DDTC Drowning in Jurisdiction

I read the July 12 Federal Register notice on expeditious processing of license applications for Australia and the United Kingdom with a chuckle. Just the same day an export administrator had complained to me that their Australia Technical Assistance Agreement (TAA) application was still lying around without staffing after two months, and how her $560 UK license was being pecked at for the most minor technical clarifications by both State and Defense reviewers.

Like the NATO allies mega-license International Traffic in Arms Regulations (ITAR) amendment of years past, which purported to streamline licensing for our closest allies, this notice will probably be inhaled without perception by the licensing bureaucracy. Underneath the well-intentioned words of this rule lies a sluggish Jabba the Hut figure of officialdom whose taste for painfully slow and meticulous license processing will never be satiated.

And, if other anecdotal impressions of license applications processing times mean anything, it seems like the summer of 2005 is shaping up to be slow and steamy at the Directorate of Defense Trade Controls (DDTC) licensing office. But licensing may not be the only group at DDTC bogged down. The compliance branch appears as swamped as ever by Sarbanes-Oxley inspired voluntary disclosures, as evidenced by a DDTC closure letter I recently reviewed in response to a minor disclosure. The letter directed the company to take action that their two page disclosure letter clearly stated had already been taken. Did anybody really even read the disclosure?

Invariably, part of the slowdown is due to summer vacationing by DDTC staff. But part of the problem can be traced to mindless jurisdiction grab by more senior DDTC management. Consequently, DDTC is choking on its own jurisdiction. Let me explain.

DDTC technical data and defense service pronouncements are spurring more licenses. If ever asked, DDTC seems to call nothing at the sales proposal stage ”basic marketing information” or “general purpose systems description” anymore, and instead terms everything “technical data” requiring a license. DDTC is likewise jawboning away the concept of public domain information (hopefully the topic of a future article). No wonder so many technical data license applications are piled up at State these days. And if it is “technical data,” DDTC invariably labels even the most innocuous discussion about it a “defense service.” So more folks are skipping the simpler offshore procurement licenses or DSP-5 marketing licenses and applying for far more cumbersome MLA’s and TAA’s to avoid gnawing off a leg caught in DDTC’s defense service trap.

The CJ process is as cumbersome as ever. Any regular ITAR practitioner knows that it is rarely possible to have a Commodity Jurisdiction (CJ) request go to Commerce jurisdiction without a massive lobbying effort by the applicant. Even the most obvious cases for Commerce jurisdiction require total dedication by the applicant, which is an incredibly time consuming (if not wasting) task for both companies and State. So if the government won’t apply common dual use sense without massive explanatory effort, companies have traditionally made there own dual use decisions following the rules spelled out in ITAR 120.3.

But reports of a $47 million proposed fine on Boeing for daring to read ITAR 120.3 in such a way as to consider a $31 million 737 (list price, not with negotiated discount) passenger aircraft containing a chip with military taint as dual use could change that (see Chip Fixation article).  Don’t get me wrong.  This action appears to be more about DDTC promoting improved bottom smooching than promoting compliance with the regulatory standard set in ITAR 120.3, as that language cuts strongly in Boeing’s favor. But even small aerospace parts manufacturers sometimes have thousands of dual use parts that they thought were clearly Commerce controlled, and I wouldn’t doubt that State is already seeing an uptick of CJ applications due to the chip madness.

And don’t get me started again on Part 129 brokering. I still haven’t put away the smelling salts after receiving a DDTC telephone interpretation that a $20 an hour freelance language translator working a meeting between a US company and a foreign Ministry of Defense was an arms “broker” and thus required prior approval, not to mention a now $1,750 a year registration fee. This gifted English-Hebrew speaker didn’t know the nature of the pile she stepped in to when she took on that assignment. Meanwhile, well compensated ex-Senators and Congress Members lobby for slices of the US defense budget apple pie on behalf of their foreign defense clients without any ITAR regard. Theirs is a stronger case for registration under the 129.3 standard. Would it be enough if the entire world registered as a broker? In that case, I wonder how effectively DDTC could process five billion registrations and review the five billion annual brokering activity reports.wait, I said I wouldn’t get started on brokering.

Former DDTC Managing Director Robert “Turk” Maggi seemed to be turning the official interpretative tide from the unthinking and ridiculous to at least the slightly more reasonable (see DTAG Meeting Notes article). Sadly, his ship passed stealthily into the night. Now we are left in a confused leadership vacuum with few daring to risk saying or doing anything reasonable if it meant someone wouldn’t register, disclose, file a license application, or send some kind of report to State. Over the top interpretations, a steadfast refusal to clarify, and an almost knee jerk effort to grab regulatory and licensing jurisdiction over everything within eye shot threatens to undermine DDTC’s own ability to function.

This is not only a disservice to industry and allies cooperation, but is also further stressing the borderline burned out worker bees at State tasked with shuffling the reams of resulting paperwork. In such an environment, the things that matter drown in a sea of things that don’t. Disclosures that are meaningful from an enforcement standpoint are lost in the pile.  License applications that should be scrutinized slip through without notice. And we are left dwelling on absurd technicalities over Australia or UK license applications that no one really cares about. That isn’t good for anybody.