Regulations Amending the Special Economic Measures (Russia) Regulations: SOR/2022-173
Canada Gazette, Part II, Volume 156, Number 16
Registration
SOR/2022-173 July 14, 2022
SPECIAL ECONOMIC MEASURES ACT
P.C. 2022-871 July 14, 2022
Whereas the Governor in Council is of the opinion that the actions of the Russian Federation constitute a grave breach of international peace and security that has resulted in a serious international crisis;
Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Foreign Affairs, makes the annexed Regulations Amending the Special Economic Measures (Russia) Regulations under subsections 4(1)footnote a, (1.1)footnote b, (2) and (3) of the Special Economic Measures Act footnote c.
Regulations Amending the Special Economic Measures (Russia) Regulations
Amendments
1 Section 3.10 of the Special Economic Measures (Russia) Regulations footnote 1 is replaced by the following:
Services
3.10 (1) It is prohibited for any person in Canada and any Canadian outside Canada to provide to Russia or to any person in Russia a service referred to in Part 1 of Schedule 8 in relation to an industry referred to in Part 2 of that Schedule.
Existing contracts — items 1 to 28
(2) Subsection (1) does not apply in respect of the provision of a service referred to in any of items 1 to 28 of Part 1 of Schedule 8 in relation to an industry referred to in any of items 8 to 15 of Part 2 of that Schedule until 60 days after the day on which this subsection comes into force if the service is provided under a contract entered into before that coming into force.
Existing contracts — items 29 and 30
(3) Subsection (1) does not apply in respect of the provision of a service referred to in item 29 or 30 of Part 1 of Schedule 8 until 60 days after the day on which this subsection comes into force if the service is provided under a contract entered into before that coming into force.
| Item | Column 1 Service |
Column 2 CPC category |
|---|---|---|
| 29 | Services incidental to manufacturing, except to the manufacture of metal products, machinery and equipment | 884 |
| 30 | Services incidental to the manufacture of metal products, machinery and equipment | 885 |
| Item | Column 1 Industry |
Column 2 ISIC division |
|---|---|---|
| 8 | Manufacture of basic metals | 24 |
| 9 | Manufacture of fabricated metal products, except machinery and equipment | 25 |
| 10 | Manufacture of computer, electronic and optical products | 26 |
| 11 | Manufacture of electrical equipment | 27 |
| 12 | Manufacture of machinery and equipment not elsewhere classified | 28 |
| 13 | Manufacture of motor vehicles, trailers and semi-trailers | 29 |
| 14 | Manufacture of other transport equipment | 30 |
| 15 | Land transport and transport via pipelines | 49 |
Application Before Publication
4 For the purpose of paragraph 11(2)(a) of the Statutory Instruments Act, these Regulations apply according to their terms before they are published in the Canada Gazette.
Coming into Force
5 These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
The Russian Federation continues to violate the sovereignty and territorial integrity of Ukraine.
Background
Following Russia’s illegal occupation and attempted annexation of Crimea in March 2014, the Canadian government, in tandem with partners and allies, enacted sanctions under the Special Economic Measures Act. These sanctions impose dealings prohibitions (an effective asset freeze) on designated individuals and entities in Russia and Ukraine supporting or enabling Russia’s violation of Ukraine’s sovereignty. Any person in Canada and Canadians outside Canada are thereby prohibited from dealing in the property of, entering into transactions with, providing services to, or otherwise making goods available to listed persons.
In late fall of 2021, after months of escalatory behaviour, Russia began massing troops, military equipment and military capabilities on Ukraine’s borders and around Ukraine. The build-up lasted into February 2022, eventually totalling 150 000–190 000 troops. On February 15, 2022, the Russian Duma (equivalent to the Canadian House of Commons) voted to ask President Putin to recognize the so-called Luhansk People’s Republic and Donetsk People’s Republic in eastern Ukraine, further violating Ukraine’s sovereignty as well as the Minsk agreements intended to bring about a peaceful resolution to the conflict in eastern Ukraine. On February 18, 2022, Russia-backed so-called authorities ordered the evacuation of women and children from the region, as well as the conscription of men aged 18 to 55. On February 20, 2022, Russia extended a joint military exercise with Belarus and announced that Russian troops would not leave Belarus. On February 21, 2022, following a meeting of the Russian Security Council, President Putin signed decrees recognizing the “independence” and “sovereignty” of the so-called Luhansk People’s Republic (LPR) and Donetsk People’s Republic (DPR). Immediately following this, President Putin ordered Russian forces to perform “peacekeeping functions” in the so-called LPR and DPR regions. He also expressly abandoned the Minsk agreements, declaring them “non-existent.” On February 22, 2022, Russia’s Duma granted President Putin permission to use military force outside the country. Uniformed Russian troops and armoured vehicles then moved into the Donetsk and Luhansk regions for the first time under official orders. On February 24, 2022, President Putin announced a “special military operation” as Russian forces launched a full-scale invasion of Ukraine. The invasion began with targeted strikes on key Ukrainian military infrastructure and the incursion of Russian forces into Ukraine in the north from Russia and Belarus, in the east from Russia and the so-called LPR and DPR regions, and in the south from Crimea.
