THE INTERSECTION OF U.S. EXPORT CONTROLS AND
INTERNATIONAL DISPUTE RESOLUTION
John A. Ordway
Partner, Berliner, Corcoran & Rowe, L.L.P.
jao@bcr-dc.com
When an international dispute arises that involves one or more commodities or
information controlled under the United States International Traffic in Arms Regulations,
22 C.F.R. Part 120 et seq. (the “ITAR”), careful consideration of the ITAR at the earliest
stages of the dispute is important to promoting efficient resolution of the dispute.
“International dispute” is hereinafter shorthand for any dispute (1) involving one
or more parties, fact and/or expert witnesses, counsel, and/or mediators/arbitrators who
are not United States citizens or permanent resident aliens (with limited exceptions
discussed below), and/or (2) brought before any formal or informal forum for dispute
resolution located outside the United States.
Consideration of the ITAR early in an international dispute is important because,
if the ITAR is applicable to part or all of the dispute, six months may elapse before U.S.
counsel, for example, may communicate substantively regarding any ITAR-controlled
aspects of the dispute with anyone other than United States citizens or permanent resident
aliens or a United States company – including counsel’s client if the client is a foreign
person (as defined in Section I. below). (Non-U.S. counsel is similarly forestalled from
communicating substantively regarding any ITAR-controlled aspects of a dispute not
only with foreign persons but also United States citizens or permanent resident aliens and
United States companies.)
Application of the ITAR to litigation of an international dispute in United States
federal courts raises unique issues, which are addressed separately in Section VI. below.
Other than in that section, the term “dispute resolution” hereinafter includes informal or
formal communications regarding any disputed issue, investigation of factual issues in
dispute, mediation, arbitration, and/or litigation.
As background for the panel discussion regarding the ITAR’s impact on
international dispute resolution, this paper addresses the following:
●
the statute the ITAR implements, which statute, inter alia,
sets forth penalties for violations
●
key ITAR terms of art
●
suggestions as to how to analyze an international dispute or
potential international dispute to determine the extent to which (if
at all) the ITAR will impact the dispute
I.
●
the vehicles available to obtain export authorization to cover the
actions necessary to resolve an international dispute
●
why it takes so long to obtain necessary ITAR export
authorizations: a brief overview of the ITAR export authorization
process and suggestions as to how to minimize delay in the process
●
special ITAR issues of interest in international dispute resolution
The International Traffic in Arms Regulations
The name, the International Traffic in Arms Regulations, can be misleading for
one not familiar with the regulations. The ITAR does not govern only “arms,” such as
firearms, tanks, missiles, and military aircraft. The ITAR also governs spacecraft,
including commercial communications satellites, and purely commercial items modified
or adapted specifically for a military (or space) application.
Moreover, the ITAR does not only govern commodities. The ITAR also governs
most technical information related to ITAR-controlled commodities, as well as
communications by a U.S. citizen or permanent resident of such technical information to
one or more foreign persons (defined in Section I.C.1 below).
The following is not a course on the ITAR, which is outside the scope of this
Program. The purpose of the following is to lay out the minimum necessary regarding
the ITAR to permit understanding of the panel discussion regarding the impact of the
ITAR on international dispute resolution.
Except as specifically noted below, the following applies to the transfer of
unclassified information only. Transfers of classified information are subject to a
separate set of rules (the National Industrial Security Program Operating Manual) -- in
addition to the ITAR. Generally the National Industrial Security Program Operating
Manual rules on the transfer of classified information are far more stringent than the
ITAR.
Note, finally, that any U.S.-origin commodity, software, or information not
controlled under the ITAR is almost certainly controlled under the Export Administration
Regulations, 15 C.F.R. 730 et seq. (the “EAR”). EAR controls are not addressed herein
because those controls are generally far less stringent, and the EAR licensing process is
simpler, more efficient, and less intrusive than the ITAR licensing process. Please be
aware, however, that if a determination is made that a commodity, software, or
information involved in a dispute is not controlled under the ITAR, that commodity,
software, or information must be analyzed under the EAR to determine what, if any, EAR
controls apply to transfer of the commodity, software, or information to a foreign person
or foreign country (as well as analyzed under export control regulations of any other
relevant federal agency, such as the Nuclear Regulatory Commission).
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A.
The ITAR Implements the Arms Export Control Act (“AECA”)
The AECA provides that, “[i]n furtherance of world peace and the security and
foreign policy of the United States, the President is authorized to control the . . . export of
defense articles and defense services and . . . to designate those items which shall be
considered as defense articles and defense services.” 22 U.S.C. § 2778 (a)(1). “The
items so designated shall constitute the United States Munitions List.” Id. (“Defense
service” is a term of art defined in Section I.C.4 below.)
The President has delegated to the United States Secretary of State the authority
to promulgate regulations regarding exports of defense articles and defense services,
Exec. Order No. 11958, 3 C.F.R., 1986 Comp. at 217, who has re-delegated such
authority to the State Department’s Directorate of Defense Trade Controls (“DDTC”). 22
C.F.R. § 120.1(a).
The AECA also provides that, “[t]he President may require a license (or other
form of authorization) before any item on the United States Munitions List is sold or
otherwise transferred to the control or possession of a foreign person or a person acting
on behalf of a foreign person,” 22 U.S.C. § 2778(g)(6), but prohibits a foreign person
(other than a foreign government) from obtaining a license or other form of authorization.
22 U.S.C. § 2778(g)(5).
The AECA provides severe criminal penalties for willful violation of the Act:
Any person who willfully violates any provision of this
section . . . , or any rule or regulation issued under [this]
section, or who willfully, in a . . . license application or
required report, makes any untrue statement of a material
fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, shall upon conviction be fined for each
violation not more than $1,000,000 or imprisoned not more
than ten years, or both.
22 U.S.C. § 2778(c). Note that the AECA authorizes imposition of a fine and/or
imprisonment for each violation (which the U.S. Government reads very broadly to
mean, for instance, each distinct transfer of technical data or defense services without
proper authorization). Also, in addition to the AECA violations, the U.S. Government
can, and often does, bring related criminal charges, such as conspiracy, and false
statements made on required export/shipping forms.
In addition to criminal penalties, the AECA provides for civil penalties not to
exceed $500,000 for each violation. 22 U.S.C. § 2778(e). Double jeopardy protection
obviously does not apply: the U.S. Government can seek both civil and criminal
penalties under the AECA.
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Finally, any person convicted of violating the AECA and/or certain other statutes
enumerated in the AECA is automatically ineligible to obtain any DDTC license or to be
a party to any ITAR-controlled export. 22 U.S.C. § 2778(g)(4). Under the ITAR, this
ineligibility technically lasts three years. 22 C.F.R. § 127.7(c). In reality, however, a
conviction under the AECA often, in essence, results in permanent ineligibility.
(Moreover, an ITAR debarment usually results in “cross-debarment” under the EAR.)
B.
The United States Munitions List
The United States Munitions List (“USML”) identifies twenty categories of
defense articles (hereinafter, “Defense Articles”). 22 C.F.R. § 121.1. The categories
include obvious “munitions,” such as: Firearms, Close Assault Weapons and Combat
Shotguns; Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes,
Bombs and Mines; and Vessels of War and Special Naval Equipment. However, under
the Category for Spacecraft Systems and Associated Equipment, the USML also
identifies as Defense Articles satellites used for communications, remote sensing,
navigation, and research (as well as scientific, experimental, and multi-mission satellites)
and components thereof. Id., Category XV.
In addition, a commercial item specifically adapted or modified for a military
application is likely also a Defense Article, whether or not identified on the USML
(unless the specifically adapted or modified item can be shown to be in predominant civil
use or have a performance equivalent to an item used in civil applications). See 22
C.F.R. §§ 120.3 and 120.4.
C.
Key ITAR Definitions
Most international disputes involving Defense Articles will involve the “export”
and/or “reexport” of “technical data” and/or “defense services” (and occasionally
Defense Articles themselves) to one or more “foreign persons.”
1.
U.S. Person/Foreign Person
The ITAR defines U.S. person as a natural person “who is [a] lawful permanent
resident as defined by 8 U.S.C. 1101(a)(20) or who is a protected individual as defined by
8 U.S.C. 1324b(a)(3).” 22 C.F.R. § 120.15. The term U.S. person also includes “any
corporation, business association, partnership, society, trust, or any other entity,
organization or group that is incorporated to do business in the United States” and “any
governmental (federal, state or local) entity.” Id. (hereinafter, collectively, “U.S.
