Order Amending the Export Control List: SOR/2024-112

Canada Gazette, Part II, Volume 158, Number 13

Registration
SOR/2024-112 May 31, 2024

EXPORT AND IMPORT PERMITS ACT

P.C. 2024-623 May 31, 2024

Whereas the Governor in Council deems it necessary to control the export or transfer of goods and technology to ensure that arms, ammunition, implements or munitions of war, naval, army or air stores or any articles deemed capable of being converted into those things or made useful in the production of those things or otherwise having a strategic nature or value will not be made available to any destination where their use might be detrimental to the security of Canada;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Foreign Affairs, makes the annexed Order Amending the Export Control List under paragraph 3(1)(a) and section 6footnote a of the Export and Import Permits Act footnote b.

Order Amending the Export Control List

Amendments

1 Subitem 5504(1) of the schedule to the English version of the Export Control List footnote 1 is replaced by the following:

5504 (1) In this item, development, production, software, spacecraft, technology and use have the same meaning as in the provision of the Guide entitled “Definitions of Terms Used in Groups 1 and 2”.

2 Group 5 of the schedule to the List is amended by adding the following after item 5505:

Other Strategic Goods and Technology (All Destinations Other than the United States)

5506 (1) In this item, development, electronic assembly, Gate-All-Around Field-Effect Transistor (GAAFET), production, software, technology and use have the same meaning as in the provision of the Guide entitled “Definitions of Terms Used in Groups 1 and 2”.

(2) Other strategic goods and technology as follows:

Coming into Force

3 This Order comes into force on the 30th day after the day on which it is published in the Canada Gazette, Part II.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

New technologies with potential military applications in the areas of quantum computing and advanced semiconductor manufacturing continue to evolve and emerge. While their development has been closely monitored by the international community for the past years, there has been an increasing desire to regulate their transfer. Efforts must be strengthened to keep pace with the rapid development of these cutting-edge technologies and ensure that gaps in the export control framework cannot be exploited.

For example, certain quantum computing technology could be used by countries and entities of concern to access and compromise sensitive information in Canada’s possession, which would be detrimental to Canada’s national security and that of its allies and partners. Similarly, certain technology and equipment related to advanced semiconductors could be used to develop more advanced military systems, which could threaten national and international peace, security and stability if they remain uncontrolled. This includes equipment that can identify vulnerabilities in semiconductor devices to compromise their integrity or replicate them.

Some countries, such as France and Spain, have already implemented controls in the field of quantum computing and semiconductor manufacturing, while others, such as Finland and the United Kingdom (U.K.), have publicly announced their intention to do so. Canada must now step forward to enable the international community to maintain effective and coordinated controls of these new sensitive technologies.

Given the risks to international and national peace and security, and the fact that export controls are most effective when applied in a coordinated manner, certain technology and equipment related to quantum computing and advanced semiconductor manufacturing should be subject to Canadian export permit requirements.

Editorial changes to item 5504

The Item 5504 “Strategic Goods and Technology” under Group 5, Miscellaneous Goods and Technology, as written in the Export Control List (ECL) contains non-substantive, editorial discrepancies with the wording of A Guide to Canada’s Export Control List (the Guide). More specifically, in the English version, the reference to the provision entitled “Definitions for Terms in Groups 1 and 2” should rather read “Definitions of Terms used in Groups 1 and 2” to be aligned with the wording of the Guide, which reflects the wording agreed upon at the Wassenaar Arrangement.

Background

The ECL and the Multilateral Export Control and Non-Proliferation Regimes

The ECL is a regulation made under the Export and Import Permits Act (EIPA or “the Act”). The ECL identifies specific goods and technologies that are controlled for export from Canada to other destinations. Exports of items controlled in the ECL may only be made under the authority of a permit issued by the Minister of Foreign Affairs.

