Vol. 139, No. 25 — December 14, 2005

Registration
SOR/2005-364 November 21, 2005

CONTROLLED DRUGS AND SUBSTANCES ACT

Order Amending Schedule VI to the Controlled Drugs and Substances Act

P.C. 2005-2109 November 21, 2005

Her Excellency the Governor General in Council, on the recommendation of the Minister of Health, pursuant to section 60 of the Controlled Drugs and Substances Act (see footnote a), deeming that it is necessary in the public interest, hereby makes the annexed Order Amending Schedule VI to the Controlled Drugs and Substances Act.

ORDER AMENDING SCHEDULE VI TO THE CONTROLLED DRUGS AND SUBSTANCES ACT

AMENDMENTS

1. Item 17 of Part 1 of Schedule VI to the Controlled Drugs and Substances Act (see footnote 1) is replaced by the following:

17. Safrole (5-(2-propenyl)-1,3-benzodioxole) and any essential oil containing more than 4% safrole

2. Part 1 of Schedule VI to the Act is amended by adding the following after item 17:

18. Gamma-butyrolactone (dihydro-2(3H)-furanone)

19. 1,4-butanediol

20. Red Phosphorus

21. White Phosphorus

22. Hypophosphorous acid, its salts and derivatives

23. Hydriodic acid

3. Note 1 to Part 2 of Schedule VI to the French version of the Act is replaced by the following:

¹ Sont compris parmi les précurseurs de catégorie B les formes synthétiques de ceux-ci.

4. Item 1 of Part 3 of Schedule VI to the Act is replaced by the following:

1. Any preparation or mixture that contains a precursor set out in Part 1, except items 20 to 23, or in Part 2.

COMING INTO FORCE

5. (1) Subject to subsection (2), this Order comes into force on the day on which it is registered.

(2) Sections 2 and 4 of this Order come into force on January 31, 2006.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Description

The purpose of this initiative is to amend Schedule VI to the Controlled Drugs and Substances Act (CDSA) and the Precursor Control Regulations (PCR) to strengthen the regulatory framework and minimize any negative impact of the Regulations on the legitimate trade of precursors. Among other things, the amendments will add six substances to Schedule VI to the CDSA and the PCR: gamma butyrolactone (GBL), 1,4 butanediol (BDO), red phosphorus, white phosphorus, hypophosphorous acid, and hydriodic acid.

The CDSA prohibits the import, export, and possession for export of precursors, except as authorized by regulation. It also provides the authority to develop regulations governing, controlling, limiting, authorizing the importation into Canada, exportation from Canada, production, packaging, sending, transportation, delivery, sale, provision, administration, possession, or obtaining of, or other dealing in any precursor or any class thereof. Contravention of the Regulations is an offence under section 46 of the CDSA.

The PCR, which came into force between January 2003 and January 1, 2004, provide a regulatory framework for the control and monitoring of precursor chemicals frequently used in the clandestine production of illicit drugs. These Regulations enable Canada to fulfill its international obligations under the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (1988 Convention).

There are two classes of precursors under the PCR: Class A and Class B. Class A precursors are essential components of illicit substances such as methamphetamine, MDMA (ecstasy), cocaine, heroin, LSD, and PCP. Class B precursors are mostly solvents and reagents used in clandestine manufacturing processes.

The PCR include: a licence and permit scheme for import and export of Class A precursors; a licence requirement for the production, packaging and sale of Class A precursors; a registration and export permit scheme for Class B precursors; and, general record keeping and reporting requirements for both Classes. The Regulations also include a scheme to exempt mixtures or preparations of precursor chemicals that have been demonstrated to pose little risk of diversion to clandestine laboratories.

Most of the precursors listed in these Regulations have a wide legitimate use in common products such as pharmaceuticals, fragrances, flavouring agents, petroleum products and paints. The Regulations must enable Canada to fulfill its international obligations and address domestic needs to control precursors, while at the same time, remain sensitive and responsive to the licit uses of these chemicals.

When the PCR were published in the Canada Gazette, Part II, in October 2002, the Government committed to an ongoing assessment of the legitimate use and diversion of precursors in Canada and to further development of effective regulatory policy and enforcement strategies. The Government now has over two years of experience with this new regulatory framework. Over this period, Health Canada and stakeholders have identified several issues which can only be effectively resolved through amendment of the Regulations.

Information obtained from law enforcement agencies and drug analysis laboratories at Health Canada have highlighted the need to bring six new substances under the CDSA and the PCR framework due to their extensive use in the illicit manufacture of methamphetamine, sometimes referred to as "crystal meth", and another controlled drug, gamma hydroxybutyrate (GHB), commonly known as the "date rape" drug. The growing trend regarding the illicit use and production of methamphetamine has been well documented. The harms associated with the illicit use and production of methamphetamine can be found in the Regulatory Impact Analysis Statement (RIAS) published in the Canada Gazette, Part II, Vol. 139, No. 17 on August 24, 2005 (http://canadagazetteducanada.gc.ca). In recent years, law enforcement have discovered increased activity regarding the illicit production of GHB. This was demonstrated through the interception of Internet sales of GHB kits (which includes the precursor chemical GBL) from Québec and Ontario.

Law enforcement agencies have identified the need for changes to the regulatory framework which will enhance their ability to detect and take appropriate action when diversion of precursors to the illicit manufacture of controlled drugs is identified. Similarly, Health Canada has identified the need for better tools to assess applications for a licence and to take administrative action in cases where non-compliance with the Regulations is noted.

Industry stakeholders have drawn Health Canada's attention to instances where the PCR have imposed an unnecessary regulatory burden by extending the control framework to certain legitimate trade practices and to certain preparations of precursor chemicals which pose a very low risk of diversion of these substances for use in clandestine laboratories.

Amendments to Schedule VI to the Controlled Drugs and Substances Act and the Schedules to the Precursor Control Regulations

Addition of GBL and BDO to Parts 1 (Class A) and 3 (Preparations) of Schedule VI of CDSA and the PCR

GBL and BDO are chemical and metabolic precursors used in the illicit production of the controlled substance GHB. GHB is a central nervous system depressant which is listed in Schedule III to the CDSA and Part G to the Food and Drug Regulations (FDR). GHB has legitimate medical uses to treat alcohol withdrawal and narcolepsy. Since the publication of this regulatory initiative in the Canada Gazette, Part I, a Notice of Compliance has been issued pursuant to section C08.004 of the FDR for GHB under the brand name Xyrem, for the treatment of cataplexy in patients with narcolepsy. However, the drug is not yet marketed in Canada.