Person”).
Conversely, the ITAR defines foreign person as any natural person “who is not a
lawful permanent resident as defined by 8 U.S.C. 1101(a)(20) or who is not a protected
individual as defined by 8 U.S.C. 1324b(a)(3).” 22 C.F.R. § 120.16. The term foreign
person also includes any “foreign corporation, business association, partnership, trust,
society or any other entity or group that is not incorporated or organized to do business in
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the United States, as well as international organizations, foreign governments and any
agency or subdivision of foreign governments (e.g. diplomatic missions).” Id.
(hereinafter, collectively, “Foreign Person”).
2.
Export
The ITAR definition of “export” bears careful consideration. Though the
definition includes the shipment of a physical item via air or ship, the definition
encompasses far more than shipments of physical items overseas. Specifically, the ITAR
defines “export,” as relevant to this Program, as:
(1) Sending or taking a defense article out of the United
States in any manner, except by mere travel outside of the
United States by a person whose personal knowledge
includes technical data; or
* * *
(3) Disclosing (including oral or visual disclosure) or
transferring in the United States any defense article to an
embassy, any agency or subdivision of a foreign
government (e.g., diplomatic missions); or
(4) Disclosing (including oral or visual disclosure) or
transferring technical data to a foreign person, whether in
the United States or abroad; or
(5) Performing a defense service on behalf of, or for the
benefit of, a foreign person, whether in the United States or
abroad.
22 C.F.R. § 120.17. Under the above definition, an export can clearly be made within the
U.S., and can be made, within or outside the U.S., via email, facsimile, telephonic voice
communications, voice mail, either or both of in-person voice and visual
communications, or any combination of the above means of communication.
3.
Technical Data
The ITAR defines “technical data,” as relevant to this Program, as:
(1) Information, other than software as defined in
§ 120.10(4), which is required for the design, development,
production, manufacture, assembly, operation, repair,
testing, maintenance or modification of defense articles.
This includes information in the form of blueprints,
drawings, photographs, plans, instructions and
documentation.
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(2) Classified information relating to defense articles and
defense services;
(3) Information covered by an invention secrecy order;
(4) Software as defined in § 121.8(f) of this subchapter
directly related to defense articles;
22 C.F.R. § 120.10 (hereinafter, “Technical Data”). (Under 22 C.F.R. § 120.6, the ITAR
definition of “defense article” includes technical data identified on the USML. Because
the term defense article is usually used to refer only to hardware, despite the ITAR
definition, hereinafter the term “ITAR-controlled hardware” is used in lieu of “defense
article” for purposes of clarity.)
Note that the ITAR definition of Technical Data does not include “information
concerning general scientific, mathematical or engineering principles commonly taught in
schools, colleges and universities.” Nor does the definition include “basic marketing
information on function or purpose or general system descriptions of defense articles.”
Finally, the definition does not include information in the “public domain,” 22 C.F.R. §
120.10(5), as defined immediately below.
The ITAR defines public domain, as relevant to this Program, as information
which is published and which is generally accessible or available to the public:
(1) Through sales at newsstands and bookstores;
(2) Through subscriptions which are available without
restriction to any individual who desires to obtain or
purchase the published information;
* * *
(4) At libraries open to the public or from which the public
can obtain documents;
(5) Through patents available at any patent office;
(6) Through unlimited distribution at a conference,
meeting, seminar, trade show or exhibition, generally
accessible to the public, in the United States;
* * *
(8) Through fundamental research in science and
engineering at accredited institutions of higher learning in
the U.S. where the resulting information is ordinarily
published and shared broadly in the scientific community.
22 C.F.R. § 120.11. In addition, though not stated in the ITAR, it is generally accepted
that information that can be obtained from the internet is in the public domain, provided
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that the internet site that contains the information at issue can be accessed without
restriction by any individual who desires to obtain or purchase the information.
4.
Defense Services
This ITAR term of art can be confusing because “defense services” do not
necessarily involve either “defense” or “services.”
The ITAR defines “defense service,” as relevant to this Program, as:
(1) The furnishing of assistance (including training) to
foreign persons, whether in the United States or abroad in
the design, development, engineering, manufacture,
production, assembly, testing, repair, maintenance,
modification, operation, demilitarization, destruction,
processing or use of defense articles;
(2) The furnishing to foreign persons of any technical data
controlled under this subchapter (see § 120.10), whether in
the United States or abroad;
22 C.F.R. § 120.9 (hereinafter, “Defense Services”).
5.
Reexport
The ITAR defines “reexport” or “retransfer” as “the transfer of defense articles or
defense services to an end-use, end-user or destination not previously authorized.” 22
C.F.R. § 120.19.
To make explicit what this definition implicitly provides, the ITAR controls the
transfer of Technical Data and/or ITAR-controlled hardware wherever in the world such
Technical Data and/or ITAR-controlled hardware are located and regardless of who
possesses the Technical Data and/or ITAR-controlled hardware, i.e., extraterritorially.
Similarly, the ITAR controls Technical Data and/or ITAR-controlled hardware, wherever
located, regardless of whether certain Technical Data has been converted into hardware
and regardless of the end-item into which certain ITAR-controlled hardware may have
been incorporated.
6.
Prohibited Destinations
No export or reexport of ITAR-controlled technical data (or defense articles) may
be made to: Afghanistan (except for authorized recipients), Belarus, Burma, China, Côte
d’Ivoire (except for authorized recipients), Cuba, Cyprus (except for authorized
recipients), Democratic Republic of Congo (except for authorized recipients or for nonlethal military equipment and related items intended solely for humanitarian or protective
use), Haiti, Iraq (except for non-lethal military equipment and for authorized recipients
for other equipment), Iran, Liberia (except for non-lethal items solely for humanitarian or
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protective uses), Libya, North Korea, Rwanda (except for authorized recipients),
Somalia, Sudan, Syria, Vietnam, Yemen (presumption of denial for lethal articles or
items supporting such articles), or Zimbabwe (except for certain firearms and
ammunition for personal use eligible for ITAR 123.17), absent a Presidential waiver. 22
C.F.R. § 126.1. This bar on transferring ITAR-controlled Technical Data and/or Defense
Services to any one of the foregoing countries and nationals (or dual nationals) thereof
applies even if such a national is employed by a company organized under the laws of a
country that is not on the preceding list.
D.
Unpublished “Policies” and “Practices”
In addition to the AECA, the ITAR, and official guidance on DDTC’s web site,
http://www.pmddtc.state.gov, DDTC and the Defense Technology Security
Administration (“DTSA”; described below in Section III.) apply unpublished “policies”
and “practices,” sometimes selectively. These unpublished policies and practices make
working with the ITAR and DDTC/DTSA somewhat of an “insiders club” since, unless
one works with DDTC/DTSA on a regular basis, it is difficult to learn of these policies
and practices. The unpublished policies and practices can have an important impact in
the context of international disputes, and particularly on Foreign Persons, since it is
usually not part of a Foreign Person’s business to be the person that initiates obtaining
licenses and other authorizations from DDTC. U.S. Persons involved in ITAR-controlled
disputes, in contrast, are far more likely to work regularly with DDTC/DTSA, obtaining
licenses and other authorizations as part of that U.S. Person’s normal overseas sales
process.
One example of an unpublished DDTC/DTSA policy, discussed in detail in
Section V.F. below, is that DDTC/DTSA selectively requires applicants for an export or
reexport authorization to furnish DDTC written consent from a U.S. manufacturer to
export that manufacturer’s proprietary information before DDTC will process the request
for export or reexport authorization. Another unpublished policy is that if an applicant
seeks to export software source code the applicant must submit to DDTC a “DoD
Checklist for Use if Source Code Is Involved.” In addition, DDTC country licensing
policies change without notice. For instance, DDTC’s unpublished policy currently is to
reject requests to export ITAR-controlled hardware to Venezuela.
Failure to be aware of these unpublished policies and practices can lead to delays
in processing and, more significantly, rejection of requests for export or reexport
authorization.
II.
