Category: The PT Law Blog

If you’ve ever had to deal with this section of the ITAR, you understand that these provisions are not the clearest and are in much need of a fulsome overhaul. I have not had enough time to review all of it. A clear set of definitions, for example, would go a long way in advising companies on how to set up proper procedures or identifying issue areas in existing matters. And based on what I have read, they are planning to make extensive changes to the “broker” and “brokering” definitions.

And just in case your wondering how important brokering rules happen to be under the ITAR regime, and they are, recall that earlier this year the U.S. Government announced that BAE Systems plc had settled a case with the State Department’s Directorate of Defense Trade Controls (DDTC) for a tune of $79 million for alleged violations of the ITAR brokering provisions. You can read more about the BAE Consent Agreement by following this link.

Will trade security practitioners have a firmer footing moving forward in 2012 as to what constitutes a broker or brokering activities? We will post a more detailed review of the proposed regulation in the near future, but I think we will. The BAE case set some interesting precedent and, coupled with these proposed regulations, as well as the Obama Administration’s ongoing export control reform efforts, we should be better equipped to advise clients on these matters.

In the meantime, please send us your views and comments on the proposed regulation.

 

1. Water-pipe tobacco (24)
2. Biodiesel (27 and 38)
3. Mercury compounds (28)
4. Water-jet cutting machines (85)
5. Video game machines (95)

The WCO’s recommendation includes 204 amendments in 53 different HS chapters, affecting 108 different headings and 39 legal notes. These changes are intended to update the nomenclature or clarify the classification of particular goods. More detailed information about these changes refer to the United States International Trade Commission’s Final Report to the President dated June 2010.

According to the federal government, once the President signs and approves the changes to the Harmonized Tariff Schedule of the United States (HTSUS), the Foreign Trade Division of the U.S. Census bureau will make changes to the Schedule B and Automated Export System (AES). A free version of the Schedule B can be found on-line at: www.census.gov/scheduleb.

AES users will need to download new tables for import and export codes as usual in January 2012. There will be a 30 day grace period during which AES will accept the old HS codes. This grace period is expected to end on January 31, 2012. Using old HS codes after January 31, 2012 will result in transaction failures for your AES filings.

In addition, OFAC also amended an existing general license to broaden its authorization with respect to the importation of certain Sudanese-origin services and to add an authorization for activities related to Sudanese persons’ travel to the United States.

There are also a series of technical changes to better reflect the formation by Southern Sudan of the independent state of the Republic of South Sudan on July 9, 2011. You can download the Federal Register notice here.

This issue dates back to the 1990s, involves China, and the Clinton Administration. Satellites are high-tech toys that are critical to U.S. national security as well as for commercial reasons, we can should sell a lot of them to countries and companies that need them. That said, because they are so cutting edge, the U.S. government needs to monitor and control who buys them. The two federal agencies responsible for monitoring this matter are the Commerce Department and the State Department.

During the Clinton Administration, an interagency review resulted in transferring the control of commercial satellite technologies in March 1996 from the State Department to the Commerce Department. Three years, and several scandals later, (a lot of it involving the transfer of sensitive U.S. technologies to the Peoples Republic of China), the Clinton Administration was forced to reserve course when the Congress required the transfer of commercial satellite technology control back to the State Department.

[Note: I’ve skipped over a lot of history. If you are new to the issue and want to learn more about it, start by reading the Report of the Select Committee on U.S. National Security and Military/Commercial Concerns with the People’s Republic of China or the “Cox Report“]. You can also Google the following terms: Hughes Loral China satellites.

What’s the issue then? State, Commerce, its all the same right? Not really. Each agency operates pursuant to unique statutes and regulations tailored to its mission. State is supposed to control things that have some form of military application, while the Commerce focuses on items that can both civilian and military application. According to some experts (usually non-lawyers), if your item, service, or technology is falls under the State Department, the controls are tougher. Take it from a practitioner, both sets of regulations are tough and the penalties serious; however, satellite controls are a special beast that require a closer review by policymakers no matter which agency ultimately oversees the control.

In a press release earlier this week, the Satellite Industry Association (SIA) touts the Berman-Manzullo stating the measure will “dramatically improve” the competitiveness of U.S. satellite industries. Given the history of this issue, this statement is not likely to win over national security hawks in the House and Senate, or even some in parts of the Obama Administration. Granted, changes are needed because the U.S. satellite industry is hurting (in fact overseas industries have sprung up claiming ITAR-free satellites and the European Space Agency has a whole division dedicated to this market of avoiding U.S. export controls); however, at its core, I do not think the proposed bill does the U.S. policy debate justice. If it is part of a larger effort at comprehensive reform, then maybe its worth exploring.

Transferring controls of some or all of this technology should not be done hastily. The Obama Administration has been working on reforming the export control system and we hear they are looking at the satellite controls, among many other things. For the Berman-Manzullo approach to work (and it needs some tweaking), the Congress and the Obama Administration should, at a minimum, begin by seriously looking at re-authorizing the Export Administration Act of 1979 in some form (for example, H.R. 2122, a bill do just that was introduced by the Chairman of the Foreign Affairs Committee, Rep. Ileana Ros-Lehtinen (R-Fla.) and could form the basis for further discussion).

You can read Safeguarding United States Satellite Leadership and Security Act of 2011 (HR 3288) here.