1. 2008 CUSLI Annual Conference April 18-19, 2008 The World's Longest Undefended Border: Gateway or Checkpoint? Partners in Protection: Consistent with Canada’s Trade Obligations? Greg Kanargelidis greg.kanargelidis@blakes.com April 19, 2008

2. 2 What is PIP? program designed to strengthen the security of supply chains by binding participants to implement security standards through an MOU with the CBSA Participation is voluntary U.S. equivalent is C-TPAT it is necessary to have a “presence in Canada” in order to register for PIP

3. 3 Benefits of PIP Membership identified as trusted traders to customs inspectors fewer examinations (lower risk score) front of the line privileges when selected for examination passage provided for in Business Resumption Plan improved security levels enhanced reputation for partners PIP is a prerequisite for participation in the Free and Secure Trade (FAST) program

4. 4 Changes to PIP all registrants must re-apply after June 30, 2008 and before December 31, 2008 existing registrants will not be grandfathered stricter minimum security measures introduction of site visits new form of MOU

5. 5 Canada’s Trade Obligations Reflected in various international sources including: –the General Agreement on Tariffs and Trade (GATT) –the North American Free Trade Agreement (the NAFTA) –some GATT/NAFTA jurisprudence interpreting trade obligations

6. 6 Key Issues Are PIP/FAST consistent with Most Favoured Nation obligations? Are PIP/FAST consistent with National Treatment obligations? Are PIP/FAST consistent with Investment Rules under Chapter 11 of NAFTA? If PIP is inconsistent with international obligations under any of these agreements, can it be justified on the basis of the exceptions for national security?

7. 7 Concerns about PIP The Canadian presence requirement: –Canadian presence requirement not well defined –many non-residents may be excluded from obtaining membership in PIP regardless of how secure their supply chains are –registrants are offered advantages that non- registrants cannot receive, in particular, the ability to participate in FAST (greater efficiency, a form of “insurance” against border shut downs, etc) –arguments can be made that this advantage to Canadians is inconsistent with MFN and NT provisions of GATT and NAFTA

8. 8 GATT Article I 1. … with respect to all rules and formalities in connection with importation and exportation … any advantage, favour, privilege or immunity granted by any contracting party to any product originating in … any other country shall be accorded immediately and unconditionally to the like product originating in … the territories of all other contracting parties.

9. 9 3-Part Test for Violation of GATT Article I 1)an “advantage” is provided by a member country 2)the advantage is not extended to the “like products” of all WTO members 3)the advantage is not extended to all members “immediately and unconditionally”

10. 10 PIP and MFN Treatment Some might argue that the Canadian presence requirement violates the MFN obligation In effect, even foreign entities with secure supply chains cannot participate if they do not have a presence in Canada – therefore they cannot obtain the advantage of PIP/FAST membership. In this way, the entities of some members get advantages that others do not. However, this argument is not without its criticisms – e.g., the advantage is technically available to all members, provided that the particular entity meets the precondition of a presence.

11. 11 GATT Article III: 4 The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use …

12. 12 NAFTA Article 301 1. Each Party shall accord national treatment to the goods of another Party in accordance with Article III of the General Agreement on Tariffs and Trade (GATT), including its interpretative notes, and to this end Article III of the GATT and its interpretative notes, or any equivalent provision of a successor agreement to which all Parties are party, are incorporated into and made part of this Agreement. 2. The provisions of paragraph 1 regarding national treatment shall mean, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded by such state or province to any like, directly competitive or substitutable goods, as the case may be, of the Party of which it forms a part.

13. 13 NAFTA Article 1102 1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. 2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

14. 14 PIP and Chapter 11 There may be situations where a foreign entity has an investment in Canada, but does not have a Canadian presence. For example, a U.S. company incorporates a company in Canada but does not establish a presence. The Canadian company contracts to import and distribute goods that it stores in a public warehouse. Is this enough to constitute a presence for PIP registration? If not, there is potential violation of Chapter 11.

15. 15 National Security Exceptions Some non-compliance with international trade obligation is permitted if in accordance with one of the exceptions under the relevant agreement (ie. GATT, NAFTA, etc.) Most agreements contain an exception allowing measures for “national security” (e.g., Article XXI of GATT, Article 2102 of NAFTA)

16. 16 GATT Article XXI Nothing in this Agreement shall be construed … (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interest … (iii) taken in time of war or other emergency in international relations; or (c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

17. 17 Interpretation of GATT Article XXI interpretive guidance on the availability of GATT Article XXI is limited because: –nations rarely invoke national security exceptions; –most cases in which the national security exception has been invoked have been settled or abandoned; –to some extent, the exception is “self-judging” so dispute settlement bodies seem loathe to interfere with a government’s perception of what is necessary for their nation’s security.

18. 18 Reliance on the National Security Exception in WTO cases United States – The Cuban Liberty and Democratic Solidarity Act Bombardier Aerospace Canada Yugoslavia Argentina none of these cases resolved questions regarding when the security exception may or may not be relied on to justify trade-restrictive measures

19. 2008 CUSLI Annual Conference April 18-19, 2008 The World's Longest Undefended Border: Gateway or Checkpoint? Partners in Protection: Consistent with Canada’s Trade Obligations? Greg Kanargelidis greg.kanargelidis@blakes.com April 19, 2008