DTAG 28 November 2012 Plenary OEM Working Group Plenary Session November 28, 2012

DTAG 28 November 2012 Plenary
OEM Working Group
Plenary Session
November 28, 2012
Agenda
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Working Group Members
Task Summary
Issue Statement
Goal
Relevant ITAR Sections
Realities of Global Supply Chain
Working Group Proposal
Key Provisions of the Proposed Exemption
Handling Related Technical Data
Benefits
Issues Considered
Possible Unintended Consequences
Other Subparts Requiring Modification
Proposed Exemption Language
Additional Recommendation
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OEM Task Working Group Members
• Marjorie Alquist, Lord
• Bryon Angvall, Boeing
• Gregory Bourn, Finmeccanica
North America
• Brooke Butler, Globaleyes
• Michael Cormaney, Luks
Cormaney LLP
• * Sandra Cross, Huntington Ingalls
• BJ Demery, Bell Helicopter
• * Lawrence Fink, SAIC
*WG Leader
• Kim DePew, GE – Aviation
• Dana Goodwin, TradeLink
Systems
• Krista Larsen, Flir
• Spencer Leslie, Tyco Thermal
Controls
• Christine McGinn, Interglobal
Trade Consulting
• Ramzi Robana, GLOBAL
Integrated Security
• Sam Sevier, Sam Sevier LLC
• Bill Wade, Consultant
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Task
“Review the ITAR subsections relative to
return and repair of defense articles and make
recommendations on regulatory requirements
for ensuring that foreign defense articles are
properly accounted for when being returned
to the foreign original equipment
manufacturer (OEM) for repair/replacement.”
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Issue Statement
• The ITAR requires proper authorization for
exporting defense articles to foreign recipients.
• ITAR may not reflect the realities of today where
defense articles are often produced in whole or in
part by a foreign OEM.
• A license is required for repair or replacement of
a defense article by a foreign OEM, even if the
item is being temporarily exported or exchanged
on a one-for-one basis.
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Goal
• Provide a recommendation for the creation of
an exemption or modification of existing
exemptions that allows
– Export on a one-for-one basis of defense articles
to a foreign OEM for repair or replacement
– Import of repaired or replaced item into the U.S.
• Identify any other subparts of the ITAR that
may also require modification
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Relevant ITAR Sections
• § 123.1 Requirement for Export or Temporary
Import Licenses
• § 123.5 Temporary Export Licenses
• § 123.22 Filing, Retention, and Return of
Export Licenses and Filing of Export Information
• § 123.26 Recordkeeping Requirement for
Exemptions
• § 123.4(a) Temporary Import License
Exemptions
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Realities of the Global
Supply Chain
• Rarely does a single entity manufacture an entire
defense article from start to finish
• Companies have specialized suppliers delivering
parts throughout the supply chain
• Large-scale programs utilize regional service and
repair centers supported by suppliers in multiple
countries
• Economic changes push companies out of
business and others step in to take up that
business
• Part obsolescence drives supply base changes
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Working Group Proposal
• Create a new exemption in § 123
• Authorize temporary exports that would
normally be approved by DDTC for
repair/replacement
• Exclusively for hardware
• Temporary foreign recipients beyond OEMs
• Restricted to servicing of defense articles in a
foreign country and one-to-one replacement
• Must be returned to the U.S. within four years
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Key Provisions of
Proposed Exemption
• Temporary export of unclassified hardware
– Must be returned within 4 years of original export
– Allows for temporary reexports and retransfers within qualified end users
• Purpose of export
– Servicing (e.g., inspection, testing, calibration, repair, overhaul or
reconditioning)
– One-to-one replacement at equal or greater capability
• Qualifying Temporary End Users
– Original builder/supplier; or
– Previously approved in conjunction with separate authorization.