Getting Information to Foreign Persons in Connection with an International
Dispute: Non-ITAR-Controlled Information, ITAR Exemptions, Licenses, and
Other Authorizations
When an international dispute first arises, it is important to develop a plan as to
how, within the constraints of the ITAR, to provide to Foreign Persons involved in the
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dispute (Foreign Person counsel, witnesses, and/or a client itself) information necessary
to investigate and, ultimately, resolve the dispute.
Obviously, the objective of any such plan is to provide such information to
Foreign Persons involved in the dispute as quickly as possible. Given the time required
for DDTC to process an export authorization broad enough to cover all such Foreign
Persons (possibly including mediators/arbitrators and a dispute resolution forum), nearterm means of getting Technical Data to certain Foreign Persons should be considered.
The near-term means of doing so are, admittedly, usually very limited. However, they
are often better than not being able to provide any relevant information to interested
Foreign Persons for months while a broad authorization is being processed by DDTC.
A.
Identify What and Who Will be Involved in a Dispute
In developing the above plan, one should first identify what information and/or
commodities are, or foreseeably may be, involved in a dispute that are subject to ITAR
control. If some or all of the information and/or commodities are subject to the ITAR,
one should next identify which Foreign Persons will need to receive what information
and commodities, the nationalities of those Persons, and the countries to which the
information and commodities will need to be exported.
To take a very simple example, assume that a Foreign Person contracts with a
U.S. Person to modify a commercial component the U.S. Person manufactures for
integration into a missile the Foreign Person produces, with the Foreign Person providing
the U.S. Person in the U.S. specifications for the component. A dispute thereafter arises
between the U.S. and Foreign Persons regarding the quality of the components the U.S.
Person ultimately delivers to the Foreign Person.
Applying the above analysis, the contract between the U.S. and Foreign Persons
regarding the component at issue, the Foreign Person’s specifications for the component,
and the U.S. Person’s test results for the component, if any (as well as, perhaps, the U.S.
Person’s quality control procedures), all are likely to be among the first types of
information the parties will wish to analyze in order to address the quality dispute. The
Foreign Person’s specifications for the component are not ITAR-controlled until they
enter the U.S.; but, because that occurred in this hypothetical, the specifications constitute
Technical Data. The test results are most likely to be Technical Data. The quality
control plan may or may not be Technical Data, depending in part upon whether the
quality control plan was developed specifically for the component or not. Parts of the
contract may be ITAR-controlled, but most of the contract is not likely to be ITARcontrolled even though the subject of the contract is an ITAR-controlled component.
Assuming that one or both parties to the dispute engage outside counsel, such
counsel will likely wish to analyze the contract, specifications, test results, and, perhaps,
the quality control plan. More than one set of counsel for each party may also be
required depending upon the law that governs the dispute. In addition, should the dispute
progress, the parties may engage experts to advise regarding technical aspects of the
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dispute. The experts will also likely wish to analyze the contract, specifications, test
results, and quality control plan, plus any other documents they believe are relevant. In
addition, the experts may wish to examine a sample of the delivered component itself.
Finally, in the event that the dispute goes to formal arbitration, additional parties that will
need to receive Technical Data (and possibly ITAR-controlled hardware) include any
Foreign Person arbitrators, arbitration forum, and fact witnesses. The nationalities of all
the foregoing persons must be identified, as well as all countries to which exports will be
made, in determining the best means under the ITAR to provide the necessary Technical
Data and/or ITAR-controlled hardware to such persons.
Of course, because one cannot predict the course of a dispute, it often is not
possible to identify, up front, all Technical Data and ITAR-controlled hardware that will
need to be exported and to whom (as well as the nations and nationalities involved).
However, keeping the above thumbnail analysis in mind should assist in planning for
obtaining necessary export authorizations.
B.
Transfers of Technical Information not Subject to the ITAR
1.
No DDTC Authorization is Required to Provide ITAR-Controlled
Technical Data to a U.S. Person in the U.S.
Though perhaps not obvious, the ITAR does not govern the transfer, by any
means, of Technical Data to any U.S. Person in the United States. Depending upon the
nature of a dispute, this can be important in the early stages of the dispute. An important
caveat to this general rule, however, is that the U.S. Person cannot thereafter discuss such
Technical Data with anyone other than another U.S. Person, without prior DDTC
authorization.
For example, if U.S. Person counsel’s client is a Foreign Person, the client can
provide to that counsel all information that the client possesses relevant to a dispute. U.S.
Person counsel thereafter may also provide such information to one or more U.S. Person
experts for evaluation – provided that such experts only communicate with U.S. Persons
regarding such information and not the Foreign Person client, without prior DDTC
authorization.
On the other hand, when the client is a U.S. Person and counsel is a Foreign
Person, ITAR issues arise immediately. Likewise with Foreign Person experts, Foreign
Person fact witnesses, and/or Foreign Person arbitrators or arbitration forum. The
challenge, particularly under these circumstances, is to determine what (if anything) the
ITAR permits the U.S. person to export regarding the dispute without prior DDTC
authorization.
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2.
Non-ITAR-Controlled Technical Information
The ITAR does not require any form of prior DDTC authorization in order to
transfer to one or more Foreign Persons or countries outside the U.S. information that the
ITAR specifically excludes from the definition of Technical Data. Such information can
be of three types: (1) information in the public domain; (2) information concerning
general scientific, mathematical or engineering principles commonly taught in schools,
colleges and universities; and (3) basic marketing information on function or purpose or
general system descriptions of defense articles. Of course, any technical information that
simply does not meet the definition of Technical Data is likewise not controlled under the
ITAR (all of the foregoing collectively hereinafter being referred to as “non-ITARcontrolled information.”)
a.
Public Domain Information
Defined above, public domain information that can be useful in very early stages
of a dispute includes information from the internet, relevant trade press, technical and/or
scientific journals, and government information sources (including online resources). For
instance, with respect to the last, many military specifications (“MIL SPEC’s”) are
available on the internet, as are military standards (“MIL STAN’s”). Needless to say, no
classified MIL SPEC’s or MIL STAN’s are publicly available. So if a dispute involves,
for instance, a state-of-the-art missile, military satellite, or warship, relevant MIL SPEC’s
and/or MIL STAN’s will not be publicly available and thus are not information that can
be transferred without prior DDTC authorization. On the other hand, if a dispute
involves a commercial item modified to meet a particular MIL SPEC or MIL STAN, the
relevant MIL SPEC or MIL STAN may be publicly available and therefore available
early in a dispute.
Less likely to be of use, but still worth exploring, is information contained in
patents available at the U.S. Patent Office or foreign patent offices. Similarly,
information previously provided or obtained at a conference, meeting, seminar, trade
show or exhibition in the United States, generally accessible to the public, 22 C.F.R.
§ 130.11(6), can occasionally be of limited use, similar to basic marketing information
discussed below. Information that could be useful includes marketing information,
performance specifications, models, and the like.
b.
General Scientific, Mathematical or Engineering
Principles
In any complex dispute, the issues involved are likely to go beyond general
scientific, mathematical or engineering principles commonly taught in schools, colleges,
and universities. However, this type of non-ITAR-controlled information may be more
useful than would first appear. For instance, if a dispute involves a commercial
communications satellite, there are general principles commonly taught at many schools,
colleges, and universities regarding basic testing of a satellite and its components. If an
issue in dispute involves whether certain testing was performed, information regarding
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general principles of testing may possibly be transferred without prior DDTC
authorization.
c.
Basic Marketing Information on Function or
Purpose or General System Descriptions of Defense
Articles
This type of non-ITAR-controlled information, which overlaps with information
provided at a conference, meeting, seminar, trade show or exhibition in the U.S., is the
least likely to be useful. To begin with, the description is poorly worded. Query whether
“basic marketing information” modifies “function,” “purpose,” and “general system
descriptions,” or whether the phrase modifies only “function” and “purpose.” Even if the
latter, this type of non-ITAR-controlled information is limited to basic marketing
information or general system descriptions.
This definition allows the transfer of basic information regarding a commodity or
software without prior DDTC authorization. Again, likely to be useful only in the earliest
stages of a dispute, transfer of such information could be helpful, for instance, in
interviewing potential Foreign Person expert witnesses (though a U.S. Person must be
extremely careful in doing because, as discussed below in Section II.D., information not
controlled under the ITAR can be transferred in a manner that constitutes a Defense
Service, for which prior DDTC authorization is required).
