EXPORT CONTROL REFORM Gregory M. Suchan Senior Associate WITA Event December 13, 2012

1. EXPORT CONTROL REFORM Gregory M. Suchan Senior Associate WITA Event December 13, 2012

2. Background • FY 2011: 83,000 licenses for defense articles/services reviewed by State Department (DDTC). • > 95% approved • Avg. time: 18-20 calendar days • ~ 50% for parts/components • Unless specific exemption in ITAR, license required for each transaction (AECA Sec. 38(b)(2)). • AECA Sec. 38(j) essentially prohibits country-based exemptions (except for Canada). Major difference from Commerce controls.

3. Major Accomplishment • Current system extraordinarily successful in keeping authorized exports of defense items out of hands of our antagonists. • “Gold standard” of export controls • All retransfers require prior consent of State Department. • To gain access, antagonists must evade controls by unauthorized (illegal) exports. • Easier to detect and prosecute.

4. Some Problems • US industry/licensing officers spend inordinate amount of time on licenses that everyone knows from outset will be approved (e.g., spare parts for end-items previously approved for NATO allies). • More importantly, use of ITAR-controlled hardware or technology in civilian items means ITAR controls must apply to that civilian item. Examples: • Civilian communications satellites • QRS-11

5. Some Consequences • Many US companies (particularly smaller firms) stay away from defense items (negative impact on employment and innovation). • ITAR has rigorous compliance requirements (hiring, records). • Registration fee (beginning at $2,250/yr.) even if do not export. • Foreign companies (defense, aerospace, others) and even governments have incentive to “design out” ITAR-controlled US content if possible. • Re-export controls, tracking, no de minimis rule.

6. Previous Efforts at Export Control Reform • Clinton: Defense Trade Security Initiative (DTSI) • Some very modest regulatory changes • Four new types of licenses (only two of which have been used, once each) • ITAR license exemptions for UK and Australia (patterned on Canada) • Bush (43): NSPD-19 • Similarly modest changes, + UK/Australia license exemptions • Both failed because of opposition from Congress.

7. Why Congress Opposed Previous Reform Efforts • DTSI followed shortly after Cox Commission report on communication satellite problems with China (and move comsat jurisdiction to State). • Concern that unless covered by ITAR, items would be exported to China. • Also concern regarding ability to enforce exemptions (as with Canada). • Congressional notification requirements (AECA Sec. 36(b) and (c)) and many sanctions apply only to defense items, not to anything under Commerce jurisdiction.

8. Why This Effort Is Different • Bottom-up effort led by DOD technology experts to determine what needs to be covered by ITAR and what can be transferred to Commerce. • Even more important: Commerce Munitions List (CML) • Commerce license required for all end items and major components transferred from ITAR (but STA exemption for 36 governments). • All arms embargoes under ITAR apply similarly for CML (no de minimis for embargoed countries).

9. Contact Information Gregory M. Suchan, Senior Associate Commonwealth Consulting Corporation 2300 Wilson Blvd., Suite 205 Arlington VA 22201 Tel: (703) 524-0026 Email:gsuchan@commonwealthconsulting.com

10. Backup Slides

11. Some Major Recent DDTC Fines • 2012: United Technologies: $55 million • 2011: BAE Systems plc (UK): $69 million • 2010: Xe Services (Blackwater): $42 million • 2008: Boeing: $3 million • Northrop Grumman: $10 million • Lockheed Martin: $4 million • Qioptic (Luxembourg): $25 million

12. Defense Articles • Items identified on US Munitions List (USML), found in Part 121 of ITAR. • Twenty categories (including one “miscellaneous” catch-all category). Ranges from all firearms (except shotguns with barrels > 18” length) to ICBMs and nuclear weapons. • Each category includes “specially designed, modified, adapted” parts and components, as well as “technical data” for items in that category.

13. Current USML Categories • I Firearms < .50 caliber XI Military electronics (eg., sonar, radar) • II Guns > .50 caliber XII Fire control, range finder, guidance • III Ammunition/ordnance XIII Auxiliary military eqpt (cameras, crypto) • IV Missiles, bombs, mines XIV Toxicological agents & eqpt • V Explosives, energetics XV Spacecraft (incl. all satellites) • VI Vessels of war & eqpt XVI Nuclear weapons & related items • VII Tanks & military vehicles XVII Classified articles & technical data • VIII Aircraft & assoc. eqpt XVIII Directed energy weapons • IX Military training eqpt XIX (reserved) • X Protective eqpt & shelters XX Submersible vessels • XXI Miscellaneous: Any article not specifically enumerated in other USML categories which has substantial military applicability and which has been specifically designed, configured, adapted, or modified for military purposes.

14. Defense Services • The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production,assembly, testing, repair, maintenance, modification,operation, demilitarization, destruction,processing or use of defense articles; • (2) The furnishing to foreign persons of any technical data controlled under the ITAR, whether in the United States or abroad. • Includes oral and visual disclosure.

15. Foreign Person Anyone who is not a US citizen, a legally admitted permanent resident alien (green card), or a “protected individual” (e.g., granted asylum or refugee status by the US Government). A foreign person is also any foreign corporation, partnership, or any other entity or group that is not incorporated or organized to do business in the United States, as well as international organizations, foreign governments and any agency or subdivision of foreign governments, even in the United States (e.g., UN Headquarters or a foreign embassy in the US).