The intersection of border security and free trade agreements.

AuthorIrish, Maureen

Session Chair-Maureen Irish

Canadian Speaker-Greg Kanargelidis

United States Speaker-David R. Hamill

Canadian Speaker-Cyndee Todgham Cherniak


MS. IRISH: I am Maureen Irish from the University of Windsor. (1) I am pleased to welcome everyone back to the final panel of this afternoon in what has been an extremely interesting conference. Since the biographical information of our three speakers today is in your materials, I am not going to go through it. I just will mention to you that these are three very experienced and extremely knowledgeable trade lawyers. Our first speaker will be Greg Kanargelidis from Blakes in Toronto (2) who will be speaking on Canada's Partners in Protection program, WTO, and NAFTA consistency. Our second speaker is David R. Hamill from Arent Fox in Washington. (3) He will be speaking on cross border fees. And our third speaker is Cyndee Todgham Cherniak from Lang Michener in Toronto (4) who will be speaking on ITAR's International Traffic in Arms Regulations. So I will ask Greg to start.


Greg Kanargelidis *

MR. KANARGELIDIS: Thanks very much for that introduction, and thank you to the Canada-U.S. Law Institute for inviting me. It is a great pleasure to be able to participate in this last panel of the Canada-U.S. Law Institute annual conference. Over the last two days we heard repeatedly from speakers about the security programs of both Canada and the United States and about the impact that these security programs have on businesses that rely on cross border trade. It seems pretty clear that these security programs are here to stay. They are permanent fixtures of the business landscape, and participation in the voluntarily programs is likely to grow. (5)

The topic we have not discussed so far at this conference and that we are dealing with in this panel is consideration of whether these security programs are consistent with Canada's trade obligations. As a Canadian customs and trade lawyer, I will focus on Canadian security programs and given the limited time available, I have chosen to focus my presentation on Canada's Partnership in Protection initiative. This is an appropriate time to consider Partners in Protection because it is being overhauled as we speak. (6) A new and improved PIP is expected to be announced by the end of June of this year. (7)

I am presently sitting on a working group formed by the Canadian Association of Importers and Exporters, and we are currently consulting with the Canada Border Services Agency on their plans for this new and improved PIP program. (8)

In my presentation I will briefly describe what PIP is and its intended benefits. Then I will consider Canada's international trade obligations under the WTO/GATT and NAFTA. It seems that some characteristics of PIP are potentially vulnerable to challenge under these trade agreements. Today, we will comment on these possible inconsistencies. The conclusion I will make is that, on balance, PIP is likely consistent with the GATT and the NAFTA. Moreover, even if PIP were inconsistent with international obligations, it seems that there is a potential justification for any discriminatory effects under the national security exception that is found under both agreements.


So what is PIP? The objective of Partners in Protection is to strengthen the security of supply chains and to engage the private sector in a proactive approach to assist with the detection and prevention of terrorism. (9) It is a voluntary program. (10) It is the equivalent of C-TPAT. It is clear that it is necessary to have a presence in Canada in order for an entity to register for PIP, 11 but what is not clear is, what sort of presence? What minimum presence is necessary? That has not yet been addressed by the CBSA, and that, in fact, is the essence of the potential violation with the trade agreements.

Under the PIP, very similar to C-TPAT I understand, applicants are required to complete a Memorandum of Understanding with the CBSA. They fill out a security questionnaire that discusses physical security, personnel security, and security of service providers, and then a joint plan of action is put together with the CBSA to which the applicant is expected to adhere to ensure that the trade chain is secure. (12)