C.
ITAR Exemptions
ITAR exemptions from the requirement for prior DDTC authorization are few and
narrow, particularly in the context of international disputes. In addition, there are
procedures that must be followed by the U.S. Person intending to use an exemption, see
22 C.F.R. §§ 122.5(a), 123.9(b), 123.22, 123.24, and 123.26, including registration with
DDTC as an exporter, 22 C.F.R. § 120.1(d).
1.
The “Canadian” Exemption
Should a dispute involve any Canadian Foreign Persons, the “Canadian”
exemption, 22 C.F.R. § 126.5, should be examined. The exemption is only potentially
available, in the context of an international dispute, for the export of a limited list of
ITAR-controlled hardware. If that is all one wishes to use the exemption for, the
threshold question with this exemption is whether a Canadian Foreign Person to whom
one wishes to transfer ITAR-controlled hardware is a “Canadian-registered person.” 22
C.F.R. § 126.5(b). A list of Canadian-registered persons can be found at
www.cgp.gc.ca/cgdweb/text/regsearch/regsearch_e.htm. Virtually all Canadian defense
contractors will be Canadian-registered persons, as will be many Canadian aerospace
companies. Note that procedures regarding use of exemptions, including DDTC
registration, must be followed. See 22 C.F.R. §§ 120.1(d), 122.5(a), 123.9(b), 123.22,
123.24, and 123.26.
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2.
Unlimited Distribution Exemption
Though unlikely to be of use except in unusual circumstances (perhaps involving
commercial items modified or adapted for military application), anyone is entitled to
submit information to the Department of Defense Office of Freedom of Information and
Security Review requesting that the information be cleared for “unlimited distribution.”
22 C.F.R. § 125.4(b)(13). Any information so cleared may be exported without prior
DDTC authorization, provided that general procedures regarding use of exemptions,
including DDTC registration, are followed. See 22 C.F.R. §§ 120.1(d), 122.5(a),
123.9(b), 123.22, 123.24, and 123.26.
D.
Beware of the Defense Services Trap
An extremely important caveat to all of Section C. above is that non-ITARcontrolled information and Technical Data for which an exemption is available can be
transferred to a Foreign Person in a manner that constitutes a Defense Service, for which
prior DDTC authorization is required. Section 124.1(a) of 22 C.F.R. expressly provides
that “[t]he requirements of this section [regarding obtaining prior DDTC authorization]
apply whether or not . . . all the information relied upon by the U.S. person in performing
[a] defense service is in the public domain or is otherwise exempt from the licensing
requirements of [the ITAR] pursuant to § 125.4.”
Though this concept is elusive, it is very important. DDTC fined a major U.S.
defense/aerospace company $10 million for violating 22 C.F.R. § 124.1(a), as well as
other sections of the ITAR. One of the DDTC charges that resulted in the fine was that
the company had provided a Foreign Person access to know-how regarding open
architecture software.
Therefore, for instance, if a U.S. Person defense contractor were tasked, under
contract with the U.S. DOD, to develop means of using public domain software, such as
Linux, in connection with a radar system with military applications, the U.S. Person
defense contractor could thereafter discuss Linux generally with a Foreign Person
without prior DDTC authorization, but must analyze very carefully whether the knowhow that the U.S. Person gained in analyzing means of using the software in connection
with the radar system would constitute a Defense Service if communicated to a Foreign
Person -- even if the U.S. Person communicated no Technical Data whatsoever regarding
the radar system itself to the Foreign Person.
E.
DDTC Licenses and Other Authorizations for the Export of Technical
Data and/or Defense Articles
1.
DDTC Licenses
If technical information does, in fact, constitute Technical Data, and no ITAR
exemption is available, DDTC authorization is required prior to the export of such
Technical Data. Because DDTC usually takes sixty to ninety days to approve a
13
straightforward license application (and more time if any part of the license processing
falls in August or during the winter holidays), a license is an option that should be
considered in the early stages of a dispute. (Please be aware that license applications
involving particularly sensitive or complex technology, sensitive countries or recipients,
and/or classified information can take more than ninety days to process.) During the time
that DDTC is processing a license application, it may be possible to transfer to Foreign
Persons certain basic information relevant to a dispute as non-ITAR-controlled
information or under an ITAR exemption.
The basic license available for use in international dispute resolution is known as
a DSP-5. The DSP-5 is a standard form, either in quadruplicate hard copy or electronic
version, which serves as an application and, ultimately the actual license, for the export
of ITAR-controlled hardware and/or Technical Data. Any potential applicant for a
license must register with DDTC prior to submitting any license application. Although
registration with DDTC is a straightforward process, U.S. Persons who are not in the
business of exporting regularly, such as U.S. law firms, are often reluctant to register.
Note that a DSP-5 permits only the “one-way” transfer from a U.S. Person to one
or more Foreign Persons. A DSP-5 license for the export of Technical Data, for instance,
does not authorize any U.S. Person to discuss with any Foreign Person licensee any of the
Technical Data authorized for export (i.e., provide a Defense Service). The license
permits only the transfer of the Technical Data (or ITAR-controlled hardware).
The DSP-5, like non-ITAR-controlled information and exempt Technical Data,
thus has significant limitations that make it primarily useful in early stages of a dispute.
For instance, a DSP-5 can be used by a U.S. Person client to export to Foreign Person
counsel all Technical Data known to be relevant to a dispute at the time of application,
without regard to whether the Technical Data falls within an exemption or constitutes
non-ITAR-controlled information. The DSP-5’s ultimate limitation, however, is that the
license, again, does not permit communications between U.S. and Foreign Persons
regarding the Technical Data exported. It does permit a Foreign Person to provide input
regarding the exported Technical Data to any U.S. Person in the U.S. However, the U.S.
Person must, in essence, remain silent when receiving such input. Mere assent to certain
input from the Foreign Person regarding technical matters could constitute a Defense
Service, which a DSP-5 does not authorize.
Not to be overlooked is that a DSP-5 can be used to provide to a Foreign Person
ITAR-controlled hardware involved in a dispute for examination or other purposes.
Again, no discussion of such hardware may take place between the Foreign Person and
the U.S. Person applicant under a DSP-5.
Another limitation to a DSP-5 is that it can be amended in only non-substantive
respects. 22 C.F.R. § 123.25(b). For substantive changes, such as the addition of a
recipient, a new DSP-5 application must be submitted and approved (except under
unusual circumstances discussed in Section II.E.3. below). 22 C.F.R. § 123.25(c).
14
Moreover, a DSP-5 is valid for four years from the date of issuance and cannot be
renewed. 22 C.F.R. § 123.21(a). Therefore, care must to be taken in charting the course
of a protracted dispute to note well in advance of the expiration date of any DSP-5 that a
new DSP-5 application must be submitted to DDTC.
Finally, while a DSP-5 license may be used for exports to more than one
recipient, with respect to ITAR-controlled hardware all recipients must be located in the
same country. With Technical Data, recipients may be located in multiple countries
under a single DSP-5.
2.
Other DDTC Authorizations
In the international dispute resolution context, the “other authorizations” referred
to in the AECA will primarily be Technical Assistance Agreements. Under very limited
circumstances, a reexport authorization may also be a useful “other authorization” where
no U.S. Person is involved in a dispute that nonetheless involves Technical Data and/or
ITAR-controlled hardware.
a.
Technical Assistance Agreements
A Technical Assistance Agreement (“TAA”) is usually ultimately needed in order
to resolve formally an international dispute. Once again, recognition of this virtual
certainty early in a dispute is important as DDTC approval of TAA’s is currently taking
approximately five to six months.
The hallmark of a TAA is that it permits, subject to any “provisos” that DDTC
places on approval of the TAA (discussed in detail in Section III.C. below), discussion
amongst all parties to a TAA of Technical Data within the scope of the TAA. For formal
dispute resolution, the parties to the dispute have virtually no option other than to prepare
and execute a TAA that includes all Foreign Persons involved in the dispute, including
any arbitrators who are Foreign Persons as well as the arbitration forum if a Foreign
Person.