The ECL is regularly amended as a result of commitments Canada has made to its international partners in the various multilateral export control and non-proliferation regimes. The four main multilateral export control regimes are the following: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies, the Nuclear Suppliers Group, the Missile Technology Control Regime and the Australia Group. Items agreed upon under these multilateral regimes are reflected in Group 1 and 2, 3 and 4, 6, and 7 respectively.

The schedule of the ECL is divided into the following eight Groups:

Except for the items falling within Groups 5 and 9, the ECL itself does not contain an actual list of items controlled for export. Rather, they are described in the Guide that is produced by Global Affairs Canada and incorporated by ambulatory reference into the ECL. When amending the Guide from time to time, items agreed upon under the above-mentioned multilateral regimes are incorporated into Canadian law without the need for regulatory amendments.

Items controlled under Group 5 are those that Canada generally controls outside of the above-mentioned regimes for various reasons. This includes miscellaneous goods and technologies, such as nuclear fusion reactors and blinding laser weapons. The Order adds the following items to Group 5:

Quantum computing and its related technology and equipment

The emerging field of quantum computing can have a significant impact in many commercial and military areas. Quantum computers are powerful computers that take advantage of quantum physics to solve mathematical problems that traditional devices would take a very long time to solve, and sometimes not be able to solve at all. While the technology could bring important advances in chemistry, simulation, medicine and many other civilian applications, its potential for use in cryptanalysisfootnote 2 has wide-ranging implications in the national and international security arenas. A quantum computer of sufficient power and scale could have the ability to break virtually all forms of public-key cryptography in current use and compromise the most secure communications and transactions conducted over encrypted networks, as well as the integrity of the software used on such networks.

Many quantum computers must operate at extremely low temperatures to be accurate. The currently available and conventional devices called Complementary Metal Oxide Semiconductor devices (CMOS devices) that power these computers are not optimal, as they operate at higher temperatures. For this reason, quantum computers must be equipped with Cryogenic CMOS devices (CryoCMOS device), which are integrated circuits capable of functioning at cryogenic temperatures.).

Advanced semiconductor manufacturing technology and equipment

Semiconductor devices or microchips are essential components of all modern electronic systems, ranging from computers and telephones for commercial use to military technology and weapons of mass destruction. The next generation of semiconductor technology could use structures called gate-all-around field-effect-transistors (GAAFET) that will allow microchips and their devices to run faster and consume less power. Such advancements in the microchips’ design will enable more powerful and efficient artificial intelligence applications, including for military systems.

Similarly, the imaging of semiconductors could represent a risk for national and international security. Specialized Scanning Electron Microscope (SEM) equipment are powerful microscopes that use electrons to create images of extremely small things. SEM are made to identify the details of microchips could be used to reverse engineer these devices and perform chip design recovery.

Objective

The objective of the Order Amending the Export Control List (the Order) is to add the identified quantum computing and semiconductor technologies and equipment to Canada’s export control regime. Canada’s addition of export permit requirements for these items aims to ensure their responsible development and transfer, strengthen the export control regime and align with actions taken by our allies and partners. Cooperation in the introduction of export controls helps to ensure their effectiveness.

Description

The Order adds the following technologies to the ECL under Group 5:

Respecting quantum computing and its related technology and equipment:

  1. Quantum computers with the capability to confine, control, measure and process the quantum information embodied in 34 or more physical qubits with a small margin of error, and the components thereof. It includes circuits and devices specially designed for quantum computers, including components and devices made to control and measure these quantum computers.
  2. Cryogenic Complementary Metal Oxide Semiconductor (CryoCMOS) integrated circuits that operate at a temperature of 4.5 Kelvin or below.

Respecting advanced semiconductor manufacturing technology and equipment:

  1. Technology within the same meaning as under the General Technology Note specified in Group 1 of the Guide for the development or production of semiconductors devices or microchips using GAAFET structures (i.e. nanosheet, nanowire, and gate-all-around transistor technology).
  2. Equipment designed or modified for isotropic and anisotropic dry etching, which is critical in the making of GAAFET structures.
  3. Advanced Scanning Electron Microscope (SEM) equipment for imaging semiconductor or integrated circuits, or to perform chip design recovery meeting a specific set of metrics. These metrics include, amongst others, a field-of-view overlap of less than 5% in horizontal and vertical directions, and the collection and storage capacity of images having more than 200 megapixels, which allows for high-resolution and large area images.

