State Department Export Controls Today and Tomorrow Terry L. Davis Deputy Director of Licensing February 2011
Topics for Consideration • Introduction/Overview • Legal/Regulatory Foundation • License Preparation & Adjudication • Licensing Defense Services: the World of Electronic Agreements • Exemptions • Interagency Review Process • Special Topics of Concern • Defense Trade Reform
Licensing & ComplianceResponsible U.S. Agencies • Department of State • Department of Commerce • Department of the Treasury • Department of Justice (ATF) • Department of Homeland Security • CBP/ICE • Department of Energy • Department of Defense • DTSA, Armed Services, DSS, DSCA
Purpose of Controls • Foreign Policy • National Security • Human Rights • Regional Stability • Proliferation
Laws & Regulations • Arms Export Control Act (AECA) • International Traffic in Arms Regulations (ITAR) • 22 CFR Parts 120-130
Arms Export Control Act (AECA) • Governs arms sales – Foreign Military Sales and direct commercial sales • Mandates registration and licensing of any person who engages in manufacturing, exporting, and brokering of defense articles and services • Requires monitoring/reporting fees, contributions and commissions (Part 130)
Arms Export Control Act (AECA) (continued) • Broad authority of the Directorate to approve, deny, suspend, revoke and halt shipments at U.S. ports • Congressional oversight – 36(c), 36(d), and 36(f) • End use and retransfer assurances • Establishes fines and penalties
International Traffic in Arms Regulations (ITAR) • Implementing regulations of AECA • U.S. Munitions List (USML) • Designates Defense Articles/Services subject to State export jurisdiction • Licensing policy and procedures • Compliance and enforcement • Fines and penalties
22 CFR 120-130- ITAR • Part 120 Definitions • Part 121 USML • Part 122 Registration • Part 123 Licensing • Part 124 Agreements/Offshore Procurement • Part 125 Technical Data • Part 126 Prohibited Exports • Part 127 Compliance Enforcement • Part 129 Brokers • Part 130 Political Contributions, Fees, and Commissions
Delegation of Authority • President of the United States • Secretary of State • Undersecretary for Arms Control and International Security • Assistant Secretary for Political Military Affairs • Deputy Assistant Secretary for Defense Trade • Managing Director
Directorate of Defense Trade Controls (DDTC) Our Mission: Advance U.S. national security and foreign policy through licensing of direct commercial sales in defense articles and the development and enforcement of defense trade export control laws, regulations, and policies.
Foreign Policy Objectives • Support allies in mutual foreign policy and national security goals • Promote interoperability with allies • Keep defense technology out of the hands of our adversaries!
DDTC Organization Beth McCormick Deputy Assistant Secretary Defense Trade Robert S. Kovac Managing Director Directorate of Defense Trade Controls Managing Director’s Staff Office of Defense Trade Controls Compliance (PM/DTCC) Office of Defense Trade Controls Licensing (PM/DTCL) Office of Defense Trade Controls Policy (PM/DTCP)
NSPD-56 Defense Trade Reform • Signed by the President on January 22, 2008 • Mandates specific process and resource requirements to support an export control system that is predictable, efficient, and transparent. • 60-day deadline for license adjudication
NSPD-56 Carve Outs from 60 Day Threshold • DOD National Security review not completed • Congressional notification • Compliance/enforcement/Blue Lantern • Arms Embargo/126.1 waivers required • Policy review
Process Improvements • Weekly 45-day and 60-day license reviews • Weekly 5% Quality Assurance reviews • Standardized Operating Procedures • Updated guidelines on web site, e.g. agreements, mergers, congressional matrix • More management oversight of RWAs • Right answer as soon as possible!
Application Process • DDTC’s Automated Export Licensing System • DSP 5, 61, 73 • Amendments 6, 62, 74 • TA/MA/DA • Commodity Jurisdiction • Eventually to include GCs • Cases assigned/screened by DDTC’s computer system
Export Control Reform The Administration has determined that fundamental reform of the U.S. export control system is required in each of its four components areas, with consolidation into a: • Single Control List; • Single Primary Enforcement Coordination Agency; • Single Information Technology (IT) System; and • Single Licensing Agency
Export Control Reform Additional information on the White House website: • http://www.whitehouse.gov/the-press-office/fact-sheet-presidents-export-control-reform-initiative
Regulation Updates • Final Rules • 22 CFR 125.4(b)(9): laptops • 22 CFR 126.8 deleted • Electronic Commodity Jurisdiction • Proposed Rules • Dual/Third Country Nationals: comments received - Final Rule next step
Regulation Updates • Future Actions • Brokering regulations • “Specifically Designed and Modified” • Spare Parts Exemption 123.28 • Defense Service Definition • “See Through” rule clarification • Part 124 re-write • Dual/Third Party Nationals • Category re-writes: VII, I and XI based on tiers and “Bright Lines”
Complying with ITAR Controls DDTC Definitions
DEFINITIONS • U.S. Person (120.14) • Foreign Person (120.16) • Defense Article (120.6) • Technical Data (120.10) • Defense Service (120.9) • Public Domain (120.11) • Significant Military Equipment • Export (120.17) • Re-transfer/Re-export (120.19) • Significant Military Equipment (120.7)
Complying with ITAR Controls Commodity Jurisdiction
Organization • Commodity Jurisdiction (CJ) function part of Policy Office • Policy headed by Charles Shotwell • CJ team comprised of six people • Team Leader and Presenter – Di Bounds
Designating Defense Articles & Defense Services • The AECA provides that the President shall designate the articles and services deemed to be defense articles and defense services for purposes of this subchapter. • Policy is at 22 CFR 120.3 • Guidance for a Commodity Jurisdiction (CJ) determination is at 22 CFR 120.4 • A CJ issued by DDTC is the only legally-binding determination of jurisdiction!