A TAA is not a form like a DSP-5. Rather, it is an agreement that contains
certain information and standard clauses required by the ITAR. Each Foreign Person
party to a TAA must execute the TAA before receiving any Technical Data pursuant to
the TAA. Although occasionally DDTC permits the export of ITAR-controlled hardware
under a TAA, the TAA is almost exclusively used to authorize the transfer of Technical
Data and the performance of Defense Services. Unlike DSP-5’s, TAA’s may be
amended to change the scope of the Technical Data/Defense Services to be transferred, to
add parties to a TAA, and/or to extend the duration of a TAA. In addition, TAA’s are
available for up to a ten-year duration, though with TAA’s related to dispute resolution
DDTC usually mandates a four- to five-year duration, subject to extension by
amendment.
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Well-crafted TAA’s include the following components. The first is a preamble,
which provides any necessary background for DDTC and the purpose of the exports for
which authorization is sought. The second is a list of the parties to the TAA, with their
respective specific physical addresses. The third, and most important component, is a
description of the Technical Data for which export authorization is sought and the
Defense Services sought to be authorized, see 22 C.F.R. §§ 124.7(1) and (2), as well as
the parties to the TAA to which such Technical Data will be exported and/or Defense
Services provided. It is important to be as specific as possible as to the types of
Technical Data and Defense Services involved (which can be further identified in an
attachment to the TAA), and the particular Foreign Persons to whom the Technical Data
or Defense Services is proposed to be exported. Fourth, the TAA must specify its
duration (and it is good practice to specify the effective date of the TAA as well). 22
C.F.R. § 124.7(3). Fifth, the TAA must identify all countries to which Technical Data
will be transferred and/or in which Defense Services will be provided. 22 C.F.R. §
124.7(4). If nationals of countries other than those to which Technical Data will be
transferred and/or in which Defense Services will be provided will receive Technical
Data and/or Defense Services under the TAA, those countries must be identified as well.
Finally, the ITAR requires verbatim inclusion of six standard clauses. 22 C.F.R. § 124.8.
The most important of these clauses, 22 C.F.R. § 124.8(2), provides that the TAA “is
subject to all United States laws and regulations relating to exports and to all
administrative acts of the U.S. Government pursuant to such laws and regulations.” The
U.S. Government views this clause as providing contractual jurisdiction over foreign
signatories with respect to violations of the ITAR, AECA, and/or the TAA. There is also
a survival clause that provides that all U.S. Government requirements/obligations survive
termination of a TAA. 22 C.F.R. § 124.8(6).
In addition to the above-required elements, some TAA’s include a definitions
section, notice and default provisions, and governing law provisions. The ITAR does not
mandate any of these additional elements. Some, like the definitions section, can be
useful in complex TAA’s. Others simply clutter an agreement whose contents the ITAR
specifies. Also, DDTC affirmatively discourages the inclusion in proposed TAA’s of
contract terms not mandated by the ITAR.
Finally, a proposed TAA, when submitted to DDTC for approval, must be
accompanied by two separate letters. The first letter is commonly known as a
“transmittal” letter. This letter, like the TAA itself, must contain certain information and
certain standard language. 22 C.F.R. § 124.12. The most important (and sometimes
vexing) element of the transmittal letter is identification of the value of the proposed
TAA. See 22 C.F.R. § 124.12(a)(6). DDTC has published guidelines to assist with the
preparation of TAA’s and transmittal letters. These Guidelines, which can be found at
http://pmdtc.org/ ag_guidelines.htm, provide suggestions as to how to estimate the value
of TAA’s, and also provide useful basic guidance on drafting TAA’s and transmittal
letters generally, as well as guidance regarding submitting TAA “packages” (namely, a
proposed TAA, any attachments to the proposed TAA, and the two required letters) to
DDTC. The second required letter is simply a certification that the applicant and its
officers and members of the board of directors have not been indicted or convicted of
16
certain enumerated crimes, that the applicant is eligible to obtain a TAA, and that all
parties to the TAA are also eligible to receive exports under the TAA to the best of the
applicant’s knowledge. 22 C.F.R. § 126.13.
Always keep in mind that that one or more TAA’s could already be in place that
cover some or all of the Technical Data involved in a dispute. Should this be the case,
the applicant for such a TAA can be asked to seek DDTC approval of an amendment to
the TAA to permit the transfer of certain Technical Data to one or more new parties.
Some applicants are willing to request approval of such an amendment, particularly if a
business relationship is involved, i.e., a satellite operator is the applicant and the parties
requesting the amendment are space market underwriters. Other applicants refuse to
amend a TAA under these circumstances on the grounds that the applicant will lose
control over activities under the TAA and thereby subject itself to unnecessary risk in
case of violation of the TAA by one of the parties that seeks to be added to the TAA.
b.
Requests for Reexport Authorization
As set forth above, the AECA prohibits a Foreign Person (other than a foreign
government) from applying for a license or TAA, even where a dispute involves ITARcontrolled hardware or Technical Data but there is no U.S. Person involved in the
dispute. A Foreign Person who is the end user under an existing DSP-5 or TAA can,
however, request authority to retransfer certain ITAR-controlled hardware and, under
certain circumstances, Technical Data, to another Foreign Person or Persons.
Such requests are less common than DSP-5’s and there is no set format for such
requests. However, in accordance with 22 C.F.R. § 123.9(c), each request must contain
the following information: (1) the license number under which the ITAR-controlled
hardware (or Technical Data) was previously authorized for export from the U.S.; (2) a
precise description, quantity, and value of the ITAR-controlled hardware (or Technical
Data) to be reexported; and (3) a description of the new end-use and identification of the
new end-user.
Requests for reexport authorization are processed like DSP-5’s, but approval
usually takes more time than DSP-5’s.
3.
DSP-83 “Non-Transfer and Use Certificate”
The form DSP-83, “Non-Transfer and Use Certificate” is not a license or “other
authorization.” However, DDTC has, on occasion, permitted a DSP-83 to be used to
“add” an additional recipient to a DSP-5 license, for certain limited data, without
requiring the U.S. Person to submit a new DSP-5 application specifying the new
recipients pursuant to 22 C.F.R. § 123.25(c). The ITAR does not provide any authority
for use of a DSP-83 in this manner. However, if execution of a DSP-83 is accepted by
DDTC to “add” a party to a DSP-5, the party so added has authorization to receive
Technical Data and/or ITAR-controlled hardware pursuant to such a DSP-83.
17
The DSP-83 has been used in this manner in connection with satellite
manufacturer briefings to insurers regarding satellite anomalies and/or failures. The
DSP-5 to which such a DSP-83 relates may cover a wide range of Technical Data to be
exported to a satellite operator, for instance. The DSP-83 has been used to permit the
DSP-5 applicant to provide certain data exported to the satellite operator to the operator’s
insurers, often in connection with an insurance proof of loss.
As its name implies, the DSP-83 requires any signatory thereto not to transfer, in
any manner, Technical Data received pursuant to the DSP-83 to any other Foreign Person
or to any country outside of the signatory’s country without DDTC’s prior consent.
III.
Why Obtaining an Approved ITAR License or TAA Takes So Long: A Brief
Overview of the ITAR Export Authorization Process
A.
The Main Players in the ITAR Export Authorization Process
1.
DDTC
DDTC is the entity to which license applications and proposed TAA’s are
submitted and is the only entity with authority to approve license applications and TAA’s
(or amendments thereto). DDTC also is the only entity with the authority to interpret and
enforce the ITAR (other than criminal enforcement of the ITAR/AECA).
2.
Other Department of State Bureaus and Desks
When DDTC receives a license application or proposed TAA, it may decide that
it needs policy input from other parts of the State Department. These other parts of the
Department include regional and/or country desks, such as the Bureau of South Asian
Affairs, and policy entities such as the Bureau of Democracy, Human Rights, and Labor.
3.
DTSA
For most license applications and proposed TAA’s DTSA is the key player in the
ITAR export authorization process. Unlike with other parts of the State Department,
DDTC virtually always seeks input from DTSA on license applications and proposed
TAA’s. DTSA analyzes license applications and proposed TAA’s from a national
security perspective. DTSA’s Director is also Deputy Under Secretary of Defense for
Technology Security Policy and Counterproliferation under the Assistant Secretary for
International Security Policy.
B.
