Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Even Canada's Department of National Defence Takes Steps to Avoid U.S. Export Controls Headaches

The Ottawa Citizen newspaper published an article written by David Pugliese on January 25, 2010 entitled "Navy says no to buying American U.S. restrictions on technology can lead to delays". This article contains great reporting and scooping of facts. In addition, the article reminds us of the ironic ramifications of overly restrictive U.S. export controls rules.

This article contains the scoop from an email by a representative of Canada's Department of National Defence (DND) in which she states in connection with a contract for 12 frigates of the Canadian Navy:

"DND did require that any proposals related to the integrated combat system address how the contractor would mitigate any risk to the delivery schedule if they included sourcing of material or services from the U.S. that would invoke ITAR restrictions."

In other words, DND wants suppliers to DND to manage risks associated with the ITARs and U.S. export controls laws (risks such as delays in receipt of goods due to delays in U.S. export permits, delays associated with U.S. government blacklisting exporters and inability to obtain replacement parts, risks associated with breaches of Canadian law when complying with dual-national ITAR rules, etc.). Not only must they manage risks, they must indicate to DND how they intend to manage risks. This means they have to think about the risks and develop a strategy that the Canadian government will scrutinize. The best way to avoid ITAR risk is to find alternative sources of supply of components, radars, sensors and software that would be controlled if the items were U.S.-made goods. if suppliers may be selected based, in part, upon their risk management solutions, the effect of the requirement may be to chill purchases from U.S. sources when the goods are controlled under U.S. export laws.

David Pugliese says in his article:

"Faced with delays and restrictions about what it can and cannot do with U.S. technology, Canada's navy has opted to modernize its frigates using as much non-American equipment as possible for key systems on the ships.

The Defence Department had stipulated that the command-and-control systems on the multibillion-dollar frigate upgrade be free of U.S. regulations..."

In his article, he reports that "key radars, sensors and software to be installed on the Halifax-class frigates are coming from Canada, Sweden, Israel, Germany and the Netherlands."

David also scoops that :

"... privately, some Canadian defence industry officials complain that the U.S. selectively uses ITARs to give equipment being provided by American-based companies an advantage in export situations. They say there have been cases where the U.S. State Department has used ITARs to prevent Canadian products from being sold overseas because those items have some American-technology in them, while at the same time giving approval to U.S. firms to sell the same components in the same foreign market."

David states avoiding U.S-made inputs, "will also allow [Canadian based manufacturers] to market the system to other navies without having to seek U.S. permission. As a result, it is smart business for suppliers to government to manage their ITAR risks by avoiding U.S.-made goods.

In this article the truth is coming out --- I hear some snickering ....

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