Canadian Business Community Baffled by Iran Embargo

By Andrea W. Lorenz

President Bill Clinton's April 30 executive order banning export of U.S.-made goods to Iran includes a provision that: "U.S. companies are prohibited from approving or facilitating the performance of their affiliates' transactions with Iran that they themselves are precluded from performing." Canada, which last year exported goods worth Can$446 million to Iran, and which is home to thousands of U.S. subsidiaries, therefore has reason to be concerned.

The U.S. is Canada's biggest trade partner, with Canada exporting Can$174 billion to and importing Can$137 billion from the U.S. last year. In light of Senator Alfonse D'Amato's even more draconian bill now under consideration by the U.S. Congress, the question of how far the U.S. is willing to go to enforce the rules could take on even greater significance for Canadians. D'Amato's bill, the "Iran Foreign Sanctions Act of 1995," would prohibit Canadian companies that trade with Iran from trading with the U.S. D'Amato's view is: "Simply put, a foreign corporation or person will have to choose between trade with the United States or trade with Iran."

D'Amato explains in his March 27 press release: "As long as Iran continues to support terrorism, seeks to obtain weapons of mass destruction and continues its abysmal human rights practices, it should be isolated. My new legislation says foreign companies and persons will be prohibited, with only a few exceptions, from trading with the United States if they trade with Iran."

Fred Matuk of Canada's Department of Foreign Affairs and International Trade has responded with Canada's official reaction to President Clinton's embargo order. "We do not intend to fill any gaps that the Americans leave," he said. "We will not act as a conduit of American goods. But, if they are Canadian goods, it's business as usual."

Not surprisingly, Canadian businesspersons are baffled by the embargo. Jack Baker, chairman of the Iran-Canada Business Council in Toronto, commented, "We are encouraging the government of Canada to take a position that reflects the overall interests of Canada. The rules are pretty fuzzy at the moment, though."

The reactions of other Iran-Canada Business Council members ranged from optimism to incredulity. Ingersoll-Rand Canada's president, Samir Zaizal, said: "If I say I'm for the embargo I'm annoying the Canadians, and if I say I'm against it, I'm annoying the Americans." Another Council member, who is Iranian by birth and asked not to be identified, said he believes the volume of Canadian trade with Iran will increase in the short term. His company exports chemical goods, electrical items, automotive parts, and oil and gas industry materials. He said, "Personally I don't like this type of embargo. There are other solutions."

A third Council member agreed, saying, "I believe more could have been achieved by getting closer to Iran rather than by an embargo. I don't think the tactics make sense, I think it increases the reactionary factions' power."

"The U.S. and Canada have agreed to disagree for years."

Iran-Canada Business Council members had a plethora of questions stemming from the vague wording of the Executive Order. Can Canadians still buy Iranian oil on the spot market? Would U.S. parent companies compensate Canadian shareholders of a subsidiary if its share prices decreased drastically? Are U.S. parent companies legally obliged to inform their Canadian subsidiaries of the U.S. law?

Yet Canadians seeking answers to these questions will encounter a minefield of contradictions from both the U.S. and the Canadian authorities involved. Here are the rules according to Canada:

Canadian companies must have a permit to re-export U.S.-manufactured goods which are listed under Item 5400 of the Export Controls List. According to Rodney Moore, a spokesman for Canada's Department of Foreign Affairs, since the Hyde Park Declaration of 1941, Canada has agreed to monitor all U.S.-origin products leaving the country. The regulations' purpose is "to prevent Canada from being used as a back door," he explained. However, Item 5400 states that if a product undergoes "a substantial change in value, form, or use," it is considered Canadian. According to Canadian officials, if a product has U.S.-made parts but is assembled in Canada, it loses its U.S. identity. In practice, Canadians interpret the rules to mean that a product can be up to 20 percent U.S.-made and still be Canadian.

American officials, however, insist that any product with 10 percent U.S.-made content is "Made in the U.S.A." Said one Canadian Export Controls Division official who asked not to be identified, "The U.S. and Canada have agreed to disagree for years."

Who's in Charge?

Canadian Export Controls Division officials believe it is the U.S. manufacturer's responsibility to explain the regulations to its Canadian subsidiary. They said the U.S. company must provide its subsidiary with permission to export printed on its company letterhead. If the Canadian company cannot get written permission from its parent company, it must then go through the U.S. Department of Commerce, the Bureau of Alcohol, Tobacco, and Firearms (BATF), or whichever is the appropriate U.S. government office.

But which is the appropriate U.S. government office to approach for permits? Here is where the law-abiding businessperson will encounter so much obfuscation and so many diversions to "other offices" that he may eventually give up in dismay.

Although the Canadian officials with whom this writer spoke did not seem to realize it, within the U.S. all licensing requests now are being handled by the U.S. Treasury's Office of Foreign Assets Control. Repeated calls to the U.S. Treasury Department, however, got only two responses: a recording saying, "the mail-box for this number is full," and the exasperated reply of the press relations official's assistant, who said, "I can't force my boss to call you back, you know."

U.S. Commerce Department officials were more forthcoming, although they are no longer in charge. Paul Thanos, Iran desk officer at the U.S. Department of Commerce, provided the following information: U.S. companies are legally obliged to inform their Canadian subsidiaries of the embargo legislation. A U.S. company that has sold a patented component to a Canadian company for resale to Iran must inform its client that the product may not be shipped to the Islamic Republic. One officer in the Commerce Department's Near East division even opined, "The embargo is unfortunate. It will cost a lot of American firms a lot of money."

No international courier services whose parent companies are American or who ship via a U.S. hub or port may now accept anything destined for Iran. Both Federal Express and DHL Canada said they no longer were allowed to ship any packages to Tehran. No doubt local Canadian courier services will benefit from the vacuum left by their U.S.-based competitors.

Since to date telephone calls to Washington, DC have resulted not in clarification but in further confusion, Canadian businessmen might be forgiven for concluding that President Clinton's Executive Order contains more rhetoric than substance. Is the U.S. really prepared to come down heavily on its closest neighbor to enforce the embargo? Or is Clinton merely talking loudly and carrying a small stick?

Andrea W. Lorenz, a former features editor of the Washington Report on Middle East Affairs, is a consultant with Westdev, Inc. based in Calgary, Canada.