Tag Archives: Military Weapons Exports

Will Foreign Companies Start Ditching American Dual-Use Tech?

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Proposed changes to U.S. Commerce Department rules could have immediate and lasting negative effects for U.S. exporters. (Eric Risberg/AP)

DEFENSE NEWS

The International Traffic In Arms Regulations (ITAR) are a set of government regulations administering the export, re-export and import of defense-related articles, services and technology on the U.S. Munitions List, or USML.

Unlike the Cold War, the high degree of technology integration with China results in a paradoxical interdependence, the remedy for which includes, not only finely tuned adjustments to U.S. investment and export control regulation, but also an informed embrace of a competitive strategy of investment.

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“Largely the result of European space and defense manufacturer design outs, the “U.S. International Trade in Arms Regulations-free” movement began in the 1990s. Since that time, the ITAR-free movement has diffused into other industry sectors and regions. For example, in 2017, the German Ministry of Defence announced tenders for new assault rifles for the German armed forces. The tender included an ITAR-free exclusion criterion not only for the rifles but for supplies as well. India’s space program is working with vendors on the basis of ITAR-free systems.

ITAR controls are highly stringent, so much so that the Obama administration in 2010 initiated the Export Control Reform Initiative to streamline controls to make them both effective and to increase American competitiveness.

As the U.S. government controls the re-export of USML items, the ITAR are an internationally well-known quantity. In many instances, foreign defense product producers and consumers know the ITAR more intimately than their U.S. counterparts. Transferring or re-exporting U.S. defense items requires U.S. government approval no matter how seemingly trivial the part or mundane the transfer. The practical effect of ITAR requirements makes U.S. defense items very sticky and cumbersome; therefore: the ITAR-free movement.

In terms of other strategic items, the U.S. Department of Commerce licenses the exports of dual-use components in a similar manner, albeit to a much more nuanced degree. The Export Administration Regulations, or EAR, require consumers of U.S.-origin dual-use items to seek licenses for re-exports and transfers of said items depending upon the amount of U.S.-origin technology/components and/or the proposed destination of the transfer. In contrast to ITAR controls, EAR re-export and retransfer controls are simultaneously more complicated, but more flexible.

The Trump administration’s on-going technology war with China is now bleeding into the arcane world of the EAR. Recently, the Commerce Department announced its intention to revise two EAR provisions that regulate U.S.-origin technology incorporated into foreign-produced products. Apparently, the effort is born out of frustration with the government’s limited ability to curtail exports (or, more precisely, re-exports) to Huawei. Revising the two provisions — the de minimis and direct product rules — would allegedly further empower the government to limit Chinese and others’ acquisition of EAR-controlled items. However, several major U.S. technology companies have warned about the dire consequences of revising the rules, particularly if they are modified against specific targets.

At a recent meeting of the Department of Commerce’s Regulations and Procedures Technical Advisory Committee, Assistant Secretary of Commerce for Export Administration Rich Ashooh said of changes to the direct product and the de minimis rules: “We are looking at those two and many others,” noting that “the U.S. has entered a new realm when it comes to export controls.” The looking-glass notwithstanding, the tech sector is decidedly spooked.

In a recent letter to Commerce Secretary Wilbur Ross, a consortium of tech industry trade associations cautioned that further tightening of technology controls would “encourage the design-out of U.S. technology by non-U.S. firms, while also imposing massive new compliance burdens for U.S. and non-U.S. companies alike …. and …. could set a dangerous precedent.” The current private sector admonishments are of piece with earlier jeremiads about overly burdensome U.S. product and technology controls. The effects for this current round of tech redlining could very well be the same: EAR-free foreign products.

The other cautionary note concerns market exit. Last month, the RISC-V Foundation, which directs the development of an open-source instruction set architecture for central processing units, announced that it will incorporate in Switzerland from its current corporate address in Delaware. The RISC-V Foundation chief executive, Calista Redmond, observed about the move: “From around the world, we’ve heard that ‘If the incorporation was not in the U.S., we would be a lot more comfortable.’ ”

Similar warnings were also articulated in comments to the Department of Commerce’s advanced notice of proposed rule making regarding emerging and foundational technologies. One commenter conjectured: “If significant controls were to be imposed …. then the employees and foreign companies will usually choose to leave the United States and take their skills to foreign competition.”

In addition to potentially cooling U.S.-based technology exports, Pyrrhic control parameters could also accelerate technology autarky efforts in the target economy (i.e., China). Ironically, the ensuing panicked reaction to Beijing’s announcement of its Made in China 2025 policy has only accelerated Beijing’s efforts to create an autonomous –— or at least non-U.S. based — innovation ecosystem.

In 2018, Chairman Xi Jinping asserted that “self-reliance is the foundation for the Chinese nation to stand firmly in the world, while independent innovation is the only way for us to climb the peak of the world’s science and technology.” Even for countries not in the market for tech self-sufficiency, there is an increased general appetite for a U.S.-free alternative, either homegrown or non-U.S. sourced.

Based on the preliminary responses from U.S. and foreign technology companies, the proposed Commerce rules changes would have immediate and, perhaps, lasting negative effects for U.S. exporters.

