permit just to be certain.
As I mentioned, there are a lot of small- and medium-sized enterprises for which it takes a tremendous effort to understand the export controls. In very large businesses, you will have two to three individuals who are actually experts in the export control regimes. Small companies will often make applications where the department will return the application because it’s simply a dual-use commercial good.
That is one basket of returned applications.
We have noticed a slowing in the permitting process. It has been based on the very difficult and grey area around making judgments about whom we want to sell goods to and the value systems of those other countries. By nature, given the current political context and the situation that has arisen most recently in the last couple of years, Global Affairs is taking extra care in reviewing the permits and to whom they are going. Remember, permitting is about a certain good to a certain end user for a certain application.
We’ve seen it. We’re working with them to make sure that it doesn’t severely, negatively, detrimentally impact Canadian industry and our reputation.
Senator MacDonald: In April 2018, Minister Bains announced the Industrial and Technological Benefits Policy, ITB, to motivate defence contractors to invest in key defence industrial capabilities and support investments in industrial capabilities where Canada is globally competitive.
Do you believe you’re getting the same support from the Minister of Foreign Affairs that you are getting from Minister Bains?
Ms. Cianfarani: I think the Minister of Foreign Affairs has a very tough job right now.
Senator MacDonald: I didn’t ask you that.
Ms. Cianfarani: She has a very tough job. As a nation, we have to balance interests, values and economics. At this point in time, with respect to nations where we have major defence contracts, that is a very challenging position to be in.
Senator MacDonald: That didn’t really answer my question, but thank you.
Senator Massicotte: Thank you all for being here. I have some quick questions. I want to make sure I understand your position.
For Mr. Torino and Mr. Bernardo, you accept the bill as proposed, but you would make an exception relative to your concern about the treaty itself where a small group of people could amend the treaty. Am I correct that’s the only amendment you would recommend?
Mr. Bernardo: Yes, I think that would accurately assess it.
Senator Massicotte: Ms. Cianfarani, you recommend the bill as it is, right?
Ms. Cianfarani: I don’t think there are any necessary additional amendments to be made.
Senator Massicotte: Mr. Stanley, I gather you’re okay with the bill as is? You had some cautions, but you are not recommending any amendments to the bill.
Mr. Stanley: I would certainly not recommend an amendment that would add a licensing burden for exports to the bill.
Senator Massicotte: Mr. Stanley, give me some colour as to this issue. We understand that, at least in the United States and probably in Canada, when the minister gives a permit, it’s often for multi-year delivery of ammunitions or munitions. When that application comes in, it defines the end use, the end user and so on.
But you may find now, I presume — and the American experience is such that it happens frequently — whereby the actual use is in contravention of what was intended or described. It looks like quite frequently the American administration sort of annuls; in other words, it not only freezes future treatments but annuls the contract, given that it’s offensive to the terms of the deal. It looks like a standard contract has a force majeure clause, whereby if something is imposed by the government, the contractor is absolved of any damages that result in the end relationship.
That’s the theory. That’s the real life. But when you do so, it seems that if I were in the minister’s shoes, I’d have to look at Saudi Arabia — at the report last year. You’ve got basically a $500-million contract, that’s the trade with that country. More recently they have been quite offensive relative to human rights.
The minister has to say, “Okay, looks like I’ve got this authority to do so,” but I know that obviously I have a contractor who employs a lot of Canadians that will probably be affected financially. It also gives maybe concern for other future suppliers to say, “I’m not sure Canada is such a reliable supplier, given they are using this clause maybe frivolously or too quickly.”
Give me some colour, because I gather that in the United States they use it quite frequently and they’re not so shy to put an end to it.
I cite for example in 2012, not so long ago, the Americans penalized and found Pratte & Whitney guilty of making a shipment contrary to the end-use agreement and fined them $75 million. However, Canada decided not to collect that sum and just let Pratte & Whitney be absolved of that responsibility, in spite of the search and the declaration of the U.S. State Department.
What is the real life? There is a lot of information. What do you do as a minister? What consideration do you take? There is a lot of effect to that decision, a lot of consequences. What is the real life like when you make those decisions?