The parameters surrounding the items listed above were established by leveraging the existing and ongoing work undertaken within the Multilateral Export Control Regimes, and in cooperation with Canada’s allies and partners with the goal of establishing a common understanding of where the threshold of concern lies.

As is currently the case for many items under Group 5 and for items agreed upon under the Wassenaar Arrangement, a permit is not required to export the items described above to the United States (U.S.). For destinations other than the U.S., Canadians need a permit before exporting these items.

Editorial changes to item 5504

The Order also amends Item 5504 under Group 5 of the ECL by replacing the wording “Definitions for Terms in Groups 1 and 2” for “Definitions of Terms used in Groups 1 and 2.” The amendment is a non-substantive editorial change necessary to match with the Item 5504 language in the Guide, as well as with the title of the provision it refers to.

Regulatory development

Consultation

The key stakeholders for this regulatory amendment are Canadian industry members and researchers exporting dual-use items (having both civilian and military applications).

Industry experts from the two narrow sectors of quantum computing and semiconductors that could be affected by the amendments were first consulted on multiple occasions between 2019 and 2023 and were made aware of the changes. The new controls have been identified as having no noticeable impact on the semiconductor industry in Canada, and no member of the semiconductor industry expressed concerns or views that could affect the content of this Order.

Overall, stakeholders from the quantum industry expressed their wish that the implementation of the new controls be coordinated to maintain a level playing field with their international competitors from like-minded countries. The parameters related to the new controlled items were established by leveraging the feedback we received from the industry, as well as the existing and ongoing work undertaken within the Wassenaar Arrangement, a multilateral export control regime in which Canada participates. They were also developed in cooperation with our allies and partners with the goal of establishing a common understanding of where the threshold of concern lies. Some countries, such as France and Spain, have already implemented controls related to advanced semiconductors and quantum computers, while others, such as Finland and the U.K., have publicly announced their intention to implement new controls. Other countries are working on implementing them, including Canada’s key partners in the field of quantum computing.

In an abundance of caution, Global Affairs Canada officials have individually reconsulted with each manufacturer of quantum computers in Canada (four previously consulted as well as two new entrants) for a period of 21 days starting January 29, 2024. One company resubmitted observations on the technical parameters of the new items, which were considered when forming Canada’s position at the Wassenaar Arrangement. The same company also commented on some of the permit application process requirements. Those concerns are known to Global Affairs Canada and would be applicable to other ECL controlled technologies. They, however, do not affect this Order. No other company submitted comments during the re-consultation. As such, no changes to the proposed text resulted from these re-consultations.

Given the narrow impact of this Order (i.e. no impact on the general public and a potential impact on an extremely limited number of companies, researchers and academics) and the thorough consultations already held by Global Affairs Canada which lead to a very limited number of comments, there would be no tangible benefits from undertaking a Canada Gazette consultation.

Modern treaty obligations and Indigenous engagement and consultation

The Order is not expected to impact treaties with the Indigenous peoples of Canada. Global Affairs Canada conducted an initial assessment that examined the geographical scope and subject matter of the initiative in relation to modern treaties in effect and did not identify any potential modern treaty impacts.

Instrument choice

Items falling outside of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies, the Nuclear Suppliers Group, the Missile Technology Control Regime, the Australia Group and the Arms Trade Treaty that Canada deems necessary to control must directly be listed into the ECL, under Group 5 (Miscellaneous goods and technologies). Group 5 includes a range of items from softwood lumber to strategic goods and technology.

The authority to add items to the ECL lies with the Governor in Council, as per sections 3 and 6 of the EIPA. As such, no other instrument, including a policy instrument, would have been suitable.

