14 Jul 15. Having had the opportunity to discuss with representatives from various US companies at the Paris Air Show last month, one thing became clear – ITAR regulations continue to be a nagging issue for defence trade. In fact, there seemed to be an increase in the number of suppliers displaying “ITAR-free” products in the US Pavilion in order to increase the export potential of the products. This piece is a compilation of what the US Export Control Reform has achieved and what, roughly, is the current ITAR regulatory environment. In recent years, the federal government has undertaken a broad-based interagency review of the US export control system.
Several changes have been made to ITAR regulations since 2013. There was a growing concern that complex ITAR requirements were resulting in non-US companies with similar products selling freely and often highlighting the words “ITAR Free” to promote their goods. The ECR was initiated to allow US companies to engage better in international markets.
Export Control Reform (ECR)
The ECR is not a one-step process but a series of ongoing changes with the most recent tranche coming into effect from June. The main achievement of the changes was that the ECR removed catchall clauses and moved less sensitive items to the less-controlled CCL. Furthermore, there is now a particular emphasis on the words “specifically designed”, which replace the loosely defined terms about military applications. Lastly, the ECR continues to create something called a “positive list” that describes controlled items using – to the extent possible – objective criteria rather than broad, open-ended, subjective, or design intent-based criteria.
These changes have directly impacted the tier 2 and 3 suppliers in the US who now have a better opportunity for exports. One of the most crucial reforms was that related to Category X (military electronics); analysts and compliance professionals went as far as saying that the reforms would make 2015 the year of exports for US companies in that segment. Important changes in 2015 have been: On 6 January, the US implemented its second wave of changes to export control. The DDTC issued a final rule revising controls under the five USML categories in effect from June
- The categories were:
- 4 (launch vehicles, guided missiles, ballistic missiles, rockets, torpedoes, bombs and mines)
- 5 (explosives and energetic materials, propellants, incendiary agents and their constituents)
- 9 (military training equipment)
- 10 (personal protective equipment)
- 16 (nuclear weapons related articles)
On 5 May 2015, DDTC and the
Commerce Department proposed rules to amend category 5 (Fire
Control, Range Finder, Optical and Guidance and Control Equipment) by transferring some of its less sensitive items to the CCL. The proposed changes are currently being assessed. If approved, the new final rules could be published by early 2016 (or late 2015) and the final rules will have a 6-month delay before they enter into force.
Aircraft and related products:
Category 8 (Aircraft and related products) underwent major amendments in 2013 and 2014 which saw the definition of “aircraft” being tightened to better accommodate unnamed platforms. These changes have made this category more relevant to the Maintenance Repair and Overhaul (MRO) industry as the DDTC interprets “defence services” as services that are common to civilian aircraft and ITAR-controlled military aircraft. For example, services for the civilian Boeing 787 aircraft would be considered a defence service by DDTC if the Boeing 787 aircraft incorporates a mission system (a defence article under ITAR) – even if the services do not involve the incorporated mission system. This means that aircraft maintenance providers would need a technical assistance agreement from DDTC to repair a common part or component (even if it is completely unrelated e.g. a tire) on a Boeing 787 aircraft, merely because the aircraft incorporates a mission system. Recent changes have determined that ITAR restrictions for UAVs should be interpreted according to the range of UAVs and the area of operation. Since 2014, the definition of “range” is the maximum distance a UAV can fly in one direction when fully fuelled. It does not contemplate the UAV’s return, but rather how far it can go in one direction, even if it runs out of fuel or loses its data link and crashes to the ground.
Current ITAR environment
It must be remembered that the relaxations under the ECR do not mean that items are de-controlled; all items moved out of ITAR continue to be controlled by the Commerce Department under the less stringent Commerce Control List (CCL). ITAR continues to be a difficult process for most US manufacturers. Having spoken to a few US companies at the Paris Air Show, it is yet to be seen if the ECR will positively impact US companies in foreign markets. Distributors and sales reps of US companies in Europe agreed that problems persist because buyers must calculate for ITAR-compliance related cost increases. While some areas enjoyed a bit less stringent control, the regulations surrounding the UAV sector are slowly growing. This is expected to evolve continuously as technologies and applications evolve.