California-based AEM, an electronics manufacturer which produces, among other things, hi-rel fuses used in military and commercial satellites filed a complaint in federal district court on November 12 alleging that a determination by the Directorate of Defense Controls (“DDTC”) that AEM would be subject to a policy of denial on all export licenses violated AEM’s due process rights. The suit alleges that DDTC issue a letter to AEM stating the policy of denial and argues that this letter constituted an effective debarment of AEM and required, under both the agency’s own rules and the Due Process Clause, notice and an opportunity for hearing, neither of which were accorded.

According to the lawsuit, AEM filed in 2000, in the wake of the legitimate confusion caused by the Strom Thurmond National Defense Authorization Act of 1999, a commodity jurisdiction request with DDTC seeking to have its hi-rel fuses classified as EAR99 as they had been under a classification issued by the Department of Commerce in 1997. The STNDAA re-transferred from Commerce to DDTC jurisdiction over commercial satellites and “related items” to the exclusive jurisdiction of DDTC. Needless to say, the meaning of “related items” was far from clear even given the statute’s attempt to define that term.

Over a year after filing the CJ request and prior to any action on that request by DDTC, AEM filed a license application with DDTC requesting authority to export its hi-rel fuses to China, an application which DDTC denied based on the arms embargo in place against China. For reasons that are not entirely clear, the complaint says that “AEM interpreted this denial as applying only to exports to the PRC.” It then exported fuses subject to the CJ request without licenses to destinations other than China.

Understandably, DDTC was not amused. First, it’s hard to explain AEM’s flip-flop between feeling a license request was necessary for these products and then deciding that they were not. DDTC’s refusal to permit an export to China was hardly a determination that the fuses could be exported freely to all other destinations. Second, and more significantly, DDTC’s guidance on CJ requests makes clear that licenses are required for items while the CJ requests are pending. No exception is permitted because the exporter feels that the CJ request has been pending for too long a period.

That being said, DDTC’s pique with AEM isn’t sufficient justification for the agency to ignore the Due Process clause or its own rules. Part 128 of the International Traffic in Arms Regulations provides for notice and hearing as a prerequisite to administrative debarment. The policy of denial differs from debarment only by virtue of the fact that domestic purchasers of AEM products could export them, whereas if AEM were debarred those purchasers would require a transaction exception from DDTC to export the fuses. That doesn’t seem a significant enough difference to justify imposing a policy of denial without notice or hearing.

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