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Archive for June, 2007

Jun

21

Licenses for Some Military Exports to the UK May Be Eliminated

Posted by Clif Burns at 6:28 pm on June 21, 2007

Category: Arms Export

George and Tony President Bush and Prime Minister Blair today signed the “Defense Trade Cooperation Treaty” which will ease export license requirements for defense articles exported between the United States and the United Kingdom. Details of the treaty are scarce at this point as the text of the treaty has not yet been released. The treaty will also require Senate approval, so even if the text were available, nothing is certain yet.

The official press release from 10 Downing Street, which first reported the signing of the treaty, was, to say the least, vague. No indication was made in the press release to the elimination of export license requirements.

The White House thereafter announced the treaty during Dana Perino’s Press Gaggle this afternoon on Air Force One:

The President and Prime Minister Blair signed a treaty this morning. It’s called the U.S.-U.K. Defense Trade Cooperation Treaty. It would improve transatlantic defense cooperation and counterterrorism efforts by alleviating barriers to trade in defense goods, services, and information between the two countries, including our defense industries. We are going to present this treaty to the Senate for their advice and consent.

The reasons we’ve undertaken this treaty with the U.K.: As you know, it’s our closest ally and our biggest defense trade partner, for several reasons. It’s in our national security interest to support joint U.S.-U.K. military and counterterrorism operations in a timely way, and to speed U.S.-U.K. research and development and production of the next generation of interoperable defense technologies. It’s also in our homeland security interests. We’re going to be collaborating with the United Kingdom to develop the most effective countermeasures possible to combat terrorist attacks at home and against our partners in the war on terror, and we also believe it is in our security and economic interests to save money by leveraging each other’s experience and by reducing duplication of efforts on some of the research and development that’s been going on.

To which a reporter immediately asked:

Q. Can you do any of that in English?

MS. PERINO: That wasn’t in English? I totally understood it.

Another press conference was held at State Department where spokesman Sean McCormack appears to have provided more details on the treaty. As of the time of this post, the transcript of that briefing was not yet on the State Department website.

Of course, the question in the forefront of everyone’s mind is what items will be exempted from export license requirements. The AP story on the treaty seems to suggest that the license requirement will be dropped on all military equipment. The Agence France Presse story is somewhat more circumspect and says that the license requirement will be eliminated for “certain U.S. military equipment.”

As soon as we can provide any answers to that question, we will try to do so.

UPDATE: The White House just released on its website a “Joint Statement Between the United States and the United Kingdom,” which also provides no detail on the elimination of export licenses between the two countries.

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Jun

20

OFAC Issues General License for Transactions with Palestinian Authority

Posted by Clif Burns at 9:20 pm on June 20, 2007

Category: OFAC • Sanctions

Palestine Stamp The Office of Foreign Asset Controls (“OFAC”) today issued General License No. 7 authorizing U.S. persons “to engage in all transactions otherwise prohibited by 31 C.F.R. parts 594, 595, and 597 with the Palestinian Authority.” Obviously this General License is the official action that implements the administrations promise to lift sanctions on the Palestinian Authority due to the expulsion of Hamas from the Palestinian Authority.

Of course, no official action needed to be taken at all. The Palestinian Authority itself had never been officially sanctioned. The PA isn’t listed on the SDN list, nor were “Palestinian Authority Transaction Regulations” or the like adopted by OFAC. Instead, the PA was constructively sanctioned because members of Hamas, which is on the SDN list, had been elected as part of the PA. So, no more Hamas, no more sanctions, no OFAC action or assembly required.

On a broader note, these “secret sanctions” such as those imposed on the PA, and more recently on Nepal, are a compliance headache of the first order. A compliance officer might look at the list of sanctioned countries and the SDN list and never conclude that the Palestinian Authority or the Nepalese Government were sanctioned unless they happened to know, as well, that SDNs had become part of the PA and the Nepalese Government. Granted the sanctions aren’t completely secret because in both cases there were General Licenses ultimately issued which indirectly attest to the difficulties of dealing with the PA and Nepal. Still, here’s a question for export compliance officers: have the Government of Nepal and the Palestinian Authority ever been mentioned in your OFAC compliance programs?

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Jun

19

Left Behind

Posted by Clif Burns at 5:32 pm on June 19, 2007

Category: DDTC

OMV logo For those of you who didn’t get to go to the Paris Air Show at Le Bourget and have been left behind, like me, to swelter in the heat and humidity of late June in the District of Columbia (or elsewhere), ExportLawBlog brings you the next best thing — a blog post on Le Bourget! (Well, maybe not the next best thing.)

It seems that John Douglass, president of the Aerospace Industries Association, did get to go to Le Bourget where he got to wash down a few amuse-gueules with a few coupes de champagne and to complain about U.S. export controls. Now that’s the life!

As reported in today’s EE Times:

John Douglass . . said that while export controls are necessary to protect national security, both sides agreed that more liberal export policies could help spur effective aerospace trade and technology cooperation among allies. . . . Global civil aviation sales are particularly strong, and Douglass said “We could even do better if we had a better rule set” for exports, said Douglass.

So far, so good.

The current U.S. export control is “based on two systems,” said the AIA president. One is for military exports that are tightly controlled by State Department, which “essentially says ‘no’ to exports,” Douglass argued.

That’s either the champagne talking or the reporter misunderstood Douglass. For as much as we criticize DDTC here at ExportLawBlog, we have never accused them of just saying “no” to exports.

Douglass then suggested, somewhat more sensibly, that international technology cooperation programs should be licensed based on the countries involved:

If you are a NATO country, you will be given ‘level- one’ cooperation, for example. But if you are a level-two nation, more controls are imposed.

