Defence & Obsolescence
Designing for ITAR free applications
Curtis Reichenfeld looks at some of the problems confronting US companies seeking compliance with stringent export licensing requirements. A lesson for European companies in managing compliance?
E The U.S. Department of Commerce’s
ach year we hear more about International Traffic in Arms Regulations (ITAR) violations and
customers requiring ITAR free solutions. Many U.S. companies have increased their due diligence of ITAR because of numerous high profile violations and penalties, a heightened sensitivity towards terrorism and increased evidence of foreign intelligence agencies targeting critical U.S. technologies. Foreign sales continue to be a key driver for many US companies so to avoid difficulties and ensure compliance with all US export licensing requirements, U.S. defence companies may make ample use of licensing consultants, in-house export compliance officers and internal and external attorneys. A successful export compliance programme and proper training of employees at all levels increases the ability to develop products for European and other non-U.S. customers that would not be classified as ITAR controlled.
ITAR and EAR overview ITAR controls the export of any item or technical data designated on the U.S. Munitions List ("USML”) found in the ITAR. These items are defined as “Defense Articles”.
This includes articles designed, developed or manufactured for military or defence purposes and includes commercial items that have been modified for a military purpose. In addition to hardware, any technical assistance related to defence or military purposes, known as “Defense Services“, are also covered by ITAR and include things like repairs, training, engineering, and product assembly as well as many other services. Technical data is also considered to be a defence article controlled under the ITAR and can include documents, drawings, schematics, design information, data sheets, etc. that reveal technical data directly relating to items on the USML.
18 March 2012
Bureau of Industry and Security (BIS) implements and enforces the Export Administration Regulations (EAR), which regulates the export and re-export of most commercial items. In addition to items that BIS regulates as “dual-use” – items with both commercial and military or proliferation applications – purely commercial items without obvious military use are also subject to the EAR. License requirements depend upon an item’s technical characteristics, the destination, the end-user and the end-use. The exporter must make the determination if an export requires a license. Other regulations may be relevant depending on a company's industry, however, the EAR and ITAR are the most frequently applied and regularly encountered sources of control for high technology industries. Companies in the defence and aerospace markets encounter application of these regulations on a regular basis.
Commodity Jurisdiction Most manufacturers self-classify their items; whether they are controlled by ITAR or EAR, by reviewing ITAR and EAR. A process referred to as Commodity Jurisdiction (CJ) provides an outline as to how a company may determine this classification. Reviewing all pertinent sections of the ITAR and EAR is essential as some items that could be considered civil (e.g., hunting rifles and commercial satellites) are in fact export controlled. If uncertainty exists after review of the ITAR and EAR a company may request a formal CJ determination from the U.S. Department of State. A manufacturer submits the CJ request with the product background and sales information. The CJ form addresses single items only and not a group, family or catalogue of items. As a result of the request the U.S. Dept. of State may classify the product as “dual use” (civil and military applications), or “commercial” neither of which designation would fall under ITAR.
Components in Electronics
Product development process During the product development process, consideration for ITAR issues before design and manufacture ensures equipment may be ITAR free or qualifies for a commodity jurisdiction. Paul Davis, Director of Product Development, at Curtiss-Wright Controls Electronic Systems, has the following advice: “During the first part of an IRAD approval process, focus on a product’s high level requirements. Including justification for the IRAD project’s markets and applications for commercial and military customers makes approval easier.” Product descriptions should be written with ITAR in mind and reviewed by export experts for compliance. Early involvement of your export control officer is important to make a determination if the product can be classified to be ITAR free. During product design, using
commercially available components and software algorithms reduces the risks that the product may fall under ITAR. To incorporate AES-256 bit encryption, commercially available software algorithms and encryption chips should be selected instead of military encryption chips. Commercial software algorithm and encryption chips are certified by the National Institute of Standard and Technology (NIST) to Federal Information Processing Standards (FIPS) 140-2 and other Ministry of Defense standards. If commercial parts are not available or the application requires military grade chips, companies follow the regulations and apply for a commodity jurisdiction.
The Pitfalls Ignorance of ITAR is not a valid defence against violations of the regulations. Some of the pitfalls companies fall into
regarding ITAR include: Not Hiring an Expert – Many companies attempt to make self determinations of export compliance with no real experience or expertise in this area. Hiring a dedicated Export Control Officer with experience dealing with the Department of State and ITAR is essential to ensure compliance. Lack of Training – Without training and awareness, companies cannot expect their employees to understand ITAR and ask questions when they experience issues with products which may be controlled items. Companies need to document an
Export Compliance Plan tied to company procedures and invest in training of their employees to ensure compliance. Focus on Sales – In challenging economic times, companies may focused on sales and new business, and lose sight of ITAR issues. By dedicating the appropriate time to review products and obtain licenses in advance of a sale, businesses jeopardise long term future revenue. Red flags should not be ignored just to make the sale. Remember violations can result in significant penalties far exceeding any potential sale. Re-classification of Products – Some companies fail to reclassify legacy products as ITAR or commerce controlled because a product has been manufactured for years. Export Control Officers should review products regularly and determine if classification or application for commodity jurisdiction is required. Failure to keep good records –
Creating an Export Compliance Plan starts the process, but keeping detailed records documenting implementation of the process is just as important. A CJ determination requires showing records of product background and sales information. To defend against alleged ITAR violations, documentation of all exports including defense services and technical data is essential.
The key to success for selling U.S. manufactured products which do not fall under U.S. ITAR to European customers and other non-U.S. customers should not be a mystery. Hire experts, document a plan, provide training and awareness, follow the procedures and keep excellent records as evidence for ITAR compliance. When in doubt, apply for a
determination of commodity jurisdiction and have the State Department ensure your products do not need an export license. For many U.S. companies, new markets for their products and technologies are available all over the world if you simply follow the process. And that’s a lesson that can be drawn for many European companies looking to export overseas.
Curtiss-Wright Controls Defense Solutions |
www.cwcdefense.com
Curtis Reichenfeld is Chief Technical Officer, System Solutions for Curtiss-Wright Controls Defense Solutions
www.cieonline.co.uk
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