Overview of the Licensing Process
As set forth above, an applicant files a license application or proposed TAA with
DDTC. License applications submitted electronically, by hand, or via DDTC-approved
overnight courier company are more likely to be logged in quickly, and less likely to get
lost in the State Department mailroom than applications or proposed TAA packages
18
mailed to DDTC. (Note that DDTC has an unpublished policy that only persons who are
former U.S. Government employees may hand deliver license applications and proposed
TAA’s to DDTC (and may do so only at 3:00 p.m. each week day)). At the present time,
proposed TAA’s cannot be submitted electronically, but may be submitted by hand
(subject to the above) or via DDTC-approved overnight courier company.
Case numbers are normally assigned within forty-eight hours from date of receipt
of a license application or TAA package, which case numbers the applicant may
thereafter obtain from DDTC’s “Response Team” at 202-663-1282. The case number is
required for all subsequent communications with DDTC and DTSA regarding the license
application or proposed TAA. After receiving a case number, license applications and
proposed TAA’s take two different paths of very different duration. License applications
are assigned to a “division” or “team” within the Office of Defense Trade Controls
Licensing that specializes in the particular ITAR-controlled hardware or Technical Data
to which the license application relates. Thereafter, within a matter of days up to one
week, the case is assigned to an individual Licensing Officer, who, at present, usually
takes “initial action” on a case within ten to fifteen business days after being assigned the
case. Initial action consists of one of the following actions: approve, deny, Return
Without Action (“RWA,” i.e., reject) or “staff.” (“Staff” is a term of art that refers to the
process whereby a license application or proposed TAA is referred to another office
within the State Department or to another U.S. Government agency (i.e., DOD, DOE, or
the intelligence community) for its review and input on the proposed export.) The initial
action by the licensing officer will usually determine the overall processing time of the
application. Proposed TAA’s, on the other hand, are assigned to the Agreements
Division within the Office of Defense Trade Controls Licensing and, specifically, to one
of three “teams.” At the present time, proposed TAA’s can thereafter languish
unreviewed at the Agreements Division for approximately two months before an
individual Agreements Officer even takes initial action on a proposed TAA.
As set forth above, DTSA is the key player in the licensing process, stemming in
part from its responsibility to determine national security implications of any proposed
export. In theory, DTSA’s authority is limited to providing a “recommendation” to
DDTC regarding cases staffed to it, see Exec. Order No. 11958, which usually translates
into DTSA providing technical expertise regarding Technical Data and/or ITARcontrolled hardware to DDTC’s Licensing and Agreements Officers. In reality, however,
DTSA determines what Technical Data or ITAR-controlled hardware may be exported to
which countries or nationals based on national security considerations.
In the post-9/11 environment, national security implications of proposed exports
have heightened significance. Applications that involve sensitive technology, regardless
of the country of end use, will therefore be staffed to DTSA, with the net result being that
DDTC staffs virtually every license application or TAA of any consequence to DTSA.
After DTSA receives a case from DDTC, a DTSA Analyst first decides to whom
to staff the case further for analysis and input. The good DTSA Analysts have a strong
technical background in the Technical Data and/or ITAR-controlled hardware involved.
19
Cases are typically staffed to one or more of the military services and always to the
DTSA Technology Directorate, which is DTSA’s primary technical advisor. If a case
involves a warship, one can be certain that the case will be staffed to the Navy, at a
minimum. Cases may also be staffed to the DTSA Policy Directorate, the DTSA Space
Division, and DOD entities such as the Joint Chiefs of Staff, the National Security
Agency, and the U.S. Special Operations Command. The military services frequently
staff the case further, such as the Army staffing to its Night Vision Laboratory and the
Navy to the Naval Air Systems Command. Despite what appears to be a great deal of
“staffing,” in recent years DTSA has become very efficient in processing cases. DTSA
holds itself to an internal deadline of providing its recommendation to DDTC. (The only
downside to this internal deadline is that if DTSA cannot process a case before its
internal deadline expires due, for instance, to DTSA staffing problems, DTSA will
recommend that DDTC reject the license application or proposed TAA.)
Each DOD entity to which a case is staffed “puts in a position” to DTSA. Once
all positions are in, the Analyst reviews the positions, follows up regarding positions if
necessary, and reconciles positions if necessary. The Analyst then drafts recommended
provisos (many of which are standard) based upon the various positions and upon his/her
own experience, and provides a recommendation back to DDTC. DTSA’s
recommendation can be to approve, approve with provisos, deny, or “RWA” a license
application or proposed TAA.
Once a case returns to DDTC, the paths for license applications and proposed
TAA’s diverge once again. Licensing Officers usually approve license applications
within one to two weeks of receiving DTSA’s recommendation (and any other
recommendations from State Department bureaus or other U.S. Government agencies to
which the Licensing Officer has staffed a case). Proposed TAA’s, however, at present
usually sit for another two months before final action is taken. Final action consists of
reviewing the recommended provisos, if any, and adding DDTC provisos, if any (most of
which are standard). The DDTC Licensing Officer or Agreements Officer then approves
the case, including any provisos, via letter for a TAA and approved license for a DSP-5
application (with any provisos appended to the license). If the applicant has not
requested that DDTC return the approved license or TAA via DDTC- approved overnight
courier company (using the applicant’s account number), an additional two weeks may
elapse before the approval is mailed from the State Department’s mailroom, even if a
license application is submitted electronically. (In addition, many times DDTC simply
does not honor the applicant’s request to send the approved license or TAA approval by
overnight courier.)
C.
Provisos
Every TAA, and many licenses that involve sensitive Technical Data or sensitive
ITAR-controlled hardware, will have provisos imposed upon them. Many standard TAA
provisos are very straightforward, simply reemphasizing, for instance, the ITAR
requirement, at 22 C.F.R. § 124.4, that a copy of an executed TAA be submitted to
DDTC within thirty days of execution. Some standard provisos, on the other hand, can
20
also be problematic depending upon the nature of a dispute, such as a standard proviso
prohibiting the export under a TAA of detailed design, development, or manufacturing
data. Other provisos, customized for arbitration, will, for instance, likely require that all
ITAR-controlled Technical Data be returned to the U.S. at the conclusion of the
arbitration or related legal proceedings and that the arbitration transcript be marked
ITAR-controlled.
Sometimes provisos can be so restrictive as to vitiate the purpose of a TAA. Such
provisos may be intentional, where DDTC/DTSA is, in essence, prohibiting the applicant
from making the proposed transfers. Other times restrictive provisos can result from
vague or poorly drafted TAA’s or simply a failure to communicate in the TAA enough
information to permit DDTC/DTSA to understand to its satisfaction the nature of the
proposed transfers. In the latter case, there is a “reclama” process through which an
applicant can request reconsideration, clarification, or modification of one or more
provisos. Such a request goes through the same process outlined above that TAA’s and
license applications, respectively, go through (and take the same respective amounts of
time to process).
The key point regarding provisos is that they represent DDTC’s final word.
Regardless of what a TAA proposes, if a proviso prohibits certain activities proposed in
the TAA, the applicant cannot engage in those activities (unless the applicant gets the
proviso or modified or removed through the reclama process).
D.
Managing the ITAR Export Authorization Process
Dealing with the ITAR bureaucracy can be frustrating. There are some on Capitol
Hill and many who work regularly with DDTC who believe that the ITAR export
authorization process has broken down and needs to be overhauled. However, for
purposes of this Program there are two important points to be borne in mind. First, the
process that is presently in place is the process that one must work with, regardless of
what one believes might be a better process. Second, the ITAR export authorization
process is composed primarily of people, and the great majority of those people neither
designed the process nor have the authority to change the process.
1.
Common Problems Encountered in the ITAR Export Authorization
Process
Not infrequently license applications and/or proposed TAA’s get lost (1) upon
initial submission to DDTC, (2) during the transfer of a case between DDTC and DTSA,
(3) during the transfer of a case from DTSA back to DDTC, and (4) after approval.
License applications and proposed TAA’s also can be misnumbered (resulting in no
status information being available to the applicant), and simply get “stuck” somewhere
ranging from the State Department’s mailroom to a Licensing or Agreements Officer’s
desk.
21
The response to these and other processing problems tends to be bureaucratic.
