November 19, 2013 - Communications Daily

Commerce, State Departments Move Forward to Finalize New ITAR Rules

As the Commerce and State departments move forward with their effort to finalize changes and new rules to International Traffic in Arms Regulations (ITAR), satellite companies must be properly pre- pared to understand the enforcement, compliance and implementation aspects of the rules, a government official and compliance experts said Monday at a Washington Space Business Roundtable event. By the end of the year, the agencies plan to complete a final draft of the new rules, which mainly focus on moving satellite components and technology that aren't crucial to military operations and national security from the munitions list to the less restrictive Commerce Control List (CCL), said Kevin Wolf, assistant secretary of commerce for export administration.

The changes are substantial, Wolf said. The objective is to lift the collateral regulatory burdens for these less-sensitive items in the commercial sphere, which don’t warrant the extra attention needed for items that involve the military or significant intelligence applications, he said.

It will be important for companies to understand the enforcement and compliance aspects of the rules before they go in to effect, said James Stearns, a regional trade compliance counsel for Accenture, a technology-consulting firm. Companies must ensure that they allow for the training and resources necessary, including hiring attorneys and consultants, he said. Companies also must understand what is involved in the technical classifications, he said. Hiring new staff also may be required, Stearns added. If industry puts the resources in, “then we’ll find out down the road that this is a much better system.”

Defense Department furloughs and last month's government shutdown affected the process of re- viewing comments in the ITAR proceeding by the Commerce Department Bureau of Industry and Security and drafting final rules, Wolf said. Agencies involved in the review include DOD, NASA and the Federal Aviation Administration, he said. The agencies are in the editing process and going through the final drafts of the next version of the regulations, he said. “We hope to have that to Congress some time by the end of the year." There has been an informal review of the process by congressional staff, he said. By industry request, the agency agreed to establish a six-month delay of the effective date for the rules to kick in “in order to allow companies to alter their internal compliance programs ... and to get a good handle on what the changes are,” he added.

“It’s not a 'de-control' in the sense of simply removing controls altogether,” Wolf said. The new sys- tem is expected to simplify the burden of having technical assistance agreements on manufactured license agreements, he said. There are no brokering obligations and there are no defense services concepts, he said. The Commerce Department won’t require registration and it won’t charge for license applications, he added.

The forthcoming rules will be a big change in the U.S. and in the U.K., said Corinne Kaplan, vice president-affiliate trade compliance for EADS North America. In the long term, it will be a rational process, but there will be a steep learning curve, she said. CCL will control more than 90 percent of EADS-owned Astrium's U.S. procurement when the rules become effective, she said. The rules will reduce the level of uncertainty for the European space industry, she added. There will be “enormous progress in terms of predictability and in terms of comfort." Issues for larger companies may be more complex, Stearns said. For small companies, limited re- sources will likely be a dilemma, he said. He urged these companies to connect with the Satellite Industry Association, the government, engineers and technical experts to help them.

A de minimis provision “will reduce ... the current disincentive of European companies to not buy American-made satellite parts and components because of the regulatory entanglements that come with them,” Wolf said. There will still be controls and compliance obligations for companies to understand and work through, Wolf said. There will likely be a difficult transition period as companies become acquainted with the new rules, Wolf said.

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