The deterioration of Russia’s relations with Ukraine has paralleled the worsening of its relations with the United States (U.S.) and the North Atlantic Treaty Organization (NATO), which has led to heightened tensions.
International response
Since the beginning of the current crisis, Canada and the international community have been calling on Russia to de-escalate, pursue diplomatic channels, and demonstrate transparency in military activities. Diplomatic negotiations have been taking place along several tracks, including via (1) United States–Russia bilateral talks (e.g. the Strategic Stability Dialogue); (2) NATO; (3) the Organization for Security and Cooperation in Europe (OSCE); and (4) the Normandy Four format (Ukraine, Russia, Germany, France), for the implementation of the Minsk agreements.
On February 21, 2022, G7 Foreign Affairs ministers released a statement condemning Russian recognition of the so-called LPR and DPR regions and stating that they were preparing to step up restrictive measures to respond to Russia’s actions, while reaffirming their unwavering commitment to Ukraine’s sovereignty and territorial integrity. G7 Foreign Affairs ministers and NATO leaders continue to be united in promising significant consequences for Russia.
Canada’s response
Canada continues to strongly condemn Russia’s behaviour toward Ukraine. Canada has announced financial contributions representing over $600 million since January 2022 to support humanitarian, development, resilience, security, human rights and stabilization programming in Ukraine. Further, to support Ukraine’s economic resilience, Canada has offered up to $1.25 billion in additional loan resources to the Ukrainian government through a new Administered Account for Ukraine at the International Monetary Fund (IMF); $1 billion has been disbursed.
Canada also sent weapons such as rocket launchers, hand grenades, anti-armour weapons, and ammunition to support Ukraine. These contributions are in addition to more than $57 million in military equipment that Canada has provided Ukraine from 2015 to 2021, and the expansion of Canada’s commitment to Operation REASSURANCE, the Canadian Armed Forces’ contribution to NATO assurance and deterrence measures in Central and Eastern Europe.
Since February 24, 2022, the Government of Canada has enacted a number of punitive measures and imposed severe extensive economic sanctions against Russia for its war of aggression against Ukraine. Since the start of the crisis, under the Special Economic Measures Act (SEMA), Canada has sanctioned over 1 000 individuals and entities in Russia, Belarus and Ukraine. This has included senior members of the Russian government, including President Putin and members of the Duma, the Federation Council and the Security Council, military officials and oligarchs (namely Roman Abramovich, the Rotenberg brothers, Oleg Deripaska, Alisher Usmanov, Gennady Timchenko, Yevgeny Prigozhin), and their family members.
Canada also targeted Russia’s ability to access the global financial system, raise or transfer funds, and maintain funds in Canadian dollars by sanctioning several core Russian financial institutions, including Sberbank, VTB, and VEB, as well as the Central Bank of Russia, the Ministry of Finance and the National Wealth Fund. Canada also successfully advocated for the removal of several Russian banks from the SWIFT payment system.
Furthermore, Canada implemented measures to pressure the Russian economy and limit Russia’s trade with and from Canada. Russia’s economy depends heavily on the energy sector. Therefore, Canada moved ahead with a prohibition on the import of three distinct types of oil products, including crude oil, from Russia. Canada revoked Russia’s most favoured nation status, applying a 35% tariff on all imports from Russia. In response to Belarus’s support to Russia, Canada also revoked Belarus’s most favoured nation status.
Finally, Canada stopped the issuance of new permit applications and cancelled valid permits for exporting controlled military, strategic, and dual-use items to Russia, with exceptions for critical medical supply chains and humanitarian assistance.
These amendments to the Special Economic Measures (Russia) Regulations (the Regulations) build upon Canada’s existing sanctions against Russia by further impeding Russian dealings with Canada. These measures are being taken in coordination with partners, including in the U.S., the United Kingdom (U.K.), the European Union (EU), Australia and Japan.
Conditions for imposing and lifting sanctions
Pursuant to the Special Economic Measures Act, the Governor in Council may impose economic and other sanctions against foreign states, entities and individuals when, among other circumstances, a grave breach of international peace and security has occurred resulting in a serious international crisis.
The duration of sanctions by Canada and like-minded partners has been explicitly linked to the peaceful resolution of the conflict, and the respect for Ukraine’s sovereignty and territorial integrity, within its internationally recognized borders, including Crimea, as well as Ukraine’s territorial sea. The U.S., the U.K., the EU and Australia have continued to update their sanction regimes against individuals and entities in both Ukraine and Russia.
Objective
- Impose further costs on Russia for its unprovoked and unjustifiable invasion of Ukraine.
- Maintain the alignment of Canada’s actions with those taken by international partners to underscore continued unity with Canada’s allies and partners in responding to Russia’s ongoing actions in Ukraine.
Description
The Regulations Amending the Special Economic Measures (Russia) Regulations (the amendments) expand the scope of the existing prohibition on services to Russia, adding the following two new services to Part 1 of Schedule 8:
- Services incidental to manufacturing (for goods such as food, tobacco, textiles, paper, etc.)