– Excludes § 126.1 destinations and denied parties
• Requirements
– CBP filings pursuant to § 123.22
– Recordkeeping pursuant to § 122.5
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Handling Related Technical Data
• Exclusively hardware exemption
• Does not cover technical data or defense
services
• Sufficient options elsewhere in the ITAR to
cover transfer of associated technical data and
defense services
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Benefits
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Lessens licensing burden on DDTC & industry
Faster resolution for inoperable defense articles
Adjusts to a growing global supply chain
No significant increase in technology transfer
risk
– Similar coverage to § 123.4(a)(1), an exemption that
has been widely used for years
– Easily tracked through AES filings
– Four year limit is consistent with DSP-73s
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Issues Considered
• Discussed real life examples of defense articles
flowing through a foreign party’s supply chain
under DSP-73s to effect the repair work
• Scope of exemption would be of limited utility if
confined to OEMs only
• Addressed varying risk through tiering of
temporary end users and consignees
– OEM of the subject defense article/part; or
– Previously authorized to receive the defense
article.
– Excludes § 126.1 countries and denied parties
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Issues Considered
• Greater Capability
– Accommodates minor increases in capability due
to obsolescence of parts/components
• Example: Sending a receiver to the UK for repair,
identifying a memory chip needs to be replaced, the
only chip available that can fit into the receiver is one
with a larger memory. The larger memory will help the
receiver run faster and longer.
– Upgrades
• Data transfers related to upgrades must be under
separate authorization
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Issues Considered
• Reviewed EAR exceptions TMP and RPL for
comparison
– TMP most closely relevant to Working Group
exercise
– Limitations to one year (with option to request a 6
month extension)
• Consensus of Working Group, one year was not
sufficient for certain defense articles
• Currently working within a four year return cycle
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Possible Unintended Consequences
• There may exist Foreign export laws that could
impact the temporary reexport or retransfer
• Upgraded capability to defense articles that
find their way into DOD programs without a
DOD review
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Other Subparts
Requiring Modification
• None identified
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Proposed Exemption Language
(a) Port Directors of U.S. Customs and Border Protection shall permit the temporary export (and
subsequent import) without a license of unclassified defense articles if all three of the following
are met:
(1) the defense article is temporarily exported to include follow-on temporary reexports or
retransfers among and to any of the following:
i. the original foreign equipment manufacturer, assembly or supply plant or supplier; or
ii. a foreign manufacturer, assembly plant or repair center previously authorized by the U.S.
Government to produce, assemble, manufacture, build or repair, overhaul or upgrade the
defense article abroad pursuant to U.S. Government authorization; and
(2) the defense article is exported , reexported or retransferred for the purpose of:
i. servicing (e.g., inspection, testing, calibration, repair, overhaul, or reconditioning); or
ii. one-to-one replacement at equal or greater capability; and
(3) the defense article or its one-to-one replacement is subsequently returned to the United
States within four years from the date of temporary export.
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Proposed Exemption Language
(b) Requirements. To use this exemption, the following criteria must be met:
(1) The exporter/importer must meet the eligibility requirements set
forth in § 120.1(c);
(2) Any temporary exports, reexports or retransfers must not be to or on
behalf of a proscribed country listed in § 126.1 unless an exception has
been granted in accordance with § 126.3 of this subchapter.
(3) U.S. origin defense articles exported, reexported or retransferred
pursuant to this section may not be sold to a foreign person while they are
overseas under this exemption unless the prior written authorization of
the Directorate of Defense Trade Controls is obtained.
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Proposed Exemption Language
(c) Procedures. To the satisfaction of the Port Director of U.S. Customs and
Border Protection, the exporter/importer must comply with the following
procedures:
(1) At the time of export, the U.S. exporter must comply with the
requirements in §123.22(b)(1), and identify 22 CFR 123.xx as the authority
for the export.
(2) At the time of import, the paperwork presented to U.S. Customs and
Border Protection must include the following:
i. citation of 22 CFR 123.xx as the authority for the import; and
ii. the Internal Transaction Number (ITN) generated by AES (see §120.30)
for the export of the defense article.
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Additional Recommendation
• Consider broader exemption coverage for
additional temporary end users to
accommodate the global supply chain
• Allow for the following:
• Foreign manufacturers, assembly plants, or repair
centers, other than the original supplier or
manufacturer, located in a European Union
member country, a NATO member country,
Australia, Israel, Japan, New Zealand or South
Korea
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Questions?