Regulatory analysis

Benefits and costs

The Order is not expected to have a significant impact on the Canadian exporting landscape.

The amendment updates Canada’s ECL to include five additional items. Exporters would therefore require a permit prior to exporting these items from Canada. Industry members have indicated that none of the semiconductor technology and equipment items that are included in the ECL are expected to be exported from Canada in the near future. With respect to quantum computers and its related technology and equipment, only a narrow subset of businesses, universities and academics are expected to apply for a permit in the near future. The Department estimates that six Canadian companies currently manufacture quantum computers and may be affected by this amendment.

As with many ECL controlled goods and technologies, Canadians do not need a permit to export the new items when their consignee is located in the U.S. This would lower the overall impact of this amendment, as the U.S. is amongst Canada’s primary collaborators in the field of quantum computing.

It is unlikely that a significant number of permit applications from researchers and academics would be received. Under the ECL, the new controls do not apply to technology in the public domain, to basic scientific research, or to the transfer of the minimum information required for patent applications. Basic scientific research means experimental or theoretical work undertaken principally to acquire new knowledge of the fundamental principles of phenomena or observable facts, and not primarily directed towards a specific practical aim or objective. This lowers the impact of this amendment on academics and researchers. Moreover, individuals and entities performing applied research would generally be associated with the six companies mentioned above. Except for one, these companies were started by academic and researchers from various universities.

In cases where a permit requirement is imposed as a result of an item being added to the list, there would be a new administrative burden on industry to apply for an export permit, as well as a cost for government to process the applications. The timeline to acquire a permit varies depending on the item being exported and the destination. Complete applications for low-risk destination countries, which are those with whom the quantum industry generally collaborates, are usually reviewed within 10 business days. Destination countries that require broader consultation are generally reviewed within 40 business days. As such, the additional regulatory burden or costs to industry members are expected to be low. Denial of export permit applications only occurs in situations where the export would be injurious to Canada’s foreign or defence policies or would violate the other assessment criteria in the EIPA.

There are no new changes to the export permitting process itself. Although some new industry/research members may need to become familiar with the new controls, most exporters are already aware of the permit application process, and Global Affairs Canada officials remain readily available to assist applicants in completing their application. Every year, the ECL is updated to include items that were agreed upon under the multilateral regimes. This usually does not result in a noticeable fluctuation in the number of applications received and processed.

Small business lens

In an abundance of caution, departmental officials applied the small business lens to this regulatory amendment, as approximately 4 out of 6 businesses manufacturing quantum computers have under 100 employees. Nevertheless, this Order is expected to have a low-cost impact, with total national costs of less than $1 million per year. Only a narrow subset of businesses is expected to apply for a permit in the near future to pursue research and development in the area of quantum computers.

The only anticipated costs for this regulatory amendment are those associated with the time required to become familiar with the export control regime and to complete the permit application(s), as needed. There are no periodic reporting requirements, nor inspections planned, further limiting the compliance costs on business.

Small businesses could incur higher compliance costs as compared to businesses with over 100 employees, as the latter may have dedicated personnel already familiar with the export control regime to complete the application, thus shortening the time required to comply with these new regulatory requirements. That being said, permit applications are simple and straightforward to complete, taking on average from 30 minutes to an hour to complete the first time (depending on a number of factors, including the number of items to be exported and if the required supporting documents are readily available). Since 2006, all applicants can leverage Export Controls On-Line (NEXCOL), a user-friendly web-based application that facilitates the process. Registering to NEXCOL is a one-time occurrence which takes less than an hour to complete. Export permits are issued free of charge (except for certain commercial items that are not subject to a change in their control status in this regulatory amendment). The Department also publishes the Export and Brokering Control Handbook as a resource to help applicants familiarize themselves with the export control regime and the permit application process. Export control officials within the Department are also available to provide assistance to businesses.

The process of applying for an export permit is the same for each applicant, regardless of the size of their business. Each application is reviewed on a case-by-case basis to ensure consistency with the EIPA requirements, as well as Canada’s foreign, defence and security policies.