What are the benefits of PIP? When I speak with some of my clients, they will say they see nothing yet out of PIP, so why bother? And in fact, it is quite difficult for many of my clients to get upper management to even agree to spend the money that is required to meet all of the criteria for security and so forth. But these are the advertised benefits if you will. The applicants are identified as trusted traders to Customs inspectors. (13) Theoretically, there are fewer examinations because they are given a lower risk score being in the PIP program. (14) There is also front of the line privileges when selected for examination. (15) Also if the border happens to be shut down in case of a security threat, then theoretically again PIP registrants will be able to continue to import their goods under the business resumption plan. (16) Finally, PIP is also a prerequisite for participation in the Free and Secure Trade (FAST) program, although not the only prerequisite. Another prerequisite for FAST is participation in Customs Self Assessment or CSA. FAST is again, theoretically, a beneficial program to be in and therefore that is an attraction for membership as well. (17)


Now, I mentioned that PIP is in the midst of being changed. And what the CBSA is planning--and really the reason for the change is PIP is intended to now become more consistent with the C-TPAT, (18) so many changes are planned. All registrants must reapply after June 30th of this year. (19) There is a transition period but this will expire at the end of December. (20) None of the existing registrants will be grandfathered into the new program. All participants must reapply as if they are applying for the first time. There will be stricter minimum security criteria that have to be met. (21) There will be introduction of site visits and a new form of MOU, (22)--that is what we are essentially consulting with the CBSA about right now. (23)


Given the perceived benefits of participation in PIP and the money that potential participants in the program and the government spends on the program, any non-compliance with international obligations that may lead to the program being challenged or terminated is a significant cause for concern. (24) This is the issue that we are dealing with today. Now, let us turn to Canada's principle trade obligations and talk about whether the PIP is consistent with those obligations. The obligations are, as it is apparent on the slide, reflected in the General Agreement on Tariffs and Trade, in the North American Free Trade Agreement, and in interpretation of those agreements.

The key issues that I will consider in my presentation are whether the PIP and FAST are consistent with the most favored nation obligations, with the national treatment obligations and with the investment rules under Chapter

11 of the NAFTA.

There are number of concerns related to the PIP program. One aspect of PIP that is a particular concern is the restriction on participation in it. As I mentioned earlier, in order to participate in PIP, entities must generally have a presence in Canada. (25) This means that nonresident importers are not able to register for PIP. (26) And, again, because PIP is a requirement to participate in FAST, (27) nonresidents are also excluded from FAST participation. Similarly, Customs Self Assessment is something that is not available to nonresidents. (28)

The bottom line is no matter how secure their supply chain, nonresident importers simply cannot attain the basket of benefits of PIP participation currently. With this state of affairs, one might argue that, on the face of it, the fact that nonresidents cannot benefit from PIP membership denies them a trade benefit that they are entitled to under the free trade agreement whether it be WTO or the NAFTA.

In the balance of the presentation, we will take a closer look at compliance with these obligations. Let us turn first to the Most Favored Nation (MFN) principle that is reflected in GATT Article I. (29) I will just read the relevant parts. GATT Article I applies in addition to tariffs and so forth. It applies to all rules and formalities in connection with importation and exportation (30) and to any advantage, favor, privilege, or immunity granted by any contracting party to any product originating in any other country. Any such rule or advantage is required to be accorded immediately and unconditionally to the like product originating in territories of all other contracted parties. (31) To demonstrate an MFN violation under GATT, three elements must be satisfied. First, a member country must provide an advantage of a type covered by Article I. (32) Second, the advantage must be one that is not extended to the like product of all WTO members. (33) Third, that advantage must not be granted to members immediately and unconditionally. (34)


In the WTO context, the term "advantage" is broadly defined. (35) Here the advantage that is associated with PIP is the expectation that shipments will not be stopped or unduly delayed at the border. Also, if the border is shut down, that the PIP registrants will continue to be able to import their goods into Canada. (36) You might say that PIP registration provides a competitive advantage over those entities that are not registered. (37)

The GATT panel decision in Belgian Family Allowances may be relevant to the issue of whether the PIP program represents a violation of GATT Article I. (38) That decision has been interpreted to stand for the principle that treatment can be...

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