Over the past years, GHB has increasingly become a substance of abuse in clubs and at all-night dance parties. It has become known as a "date rape drug" and implicated in a number of sexual assault cases. GHB is abused for its ability to produce euphoric and sedative effects, as well as for its alleged role as a growth hormone. Canadian law enforcement agencies and drug analysis laboratories at Health Canada have identified GBL and BDO being used for the illicit manufacture of GHB in clandestine laboratories. Both these substances have also been promoted and sold in the US in dietary supplements with claims, albeit unsubstantiated, to build muscles, improve physical performance, enhance sex, reduce stress and induce sleep.

BDO and GBL are unique precursors because when ingested they are rapidly converted to GHB within the body. Both substances can also be used in a laboratory environment to produce GHB. GBL can easily be converted to GHB with the addition of an alkali; however, the conversion of BDO to GHB is more complex. GBL and BDO are considered essential precursors to GHB since they cannot be easily substituted.

While GBL and BDO are not included in the 1988 Convention, a number of countries have elected to impose stricter controls over these substances because of their illicit use in the synthesis of GHB. GBL is explicitly controlled as a List I Chemical under the Controlled Substances Act (CSA) in the United States; both GBL and BDO are also interpreted to be analogues of GHB under the CSA. GBL and BDO are on the voluntary monitoring list of the Drug Precursors Committee of the European Commission.

Both GBL and BDO have a wide range of industrial uses. GBL is used as a solvent in detergents, air fresheners, sun lotions, printing inks, household cleaners, paint removers; as a chemical intermediate for herbicides and insecticides and in photochemical etching. BDO is used as an intermediate for the chemical and textile industries, as an industrial solvent in the manufacture of polyurethanes and thermoplastics; and in the production of cellular plastics, thermoplastic polyesters, hot-melt adhesives and plasticisers. Most of these preparations have a low risk of diversion because GBL or BDO cannot be readily extracted or otherwise used in the illicit production of GHB. To minimize undue regulatory burden on industry, it is proposed that certain activities involving GBL and BDO be exempted from the requirements of the PCR under paragraph 3(c). This applies to mixtures or preparations containing GBL or BDO in a total concentration equal to or less than 20%, for specific industrial uses including in cleaning or etching preparations for electronic devices, components and parts, biofermentation for polyester production, and as an ingredient in pesticides, melamine coatings, automotive coatings, and resin systems for manufacturing polyurethane.

GBL can also be used in fragrances or flavourings. These amendments add GBL to the list of Class A precursors included in section 3 that are exempted when used for this purpose in a total concentration equal to or less than 20%.

Some products containing very high concentrations of GBL or BDO (eg. 70%-99.8%) are sold through the internet as nail polish remover or printer ink remover. These products are at much higher risk of diversion to the illicit market to be consumed or otherwise used to produce GHB.

Except where the criteria described above are met, GBL, BDO and all preparations containing these substances be regulated as Class A precursors by adding GBL and BDO to Part 1 and Part 3 of Schedule VI to the CDSA.

Addition of Red phosphorus, white phosphorus and hypophosphorous acid and its salts and derivatives to Part 1 of Schedule VI to the CDSA and the PCR.

Red phosphorus, white phosphorus and hypophosphorous acid are important chemicals used in the illicit production of methamphetamine. Methamphetamine is a central nervous system stimulant which was listed in Schedule III to the CDSA and Part G to the FDR. Methamphetamine was moved from Schedule III to item 18 to Schedule I to the CDSA in August 2005 to provide access to higher maximum penalties for this controlled substance (SOR/2005-235). While there are no approved drug products containing methamphetamine currently marketed in Canada, it is available in the United States to treat attention-deficit hyperactivity disorder (ADD) and narcolepsy. Methamphetamine is abused for its rapid ability to produce euphoria, increased alertness and enhanced performance. It has become a "party or clubs" drug of choice. Canadian law enforcement agencies and drug analysis laboratories at Health Canada have found red and white phosphorus and hypophosphorous acid in illicit methamphetamine laboratories.

Red phosphorus, white phosphorus and hypophosphorous acid are not presently included in the 1988 Convention. In the United States, they are controlled as List I Chemicals under the CSA.

Phosphorus is a nonmetallic element that exists in three main allotropic forms: red, white and black. Red phosphorus is more stable and less toxic than white phosphorus and the most common phosphorus compound found in clandestine laboratories in Canada. White phosphorus will easily ignite when exposed to air and therefore must be stored in water; consequently, it is used to a lesser extent. The black solid form of phosphorus is very stable and not reactive enough to be used in clandestine laboratories.

Hypophosphorous acid and many of its salts can be used in clandestine laboratories, the most common being sodium hypophosphite. Detailed recipes describing the production of methamphetamine using red phosphorus, white phosphorus and hypophosphorous acid can be easily found on the internet.

Red and white phosphorus and hypophosphorous acid have many industrial applications. Red phosphorus is used in the manufacture of pyrotechnics, safety matches, phosphoric acid and other phosphorus compounds, fertilizers, incendiary shells, smoke bombs, tracer bullets, and pesticides. White phosphorus is used in the industry in the production of phosphorus derivatives. Hypophosphorous acid is used in the bleaching industry, and as a colour stabilization or decolouring agent for plastics, synthetic fibers (primarily polyester) and chemicals. It also has applications as a reducing agent and an antioxidant.

Preparations containing red and white phosphorus and hypophosphorous acid, its salts and derivatives, have a low risk of diversion because they cannot be easily used in the illicit production of methamphetamine. For this reason, these three substances have been added only to Part 1 of Schedule VI to the CDSA meaning that only these chemicals, and not preparations containing these chemicals, will be regulated under the PCR.

