The Controlled Goods Management Challenge
There are controlled goods and then there are controlled goods. Most of us are familiar with the concept. However, if you were to ask several of your co-workers to define a controlled good you would probably receive a different answer from each person. One might feel that a controlled good is an item, such as a prescription drug. Another might believe that a controlled good is something you would need a license to own or use (i.e., a car or a motorbike). In a sense, both answers are correct. However, in the context of the Canadian defence industry, a controlled good is an item specifically identified as such by an amendment to the Defence Production Act.
Until recently, Canada has been exempt from many provisions of the U.S. International Traffic in Arms Regulations (ITAR) which control the export and import of defence articles and services. That changed in the spring of 1999 when the U.S. State Department made unilateral changes to the ITAR that significantly narrowed Canada’s exemption regarding the licensing of U.S.-origin defence goods and services. The new regulations imposed a significant burden on Canadian companies involved in importing certain key components. Similarly, Canadian companies subcontracting to U.S. prime contractors, no longer had free access to technology or data subject to the U.S. Munitions List (USML). With these new restrictions on access to technical specifications in place, Canadian companies found it very difficult to bid on U.S. defence contracts in a timely manner.
Following prolonged negotiations, the two governments announced that they had resolved their outstanding differences. Under the new agreement, the United States reinstated most of the pre-April 1999 exemptions on the transfer of most U.S -origin controlled defence goods.
Canada agreed to establish a Controlled Goods Registration Program (CGRP) to register companies or persons with access to controlled goods. The result was the amendment to the Defence Production Act, Bill S-25. The amendment introduced the term “Controlled Goods” and provided a Controlled Goods Registration Program to which firms and individuals within the defence industry must apply. The CGRP was also established to qualify parties for exemption or exclusion to registration requirements as set out in the new Controlled Goods Regulations (CGR). The Department of National Defence (DND) as a federal government department, is excluded from registering. However, DND is a considerable customer of the defence industry and greatly affected by the Controlled Goods Regulations (CGR). It should be noted that these changes apply to all federal government departments, not just DND and the CF Firms, individuals, and members of excluded or exempted organizations are liable to penalties of significant fines and/or jail terms should they be found to not be in compliance with the regulations.
The Controlled Goods Regulations was developed to:
• promote the long-term viability of Canada’s high-tech innovations in the defence industry,
• re-new Canada’s favoured position with the United States, and
• control the possession, examination or transfer of controlled goods within Canada.
Controlled Goods are the result of harmonizing Canada’s Export Control List (ECL) with the U.S. Munitions List. The two countries therefore share the same list of controlled goods.
In January 2000, DND created the Controlled Technology Access and Transfer Office (CTAT Office) to integrate Canadian Controlled Goods Regulations (CGR) into DND operations. The CTAT Office has two functional elements, CTAT Operations and the CTAT Project Office. Operations provides day-to-day assistance and advice to DND operational staff on matters related to CGR and ITAR. Both of the CTAT Office’s functional elements are supported by subject matter experts from within the NDHQ matrix such as the DMMD, the EPMs, and DMASP. The Project Office has the task of developing the processes and procedures to integrate the administrative functions necessary for “cradle to grave” processing of controlled goods by DND, as identified in the CGR.
The processes to be developed by the Project Office pertain to functional areas within DND dealing primarily with initial provisioning, re-provisioning, warehousing, transportation and disposal of controlled goods. The project team developed new concepts and processes to assign demilitarization codes that clearly identify controlled goods; a challenge process to validate assigned codes; and the development of technical instructions for demilitarization and disposal of controlled goods. Due to the significance of the regulations, programs are being established to inform and train staff in a new method of conducting business.
