Are You Exporting a Defense Item?

Here is a very basic overview of ITAR and what to consider if your company is doing any business in the aerospace or defense industry.
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Q. A customer recently asked me if we are ITAR-compliant. I know nothing about ITAR, let alone whether or not we comply.—H.B.

A. We are often asked whether a certain process constitutes an “export” of a “defense article” and thus is regulated by the International Traffic in Arms Regulations (ITAR). This is a broad question with a complicated answer, but it is an important issue because the penalties for violating ITAR are significant to both persons and entities.

Here is a very basic overview of ITAR and what to consider if your company is doing any business in the aerospace or defense industry; for example, plating parts, whether on an aircraft or ground vehicle. The key questions are: 1) whether the product or service is controlled (namely, is it a defense article?); 2) under which regulation (the “Commodity Jurisdiction”) it is governed [ITAR, Export Administration Regulations (EAR) and so on]; 3) the ultimate destination or who receives the product or service (specifically, whether it is exported within the meaning of the applicable regulations); 4) if exported whether an export license is required.

The two main agencies that address defense articles and exports are: 1) the U.S. Department of State, Directorate of Defense Trade Control (DDTC), which administers the ITAR and controls articles on the U.S. Munitions List pursuant to the Arms Export Control Act; and 2) the U.S. Department of Commerce, Bureau of Industry and Security (BIS), which administers the EAR and controls dual-use articles on the Commerce Control List (CCL) pursuant to the Export Administration Act. “Dual use” refers to anything that could have both a defense and non-defense use, such as a vehicle engine. Other agencies that one may encounter include the Department of Treasury, which administers the Foreign Assets Control Regulations and  oversees embargoes, sanctions and the list of blocked persons pursuant to the Trading With the Enemy Act and International Emergency Economic Powers Act, Homeland Security or the Bureau of Customs and Border Protection, which enforces all exports at U.S. borders. We will focus here on DDTC because it administers the ITAR, and is frequently encountered by readers of this publication.

Always begin with the definitions contained in the regulations, which are not often intuitive.

The ITAR prohibits export of defense articles, which include hardware and software, as well as related technical data and associated (defense) services. Defense articles are defined by ITAR as “any item or technical data designated in [ITAR Section] 121.1 … This term includes technical data recorded or stored in any physical form, models, mock-ups or other items that reveal technical data directly relating to items designated in Section 121.1. It does not include basic marketing information or function or purpose or general system description.”

Defense articles are listed on the U.S. Munitions List under one of 21 categories. Those categories include: firearms; artillery projectors; ammunition; launch vehicles, missiles and bombs; vessels of war; tanks/military vehicles; aircraft; gas turbine engines and so on. Each category contains a list of types of equipment covered under that category and definitions of associated technical data. There is also a catchall paragraph for any item that is “specially designed or modified.” Under recent licensing reforms, ITAR is moving toward a sort of “catch and release” approach, causing fewer articles to be regulated. Under this approach, the regulations initially catch everything in a category (for example, all pumps and O-rings) and then releases, or exempts, individual items if that particular item has the same function, performance and equivalent fit (size) as a non-defense article and was not developed specifically to be used in or with defense articles. Thus, in this example, an O-ring that is made larger for a military vehicle would be “released,” or excluded under ITAR.

All of this initially seems very confusing. Fortunately, the Departments of Defense and Commerce have made it easier to determine if an article is regulated under ITAR by developing web-based (decision-tree) tools. See Department of State, Office of Defense Trade Controls, at pmddtc.state.gov or bis.doc.gov/index.php/decision-tree-tools.

If an item is not controlled by ITAR under the Munitions List, then look at the CCL administered by the Department of Commerce’s Bureau of Industry and Security. The CCL controls dual-use items and related technical data and services. Again, the web-based tools are very handy.

If an item is identified as a defense article, then it is necessary to determine if it is being exported. Export is broadly defined and includes providing services, even surface finishing, testing, installation, repair or training to use a defense article. Moreover, an export may occur in many different ways. The most obvious, of course, is when U.S. parts, or knowledge, are physically transferred out of the U.S. An export may also occur if U.S. parts are added to a foreign item, or a foreign part is surface finished or otherwise modified in the U.S. For example, an Italian gas turbine engine that has U.S. turbine blades or uses U.S. technology will be controlled under ITAR, even if the engine is not manufactured in the U.S.

Note that it does not matter when the U.S. part is added to the foreign defense article. Once the part is added, the ITAR applies. Therefore, in the immediate example, even if the U.S. turbine blades are installed years after the engine is originally built, the engine becomes ITAR regulated.

An export also occurs if one provides the article or service to a “Foreign Person,” including one’s own employees who are not “U.S. Persons” within the meaning of the regulations. That is, they are neither U.S. citizens nor permanent residents. A company is a Foreign Person if it is incorporated outside of the U.S., even if all shareholders are U.S. citizens. There are many exceptions, such as the special treatment given to Canada, but what is important to understand is that if a defense article or service is involved, the citizenship of one’s employees and companies with which one is working, may require that certain steps be taken.

If an export of a defense article is or may be involved, register with DDTC, determine if a license is required, make the appropriate applications and implement appropriate procedures and internal controls.

What we have here demonstrates the complexity of the ITAR and its application. The caution is that if one provides even a part or service on a defense article, that itself may be exported or become a part or subassembly of foreign-owned item. Stop and seek assistance to evaluate whether it is regulated and take the required steps to comply with the law. 

Article written with J. William Eshelman.

Originally published in the July 2015 issue.