Policy for Designating Defense Articles & Defense Services • 120.3(a) is specifically designed, developed, configured, adapted, or modified for a military application, and • (i) Does not have predominant civil applications, and • (ii) Does not have performance equivalent (defined by form, fit, and function) to those of an article or service used for civil application; or
Policy for Designating Defense Articles & Defense Services • 120.3(b) is specifically designed, developed, configured, adapted, or modified for a military application, and has significant military or intelligence applicability such that control under this subchapter is necessary. End-Use is not a factor in determining jurisdiction!
U.S. MUNITIONS LIST (USML) • Remember to take USML into account when considering jurisdiction. • Items specifically enumerated are controlled.
U.S. MUNITIONS LIST (USML) • Self-determination versus DDTC determination • Document decision making process • Registration is not required to submit a CJ request. • Preferable for the manufacturer to submit CJ • If you are not the manufacturer, coordinate with the manufacturer to obtain necessary information. • Letter of authorization from manufacturer
Commodity Jurisdiction Submission • Self-determination versus DDTC determination • Document decision making process • Registration is not required to submit a CJ request. • Preferable for the manufacturer to submit CJ • If you are not the manufacturer, coordinate with the manufacturer to obtain necessary information. • Letter of authorization from manufacturer
Commodity Jurisdiction Submission • DDTC is now processing CJ requests using an automated system. The automated system allows on-line CJ requests using the DS-4076 Commodity Jurisdiction (CJ) request form with attachments.
Commodity Jurisdiction Submission • Applicant may reference the DDTC website for submission instructions at www.pmddtc.state.gov/commodity_jurisdiction for this automated system.
Commodity Jurisdiction Submission • More information is usually better than less. • Remember two audiences – subject matter experts and generalists
Commodity Jurisdiction Submission • DS-4076 must be accompanied by a cover letter • Subject line – product name • Anything you want us to know about your product that was not clear from DS-4076 • For instance, any of the following: description; origin of commodity; current use.
Commodity Jurisdiction Submission • Supporting Documentation: • Product data sheets • Letter of authorization from manufacturer • Sales data • Studies/other pertinent info • Assigned a CJ case number • Email or letter acknowledging receipt and identifying case number
Commodity Jurisdiction Submission • Interagency review governed by National Security Council (NSC): • Department of Commerce • Department of Defense • As necessary: • NASA • Department of Energy • Department of Homeland Security • Other U.S. Government agencies
Commodity Jurisdiction Submission • State responsible for working out agreement between agencies • Defense and Commerce have right to escalate State’s proposed decision • Final decision goes out in letter to applicant
Complying with ITAR Controls License Preparation and Exemptions
Agenda • DSP License Types • Scenarios/purpose • Transaction flow • Supporting documentation • Licenses in furtherance of Agreements • Renewal/replacement licenses • Unshipped balance licenses • Amendments • Re-transfer/re-export • Proviso re-consideration • Exemptions
DSP License Types • DSP-5 Permanent Export** • DSP-6 Amendment** • DSP-73 Temporary Export** • DSP-74 Amendment** • DSP-61 Temporary Import** • DSP-62 Amendment** • DSP-85 Classified Transactions • DSP-119 Amendment **D-TRADE only**
Validity Period • Valid for maximum of 48 months/4 years • Exceptions: • Firearms authorization will be limited in duration based on foreign import certificate • Foreign person employment limited by work authorization • A license expires whenever: • Total authorized quantity exhausted; or • Total authorized value exhausted; or • Expiration date reached
DSP-5 Permanent ExportScenarios/Purpose • Defense Articles (hardware) • Only one ultimate foreign end-user • Must be supported by documentation from foreign party to the transaction • Purpose and commodity blocks must be consistent with supporting documentation • Part 130 statement
DSP-5 Permanent ExportScenarios/Purpose • Technical Data • Marketing/bid and proposal • Plant visit • Offshore procurement (124.13) • Defense Services – Exceptional circumstances! • Short-term training/limited scope and technology transfer (124.1) • Foreign person employment • Can be multiple ultimate foreign end-users for technical data and defense services
DSP-5 Permanent ExportTransaction Flow • Block 15 – Manufacturer of Commodity • Block 17 – Source of Commodity • Block 19 – U.S. Seller • Block 21 – U.S. Consignor/Freight Forwarder • Block 18 – Foreign Intermediate Consignee • Block 16 – Foreign Consignee • Block 14 – Foreign End-User
DSP-5 Permanent ExportSupporting Documentation • Purchase order, letter of intent, or other appropriate documentation • Commodity • Quantity • Price • End-use • End-user • DSP-83/import certificate • Must be consistent with information on license application
DSP-5 Permanent ExportSupporting Documentation • Must be addressed to the U.S. applicant applying for the export license • Subsidiary must be identified in Block 5 • Must be provided by a foreign party to the transaction • In English or provide translation • Must be issued within 1 year of license application • Must have U.S. dollar value identified • Limitations on LOIs
DSP-5 Permanent ExportSupporting Documentation • Technical Data • Copies of technical data OR sufficient information for DOD to conduct a technical review • Defense Services • Letter requesting exception per 22 CFR 124.1(a) – DDTC discretion on approval • Description of services to be provided