The CTAT Office has made significant progress to date. One of the first issues to be resolved was how to identify whether a materiel is a controlled good. This issue was an enormous task to address. There are approximately 750,000 NATO Stock Numbers (NSNs or line items) used by DND that require review using the ECL and the USML as a source of item identification and description. The method chosen to identify controlled goods within DND’s automated supply system was to use the NATO demilitarization codes (DMCs). This is the process already being successfully used in the U.S. catalogue system (FEDLOG) for U.S.-origin controlled goods. DND is responsible for maintaining the Canadian catalogue system known as the Government Cataloguing System (CGCS) on behalf of all Federal Government Departments. This made the CGCS the natural starting point for assigning new DMCs to all NSNs. The process of assigning DMCs for all items listed in the CGCS is ongoing and will be completed by mid-fall 2001.
Following the assignment of DMCs, a DMC challenge process was developed and implemented. The challenge process provides a method to revise the DMC should it be assigned in error or to change the method of demilitarization based on the age of the item, changing restrictions, or standardisation with similar items. Successful testing and implementation of this activity has been completed.
DND made several presentations to the industry from coast to coast to ensure all suppliers to DND were aware of the requirement to register with the CGRP. The CTAT office has established a web site for internal use by DND staff to provide information and procedures to ensure DND is compliant with the law. A “hot line” is available to both industry and DND staff to provide personal attention to the sometimes complex interpretation of the regulations — both the CGR and the ITAR.
At this point, the question becomes what are the significant outstanding issues and where are we in terms of developing management tools to deal with them?
Three of the key issues being addressed at this time are: the demilitarization and disposal of controlled goods, complying with the CGR during operational deployments, and managing access to publications containing controlled information (including drawings).
1. Disposal of controlled goods may involve the sale, transfer (loan), demilitarization, and/or destruction of the item. This also includes the identification and neutralization of any hazardous materials associated with the good.
Prior to the sale or transfer of a controlled good to another person, DND ensures that this individual is qualified to receive the good. If the person (or company) is Canadian, they must be registered with the Public Works and Government Services Canada (PWGSC) Controlled Goods Registration Program (CGRP). If the person (or company) is U.S.-based, they must be registered with the U.S. ITAR program. If the potential purchaser is a foreign national (or country) they must not be on the Canadian or U.S. scheduled list (a list of countries against which restrictions apply with regard to controlled goods). In all cases, the purchaser must agree to, and sign documents indicating their compliance with CGR should they resell the good to another party.
Demilitarization of a controlled good involves the removal and destruction of key components that makes the particular item “controlled.” Specific processes are provided depending on the item. At present, DND will use the U.S. recommendations for demilitarization providing an ability to later refine or improve the process. Demilitarization as a required procedure, is new to DND and may be costly. DND is examining methods within its capability to reduce the costs and remain compliant with both the regulations and U.S. demilitarization requirement for U.S.-origin goods.
2. Operational deployments involve the movement of large quantities of DND materiel to various domestic or foreign regions in order to comply with tasking directions. In support of operational deployments, such as procurement, disposal, repair and transportation, all procedures need to be well defined and easily useable with minimal delay. In this context, the CGR and the ITAR must still be adhered to and therefore should become an integral component within the operational planning phase of deployments. The logistics planning component, in particular, will require considerable expertise in order to meet tight schedules and urgent needs, while remaining compliant to the laws and regulations.
3. Access to controlled data contained in a CF or DND publication requires new management principles. At present, when the publication depot or Life Cycle Materiel Manager (LCMM) receives a request for a publication, an issue request form is sent to the publication’s OPI for approval to issue the publication to the requestor. In the future, both the request and the publication itself will be stamped with a warning that the item may pertain to controlled goods. Registering the publications on an automated publications registry as a controlled good is a significant process for DND. Interim procedures have been established to ensure compliance with the regulations. A more permanent solution will soon be established once DND finalizes implementation of its new Enterprise Resource Planning (ERP) systems for publications and technical drawings such as the CFSSU and MASIS.
A great deal has been accomplished in responding to the challenges facing DND in managing the CGR as it applies to day-to-day operations. Full integration of the remaining CGR processes and procedures into day-to-day operations will be completed by mid 2002. DND and the CF are working with its industry suppliers to ensure compliance with the regulations and promote Canadian defence technology.
DND OPI: André Lagacé Director, Quality Assurance is responsible for the development and implementation of the CTAT office. He can be contacted at (819) 994-8910.