Although DDTC Licensing Officers have improved recently, for the most part when a
processing problem arises one should not automatically expect to get one’s phone calls
returned regarding the problem. Agreements Officers are more conscientious about
returning calls, but simply do not have the time at present to do so for reasons explained
below. DTSA, though less bureaucratic than DDTC and far more responsive, is
nonetheless not particularly sensitive to commercial realities, including arbitration
schedules and deadlines. In addition, both DDTC, including State Department counsel
advising DDTC, and DTSA tend to address difficult questions posed by voicemail, fax,
or email by silence.
DDTC management (other than at the very highest levels) is also mostly
inaccessible to step in to correct even the most egregious problems in processing, and
DTSA management is virtually completely inaccessible in such cases.
The primary cause of the above problems at DDTC is perennial understaffing,
with understaffing at the Agreements Division particularly severe at present. A
secondary cause is a lack of appropriate technology to aid processing of license
applications and proposed TAA’s, which is an area that DDTC is attempting to address
(as is DDTC attempting to address understaffing at the Agreements Division). In
addition, at DTSA in the area of commercial satellites and spacecraft the DTSA Space
Division is subject to close congressional oversight, which can constrain any flexibility
and/or creativity that the Division may be inclined to exercise to address novel or difficult
licensing issues.
2.
How to Manage the ITAR Export Authorization Process Most
Effectively
Faced with an overwhelming workload, most Licensing Officers and all
Agreements Officers are conscientious and do the best work they can under difficult
circumstances. Thus, the first rule in managing the export authorization process is to
recognize this reality and to be courteous and as patient as possible with the Licensing
Officer or Agreements Officer assigned to a case. While DTSA is far better staffed and
its authorization process far better organized than DDTC’s, courtesy and patience are still
the keys to achieving the applicant’s objective of obtaining as rapid and fair action on a
license application or proposed TAA as possible.
More specifically, the following are some concrete suggestions to enhance the
likelihood of efficient processing of a license application or proposed TAA.
a.
Meet with DDTC and/or DTSA Before Submitting a
Proposed TAA or License Application
If it is anticipated that a proposed TAA or license application will be complex or
involve novel issues, attempt to meet with DTSA and DDTC, if possible. DDTC is
usually unwilling to meet, but DTSA is more open to such meetings.
22
At a meeting, one should explain what one is seeking to accomplish through a
proposed TAA or TAA’s, license application or applications, or combinations of the two.
DTSA (and DDTC, if willing to meet) will share their views of the proposed TAA and/or
license application. DTSA’s views may discourage a particular course of action, which
may or may not be acceptable. However, at a minimum, one learns what problems may
arise in processing and, ideally, one has an opportunity to persuade DTSA/DDTC why
the planned course of action fits within the ITAR as well as DTSA/DDTC practice.
If one submits an ambitious TAA or license application without first meeting with
DDTC and/or DTSA, the result will not infrequently be that the proposed TAA or license
application is “RWA’d,” i.e., rejected. An RWA can have a tremendous cost to an
applicant who may have waited several months only to have a proposed TAA or license
application rejected and then has to begin the process again.
b.
Proactively Monitor the Process to Attempt to Detect Any
Problems Early
After submitting a proposed TAA or license application, one should call the
DDTC Response Team to obtain a case number after two working days have passed.
With the case number, one can monitor processing of the TAA or license application
online. DDTC has an online system, known as “ELLIE,” http://pmdtc.org/forms/
LicenseAppStatus.htm, which shows the status of a case at DDTC, to which entities a
case has been staffed and when positions are returned, and when a case is approved.
DDTC’s “D-Trade” online system, presently not available for TAA’s, provides similar
information for license applications filed under the D-Trade system. DTSA also has an
online system, known as “ELISA,” http://www.dtsa.osd.mil/Elisa-online.html, which
shows when DTSA received a case, to which entities DTSA staffed the case and when
positions are returned, when DTSA has made its recommendation and what the
recommendation is.
If there appears to be a problem in processing, call the cognizant Licensing/
Agreements Officer or DTSA Analyst as identified in ELLIE, D-Trade, or ELISA.
Again, with DDTC it will likely take many calls to obtain needed information (and one,
in fact, may not ever be able to speak to the Licensing/Agreements Officer). The key to
obtaining one’s objective of obtaining as efficient processing as possible remains,
however, patience, and the building up of relationships and credibility over time.
(Remember that DDTC/DTSA have the ability to make processing difficult if one makes
oneself difficult.)
V.
Special ITAR Issues in International Dispute Resolution
A.
Who Is the Applicant if a Claimant or Respondent is not a U.S. Person?
If a dispute involves a Foreign Person claimant or respondent, pursuant to the
AECA, as set forth above, such claimant or respondent cannot apply for a license or
23
TAA. (Though a reexport authorization can have some limited utility, it is virtually
impossible to use a reexport authorization to cover formal arbitration.) The AECA thus
places a Foreign Person claimant or respondent at an immediate disadvantage vis-à-vis a
U.S. Person respondent.
Even where U.S. Person counsel is advising a Foreign Person claimant or
respondent, most U.S. law firms are unwilling to register with DDTC as an exporter as
required to become an applicant for a license and/or TAA. (And a foreign government is
not likely to serve as an applicant where an international dispute is purely commercial.)
Although many U.S. Person experts that advise in areas governed by the ITAR are
registered with DDTC, they are often reluctant to be an applicant (at least for a TAA) and
therefore be primarily responsible for actions of all parties to a TAA when the expert has
such a minor role in (and control over) the dispute.
This can leave a Foreign Person claimant or respondent in the hands of its
adversary for purposes of ITAR licensing, especially since DDTC and DTSA have a
policy of communicating only with the applicant throughout the export authorization
process. As the above description of the ITAR licensing process shows, there are many
opportunities for informal “lobbying” (and, by the nature of the licensing process, ex
parte) of those processing a license or TAA. This problem is particularly acute when a
Foreign Person is the claimant. The respondent has no interest in making it any easier for
the claimant to advance its claim.
Where a Foreign Person claimant is forced into the position of relying on its
adversary to obtain timely processing of an appropriate TAA and/or license, the Foreign
Person claimant should consider negotiating with the U.S. Person respondent regular
reporting of the status of processing of a license or TAA so that if problems arise, the
Foreign Person claimant is aware of them and can play a role in suggesting avenues for
resolution with the respondent. Otherwise, after the U.S. Person respondent submits a
TAA to DDTC, there can be complete silence for up to six months regarding the fate of
the TAA.
An additional problem can arise after approval of a TAA. As discussed above,
DDTC will likely place provisos on its approval of a TAA. Because provisos, by their
nature, are restrictive, it usually is in the U.S. respondent’s interest not to request that any
such provisos be modified to make them less restrictive. To discourage the Foreign
Person claimant from pressing the respondent to pursue a request for modification, the
respondent may cite its “experience” that such a request will be denied, or claim that
requesting reconsideration will needlessly antagonize DDTC/DTSA. If a Foreign Person
claimant believes that one or more provisos are unworkable, the claimant should attempt
to negotiate an appropriate request for modification and, should that fail, bring the matter
before the Arbitration Panel if one has been appointed.
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B.
Registration
As set forth above, an applicant for a license or TAA must register with DDTC.
In addition to this AECA/ITAR requirement, some U.S. Persons (particularly when they
are respondents) insist, when they are an applicant for a TAA, that all U.S. parties to a
TAA (other than U.S. Person counsel) be registered with DDTC. Neither the AECA nor
the ITAR requires this registration. So resolving the applicant’s demand is a matter of
negotiation between the claimant and respondent. Many of the companies that require
registration under these circumstances have been previously heavily fined, and are
presently closely monitored, by DDTC. These companies often use this posture as the
rationale for insisting that all U.S. signatories be DDTC registered.
Wholly separate from the preceding issue, every applicant must ensure that its
registration remains current, particularly in the course of a lengthy dispute.
C.
DTSA Document “Pre-Review”
With certain TAA’s involving sensitive technology, and all TAA’s involving
satellites and other spacecraft, DTSA will impose a proviso requiring that, even after
execution of the TAA by all parties, all documents to be transferred under the TAA be
furnished to DTSA for review prior to transfer. DTSA thereupon may approve the
transfer of a document, require redaction of the document prior to transfer, or reject the
document for transfer. For TAA’s involving satellites and spacecraft, DTSA has an online system which must be used to provide the DTSA Space Division documents for
review and via which DTSA provides its review decisions.