Mr. Stanley: Well, first, I think it’s important to distinguish between situations where the terms of a licence have been violated, where exports were supposed to go to end user A and they have ended up with end user B. Now, that’s different from what I believe you’re describing, where under the terms of the license, exports go to end user A. Subsequently, there are developments with regard to end user A that calls in the question, “Gee, should we have approved that licence previously?”
Pratt & Whitney Canada’s situation that you referred to is the former. There was a violation in the terms of the licence approval that had been given as to how Pratt & Whitney could use the U.S. goods and U.S. technology.
The impression I have with regard to the debate here in Canada now, with regard to Saudi Arabia, is possibly the latter. We have approved things. Do we now second guess our approval because of changed circumstances?
I think that is a decision that the body politic has to make on a case-by-case basis. In my experience, companies do have force majeure clauses. I certainly advise my clients that not only should they have that, but they should have a clause in their contract saying that all parties will comply with all applicable export control laws. So, if a decision were to be made by a government that we are going to rescind a given licence, those contractual clauses ought to provide some protection to the licence holder.
Senator Massicotte: Thank you.
Senator Boehm: I have a two-parter, really, and I think it’s mainly directed at you, Ms. Cianfarani.
You mentioned in your comments that the internal processes of Global Affairs could be improved. It goes a little bit in the direction that Senator MacDonald asked, as well. Dr. Byers referred to that earlier.
As someone who in the past used to write human rights reports when I was on postings, particularly in Central America, I know that the end-use tentative goal is almost multilateral. So, it was what we were doing at the UN, whether in New York or Geneva. It would be assessed in purely a human rights context, and we didn’t necessarily bridge the wall to get things over to our export-import permitting people.
I’m wondering if you agree with Dr. Byers that getting that human rights analysis in early, making it available to the various members of your association, would be most important because that would then set a very clear path in terms of where they might want to go with their products?
Ms. Cianfarani: Oh, I thought you were doing a two-parter.
Senator Boehm: Oh, no, the next one is coming.
Ms. Cianfarani: Great. Yes, I would agree that the earlier we can understand comfort levels with a particular country and where the government might land on its desire to sell certain goods to that country would be very helpful.
You know, we have kicked around having something like a heat map which would show these areas of the world that are a challenge for us right now with respect to human rights, and/or publishing in some easier way — potentially even using the association as a mechanism to get it out to our community — the reports on human rights that are occurring in these countries, so that we can better take that into consideration in our business risk assessments when we’re making those decisions as a company to move forward and pursue an opportunity.
Yes, I do agree the communication, both intra-government and with industry, could stand to be improved and very much earlier on in the process than at the permitting stage.
Senator Boehm: Thank you. So your heat map analogy probably applies to my next question, except you wouldn’t go red, you would probably go to a low glow. I’m referring to the section 232 tariffs on steel and aluminum and, of course, our retaliation.
I’m assuming members of your association are speaking to counterparts and clients in the United States, but part of that is the outreach to get the message through that we are not a threat to the national security of the U.S. The Chair earlier mentioned NORAD. We have also got the Permanent Joint Board on Defence. A lot of people don’t know about that.
Is there any sort of outreach going on? Are people talking to each other? Because the longer these tariffs stay in place on both sides, the more deleterious it could become for Canadian industry.
Ms. Cianfarani: There is. We as an association are not seized with it. We do have members that have been working on that file. As you can imagine, our members that are right now producing ships for Canada have significant steel imports that are going on to build those ships. They do have concerns. To my knowledge, they have voiced those concerns to the Minister of Trade and are participating in discussions on the tariff relief between the two countries.
I can certainly tell you, we did voice to the Minister of National Defence our surprise and relative upsetness with the use of national security considerations of Canada being used as a ruse in order to impose tariffs.
Senator Massicotte: Quick question. Madam Cianfarani, if you’re not, I presume you’re going to hurry up and advise all your members that they should include force majeure clauses in future contracts, given the government is putting a lot more emphasis regarding its review and looks like the government will be much more apt to rescind, freeze or annul future permits. It’s probably good advice that your membership has that clause in future contracts. Would you agree with that, that would be good advice to give to your members?
Ms. Cianfarani: I think it would be good advice, yes.
Senator Massicotte: Thank you.
