MLA

John Black’s Advice to Export Administrators: This is a story about violations that most ITAR exporters make. Read it, be thankful it wasn’t your company that got nailed, and use this information to motivate your company to improve its ITAR agreement administration. Sure, the dollar values and quantities related to the Boeing agreements might be higher than what you do under your agreements, but the lesson is still there.

The Boeing Company has been fined $3 million for 40 violations of the AECA and ITAR that they voluntarily disclosed to DDTC. In the charging letter it is said that the voluntary disclosure was taken into account, however Boeing’s “record in effectively administering, updating and reviewing its agreements has been consistently flawed”.

The company was charged 20 times for violations of the terms of the company’s manufacturing licensing agreements (MLA). Over the course of about 15 years Boeing manufactured hardware in excess of the approved amounts of its MLA. At various points in time Boeing’s unauthorized manufacture amounted to more than $4 billion worth of hardware when it was only authorized at most $100 million. Large amounts of unapproved manufacturing continued from 1999 well into 2006. Read More

On December 19, 2007, an amendment to the ITAR was published that revised the licensing procedures with regards to third party/dual nationals for technical assistance and manufacturing license agreements. It is no longer required that additional approval for a release of technical data, defense services, and access to defense articles for third part/dual national employees from NATO, EU, Australia, New Zealand, Japan, and Switzerland. Read More

“Beware of apparently good news.” — John Black

In the December 19, 2007 Federal Register, the Directorate of Defense Trade Controls (DDTC) of the State Department announced its new policy for dual and third country nationals. The change primarily is related to the requirement that when you apply for a Technical Assistance Agreement (TAA) or Manufacturing License Agreement, you must identify the foreign nationalities of the foreign signatories to the agreement. Read More

Well, these are a bit more solid than rumors:

First: the State Department has said that it relaxed its burdensome dual-national/third country national requirements for foreign nationals from NATO, Australia, Japan and New Zealand. If an employee of a company on a TAA or MLA is a national of one of these countries, they will be considered to be authorized to receive the US defense articles covered by the TAA and MLA and the applicant will no longer be required to obtain a non-disclosure agreement form such nationals. This policy change should reduce the current TAA and MLA burdens once (if) the State Department actually implements the policy.

Second: State plans to put out new brokering regulations soon. We will not know if this is good news or bad news until the regulations come out.

The Directorate for Defense Trade Controls (DDTC) has changed the way it processes Technical Assistance Agreements and Manufacturing License Agreements. Formerly, DDTC had a specific group of people who handled agreement applications—there no longer is a specific division dedicated solely to agreement. Now, agreements will be assigned to divisions based on US Munitions List Category, just as DDTC has long assigned license applications for hardware and data exports. In a related move, DDTC also has realigned what divisions are responsible for processing which USML Categories.

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.

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The Directorate of Defense Trade Controls’ new regulation bears a surprising resemblance to my fruit and vegetable shopping when my wife’s out of town. Now, the easy joke here would be something about how I don’t eat produce and the new rule is similarly without nutritional substance. (Note: I said easy, not funny.) But that just wouldn’t be fair to either me or the regulation since I actually like vegetables and State’s reg is definitely substantive. No, the comparison is apt because when I’m on my own my shopping basket has one of everything - a cucumber, a cantaloupe, an onion, a yellow pepper and so on, all mixed up with no apparent relationship to each other. And so it is with the June 15 final rule from DDTC. It’s got a bit of everything with no apparent unifying theme or purpose. This, I will admit, would be more of a legitimate criticism if we were talking about a novel rather than a revision to the International Traffic in Arms Regulations.

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The Directorate of Defense Trade Controls (DDTC) issued new Guidelines for drafting Technical Assistance Agreements (TAA’s), Manufacturing License Agreements (MLA’s) and the like on its website.   You should immediately use the new guidelines and templates therein when preparing and submitting your TAA or MLA applications.

The new Guidelines are substantially more detailed than the old, though the actual MLA and TAA templates look virtually the same.  What’s different is the degree of explanations and clarifications contained in the new Guidelines that were not found in the old. They also contain new sample letters and templates.   A full accounting of all the changes is difficult, but notable changes include:

1. Warehousing and Distribution Agreements dropped from the new Guidelines - The new Guidelines drop templates for Warehousing and Distribution Agreements.  These Agreements were typically used for establishing distribution centers for defense articles outside the United States.  But their actual use has been discouraged for years.  Apparently, DDTC is discouraging their use even more by dropping them altogether from the Guidelines.
2. New Template for Proviso Reconsideration - How many of you have had conflicting provisos on your Agreement?  My personal favorite was an Agreement which had two provisos to the effect of 1) Shipment of hardware by separate license (e.g. DSP-5) is authorized and 2) Shipment of hardware by separate license (e.g. DSP-5) is not authorized.  The new Guidelines offer a suggested format for Proviso reconsideration to deal with those conflicting or impossible Provisos such as these.
3. Dual Nationals Disclosure - The new Guidelines advise that you list the nationalities of all third country nationals and dual nationals that may be employed by your overseas licensee - see section 10.2 of the Guidelines.   This is now an explicit written instruction on what has been provided as informal, and often ignored, verbal guidance in the past.
4. Foreign National Employees in the US - The Guidelines clarify that “most” foreign national employees should be licensed through a DSP-5, not a TAA.   A TAA must be used only when the employee must receive “technical training.”

Last month Directorate for Defense Trade Controls (DTC) published a notice on its web site requiring electronic filing of Shipper’s Export Declarations (SEDs) using the electronic AES system for all items controlled by the International Traffic in Arms Regulations (ITAR). On October 27, 2003, DTC amended the ITAR to officially require the same. The new ITAR requires that you electronically report all ITAR exports to the US Government, except for exports of technical data under exemptions (not including the exemption for agreement). Generally speaking, for hardware exports you report electronically using AES and for technical data exports you report directly to DTC.

