What are the ITARs?
If you have worked on Defence procurements, whether in industry or government, chances are that you have heard of the ITARs and signed a non-disclosure agreement about export-controlled information.
Despite their ubiquitousness in Defence procurement, very few people understand the purpose of the ITARs, the specific types of acquisitions to which they apply and their importance in lawfully procuring Defence equipment and services from United States suppliers.
The ITARs are United States international export control regulations which apply to the export of U.S. Defence equipment and services, as well as ‘dual-use’ equipment (ie technology with civilian and military application), to foreign persons, corporations, and governments.
The ITARs implement the high-level requirements of the Arms Export Controls Act (AECA), which provides the U.S. Government with broad authority to control the export of Defense Articles, Defense Services and Technical Data to Foreign Persons.
The ITARs even regulate the export of specific information about export-controlled materiel that is contained in emails or communicated over the phone between U.S. suppliers and foreign customers.
When do the ITARs apply?
The crux of whether your procurement will require an export licence under the ITARs is whether or not you are a ‘Foreign Person’.
Under Section 120.1(c) of the ITARs, Foreign Persons are not permitted to access Defense Articles or Defense Services without an export approval, licence or other agreement with the U.S. Government.
Section 120.16 of the ITARs provides that a Foreign Person is any person that is not a lawful permanent resident of the U.S., or any foreign corporation, government, or other entity that is not incorporated or organised to do business in the U.S.
This means that the Australian Department of Defence, as well as Australian Defence industry, are treated as Foreign Persons under the ITARs.
Importantly, Foreign Persons cannot seek ITAR approvals and licences directly from the United States Government. Instead, approvals and licences are sought by the U.S. supplier in consultation with the foreign customer. Accordingly, the U.S. supplier and Australian customer need to work together to develop the relevant applications and agreements to secure U.S. Government export approval.
Defense Articles, Services, and Technical Data – understanding the difference
When applying the ITARs, the most important thing to understand is whether you are acquiring Defense Articles, Defense Services or Technical Data from a U.S. supplier.
The ITARs define Defense Articles under Section 120.6 as simply ‘any item or Technical Data designated under the United States Munitions List (USML)’.
Given the density and complexity of the USML, determining if the item is designated is sometimes easier said than done. In practice, engaging early with the prospective U.S. supplier to determine whether the equipment is designated under the USML is the easiest course of action to take.
Where there is any doubt or confusion about the USML, always engage an expert legal or export control advisor to help you determine whether the ITARs apply to your specific procurement.
Defense Services are defined (with a far greater level of detail) under Section 120.9 of the ITARs as ‘the furnishing of Technical Data or assistance to Foreign Persons in the design, development, engineering, manufacture, production assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of Defense Articles’.
In plain English, this means that if a U.S. supplier provides you (as the foreign customer) with any information, software or assistance that is related to the use of a Defense Article in some way, they are providing you with Defense Services
Section 120.10 of the ITARs defines Technical Data as ‘software directly related to Defense Articles… and any information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of Defense Articles’.
To simplify, Technical Data is essentially software or any other form of information, whether formally documented, contained in an email, or communicated over the phone, which is used to operate, repair, sustain, or modify a Defense Article.
Common examples of Technical Data include software manuals, engineering designs, and maintenance guides for Defense Articles.
Tips and tricks for Australian customers navigating the ITARs
So now you understand whether the goods or services you are procuring are Defense Articles, Defense Services, Technical Data or a combination of some or all of these three categories. What does that mean for you in practice?
In parallel to finalising your contractual arrangements to procure Defence material (and/or services) from a U.S. supplier, you will need to work closely with them to ensure they:
The U.S. supplier will need to submit a different export licence application to DDTC through the DECCS depending on the ITARs categorisation of the goods or services being procured, its classification and whether the export arrangement is recurring or ‘one-off’.
For example:
In the event of any uncertainty about whether a TAA or particular export application is best suited to your procurement, an expert legal or export control advisor should be engaged. If the procurement is particularly high-risk, an Advisory Opinion about the most appropriate export licence application can be sought from the DDTC, although Australian customers should note that this will cause some additional delay to the procurement.
Consequences of non-compliance
Ensuring that the correct export licence application is submitted for the goods and/or services that you are procuring from a U.S. supplier is essential to receiving those goods and/or services within your desired timeframe.
The DDTC can take six months or longer to approve export licence applications, so both parties have a strong interest in getting the application right the first time, and submitting it as early as possible.
Working with a U.S. supplier to confirm they are submitting an export licence application will also ensure that the U.S. supplier is not penalised for non-compliance with the ITARs, which may have an adverse impact on your arrangement with the U.S. supplier. For example, U.S. suppliers have been hit with civil and criminal penalties for non-compliance, in one case being fined $100 million U.S. dollars.
If you have any questions, or would like to know how the ITARs and other export control requirements might affect your procurement, please feel free to contact us.
Authors:
Rory Alexander, Director + Principal
Nick Faulks, Senior Associate