One-for-one rule

The one-for-one rule applies since there is an incremental increase in administrative burden on business, and the Order is considered a burden in under the rule. For businesses, the Regulations result in an additional annualized cost of $39 of administrative burden as estimated using the Red Tape Reduction Regulations’ prescribed method (as of 2012, the year during which the rule was established). No regulatory titles are repealed or introduced.

On average, this Order may result in approximately six (6) permit applications submitted each year by requesters. Applicants are assumed to have an average wage of around $37/hr. First-time permit applications are expected to take up to an hour to complete, while subsequent ones would take up to 10 minutes to complete. Applicants may also wish to register for NEXCOL, a one-time occurrence that takes on average one hour.

Regulatory cooperation and alignment

Many of Canada’s allies and partners, such as France, the U.K., Finland and Spain have already put in place national controls related to semiconductors and quantum computing or have announced their intention to do so. This Order ensures alignment with these countries, strengthening the overall effectiveness of the controls.

Canada and its allies and partners affirm the importance of cooperation on export controls related to critical and emerging technologies and are committed to working together on implementing the necessary national controls. The G7 Leaders reiterated the need to strengthen efforts in the fields of export controls and dual use technology in the June 2023 Leaders’ Statement on Economic Resilience and Economic Security, and in the December 2023 Leaders’ Statement. Canada will continue to actively support and participate in export control regimes to ensure a coordinated approach to export controls.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

A gender-based analysis plus (GBA+) was conducted. No impacts based on gender and other identity factors have been identified for the Order.

Under the Act, all export permit applications for controlled military items must be assessed against the potential risk that the export could be used to commit or facilitate serious acts of gender-based violence and violence against women and children. The Minister of Foreign Affairs cannot issue a permit if there is a substantial risk that the new export would be used to commit or facilitate serious acts of gender-based violence. This requirement is extended to all other controlled items under the Department’s policy.

Implementation, compliance and enforcement, and service standards

Implementation

This Order comes into force 30 days after the day it is published in Part II of the Canada Gazette, which provides sufficient time for exporters to become familiar with the new controls before they are implemented. The Order will be published on the Department’s website and a notice will also be communicated to stakeholders through NEXCOL.

Upon implementation, Canadians seeking to export items meeting the specific sets of criteria described above will need authorization to do so by an export permit before these items may be exported from Canada to any country, other than to the U.S. This is consistent with most goods and technology listed under the ECL.

Compliance and enforcement

All exports or transfers of items controlled under the ECL must be authorized by an export permit. The Canada Border Services Agency and the Royal Canadian Mounted Police are responsible for the enforcement of export controls. In addition, through the Safeguarding Science Initiative, Global Affairs Canada, in collaboration with Public Safety Canada, performs regular outreach to academia and relevant stakeholders to inform on and raise awareness of Canada’s export controls regime. The Safeguarding Science Initiative provides information on what technology is controlled and why, explains how organizations may be subject to export controls, and explains the permitting process. This proactive outreach helps ensure that the relevant stakeholders remain up to date with the regulatory requirements which in turns, help improve compliance.

The physical export of goods, as well as the disposal or disclosure by any means (i.e. transfer) of technical data, technical assistance, and information necessary for the development, production, or use of an item included in the ECL from a place in Canada to a place outside Canada, is subject to the EIPA and requires an export permit (exceptions do exist for many items to the U.S.).

Service standards

Complete applications for low-risk destination countries are generally reviewed within 10 business days, while destination countries that require broader consultation are generally reviewed within 40 business days. For more information on the processing times for permit applications to export controlled items, please consult the latest version of the Export and Brokering Controls Handbook, which can be found on the website of the Export Controls Policy Division.

Contact

Marianne Leblanc
Senior Policy Analyst
Export Controls Policy Division – TIR
Global Affairs Canada
111 Sussex Drive
Ottawa
K1A 0G2
Email: expctrlpol@international.gc.ca