The Chair: Just playing the devil’s advocate in the heat spots. If you want to be foreign minister, you have got to understand that the world changes within seconds. So the analysis before could be helpful to your industries, if you know what the existing situation is; and if there are concerns at that moment, it would be good to get that information sooner than later.
But, in most cases, we have dealt with countries that were going on a trajectory in the right direction, shall I say? Human rights is a continuum, and it changes; so is the economy. You make a decision based on what the country is now, and look at its history. Some are looking good today, but they weren’t so good yesterday, but we’ll be optimistic; or we’re going to say, “Oh, we don’t know if this is an interlude.” That’s a value judgment the ministers have had to make on these permits throughout.
The factor now is the fact that countries are changing very quickly. We know the Arab Spring and all of those. We know some countries who were like-minded and who are not so like-minded now. The conundrum is you can sign today, but the minister can suspend or terminate anywhere during that process because of overwhelming foreign policy issues that have to be balanced.
Do you think that we have gone as far as we can in Bill C-47 in trying to give some discretion to the minister, but also put in some more certainty on these evolving issues constantly from country to country? Saudi Arabia was a conversation about their human rights record basically within their own country, and then Yemen happened. That’s not unusual. You answered by saying it would be helpful to get it pre-, before, but are you any better off, really? That is what I’m trying to say.
Ms. Cianfarani: I think we will be, simply because when we’re doing business risk assessments, there is an awareness. Even when you’re working on your contracts, you’re looking at your return on investment, all sorts of other financial considerations you may take into account, the amount of energy and effort you would put into a particular region, knowing that potentially, let’s say, it’s a little bit bright on the heat map. All those things will be weighed in those early steps.
By the way, for some of these contracts throughout the bidding process lasts two to three years, so you’re right. What we know at the beginning of the contract may not be what we know at the end, and may certainly not be what we know during the export-permitting process.
I think we respect that and we understand that. We would never expect at the tail end that what we did at the beginning would have to be an absolute.
This bill is reasonably well-balanced in that regard, that it will force us to take into consideration the human rights aspects, which by the way are frankly being taken into consideration right now under our current export regime. But it codifies that into legislation, and it will also hopefully allow for a better and quicker dialogue between government and industry on judgments as to places in the world where we may have challenges under the export control regime.
The Chair: At the risk of doing to the committee what I did last time, I have to come back and apologize; the analysts and myself agree that there is a clause that the government could, in fact, withdraw from the agreement. They are not bound by that 75 per cent rule. If the countries that signed up wanted to go in a direction that Canada didn’t, it does have the ability to withdraw from the treaty. That’s why I think the reporting in the House was so important.
I think what is important to senators is that we want to make sure that, if it’s not going in the direction we believe is appropriate, there is a mechanism to withdraw, not only force majeure, but also withdrawl from the treaty. It may not be the comfort you want, Mr. Bernardo, but it is of some comfort to me that we can withdraw.
Mr. Bernardo: Indeed.
The Chair: I’m sure Mr. Stanley doesn’t disagree with me on that.
Senator MacDonald: I have one quick question before we finish. You mentioned codifying the legislation. Once this is done, is it going to increase the risk — maybe Mr. Stanley wants to step into this, too — that certain defence exports might be more readily challenged in the courts? Is it going to increase litigation? It doesn’t matter who wants to answer it.
Mr. Stanley: Senator, on the basis that this would be a violation of the treaty and that’s part of Canadian law therefore, I’m not in a position to comment on what may or may not be possible in terms of judicial challenges under Canadian law.
Senator MacDonald: Any opinion?
Ms. Cianfarani: I really don’t know. We don’t have an opinion on that. That would be probably Department of Justice, with respect to the minister who effectively will be in the line of fire if someone decides that Canada’s breaching the UN ATT legislation, right?
Senator MacDonald: Thank you.
The Chair: Thank you. We are just on time. Amazingly so. I know that senators had other questions, but I think we have covered a full array of issues. We very much appreciate your attendance with us today. It’s extremely helpful. I think we have followed the House of Commons. We know the changes that were made, but in our duty, we want to explore everything with as broad a community as we can.
You have certainly brought that perspective to us, all the witnesses, so on the committee’s behalf, I would like to thank all of you for coming and sharing your views with us today.
(The committee adjourned.)