Yesterday the Directorate of Defense Trade Controls (“DDTC”) announced new documentation requirements for export licenses. Failure to meet this requirement can result in an export license being returned without action although DDTC says that for an “interim” period of unspecified length it will decide on a case-by-case basis whether to return applications not in compliance with these documentary requirements.

• Purchase orders and invoices support the license application must be with a foreign party not with its U.S. subsidiary. DDTC bases this requirement on the notion that the U.S. subsidiary is a “U.S. person” although why that should prevent the U.S. subsidiary from issuing purchase orders on behalf of its parent is not clear, particularly where the exporter may prefer to have an agreement with a U.S. party rather than a foreign one.
• The purchase order or similar document must “have an issue date within one year from the date of application submission.” Since documents that are more than one-year-old are still legally binding, this seems, at best, an arbitrary requirement. DDTC gives no reason for this requirement.
• If the invoice lists the price in a foreign currency, the exchange rate and U.S. dollar conversion for each line item must be annotated on the document. Again, since the license application must provide those figures in dollar amounts, there is no reason why this must be hand-annotated on the documentation. Even so, this shouldn’t pose a huge compliance burden on applicants.
• The purchase order, invoice, or similar documentation must indicate the ultimate end user of the item.

Defense News published yesterday an interview with Frank Ruggiero, Deputy Assistant Secretary (DAS) for Defense Trade and Regional Security in the Bureau of Political-Military Affairs. Mr. Ruggiero oversees all defense exports from the United States, including Direct Commercial Sales and Foreign Military Sales. And he had several interesting things to say.

First, he reported that pursuant to National Security Presidential Directive No. 56, the Directorate of Defense Trade Controls has significantly streamlined processing times:

In summer 2007, we had nearly 700 licenses that were over 60 days. As of April 16, that’s down to 67. An average license takes about 18 days to process, a 50 percent reduction from last summer. We’ve also dropped backlog by 50 percent.

Second, Ruggiero suggested that licensing policy might be used to retaliate against foreign defense firms that produce defense articles free of U.S.-origin goods in order to trade with China and other countries that are subject to arms embargoes or strict licensing policies:

Q. Your office can veto the export of foreign-made items that use controlled U.S. parts or technologies, which has led some firms, such as France’s Thales and Italy’s Alenia, to develop satellites free of American components for sale to China. Is that a concern?

A. We are monitoring the circumstances and analyzing what International Traffic in Arms Regulations (ITAR) items we may have authorized to such companies to make sure those items are in fact not being incorporated into ITAR-free products. We would certainly factor into any future licensing determination the activity of a foreign company in terms of licensing ITAR-free items to countries that may raise potential national security risks to the United States.

That’s one way to expand the scope of U.S. export laws, I suppose.