It might make sense to codify a tiered approach, but it is quite clear that such an approach does currently inform licensing decisions at DDTC. It’s easier to get a TAA with a company based in a NATO country, for example, then it is to get one with a company in the UAE.

But the most interesting thing Douglass had to say he saved for last:

AIA hopes to ensure that the current U.S. export control system can be made more efficient and transparent. “But the best time to get this done is when the administration changes after the election next year,” said Douglass.

Notice how Douglass just slipped that in. The best time is after “the administration changes.” This is a tacit admission that the export reform proposals that the AIA made to President Bush through an industry group, and that we previously reported here, aren’t going anywhere.

Anyway, that’s the end of our trip to Le Bourget which, like all trips to France, are always too brief. Alors, trÃ¨s chers lecteurs de mon blog, Ã la prochaine!

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Jun

18

OMV to State: Pound Sand

Posted by Clif Burns at 8:36 pm on June 18, 2007

Category: BIS • Iran Sanctions

OMV logo Last week we reported on increased jawboning by the State Department, which has been threatening to impose sanctions under the Iran Sanctions Act on foreign oil companies that do business in Iraq. One target singled out by State is the Austrian oil company OMV. In a daily press briefing, State Department spokesman Sean McCormack had this to say:

Well, we have talked to I think — the company is OMV. We’ve talked to the Austrian Government about these negotiations. I understand that OMV has recently signed a preliminary deal . . . [W]e would question why at this point given Iran’s behavior in the international community . . . [it] would want to encourage these sorts of business dealings with Iran at this . . . particular time.

It’s going to be a choice that each individual state, each individual business is going to have to make. We have also talked to them about the fact that there are potentially applicable U.S. laws that could be triggered under the Iran Sanctions Act for basically over a certain dollar amount for investment in the Iranian oil and gas sector there’s a possibility of looking at applying sanctions to the relevant companies. I’m not saying we’re at that point, by any means, but it is something about which countries around the world, businesses around the world need to be aware of.

Thomas Huemer, a spokesman for OMV, was quick to respond:

OMV spokesman Thomas Huemer said that the company would respect all Austrian, EU and relevant international laws in its dealings with Iran’s National Iranian Oil Company (NIOC).

Hmm, I don’t see U.S. law or the Iranian Sanctions Act included in that list.

Of course, to be fair to OMV, it is in a difficult position. E.U. Council Regulation No 2271/96 explicitly forbids E.U. companies like OMV from complying with the Iran Sanctions Act. And McCormack’s threats were, after all, only of the “we’re only just saying” variety.

In other news, the Bureau of Industry and Security (“BIS”) wins the double plus good Newspeak award for headlining it’s announcement of new, and widely criticized, export controls on China with this headline: “Enhancing U.S. China Technology Trade.”

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Jun

14

DDTC Still Can’t Find Its Way With Inertial Navigational Chips

Posted by Clif Burns at 9:31 pm on June 14, 2007

Category: BIS • DDTC • ITAR Creep

QRS-11 Inertial Navigational Chip The QRS-11 navigational chip, perhaps the poster child for the so-called ITAR creep phenomenon, still bedevils the Directorate of Defense Trade Controls. Today, the DDTC issued a final rule amending the rule excluding the QRS-11 chip from the United States Munitions List. The rule attempts to address wider integration of the chip in civil aircraft but still doesn’t quite solve the problem.

First, a little background is in order. As you may recall, the integration of the QRS-11 chip into Boeing aircraft sold to China led to a $15 million fine being imposed on Boeing when it failed to get DDTC export licenses for these aircraft. Recognizing the absurdity of requiring a license because of a $2,000 part in a commercial aircraft costing $100 million or more, DDTC added a Note to category VIII of the ITAR to exempt the QRS-11 chip and other quartz rate sensor chips when (a) it was integrated into the standby navigational system of a commercial aircraft and (b) the Department of Commerce’s Bureau of Industry and Security (“BIS”) determined that the chip was subject to its own licensing jurisdiction.

Shortly thereafter BIS amended the EAR to include ECCN 7A994 which covers the QRS-11 chip (but not other quartz rate sensors) when integrated into a commercial standby instrument system of a civil aircraft. Under ECCN 7A994, the QRS-11 chip requires a BIS license for exports to all destinations except for Canada.

Traditionally inertial navigational chips and systems had been used in standby systems to the GPS used in the primary system. A standby or backup system supplies navigational information when the primary GPS is unable to get a lock on the GPS satellites and is unable to provide location information. The QRS-11 chip, however, is increasingly being integrated into primary navigational systems of civil aircraft and thus no longer subject, in those instances, to the exemption adopted by DDTC.

The new rule reflects this change and exempts the QRS-11 chip and other quartz rate sensors integrated into a primary instrument system of a commercial aircraft. The amended rule also requires a notification from BIS that the chip when integrated into a primary system is subject to BIS jurisdiction. And that’s the rub. BIS has not yet amended its rules to include in ECCN 7A994 chips integrated into primary instrument systems. Accordingly, notwithstanding DDTC’s amendment, no chip integrated into a primary system will be subject to the DDTC exemption. And there’s no indication when BIS will get around to amending its rules to add chips in primary instrument systems.

It should probably come as no surprise that as the price of quartz rate sensor chips drops, they are also being integrated into the navigational and stabilization systems of automobiles. So you may soon or already be driving an export-controlled car. As the pace of ITAR creep accelerates we may have to call it something else — ITAR surge, perhaps.

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