DTSA is highly responsive in this document pre-review process. However, if
hundreds of documents have to be pre-approved, cumulatively the process can obviously
take some time.
As with other licensing issues, if documents are rejected for export or redactions
required that are unacceptable, the applicant (perhaps accompanied by arbitration
counsel) should meet with the DTSA reviewers. Often the reviewer does not have
sufficient information regarding why a particular document falls within the scope of a
TAA. Being most familiar with a dispute, often arbitration counsel can provide an
explanation sufficient for DTSA to request that certain documents be resubmitted with
the explanation arbitration counsel provided (or other explanation mutually agreed upon).
One caveat, however, is that a Foreign Person claimant will not have this opportunity at
all unless the respondent agrees to include the claimant at such a meeting. Also, of
course, DTSA often will not change its position regardless of the explanation or who
provides the explanation.
Finally, as part of DTSA’s proviso regarding document pre-review, the applicant
is required to reimburse DTSA for the costs of its time in performing the document
review. The applicant enters into a standard agreement with DTSA regarding this
reimbursement.
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D.
DTSA Monitoring
In addition to “pre-reviewing” documents, DTSA, also via proviso to any TAA
involving satellites and other spacecraft, reserves the right to monitor meetings, telephone
conferences, and hearings that involve any Technical Data within the scope of the TAA.
DTSA requires advance notice of any meeting or hearing outside the United States at
least forty days prior to such meeting and at least fifteen days prior to any such meeting
or hearing inside the United States. “Meetings” or “hearings” include depositions, where
permitted. In addition DTSA requires at least five days notice prior to any teleconference
amongst any parties to the TAA that involve any Technical Data within the scope of the
TAA.
Note that prior notice does not ensure that a DTSA monitor will be available on a
particular date. There are a limited number of DTSA monitors and the monitors can have
monitoring responsibilities on a number of cases. Flexibility in scheduling is thereafter
required. Note also that because DTSA reserves the right to monitor, it can also waive
that right in particular cases. For instance, DTSA may well waive the right to monitor a
meeting at which no U.S. Person is present.
In connection with the monitoring requirements, DTSA suggests that prior to any
meeting or teleconference, the documents to be discussed be provided to all participants,
including DTSA, a certain number of days in advance of the meeting or teleconference.
Also, for meetings and teleconferences, DTSA requires appointment of an Activity Chair
to maintain an attendance roster, have in place procedures to ensure only authorized
participants participate, and oversee technical interchange.
Finally, as with document pre-review, DTSA requires reimbursement for its time
and expenses incurred in monitoring.
E.
Technology Transfer Control Plan
A Technology Transfer Control Plan (“TTCP”), required of all applicants for
TAA’s involving satellites or other spacecraft, memorializes the above pre-review,
monitoring and reimbursement requirements. In addition, an applicant is required to
provide with a draft TTCP for DTSA approval a floor plan indicating where ITARcontrolled data will be stored and where any Foreign Persons’ workspace is located
relative to the stored ITAR-controlled data. DTSA may also require a simpler TTCP that
memorializes an applicant’s plan to secure and export Technical Data and/or ITARcontrolled hardware in connection with any TAA involving especially sensitive Technical
Data and/or ITAR-controlled hardware.
F.
Proprietary Data of U.S. Companies
DDTC/DTSA have on a number of occasions required, without any authority
under either the ITAR or the AECA, that an applicant for a TAA or reexport
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authorization provide to DDTC, with the proposed TAA or request for reexport
authorization, written consent from a U.S. manufacturer to export proprietary information
of that manufacturer.
DDTC reportedly takes this position out of fear of a lawsuit by a U.S. company
contending that authorizing the export of the company’s proprietary data entitles the
company to damages. Leaving aside that these fears are unfounded, applicants have
attempted to address the issue, after discussion with DDTC, by including in TAA’s
language that explicitly states that approval of the TAA will not be construed by any
party to the TAA as passing on the validity or invalidity of any party’s proprietary rights
in data authorized for export under the TAA. Despite this language, discussed with
DDTC, DDTC has continued to impose the requirement to provide written consent of the
manufacturer.
It hardly bears explaining the impact that DDTC’s ultra vires action has upon a
certain disputes. If a dispute is with a U.S. company, DDTC’s requirement forces the
Foreign Person to telegraph its strategy with respect to the dispute to its adversary. Once
a matter is in formal arbitration, this issue is less critical. However, assuming that a TAA
is obtained initially to investigate the bases of a dispute and to obtain preliminary expert
opinions regarding the dispute, DDTC’s requirement forces the Foreign Person to
disclose to its adversary every document of the adversary’s that is of interest to the
Foreign Person in the dispute. This requirement clearly tilts the playing field in any
dispute towards the U.S. Person.
G.
ITAR Non-Disclosure Agreements
Foreign Person signatories to a TAA often have employees who are nationals (or
dual nationals) of countries other than the country in which the signatory is resident. If
such employees are nationals of a NATO country or major non-NATO ally (or another
“friendly” country consented to by DDTC) and are to have access to Technical Data
transferred under a TAA, TAA’s are usually drafted to require that such employees
execute a Non-Disclosure Agreement (“NDA”) (rather than being required to become a
signatory to the TAA). These NDA’s recite that the employee is being provided
Technical Data in connection with a particular dispute and that the Technical Data must
be protected from unauthorized disclosure. The NDA’s also recite that the employee is
familiar with the AECA/ITAR penalties and then includes the standard clauses identified
above required to be included in TAA’s.
NDA’s can also be used in connection with providing Technical Data to expert
witnesses and fact witnesses who are not employees of a signatory. With sensitive
Technical Data, particularly satellite or spacecraft Technical Data, DDTC may require, in
addition to such witnesses signing NDA’s, that DDTC approve the witnesses in advance
via an amendment to the TAA. This requirement, again, can have the effect, under
certain TAA’s of telegraphing litigation strategy to an adversary.
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H.
Privileges
Given the requirement for DTSA, under certain TAA’s, to pre-review documents,
and DTSA’s right to monitor, the signatories should take steps to ensure that the attorneyclient, work product, and any other applicable privileges are not waived by such review
and/or monitoring. This can be done in the TAA itself or via side agreement.
VI.
The ITAR and Litigation in U.S. Courts
Litigation in United States federal courts of an ITAR-controlled case can raise
difficult issues, most significantly separation of powers issues. For instance, a proviso to
a TAA covering particular litigation could restrict the transfer of Technical Data that the
judge hearing the case deems to be relevant and admissible. In cases involving satellites
and spacecraft, the issue is heightened because a monitor could also prohibit certain
testimony that a judge deems relevant and admissible. In non-satellite cases, even if a
TAA is obtained, because it is not possible to obtain a TAA to cover all Foreign Persons
who may wish to attend a hearing, issues surrounding courtroom closure can also arise.
VII.
Conclusion
If the ITAR controls one or more commodities or types of Technical Data in
dispute, as the above illustrates planning a path through the ITAR thicket from the very
outset of a dispute is essential. It is not only essential to successful resolution of the
dispute, but also to managing a client’s expectations and working with opposing counsel.
Should a dispute go to formal arbitration, it is similarly important to educate the
arbitrators early as to how the ITAR is likely to impact the arbitration. Not only with
respect to the obvious, such as scheduling orders, but also as to monitoring, maintaining
security of ITAR-controlled technical data, potential limitations on sharing ITARcontrolled Technical Data with staff assisting the arbitrators, and a requirement to return
all ITAR-controlled Technical Data (and/or any ITAR-controlled hardware) to the United
States at the conclusion of the arbitration and any related proceedings.
If a major forum, the arbitration forum is likely to be familiar with the ITAR and
its requirements. Nonetheless, it is important to remind the forum of ITAR issues
involved. In the event that the forum is not familiar with the ITAR, counsel should
educate the forum just as with the arbitrators. The forum should be made aware of the
requirement to maintain security of ITAR-controlled Technical Data, potential limitations
on certain staff members assigned to administer a case having access to Technical Data,
the common requirement that at the close of an arbitration and any related legal
proceedings all Technical Data must be returned to the U.S., and the common
requirement that transcripts of hearings be marked as ITAR-controlled.
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