Addition of Hydriodic acid (HI) to Part 1 of Schedule VI to the CDSA and the PCR

Hydriodic acid has been identified as another essential chemical used in the illicit production of methamphetamine. It is most often used in combination with red phosphorus, and acts as the main reducing agent in the synthesis of methamphetamine from ephedrine or pseudoephedrine. Hydriodic acid is also used as a reducing agent to produce amphetamine from phenylpropanolamine.

HI is not included in the 1988 Convention; however, a number of countries have elected to impose stricter controls over this substance because of its illicit use in the synthesis of methamphetamine. It is controlled as a List I Chemical under the CSA in the United States and controlled in Australia and the Bahamas.

Hydriodic acid, a solution of hydrogen iodide gas in water, is a strong, corrosive acid and a reducing agent. It can be produced from iodine in the presence of hydrogen sulfide or by mixing iodine with red phosphorus and water. Hydriodic acid has a number of legitimate industrial applications as a disinfectant, analytical agent, chemical intermediate, raw material in pharmaceutical applications, and to make iodine salts.

Preparations containing HI have a low risk of diversion because they cannot be easily used in the illicit production of methamphetamine. For this reason, HI has been added to Part 1 of Schedule VI to the CDSA but excluded from Part 3 of the same Schedule meaning that only this chemical, and not preparations containing this chemical, will be regulated under the PCR.

Amendment of Item 17 in Part 1 of Schedule VI to the CDSA

Item 17 in Part 1 of Schedule VI to the CDSA, safrole, is amended to exclude essential oils containing 4% or less safrole. Safrole is used in the illicit production of MDMA. Several essential oils including mace oil, nutmeg oil and cinnamon leaf oil are used in a wide variety of products ranging from spice mixtures to processed meats. These preparations have a low risk of diversion to clandestine laboratories because the safrole cannot be readily extracted or otherwise used in the illicit production of controlled substances. This amendment removes undue regulatory burden placed on the fragrance and flavour industry by the PCR as they currently exist and clarifies the intent of the regulatory framework.

Amendments to the PCR

Strengthening the Regulatory Framework

The new provision under section 6.1 adds a requirement for a licence to possess a precursor for the purpose of producing a controlled substance, such as methamphetamine. Possession of a precursor is not currently prohibited under the CDSA, unless the precursor is being used to conduct an activity which would require a licence under the PCR. Production of a controlled substance is prohibited under the CDSA (section 7) and is a licensed activity under other Regulations to the Act. An explicit requirement for a licence to possess a precursor to produce a controlled substance is required in the PCR to facilitate charges being laid by law enforcement agencies when clandestine laboratories are investigated and it is clear that illicit production of drugs is taking place despite the absence of any controlled substances being found at the location at the time of seizure.

Amendments to section 14 require additional information in the Class A precursor licence application, such as the description of the nature of the business, clientele and suppliers, and the establishment licence or site licence number, a drug identification number (DIN) or a product number, if applicable to either a pharmaceutical product or a natural health product regulated under the FDR or the Natural Health Product Regulations respectively. This information is required to assist Health Canada in validating the legitimacy of the applicant's business and determining that it would be in the public interest to issue a precursor licence to the applicant. A new provision (section 15.1) is included to provide authority for Health Canada to conduct pre-licence inspections to verify information contained in a licence application as required.

Paragraphs 17(1)(e), 23(1)(e), 45(1)(c), 63(1)(e) and 67(1)(e) are amended to give explicit authority to consider information obtained from a peace officer (which includes a police officer) in making a decision regarding the refusal, revocation, or suspension of a licence or permit when the information raises a reasonable belief that a licensed dealer has been or will be involved in the diversion of a controlled substance or precursor to an illicit market or use. Previously, only information from international sources, competent authorities and the International Narcotics Control Board, could be considered under these paragraphs.

Subsection 8(1) is amended to require more information to be included in an end-use declaration such as the business name and contact information. This will improve the quality of data captured on transactions for which the purchaser does not require a licence thereby facilitating the monitoring of precursor use in Canada and the detection of potential diversion.

Subsection 9(1.1) is added to require that appropriate documentation accompanies the shipment when transporting a Class A precursor in quantities greater than the quantity or package size stated in the Schedule to the PCR. This documentation will facilitate detection of unlicensed transactions by law enforcement agencies.

Amendment of subsection 20(1) requires pre-approval of any changes to the security measures for Class A precursors described in the original application for a licence. This measure will ensure that such changes would not in anyway increase the risk of diversion.

A new requirement has been added to sections 28.1 and 72.1 for a declaration to be filed following the import or export of a precursor. Confirmation that the transaction has been completed as per the permit issued will enhance Health Canada's ability to monitor the movement of these chemicals across Canada's borders and to meet Canada's obligations under the 1988 Convention.

The new provision under section 85.1 requires former licensed dealers whose licence expired or has been revoked, to submit records, which they are required to keep for a period of two years, to the Minister on request.

The new provision under section 87.1 requires former licensed dealers whose licence expired or has been revoked, to submit the annual report within three months after the expiry or revocation of the licence.

A new provision under section 87.2 requires licensed or registered dealers to notify Health Canada in advance if they intend to close a site or remove all precursors from the site. This is necessary to maintain a chain of accountability for the precursor chemicals held at the site and minimize the risk of diversion.

Minimizing Regulatory Burden

Section 2, which exempts any drug in dosage form that contains a Class A precursor listed in Schedule F, is amended to add preparations of narcotic and controlled drugs which also contain a Class A precursor. Pharmaceutical preparations containing controlled substances are subject to an appropriate level of control under the Narcotic Control Regulations (NCR) and Part G to the FDR. This amendment removes the requirements for end use declarations and record keeping for transactions currently regulated under the NCR and FDR.

Amendments to sections 3 and 4 exempt certain activities such as import, export and provision/sale of preparations containing Class A precursors which have been deemed to be of little risk of diversion for illicit use. This exemption will only apply once the finished product has been produced and the precursor cannot be used in a clandestine laboratory; therefore, a licence will be required to produce these exempted preparations.

