Note:  Interesting story on the effects of ITAR regulations.

The New York Times

Strict U.S. Rules Disqualify Some Canadian Arms Workers

By IAN AUSTEN
Published December 12, 2006

OTTAWA, December 11. As a private in the Canadian army reserve, Marcos Henriquez drove light armored vehicles, sometimes while he was training with American soldiers

At the end of four years with the military, Mr. Henriquez found work inspecting similar vehicles as they rolled off an assembly line at a General Motors of Canada plant in London, Ontario.

That is, until he was laid off with 172 co-workers in 2002. Mr. Henriquez said G.M. had told them that the United States government, one of the plant’s major customers, had decided that their dual citizenship made them security risks.

This summer, Mr. Henriquez, a citizen of both El Salvador and Canada, reached a confidential settlement with G.M. over his dismissal. But the case involving him ripples far beyond the London plant.

Arms makers who export to the United States are in a squeeze, thanks to a complex set of State Department rules known as the International Traffic in Arms Regulations or ITAR. The unusually strict rules that govern who can work on military projects for the United States government are in stark conflict with Canadian laws against discrimination.

The rule that tripped up Mr. Henriquez bans nationals of about 20 countries from working on Pentagon contracts — period — or having any access to related plans and materials.

Not only does it complicate management-employee relations, it makes it hard for American military contractors to bid competitively on Canada’s military expansion program, which is worth about 15 billion Canadian dollars ($13 million).

Next month, General Motors will face an Ontario Human Rights Tribunal hearing over some of the London plant layoffs. That is a reminder for G.M. that to meet State Department rules, foreign-based military contractors often have to break, or at least challenge, local human rights and employment laws.

Mr. Henriquez, who left El Salvador in 1989 to escape civil strife, said he never imagined himself in a civil rights dispute in North America.

“I’m Canadian enough to fight for my fellow citizens but not Canadian enough to work for G.M.,” said Mr. Henriquez, 47, a father of two who has since found work at an auto parts supplier. “They can’t step on our laws just because they create jobs.”

Patty Faith, a spokeswoman for General Motors of Canada, which sold the London factory to General Dynamics in 2003, declined to comment. Ken Yamashita, a spokesman for General Dynamics in Canada, which is under separate investigation by the Ontario Human Rights Commission because of more recent citizenship-related complaints from the plant, also declined to respond.

The ITAR citizenship rules affect all of the United States’ allies, but the conflict with local laws has become most public in Canada. By industry estimates, about half of the country’s seven billion Canadian dollars in annual military production involves contracts from the United States.

Officials from the State Department and Canada’s departments of foreign affairs and defense said the two governments were discussing the problem, which senior Canadian politicians have raised with their American counterparts.

While these officials would not provide any details about those negotiations, Elizabeth Hodges, a spokeswoman for Canada’s Department of National Defense, said Canada regards discrimination against workers based on citizenship or country of origin as a violation of the country’s charter of rights and freedoms.

Although her colleagues in areas like procurement are required to follow ITAR guidelines, Ms. Hodges said Canada’s defense department would never discriminate against a worker to meet the United States rules. “As a government department, absolutely not,” she said. “We are obliged to uphold the law.”

Nevertheless, Ms. Hodges acknowledged that stance had led to conflicts with the United States.

She said such cases were handled individually. While she declined to offer any details about how they are resolved, Ms. Hodges said that “we haven’t run into any absolute roadblocks to date.”

The main purpose of the ITAR is to keep American military technology out of the hands of hostile nations. Ms. Hodges said the rules had been enforced more vigorously since the attacks of Sept. 11, 2001.

G.M.’s compliance, however, appears to be a more stringent approach than most.

Michael M. Lerner, a lawyer who represented Mr. Henriquez and several other G.M. employees, said that the company appeared to send home all of its employees with dual citizenship one afternoon in August 2002, including some who were dual nationals of close American allies like the United Kingdom and Germany.

Mr. Henriquez, a contract employee, said G.M. managers suggested to him and the others that they could return to work once the security question had been sorted out. Instead, a month later, he and all the other contract employees received termination notices by mail.

Mr. Henriquez offered to renounce his Salvadoran citizenship and undergo a security check to reclaim his job, he said, but G.M. never responded. Most of the full-time employees who were sent home in 2002 were kept off work on full pay and eventually called back by General Dynamics, the factory’s new owners.

However, Mr. Lerner said that at least one of those employees had not gone back until October of this year and that many had been transferred to different, lower-ranking jobs. Others work under unusual conditions. Mr. Lerner said one woman must be escorted through an area covered by the ITAR rules every time she needs to use the bathroom.

Other Canadian military contractors simply weed out dual nationals who apply for jobs. Tim Page, president of the Canadian Association of Defense and Security Industries, acknowledged that this puts companies in a difficult legal position.

“Canadian business is extremely aware of the compromised position it finds itself in,” said Mr. Page, whose trade group is based in Ottawa.

While most companies seem to do the culling quietly, CAE, based in Montreal, a leading maker of aircraft flight simulators, acknowledges the practice in job postings.

Nathalie Bourque, a spokeswoman for the company, said it believed that complying with ITAR’s citizenship rules was no different from meeting any other job requirement, such as having knowledge of a specific language for a position involving an overseas customer.

Ms. Bourque said the company would continue the practice “until we are told otherwise.”

“Hopefully, we can keep jobs in Canada,” she added. “The alternative is not to bid on contracts or move the work to the United States.”

Military contractors in Europe face a similar situation.

There is an “innate contradiction” between the United States laws on military manufacturing and the employment laws of Europe, said Brinley Salzman, director of exports at the Defense Manufacturers Association, a British trade group.

“If we all adopted the American system, defense trading would stop overnight,” Mr. Salzman said.

Privately, some executives in Europe say the industry is nervously keeping an eye on the situation in Canada because they, too, are keeping workers of certain nationalities away from some projects. “If the trade unions wake up to the fact that this exists, there could be problems,” said one executive, who did not want his name or the name of his company identified.

Errol P. Mendes, a law professor at the University of Ottawa who specializes in human rights issues, said that a more legal — and preferable — approach would be requiring security checks for people who were nationals of countries that concerned the United States government.

“There has to be a more sophisticated and nuanced approach to deal with the potential for espionage,” he said.

Mr. Page also supports the idea of background checks. And he warned that unless the policy on the ITAR rules were changed, the rules might inhibit the ability of American military companies to sell to Canada.

As part of their sales pitches, American manufacturers like Lockheed Martin, which is bidding on a contract to supply transport aircraft worth about five billion Canadian dollars, are promising to do large amounts of military work for the Pentagon in Canada. Under the ITAR, Mr. Page said, fulfilling these promises may be difficult and could effectively shut American firms out of some contracts.

“It’s complex, there’s no doubt about it, because we’re dealing with two sovereign governments,” he said. “But we’re also dealing with two steadfast friends.”