Note to Companies outside of the United States: If you are transferring items between non-US locations, no AES or ITAR reporting is required but you may want to share the information below with the US-based business who export to you to help them get their exports to you cleared properly.

The primary ITAR revisions come in the new ITAR section 123.22 - Filing, retention, and return of export licenses and filing of export information. ITAR 123.22 requires electronic export reporting for all ITAR exports, either via AES for hardware or via a new system for direct reporting to DTC (the latter system currently is a paper reporting system). These are the new ITAR 123.22 procedures for exports.

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Buried in the DTC web page guidance on AES, DTC published some interesting and painful clarifications on how you should export technical data under a license and report it to DTC, as is required by ITAR Part. Interesting, mostly for a few die-hard ITAR freaks, painful for all exporters of ITAR-controlled tech data.

Many defense exporters have argued, with reason, that the first shipments of technical data under a TAA or MLA does not need to be reported. They argue that the actual ITAR 123.22(d) and 123.24 language only requires reporting of the first shipment under a license, not an agreement because those ITAR paragraphs are in the ITAR Part 123, which has the title “Licenses for the Export of Defense Articles” and agreements are not licenses. Exporters also cite Part 124 “Agreements..” as the ITAR Part to look to for requirements for exporting tech data under agreements.

(John Black here. For the record, I am starting to wonder what relevance logic and using dictionary definitions of words has to understanding the ITAR. For example, since Part 125 is “Licenses for the Export of Technical Data,” that would seem to be the logical place to find the requirements for exports of tech data under licenses. Instead of reading the ITAR you just ought to know what it says. This approach of not basing the meaning of the ITAR on the words of the ITAR and requiring exporters to just know what the ITAR says is irresponsible government. If it is important to the security of our country that we apply the ITAR like the State Department interprets it, the State Department is putting the country at risk by not writing the ITAR to say what the State Department wants it to say because some exporters are not plugged into the State Department and might just read the ITAR.)

Reading the guidance, it’s clear DTC disagrees. “[T]he initial export of technical data and defense services using an agreement will be by letter,” the guidance reads. “For ease in handling these requests, the letter should have an attention line reading “ATTN: Initial Export Notification for Agreement [insert agreement number].”

For shipments of technical data under a license, the guidance states you should notify State of the first shipment of technical data by decrementing the license and returning it to DDTC. If you need to ship technical data thereafter, State says to use an exemption in “124.5.” Presumably they are they are referring to exemption regarding copies of technical data previously authorized exemption in 125.4(b)(4).

(Sorry, John Black here again. Gee whiz, what is going on here? So, I get a DSP-5 for offshore
procurement, export data once, and then use the copy of tech data exemption for the next 50 for the offshore procurement? If what I export is not a copy of what was previously exported, but it falls within the description on my DSP-5, can I use the copy exemption for my non-copy. Interesting use of the English language. In the ITAR the word “copy” includes things that are not copies. I sure wish DTC would revise the ITAR to reflect this. I don’t know about you, but I might forget this sometime over the next couple of years and make the mistake of reading the ITAR and thinking “copy” does not include “non-copies.” Back to you Maarten.)

Finally, State reaffirmed that technical data hand carries under a license still require an SED. You should present a copy of an SED to US Customs “upon request” and one copy should be immediately sent to DTC. The guidance appears to indicate that you don’t have to specifically hunt down a Customs officer to submit an SED, as US Customs would never request an SED for technical data unless the traveler brought it to their attention.

The good news is that all these paper technical data notifications should disappear in January 2004. At that time, State hopes to have in place a system whereby all AES entries for shipments of technical data are automatically routed to State. For more information, see: www.pmddtc.state.gov/aes.htm

(I apologize for interrupting Maarten’s analysis of the new AES requirements with my editorial comments. Sometimes I just can’t keep my mouth shut. –John Black)

Usually, I breathe a sigh of relief when I realize that my export of military hardware or data does not require an export license because an exemption is available. It always easier to use an exemption that says your activity does not require a license than to go through the time-consuming process of getting a license approved. Well, not always.

The last few times I looked at the Canadian defense services exemption in 126.5(c) of the International Traffic in Arms Regulations (ITAR) I decided it might be easier to get a license/agreement, and it might be safer in terms of avoiding violations and, by the way, you might need the license/agreement in the long run anyway.

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A few months ago in our newsletter, we caused a measurable level of concern among certain readers when we reported that a Office of Defense Trade Control Licensing Officer told us that the foreign party to an offshore procurement license may not disclose technical data without DTC approval.

Good news.

Senior DTC Licensing Officers recently confirmed that DTC approval is NOT required for the approved foreign party to transfer the technical data received under an offshore procurement agreement to sub-contractors
located in the same country. Prior to receiving the data, the sub-contractor must give the approved foreign party a non-disclosure agreement that contains all of the provisions that must be in the offshore agreement between the US exporter and the approved foreign party.

It was similarly confirmed that DTC approval is NOT required for an approved foreign party in a Manufacturing License Agreement (MLA) to transfer the technical data received under an MLA to sub-contractors
located in the same country, and the subcontractors do not have to sign the agreement. Once again, the sub-contractor must give the approved foreign party a non-disclosure agreement with the ITAR-required
MLA provisions. This assumes that there will be no direct interaction between the US exporter and the sub-contractor. If there is any direct interaction between the US exporter and the sub-contractor,
then the sub-contractor must be a signatory to the MLA and be approved by DTC.

Of course, all of the above mentioned DTC confirmations were informal and off-the-record.