New provisions added in Part 4 facilitate the dispensing of pharmaceutical preparations containing a Class A precursor in quantities or package sizes over the threshold stated in the Schedule to the PCR, pursuant to a prescription. The PCR, as previously written, stated that only licensed dealers can sell/provide Class A precursors over the quantity or package size stated in the Schedule to the PCR. Ephedrine preparations for veterinary use exceed the 400 mg threshold; for example, horses require on average 1.2 gm of ephedrine for a legitimate course of therapy; as a consequence of this amendment, a pharmacist or veterinarian does not require a Class A precursor licence to sell/provide these larger quantities.

The requirements under Part 4 concerning refills, transfers and record keeping are consistent with, albeit somewhat less restrictive than, the other regulatory frameworks for controlled prescription drugs under the CDSA. It is anticipated that the restrictions placed on the sale/provision of ephedrine and pseudoephedrine at the wholesale distribution level may lead to clandestine laboratory operators seeking new sources of supply, such as pharmacies and other retail outlets. The requirements for record keeping, security measures and reporting of thefts and losses for these products when used to fill prescriptions are necessary to ensure accountability and provide extra measures to prevent these products from being diverted for illicit use. The record keeping and reporting requirements do not apply to these products in package sizes equal to or less than the amount stated in the Schedule to the PCR. At this time, these products (package sizes equal to or less than the amount stated in the schedule to the PCR) do not seem to be a major source of supply for the clandestine production of methamphetamine. Pharmacists are, nevertheless, encouraged to voluntarily report suspicious transactions to the RCMP's National Chemical Diversion Program.

Clarification and Technical Amendments

Subsection 9(1) is amended to permit the transport of Class A precursors by end-users or their representatives. The Regulations, as previously written, permitted only licensed dealers and their representatives the transport of these substances. This restriction was not consistent with the intent of the policy framework for control of precursor chemicals.

The provisions of the Regulations related to Exemptions for Preparations and Mixtures are transformed into an Authorization scheme to address a technical legal drafting issue. The effect of the scheme remains the same - to allow certain activities involving products containing precursor chemicals which have a demonstrated low risk of diversion to be conducted without a requirement for a licence, registration or permit as relevant.

An amendment to subsection 47(1) clarifies that these provisions apply to licensed dealers when they destroy precursor chemicals. It was not the intent to restrict other parties from destroying precursor chemicals.

Amendments to section 90 clarify and streamline the requirements for reporting of lost or stolen precursors or authorization documents including licences, registrations, permits or authorization certificates.

Housekeeping amendments to a number of other provisions ensure consistent use of terminology throughout the Regulations, and update cross-references between provisions required as a result of renumbering of new or amended provisions. As well, certain inconsistencies between the English and French are corrected. Definitions for the terms "hospital", "peace officer", "prescription", "pharmacist", and "retail" are added to section 1 to add clarification to the new provision in Part 4 of the PCR and the amendments related to grounds for refusal, revocation or suspension of a licence or permit.

Alternatives

Scheduling of New Substances

In general, Health Canada considers that the voluntary monitoring and other measures implemented by operators to minimize diversion of the six chemicals identified is not adequate to prevent the illicit use. There is evidence that these chemicals have been diverted for illicit use.

GBL and BDO

As previously mentioned, BDO and GBL are unique precursors because, when ingested, they can be converted by the body to GHB. Because of this pharmacological effect, consideration was also given to scheduling these chemicals as controlled substances in one of Schedules I to V to the CDSA. Ultimately, three alternatives for scheduling were considered. The alternative of scheduling GBL and BDO under Part 2 of Schedule VI (Class B precursors) was not considered as it would not provide adequate control over the distribution to meet the policy objective of minimizing the availability of these chemicals for illicit manufacture of GHB. Alternative 2 is the recommended alternative for the control of GBL and BDO.

Alternative 1: Schedule III to the CDSA and the Schedule to Part J to the FDR

Listing GBL and BDO in Schedule III to the CDSA would put them in the same Schedule as GHB. As such, these substances would be subject to offences under the CDSA for possession, importation, exportation, trafficking, production and possession for the purpose of exportation or trafficking.

Because GBL and BDO do not have any therapeutic applications, they meet the criteria to be classified as restricted drugs, which are listed in the Schedule to Part J to the FDR. Generally, activities related to restricted drugs are authorized for scientific research purposes only.

This, however, is not a viable alternative. Application of the regulatory framework for restricted drugs to GBL and BDO would severely impede the legitimate industrial use of GBL and BDO.

Alternative 2: Part 1 (Class A) and Part 3 of Schedule VI to the CDSA

Part 1 of Schedule VI to the CDSA lists chemical substances classified as Class A precursors; Part 3 captures all preparations and mixtures containing a precursor listed in Part 1 or 2.

Under this alternative, GBL and BDO, as well as mixtures and preparations containing GBL and BDO are controlled as Class A precursors. Regulatory requirements include a licence and permit for the import and export of Class A precursors, a licence for their production and sale, and general record keeping.

The additional control for the preparations and mixtures will minimize their diversion; however, the control of all mixtures and preparations containing GBL and BDO would have a significant and unnecessary negative impact on legitimate industry. For this reason, activities regarding mixtures or preparations which pose little risk of diversion for illicit use are exempted from the regulatory framework.

This alternative is recommended because it provides appropriate monitoring and control mechanisms without causing undue hardship on industry.

Alternative 3: Addition to Part 1 (Class A) and exclusion from Part 3 of Schedule VI to the CDSA

Under this alternative, GBL and BDO would be controlled as Class A precursor chemicals and regulated under the PCR, however, the regulatory requirements for a licence and permit for import and export, a licence for production and sale, and general record keeping would not be applicable to mixtures or preparations containing GBL or BDO such as nail polish remover or furniture stripper, which are known to be diverted for illicit use.

This alternative would therefore not afford adequate monitoring and control mechanisms necessary to minimize diversion of GBL and BDO and their use in the illicit manufacture of GHB.

Red phosphorus, white phosphorus and hypophosphorous acid and its salts and derivatives and HI

Three alternatives for scheduling were considered for these phosphorus chemicals and HI. Alternative 3 is recommended for the control of red phosphorous, white phosphorus and hypophosphorous acid, its salts and derivatives, and HI.

