One of the things that SCP Global Technologies got in trouble for according to the Settlement Agreement released today by BIS was shipping spare parts without a license that were not eligible for License Exception RPL. According to the charging letter, one set of spares was not eligible for License Exception RPL because “the items were maintained in a bonded warehouse in China rather than being exported as one-for-one replacements.” The other set of spare parts were not eligible because “the items were maintained in consignment at the customer’s site in Israel rather than being exported as one-for-one replacements.”

As is often the case, the BIS charging letter is far from a model of clarity. The parts might have been held in a bonded warehouse or on consignment as “one-for-one replacements.” What BIS means to say, even if unable to articulate it clearly, seems to be that the parts were not for “immediate repair” as required by section 740.10(a)(2) of license exception RPL. Additionally, holding the parts in a warehouse or at the customer’s site probably also ran afoul of section 740.10(a)(3)(ii) which provides: “No parts may be exported to be held abroad as spare parts or equipment for future use.”

I’ve always thought that License Exception RPL makes little sense from a policy perspective. If BIS finds no objection to exporting a dual use item to a particular end user, why should it inject itself again into the process each time the unit needs to be repaired. That certainly makes the U.S. item less competitive, particularly since it is often not practical to ship every conceivable spare part under the original license. If the item is subject to the CCL, a repair may take a month or more while a license for the spare part is being obtained.

DDTC’s rules on spare parts seem eminently more sensible. Under section 123.16(b)(2) of the ITAR, components or spare parts can be exported without a license in support of a defense article previously authorized for export as long as the value is under $500, the parts are going to the end user and not a distributor, and no more than 24 shipments are made per year to the end user. This doesn’t require an immediate use for the exported part but allows the exporter to ship parts that may be needed to repair or maintain the defense article — a much more commercially reasonable result.

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Copyright © 2007 Clif Burns. All Rights Reserved.
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