TAA

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.

Part 1: Expedited License Review

Don’t Tell Anybody-Expedited Treatment Available for ITAR Exports to Australia?

According to Kerry Clarke AO, in the Australian Department of Defence, the US State and Defense departments have agreed to give streamlined processing for exports to Australia under two new policies known as Expedited License Review I (ELR I) and Expedited License Review II (ELR II).

But, according to Kerry Clarke, the expedited processing might not yet be in operation and is “dependent on the continued implementation of D-Trade — [which] — the State Department hopes — to have fully implemented by the end of 2007. Until then, licence and TAA approvals may take longer than the 10 and 30 day target times, but hopefully less than the current approval times.”

(Not sure I agree with the hopefulness of Kerry Clarke.)

OK, so the bottom line appears to be that the expedited system might not be in operation yet and hopefully it will be up and running by the end of the year. (I personally am not going to use up my limited supply of personal hope hoping for streamlined processing. I plan to spend all my hope on hoping I win the lottery so I can retire to the mountains.)

Anyway, according to an Australian Department of Defence memo (see end of this article for a copy), here are the two expedited procedures the US and Australian agreed upon:

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US ITAR regulations are causing delays, and possible cancellations, in defense contracts between the United States and Canada. Briefing notes to Canada’s Defence Minister, Gordon O’Conner from last year show that American regulations have caused so many delays in Ottawa that the Canadian government had considered canceling a project to replace their 40-year old Sea King helicopters with 28 American-built Sikorsky Cyclone helicopters.The situation is resulting from the conflict between the ITAR’s regulations on dual-nationals and Canada’s anti-discrimination laws. US regulations prohibit Canadians with dual citizenship from having any contact with regulated materials or information. This has created a real dilemma for Canadian defense companies who risk breaking Canadian laws by releasing employees from working on sensitive US contracts. Sources close to the “Sea King” project state that juggling employees to comply with US regulations is costing Canadian companies a lot in time and money.

Canadian officials have refused to sign certain TAA’s and licenses which contain ITAR restrictions because they say they call for discrimination against Canadian citizens. This, also, is causing delays on the production and delivery of the Cyclones.

As General Motors in London, Ontario was recently fined $20 million for failing to comply with ITAR regulations relating to dual-nationals, Canadian companies know well the risks of non-compliance.

Upcoming Canadian purchases of Boeing helicopters and Lockheed-Martin planes could also be hindered by the problems.

Source:

• www.globeandmail.com, March 26, 2007

The Managing Director of the Department of State’s DDTC reported that DDTC is still receiving a steady stream of low-quality applications. About 2 out of 10 applications that are received are considered inadequate and are being returned without corrections as is the current policy of the DDTC. Examples of such applications include the following:

1. Country name on application doesn’t match country on supporting documentation
2. No Purchase Order attached to license application
3. Values on application and purchase order are not consistent
4. TAA requests to change the terms of other companies’ TAAs
5. Lack of an original empowered official certification letter with submission of agreements and agreement amendments
6. Proposing to provide defense services to a foreign country without TAA
7. Lack of required Part 130 statement with submission of agreements and agreement amendments
8. Continually making late applications and evoking national security reasons for immediate case adjudication without adequate justification
9. Submitting multiple TAAs and licenses when only one is necessary
10. Poorly documented commodity jurisdiction requests
11. Incomplete or deficient registration requests

Exporters are encouraged to take more care in these matters when submitting applications.

Full story on DDTC’s site

According to the State Department, Lockheed Martin subsidiary, Sippican, violated the International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA) when it went 4 months between expiration of an existing TAA and approval of a subsequent TAA and continued to provide regulated technical data and defense services to BAE Systems in Australia. The information disclosed was related to the electronic payload for the NULKA missile decoy which is being collaborated on by the US Navy and the Australian Government.

Officials from Sippican attempted to argue that the ITAR-regulated information that they were providing BAE was consistent with their contract with the US Navy. DDTC was quick to point out that contractual obligations, even with the US military, do not take precedent over the ITAR and the AECA. It seems that it is not that unusual for contractors to be put under pressure by the US military to proceed with providing services, goods or information without undergoing the necessary procedures (and subsequent waiting time) to obtain the proper licenses. Unfortunately for Sippican, if this is indeed what happened, they paid a high price of $3 million for bending to that pressure.

The entire Consent Agreement (pdf)

DDTC is losing patience with the increasing volume of “low quality” applications that they have been receiving. In the past, they may have corrected minor mistakes, but they assure companies that they will not be doing that from this point. Examples of mistakes that they have been seeing with increasing frequency include:

• “The country name on a license application does not match the country on the supporting documentation.
• No purchase order attached to a license application.
• The value on the license application is not the same as the value on the purchase order.
• Technical Assistance Agreement requests to change the terms of other companies’ TAAs.
• Submission of agreements and agreement amendments without submission of an original empowered official certification letter.
• Proposing to provide defense services to a foreign government without a TAA.
• Submission of agreements and agreement amendments without the required Part 130 statement.
• Continually making late applications and evoking (without adequate justification) national security reasons for immediate case adjudication.
• Submitting multiple TAAs and licenses when one TAA would do.
• Poorly documented commodity jurisdiction requests.
• Incomplete and deficient registration requests.”

(taken from Federal Register Vol. 71, Number 234)

In a message from the DDTC Managing Director, he warns that making mistakes like these demonstrates an “inadequate” understanding of export control regulations and a potentially at-risk export compliance program. Mistakes are being made across the spectrum —by large companies and small ones.

(I didn’t realize that DDTC’s delays in processing applications is all the fault of the applicants. Live and learn. —John Black)

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)

WARNING: This information is SECRET. If you are not authorized to read this, you must continue to wrestle with officially acknowledged licenses only: DSP-5’s, 73’s, 61’s, 85’s or Technical Assistance Agreements (TAA). Only companies “in the know” may read about the Office of Defense Trade Controls’ (ODTC) secret license: general correspondence. All others must stop reading now.

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