Commodity jurisdiction was discussed in the first article in a 5-part series on US Export Control Compliance, export licenses discussed in the second, and license exemptions and exceptions in the third. This fourth article will show Australian businesses how to use agreements to navigate the sometimes difficult compliance landscape for retransfers and reexport.
The utility of agreements and value of US-Australian Defence business is reflected in the Department of State’s Directorate of Defense Trade Controls (DDTC), Report to Congress on Direct Commercial Sales Authorisations for Fiscal Year 2020. The Report reveals that the value of agreements for Australia in this period was USD1.5B, exceeding Israel (USD1.1B), Canada (USD0.6B) and NATO (USD0.5B) and only surpassed by the United Kingdom (USD1.7B).
Agreements can be characterised as the performance of a defense service involving the provision of technical data (and sometimes hardware) over multiple transactions. Defense services are defined in the International Traffic in Arms Regulations (§120.9) and essentially encompass assistance (including manufacture, training, etc) and furnishing of technical data to foreign persons; and military training of foreign forces. While an export license may be authorised in exceptional cases for the limited delivery of defense services, agreements are generally sought for more enduring arrangements which then allow license-free transfers for their duration.
A variety of agreements are available; including: Warehouse and Distribution Agreements (WDA) (to establish a distribution point abroad for US defense articles), Manufacturing License Agreements (MLA) (to authorise manufacturing of US defense articles abroad) and Third Party Retransfer Agreements to enable third party access to controlled items pursuant to Foreign Military Sales cases. However, the most prevalent form of agreement is the Technical Assistance Agreement (TAA) which DDTC estimate make up about 75% of all its submissions. WDAs in particular have reduced in volume since Export Control Reform which transferred many common inventory items to the jurisdiction of the Department of Commerce’s Export Administration Regulations (EAR).
TAAs are agreements for the performance of a defense service or provision of technical data. A TAA is required to authorise a defense service be performed by a US entity or to access technical data and training to be able to perform the service in-house or by an authorised foreign licensee. They may also be used to enter into technical discussions with a US entity either to respond to an Australian tender or to market their products. There is no equivalent agreement in the EAR. Instead, retransfer of EAR controlled technology and software is authorised via the same licensing process as for the original export.
TAAs and MLAs typically have a 10 year duration and during this period can be amended to reflect evolving business relationships. DDTC recently clarified that even after the termination of a TAA or MLA, Australian industry can continue to share technical data received during the period of the Agreement amongst approved entities, although additional authorisation would be required for provision of defense services or further manufacturing.
Importantly, agreements must be full executed before any work can be performed. The greater scope of work permitted by an agreement generally means a longer approval process than a license application. While DDTC advertise a 40 – 60 day processing time, if an agreement is complex, includes classified data or broad interagency review, this timeframe can be exceeded. While most agencies have a 30 day staffing target, the Department of Defense and its Missile Technology Executive Committee have no time limits. Notwithstanding, DDTC advise that 85% of agreements are ‘approved with proviso’ (the start date of the agreement is recorded as a proviso), with 15% Returned without Action and less than 1% are denied.
So, while there may be some delay and inconvenience in setting up an agreement, the benefits in license free retransfer/reexport between authorised parties demonstrate their utility over export licenses.