Alternative 1: Part 2 (Class B) of Schedule VI to the CDSA

Regulations for Class B precursors include a registration requirement for import, export and production for the purpose of sale only. There are no requirements to keep records of sales of these substances.

The phosphorus chemicals and HI are significant chemicals used in the illicit production of methamphetamine. This alternative is not recommended because it does not provide an adequate level of monitoring or control to minimize and detect diversion.

Alternative 2: Part 1(Class A) and Part 3 of Schedule VI to the CDSA

Part 1 of Schedule VI to the CDSA lists chemical substances classified as Class A precursors; Part 3 captures all preparations and mixtures containing a precursor listed in Part 1 or 2.

Under this alternative, the four chemicals and all their preparations and mixtures would be controlled as Class A precursors. Regulatory requirements include a licence and permit for the import and export, a licence for their production and sale, and general record keeping.

The mixtures and preparations of phosphorus chemicals and HI pose little risk of being used in clandestine laboratories. Consequently, this level of control would put undue burden on the legitimate industry.

Alternative 3: Addition to Part 1 and exclusion from Part 3 of Schedule VI to the CDSA

Under this alternative, the four chemicals are controlled as Class A precursor chemicals and regulated under the PCR, however, the regulatory requirements for a licence and permit for import and export, a licence for production and sale, and general record keeping are not applicable to mixtures or preparations containing the phosphorus chemicals and HI.

The mixtures and preparations of phosphorus chemicals and HI pose little risk of being used in clandestine laboratories to manufacture methamphetamine.

This is the recommended alternative because it provides for an appropriate level of monitoring and control to minimize diversion for illicit use while minimizing the regulatory burden on industry.

Amendments to the PCR

These amendments are necessary to respond to issues identified since the implementation of the PCR with respect to its administration and enforcement. The status quo is unacceptable as it compromises the ability of Health Canada and law enforcement agencies to ensure that precursor chemicals are only used for legitimate purposes and not diverted to the illicit manufacture of controlled substances. Further, the existing Regulations extended the control framework to preparations and products which have a low risk of diversion and in doing so, imposed an unintended and unnecessary regulatory burden on legitimate industry. No other alternatives were considered.

Benefits and Costs

This initiative constitutes amendments to an existing regulatory framework, therefore, an exhaustive analysis was not deemed necessary. This section will highlight the additional benefits to be gained and estimate the incremental costs associated with these amendments.

The analysis draws heavily on the earlier study of the Social Cost Impacts of Proposed Regulations to Control Precursor Chemicals conducted when the precursor control regulatory framework was first developed and on which the Benefits and Costs section of the first RIAS was based. The reader is referred to the RIAS published in the Canada Gazette, Part II, (SOR/2002-359; Vol. 136, No. 21) on October 9, 2002, for a detailed examination of the benefits and costs associated with the regulation of precursor chemicals. The study was conducted by external consultants in consultation with industry stakeholders. This relatively recent historical cost data was used in conjunction with other sources of industry inputs and informed judgements to help quantify the likely costs of the amendments.

These present amendments bring about two types of changes resulting in different cost and benefit impacts. The first effects a number of modifications to the existing PCR framework; the second adds six new chemicals to the list of Class A precursors in Schedule VI to the CDSA.

It is important to understand that the relevant costs and benefits of the amendments are incremental or additional to those of the pre-exiting Regulations. Therefore, these estimates for the costs and benefits use the pre-existing PCR as the base on which the extra cost and benefit for the amendments are considered.

Benefits

These regulatory amendments, the original PCR framework, as well as the United Nation's Drug Control Convention governing precursor chemicals are predicated on the supposition that reducing the opportunity for diversion of key precursor chemicals will reduce the production, distribution, and ultimately the use of illicit drugs. Canadians will benefit from these measures through reductions in the health, economic, crime, safety, and environmental costs associated with the manufacture, traffic, and use of illicit drugs.

The purpose of this benefits assessment is to emphasize some of the salient issues highlighted in the initial benefits and costs assessment. Quantification remains difficult and is not attempted here because the methodology for this type of assessment is not fully developed and the requisite data is lacking. Several steps are required to quantify benefits including identification of adverse impacts, quantifying the reduction from a baseline amount due to the regulatory action and finally placing a monetary value on this reduction. The main focus in this section will be highlighting the benefits categories.

Social benefits can be assessed and measured in terms of avoided social losses. Moreover, social benefits are not limited to reductions in out-of-pocket expenses or increased earnings. Even non-monetary gains to society, such as timesaving and the avoided pain and suffering from illness can be evaluated in monetary terms. From a conceptual standpoint, because these types of benefits can be valued, it is essential to include them in the benefits assessment categorization framework, which is described below.

Social benefits will result from reductions in four activities linked to the use of a precursor chemical:

1. Precursor chemical distribution;

2. Illicit drug production using precursor chemicals as a key input;

3. Illicit drug distribution; and

4. Illicit drug use.

In each of these four phases, social benefits can be divided into two general types - internal benefits and external benefits (see footnote 2). Internal benefits (avoided internal losses) accrue to those who are directly involved in the drug-related activity. External benefits (avoided external losses) are those accruing to individuals who are not directly involved in the activity but who would nonetheless be negatively affected by the activity. For example, external benefits from reducing drug production would include the avoidance of harmful effects to those living in the vicinity of illegal labs.

Each of the internal and external benefits for each of the four activities can be divided into four general categories:

1. Drug-use health losses (e.g. overdose, infectious disease, HIV/AIDS, Hepatitis, and low birth weights);

2. Accident/safety losses (e.g. workplace, motor vehicle and fires/explosions at clandestine labs);

3. Crime losses (e.g. drug-related violence (including sexual assault), theft and property damage);

4. Environmental losses (e.g. improper/illegal disposal of hazardous substances, toxic spills and harmful air emissions).

Potential benefits may result from reductions in impacts on human health, accidents, crime and the environment.

The two main groups within the Canadian public who will benefit from the Regulations are:

Users

• The sub-populations exposed to illicit drugs (i.e. drug users). Of particular concern is the popularity many of these illegally manufactured drugs have gained among adolescents. Methamphetamine, for example, is a growing concern having profound negative consequences for users and communities. It is known that illicit drugs tend to involve younger victims and hence drug-related morbidity and mortality often result in a larger number of potential years of life lost.