- Services incidental to the manufacture of metal products, machinery and equipment
The amendments also add eight new industries to Part 2 of Schedule 8, which are involved in the following:
- Manufacture of basic metals
- Manufacture of fabricated metal products, except machinery and equipment
- Manufacture of computer, electronic and optical products
- Manufacture of electrical equipment
- Manufacture of machinery and equipment not elsewhere classified
- Manufacture of motor vehicles, trailers and semi-trailers
- Manufacture of other transport equipment
- Land transport and transport via pipelines
The amendments include a 60-day wind-down period to allow the following providers, with pre-existing contracts, to make the necessary arrangements to conclude those contracts:
- Providers of the two new services listed above
- Providers of services listed in items 1 to 28 of Part 1 of Schedule 8 in relation to any of the eight new industries listed above
Regulatory development
Consultation
Global Affairs Canada engages regularly with relevant stakeholders, including civil society organizations, cultural communities and other like-minded governments, regarding Canada’s approach to sanctions implementation.
With respect to these amendments, undertaking public consultation would not have been appropriate, given the urgency to impose these measures in response to the ongoing breach of international peace and security in Ukraine.
Modern treaty obligations and Indigenous engagement and consultation
An initial assessment of the geographical scope of the amendments was conducted and did not identify any modern treaty obligations, as the amendments do not take effect in a modern treaty area.
Instrument choice
Regulations are the sole method to enact sanctions in Canada. No other instrument could be considered.
Regulatory analysis
Benefits and costs
Measures targeting key sectors of the Russian economy have less impact on Canadian businesses than traditional broad-based economic sanctions.
It is estimated that the total value of exports of these types of services to Russia reached approximately Can$121 million in 2018. However, a disaggregated value of these services to only the industries targeted in the amendments is difficult to ascertain and, consequently, it is difficult to specify the exact financial impact of the measures.
The amendments could create additional costs for businesses seeking permits that would authorize them to carry out specified activities or transactions that are otherwise prohibited.
Small business lens
Likewise, the amendments could create additional costs for small businesses seeking permits that would authorize them to carry out specified activities or transactions that are otherwise prohibited. No significant loss of opportunities for small businesses is expected as a result of the amendments.
One-for-one rule
The permitting process for businesses meets the definition of “administrative burden” in the Red Tape Reduction Act and would need to be calculated and offset within 24 months. However, the amendments address an emergency circumstance and are therefore exempt from the requirement to offset administrative burden and regulatory titles under the one-for-one rule.
Regulatory cooperation and alignment
While the amendments are not related to a work plan or commitment under a formal regulatory cooperation forum, they align with actions taken by Canada’s allies.
Strategic environmental assessment
The amendments are unlikely to result in important environmental effects. 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 (GBA+)
The subject of economic sanctions has previously been assessed for effects on gender and diversity. Although intended to facilitate a change in behaviour through economic pressure on individuals and entities in foreign states, sanctions under the Special Economic Measures Act can nevertheless have an unintended impact on certain vulnerable groups and individuals. Rather than affecting Russia as a whole, these targeted sanctions impact key economic sectors that directly or indirectly support, provide funding for or contribute to a violation of the sovereignty or territorial integrity of Ukraine. Therefore, these sanctions are unlikely to have a significant impact on vulnerable groups as compared to traditional broad-based economic sanctions directed toward a state.
Rationale
The amendments are in direct response to the Russian invasion of Ukraine that began on February 24, 2022, which continues Russia’s blatant violation of Ukraine’s territorial integrity and sovereignty under international law. The services and industries included in the amendments were chosen based on an analysis of Canadian service exports to Russia to identify areas that would bolster the impact of the existing prohibition on services to Russian industries. In coordination with actions being taken by Canada’s allies, the amendments seek to impose a direct economic cost on Russia and signal Canada’s strong condemnation of Russia’s latest violations of Ukraine’s territorial integrity and sovereignty.
These sanctions show Canada’s solidarity with like-minded countries, which have already imposed similar restrictions.
Implementation, compliance and enforcement, and service standards
The amendments come into force on the day on which they are registered.
The list of banned services for provision to Russia will be available online and will be added to the Consolidated Canadian Autonomous Sanctions List. This will help to facilitate compliance with the Regulations.
Canada’s sanction regulations are enforced by the Royal Canadian Mounted Police and the Canada Border Services Agency (CBSA). In accordance with section 8 of the Special Economic Measures Act, every person who knowingly contravenes or fails to comply with the Special Economic Measures (Russia) Regulations is liable, upon summary conviction, to a fine of not more than $25,000 or to imprisonment for a term of not more than one year, or to both; or, upon conviction on indictment, to imprisonment for a term of not more than five years.
The CBSA has enforcement authorities under SEMA and the Customs Act, and will play a role in the enforcement of these sanctions.
Contact
Andrew Turner
Director
Eastern Europe and Eurasia Relations Division
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
Telephone: 343‑203‑3603
Email: Andrew.Turner@international.gc.ca