Non-users

• Citizens unwittingly exposed to clandestine operations and risks associated with this illicit drug production,
• Families who experience pain and suffering watching loved ones addicted to illicit substances,
• Employers through increased productivity and reduced accident claims, and
• Firms, who may find it easier to export to markets with precursor chemical controls. Furthermore, firms may benefit from collecting data on their transactions to comply with the Regulations that could then be used for other internal purposes such as inventory control, or market research and development.

In addition to the foregoing, these amendments enhance Canada's ability to honour its international commitments to monitor and control precursor chemicals thereby providing benefits to neighbouring countries in North America and beyond.

Costs

The amendments modify the existing PCR such that they would introduce a number of changes to either increase or decrease costs previously calculated for the PCR. Changes in the costs previously estimated for the private and public sector were adjusted using each cost component identified in the initial cost study conducted in 2001/02 according to an estimated percent or incremental impact. A summary of the incremental costs associated with these to the amendments is found in Table 1.

For the entire population of those firms already licensed under the PCR, total additional costs of the amendments are estimated at $5,403 in the first year and $4,098 in later years. Government costs reflect a net increase (some activities decreased government costs) of $91,273 in the first year and $84,393 the second and $86,718 thereafter.

To identify which firms might be affected for the first time due to the addition of the six new chemicals, a list of suppliers of these chemicals from Camford Canadian Chemical Directory and an Internet search of Canadian suppliers was conducted. Combining the sources, there were 39 unique suppliers. The average first year compliance cost per firm, estimated from our initial PCR sample and including the amendments, is estimated to be $11,977 to a maximum of $39,443.

Assuming there are 39 new firms affected, we estimate minimum private and public sector costs to be $563,686, $420,252 and $422,577 in first, second and subsequent years respectively. Maximum private and public sector costs are $1,634,476, $1,174,410 and $1,176,735 in first, second and later years respectively. Although there is a high degree of uncertainty, the lower bound estimates are more likely to reflect the social costs of the amendment based on the market share analysis of the survey data to project full population estimates.

The incremental costs to society of the Regulations can be represented with the following equation:

Total Social Costs = Total Incremental Private Costs + Total Incremental Government Costs

Table 1 Summary of Incremental Costs Associated with these Amendments to the PCR

Total Cost Component Estimate	Years
	First	Second	Third and later
	$	$	$
For all existing PCR licensed dealers (in aggregate)	5,304	4,098	4,098
For all new licensed dealers (in aggregate) Minimum	467,109	331,761	331,761
Maximum	1,537,899	1,085,919	1,085,919
Government through modifications	91,273	84,393	86,718
Total Social Costs Estimates
Minimum	563,686	420,252	422,577
Maximum	1,634,476	1,174,410	1,176,735

As stated in the initial PCR RIAS, the regulatory burden (ratio of incremental costs divided by sales from precursor chemical products) is larger in smaller firms than the larger firms. This is not a surprising result as the larger companies in this industry are multinational and have advanced tracking systems already in place. Class A chemicals do have greater implementation costs. However, the market structure is somewhat oligopolistic and these amendments are not likely to alter market share or overall competitiveness. The private sector costs for these controls will likely be passed on to the consumers of these products (to what degree is a function of the elasticity of demand) as the demand for these chemicals is fairly price inelastic. The government costs will be borne by the tax-payer.

Net Benefits

The net benefits of the Regulations cannot be estimated. Given the lack of quantitative information associating the control of precursor chemicals to illicit drug supply or use and their direct and indirect harmful effects on health and safety, the benefits have not been quantified or valued in monetary terms. However, for the purposes of illustration, a useful exercise is to consider the potential magnitude in reductions that would offset the total social costs of the Regulations. For example, if the Regulations were to avoid only one of the estimated 800 individuals who die from illicit drug overdoses every year in Canada, the benefits ($5 million) would far outweigh the estimated incremental costs associated with these amendments ($0.5 - 1.6 million) (see footnote 3). Similar net benefits would result if one workplace or one motor vehicle fatality per year is avoided.

Consultation

Health Canada conducts ongoing consultation on the regulatory framework through two working groups established when the regulatory framework was first being developed: the Precursor Advisory Working Group comprised members from industry and government; and, the Interdepartmental Working Group including members from various federal government departments affected by the PCR. This consultative process ensures that an appropriate balance is maintained between measures to reduce the diversion of precursors and the need to minimize the impact on legitimate trade of these substances. Targeted consultation with law enforcement agencies were conducted through creation of a Law Enforcement Working Group which proposed amendments to strengthen the Regulations with respect to enforcement actions.

Notices to Interested Parties (NI) were published in the Canada Gazette, Part I regarding the proposal to add GBL and BDO and red phosphorus and white phosphorus to Schedule VI of the CDSA on June 21, 2003 and November 8, 2003 respectively. A total of twelve respondents submitted comments in response to the NIs. Generally, the responses were supportive of the initiatives; no substantive objections to the proposals were raised. A few concerns were expressed from industry that the proposed controls may be burdensome to implement.

Members of the Precursor Advisory Working Group were consulted directly regarding the proposed scheduling of HI. No immediate concerns were expressed.

On June 11, 2005 the proposed amendments to the PCR and RIAS were published in the Canada Gazette, Part I with a 75-day comment period. The notice of publications and the link to the Canada Gazette website were sent to stakeholders in industry, academia, associations of health professionals and federal, provincial, territorial, and municipal government departments, national and local law enforcement agencies, as well as all parties who expressed an interest following the publication of the Notices to Interested Parties.

Ten submissions were received during the 75-day comment period following publication in the Canada Gazette, Part I, one of which did not pertain directly to the proposed regulatory amendments. Comments received were from stakeholders in the pharmaceutical and chemical industries and their associations, as well as associations and regulatory authorities for pharmacy.

The comments were generally supportive of the regulatory amendments. Only one submission raised concerns over the regulatory burden resulting from the addition of red and white phosphorus to the list of Class A precursors. Other stakeholders requested further clarification on the interpretation of certain provisions in the Regulations through amendments of the text of the Regulations and subsequently, documents developed for licensed dealers to guide them through the application process.

The regulatory proposal published in the Canada Gazette, Part I, has been amended in response to the comments received. The most substantive change is an exemption specific to the export of residual quantities of red and white phosphorus remaining in rail cars or intermodal containers returning to the country of origin. A second substantive change is a new provision under sections 85.1 and 87.1 to clarify that licensed dealers whose licences have not been renewed or have been revoked, continue to have an obligation to provide the information which they are required to keep while licensed to the Minister. Other changes are to provide further clarification to the proposed amendments.

The main issues identified by stakeholders are summarized below. Issues related to the amendments of the PCR have been grouped into categories. The response to these issues and rationale for the decision are included.

AMENDMENT TO SCHEDULE VI TO THE CDSA

One stakeholder who had not previously required a licence under the PCR expressed concern with the addition of red phosphorus and white phosphorus to Schedule VI stating that these substances are not regulated under the 1988 Convention. The stakeholder noted that the United States is the only other country that has included these chemicals as regulated substances. This industry member felt that the addition of red and white phosphorus places undue regulatory burden due to the significant licensing, permit, record-keeping and reporting obligations which accompany their control. Several exemptions from the provisions of the PCR were requested.

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Response:

While red phosphorus and white phosphorus are not presently included in the 1988 Convention, some countries have chosen to impose stricter controls over these substances because of their illicit use in the manufacture of methamphetamine. Canadian law enforcement agencies and drug analysis laboratories at Health Canada have found red and white phosphorus and hypophosphorous acid in illicit methamphetamine laboratories. Concerns raised by this stakeholder were addressed through direct consultation with the company as well as the chemical industry association to which the company belongs. Clarifications were provided to the company on all the issues and an exemption with respect to the export of residual quantities that are contained in rail cars or intermodal containers has been added under section 9.1 of the PCR. Similar exemptions for this purpose are provided under the CSA in the United States. The additional regulatory burden associated with requiring an export permit to be obtained in these circumstances is not warranted in light of the difficulty associated with extracting these residual quantities from these containers. Health Canada will continue to monitor and consult with the industry on the effects of the PCR on this sector and consider further changes if it is determined that the Regulations pose an unnecessary regulatory burden.

AMENDMENTS TO THE PCR

Terms and Definitions

Issue # 1: Two stakeholders suggested other terms to replace those used to describe certain industrial products in order to reflect more the terminology used and understood by the industry sector.

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Response:	The Regulations have been amended and the term "photochemical etching" in subparagraph 3(c)(iii) has been replaced with "cleaning or etching preparations for electronic devices, components and parts", and "urethane catalyst systems or urethane catalyst packages" in subparagraph 3(c)(vii) has been replaced with "resin systems for manufacturing polyurethane".

Exemptions

Issue # 2: Two stakeholders requested that a general regulatory exemption for "industrial uses not intended for human consumption" be added.

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Response:

The proposed Regulations remain unchanged. Persons who divert chemicals for the illicit manufacture of controlled substances do not discriminate based on the intended use of the chemicals of interest. Many of the chemicals used in the illicit manufacturing process are not intended for human consumption. It is therefore necessary to control and monitor the use of all precursor chemicals, regardless of their intended use. Exemptions have been provided in the Regulations for certain chemicals or preparations of these chemicals, where the risk of these chemicals or preparations being used for the illicit manufacture of controlled substances has been assessed to be very low. There is also an authorization process available under the Regulations where an applicant can obtain authority to conduct certain activities involving products containing precursor chemicals which have a demonstrated low risk of diversion to be conducted, without a requirement to obtain a licence, registration or permit, as relevant.

Issue # 3: One stakeholder and a stakeholder association recommended that the limit of 10% for preparations or mixtures containing GBL or BDO set out in paragraph 3(c) should be increased to 20% for industrial applications and pest-control products, especially where products containing BDO were concerned. They claimed that even at 20% concentration, it is not economically or reasonably possible to extract the precursors.

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Response:	Paragraph 3(c) has been amended. The exemption will now apply to preparations or mixtures containing GBL or BDO in a total concentration equal to or less than 20%, when they are intended to be used in the products or processed set out in the Regulations. This increase in the limit does not increase the risk of diversion of these preparations.

Issue # 4: One stakeholder association raised the issue of how products containing GBL would be managed to ensure compliance at the retail level. These products (i.e. sunscreens and fragrances) are commonly sold in pharmacies and do not routinely state the total concentration of the precursor. It was recommended that this process would be managed at the manufacturer level in cooperation with Health Canada.

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Response:

The proposed Regulations remain unchanged. GBL is added to the list of Class A precursor preparations under subparagraph 3(a)(i) of the Regulations that are exempted when used as fragrances or flavourings in foods, drugs and cosmetics. Based on information from the industry, the concentration of GBL used in fragrances or flavourings does not exceed 20%. The products containing GBL that are commonly sold in pharmacies are therefore exempted from the PCR beyond the point of manufacture. As such, there are no issues of compliance at the retail level in this regard.

Limitations on Transportation

Issue # 5: One stakeholder association requested clarification with respect to the regulatory provisions pertaining to the limitations on transportation, particularly as they related to the purchase date or date of acquisition. It was recommended that the provision be amended to specify the date that the precursor was shipped.

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Response:	The Regulations are amended to clarify their original intent. Paragraph 9(1.1)(d) now specifies that the shipping date is the date to be included in the documentation that accompanies the transport or delivery of Class A precursors where the quantity is greater than the maximum quantity stated in the Schedule to the Regulations.

Class A Licence Requirements

Issue # 6: One stakeholder association requested clarification concerning whether a licence amendment would be required when, during the course of the year, new product DINs are introduced or changes are made to the list of suppliers. It was suggested that the inclusion of new products with DINs and revisions to the list of suppliers be done at the time of licence renewal.

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Response:

The proposed Regulations remain unchanged. Sections 19 (Amendment of Licence) and 20 (Amendment of Application Information) of the Regulations set out the information that must be filed after a licence has been issued. Under these sections, there are no requirements to file a licence amendment application or to notify Health Canada when new product DINs containing a precursor already listed on the licence are introduced or the list of suppliers or clients changes during the course of the year. This information can, therefore, be provided when an application to renew the licence is submitted or if otherwise requested by Health Canada.

Record Keeping and Reporting

Issue # 7: One stakeholder stated that the processing of material in large scale industrial operations and chemical conversions do not provide high levels of precision in quantification due to the quantities involved and the nature of the manufacturing processes. Health Canada was asked to confirm that existing conventional and prevailing industrial methods for estimating quantities would be acceptable in relation to the record keeping and reporting requirements.

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Response:

The proposed Regulations remain unchanged. The accountability framework set out in the Regulations through the information, record keeping and reporting requirements is designed to ensure that these chemicals are used only for legitimate purposed and to facilitate the detection of diversion to illicit purposes. Existing conventional and prevailing industrial methods for estimating quantities are acceptable assuming that they permit unusual or significant losses to be identified.

Issue # 8: One stakeholder association expressed concern with respect to the new requirement for licensed dealers to provide a declaration to Health Canada within 15 days after import/export shipments are released from customs. This provision was considered to be onerous for licence holders who already have a number of administrative responsibilities associated with import/export permits. It was suggested that those permits be returned by the Canada Border Services Agency (CBSA).

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Response:

The proposed Regulations remain unchanged. The form to be completed for this declaration is presently sent to Health Canada on a voluntary basis. A similar requirement exists for imports/exports of all other substances regulated under the CDSA. CBSA has advised Health Canada that it is moving away from paper based systems and has already discontinued the collection of import/export permits for controlled substances. This new requirement is necessary should this decision be extended to import/export permits for precursor chemicals. Further, timely, direct reporting by the importer/exporter of all transactions will increase the efficiency and effectiveness of Health Canada's monitoring system for precursor chemicals.

Issue # 9: One stakeholder association expressed concerns about the requirements set out in Part 4 with respect to the reporting of the theft or losses of products containing pseudoephedrine and ephedrine. They suggested that the provision be modified to only report instances where diversion to illicit use is suspected or where large quantities are stolen, and to extend the notification time to allow for investigation and potential explanation, should reporting of every incident be necessary.

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Response:

The proposed Regulations remain unchanged. The regulatory requirements in Part 4 apply only to precursors sold or provided pursuant to a prescription; they do not apply to retail products. The sale or provision of retail products that contain Class A precursors in a quantity that does not exceed the maximum quantity per package as stated in the Schedule to the Regulations, is exempt under section 5, from the requirements of the PCR. Products containing pseudoephedrine and ephedrine sold on a retail basis are therefore exempt from the requirement of the Regulations.

Part 4: Prescription Requirements

Issue # 10: One stakeholder association suggested that the provisions regarding verbal, transferred and refilled prescriptions and record keeping requirements, be reviewed against national and provincial pharmacy legislation to ensure the requirements are consistent with what is currently required. It was suggested that the requirements standard to current pharmacy legislation should be removed to highlight any newly established requirements.

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Response:

The proposed Regulations remain unchanged. The requirements under Part 4 concerning refills, transfers and record keeping are consistent with, albeit somewhat less restrictive than, those set out in the other regulatory frameworks under the CDSA for prescriptions of controlled drugs. As provincial/ territorial legislation respecting prescription requirements may vary from province to province, the federal legislation establishes a national minimum standard applicable to all jurisdictions.

Issue # 11: One stakeholder association suggested that "written" prescriptions referred to in Part 4 should include those generated through electronic medical records to correspond with the growing interest in electronic prescribing.

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Response:	The proposed Regulations remain unchanged. The issue of electronic prescribing is being considered as a separate policy initiative. The decisions stemming from the policy analysis underway at Health Canada in consultation with provincial/territorial and national authorities and associations will be relevant to all Regulations under the CDSA and addressed accordingly.

Transitional Measures

Issue # 12: The proposal as drafted in the Canada Gazette, Part I publication did not include any provisions for transitional measures regarding the coming into force of the amendments to Schedule VI of the CDSA or the PCR. A few comments were received requesting that adequate lead time be provided for stakeholders to apply for and obtain a licence before the Regulations come into effect.

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Response:	The Regulations have been amended to include a provision clarifying the coming into force date. The amendments to the PCR will come into force on the day on which they are registered. However, the amendments to Schedule VI to add the six new chemicals will only come into force on January 31, 2006, to allow stakeholders adequate time to complete the licence application process.

Compliance and Enforcement

The amendments will not significantly alter the compliance and enforcement strategies implemented when the PCR first came into force. They will, however, enhance Health Canada's ability to monitor compliance to the Regulations and will improve the ability of law enforcement agencies to detect illicit traffic and take appropriate enforcement action. Failure to comply with the Regulations could lead to administrative sanctions such as suspension or revocation of a licence or permit. Persons involved in illicit activities with respect to precursor chemicals can be charged and prosecuted for offences under the CDSA.

Coming Into Force

The amendments to the PCR will come into force when registered. The addition of six substances to Schedule VI to the CDSA and, consequently, the application of the regulatory provisions governing them will come into force on January 31, 2006. Health Canada will begin to accept applications for licences for import, export and production immediately following registration of the Regulations.

Contact

Amal Hélal
Office of Controlled Substances
Drug Strategy and Controlled Substances Programme
Healthy Environments and Consumer Safety Branch
Address Locator: 3503D
Ottawa, Ontario
K1A 1B9
Telephone: (613) 946-0122
FAX: (613) 946-4224
E-mail: OCS_Policy_and_Regulatory_Affairs@hc-sc.gc.ca

Footnote a

S.C. 1996, c. 19

Footnote 1

S.C. 1996, c. 19

Footnote 2

This definition of "social" costs differs from what is often used in the costs of substance abuse literature because it includes internal (i.e. in this analysis, private) costs. Internal costs are sometimes excluded because they are assumed to be voluntary on the part of the drug producer or user and are thus offset by the perceived benefits. We use the broader definition of social costs to be more inclusive and allow for the possibility that internal costs may not be entirely voluntary

Footnote 3

The most recent synthesis of the literature related to estimation of the value of a statistical life converges to a value of $5 million (CAD) per premature mortality. This illustration uses this value as a means of demonstrating the break even point for benefits and costs

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