The ITAR-free moniker is bad enough; do we really need an EAR equivalent?”

https://www.defensenews.com/opinion/commentary/2020/01/22/a-slippery-slope-will-foreign-companies-start-ditching-american-dual-use-tech/

Import/Export Management And Small Business Federal Government Contracting

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Image:  EDUCBA.com Import -Export Managment

“SMALLTOFEDS”

The world has become tightly wired technologically and the current economic situation ties us inexorably to foreign economies.

It is likely small business will encounter the import/export process either on the selling or the buying end of federal government contracts involving foreign countries.

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“This is particularly true with Foreign Military Sales (FMS) contracts through DOD and services contracts with civilian agencies such as USAID.

Key to your success will be the development of links to buyers or sources in other nations. You may have gotten the idea that it is a simple and perhaps easy enterprise to get into and successfully perform. It is not in my experience any such thing. Companies who are successful evolve contacts and product relationships in foreign countries and in the US that take careful and businesslike approaches. You will find yourself importing to this country by exporting from other countries and vice versa. There are laws and processes that apply in both domains governing taxes, duties and the import/export process.

It is recommend that you research thoroughly the answers to the following questions:

(a) What are the specifics of the equipment and supplies you are becoming involved in? (Manufacturer’s part number, performance specification, unique qualities and market potential) What are the distribution channels that currently exist; is there a product warranty and are their spare and repair parts involved?

(b) Who buys the equipment and supplies in the United States and in countries you intend to sell to. (commercial consumer, government agency, large business, hospitals, military etc.) Do you plan to do market research on the potential demand for a product before you buy it? My advice is that you should – before you buy. I further advise that you research practical marketing, sales and distribution channels for a product before you buy it or import it. What are the possibilities of locally retailing it yourself?

(c) What are the laws and regulations regarding the movement of equipment and supplies? How are they taxed in the US and how are they taxed in foreign countries? Are they regulated by US or foreign countries? Are licenses required to either import or export the items? The answers to all these questions vary with the product and the US State Department and US Customs and Border Protection will have those answers once you identify the equipment and supplies. The links to the associated web sites are in the section below entitled ‘THE REGULATORS’

(d) What service can you perform in (a)-(c) above? What value can you add to the process? Do you have special channels to either a customer or a source for the supplies and equipment? Do you have special knowledge or do you know others with special knowledge of these equipment and supplies, customers and sources which you could involve in creating or designing a niche no one else is filling or offer these items at a price attractive enough to generate volume and profit for your business and beat the competition.

(e) Who is your competition and how are they performing (a)-(d) above? Your business involves offering the service of importing equipment and supplies to fill the need in the US from sources out of the country and the other way around. You must develop an available niche that other companies do not fill, either by having lower prices, more and better sources, or a low overhead cost for handling the business; faster delivery, better product warranty, parts service and replacement, all play in the equation. Your market plan must address the reliability of your sources in other countries and the US, the quality of their product and how well they support their product in countries other than their own.

SHIPPING AND FREIGHT FORWARDERS

Along the way be particularly careful in your planning to research Freight Forwarders (FF). Use the Better Business Bureau (BBB) or other such government agencies to research the experience the buying public has had with stateside companies you deal with. BBB company research capabilities on the web are free to the public. Carefully review FF terms and conditions and assess the liability arrangements in the event of product theft or loss for goods coming in from overseas.

A freight forwarder is your paid agent to safeguard your property. He is also registered to handle clearing US customs. Certain other FF specialize in dealing with foreign countries. He is normally the individual to which your overseas manufacturer ships you product or through whom you ship product to foreign countries. Relying on the manufacturer himself to ship, insure, handle export and import requirements is not a safe bet and shipping directly to a foreign country has no assurances of delivery.

The foreign factory producer has too much conflict of interest in simply getting you to pay his bill and move on and your expertise in clearing customs in a foreign country may be limited. Freight forwarder expenses must be added to those of the product you buy from the factory source. These expenses should be included in your business plan and in your product pricing prior to going to market.

BE CAREFUL

Be wary of networks and exchange sites on the web that offer to make you rich and handle all the arrangements. This is seldom the case. Check them out with the Better Business Bureau:

Better Business Bureau

INSURANCE

On the subject of insurance, I assume you have looked into business insurance. A Limited Liability Company (LLC) is a form of Subchapter ‘S’ corporation that usually experiences the lowest rates for insurance. Have you looked into becoming an LLC? Insurance is a must in the line of business you are pursuing.

THE REGULATORS

For research regarding exporting and importing goods to and from foreign countries please see the web site for the Bureau of Industry and Security out of the Department Commerce. It is the keeper of export administrative regulations and classification numbers. It also has a commerce country chart that shows taxes and duties and license information by country. 

Bureau of Industry and Security

The Office of Foreign Asset Controls out of the Treasury Department is also a site you will have to visit to see if there are any specially designated nationals or targeted countries that the US has regulations against selling to:

Sanctions Programs and Country Information

The US State Department and the US Customs and Border Protection regulate and assist in import and export matters. I strongly suggest you visit their web sites. The State Department controls high technology items and weapons through the International Traffic in Arms Regulation (ITAR). Export licensing under the ITAR can be a lengthy process. Services and technical data as well as products of a weapons or high technology nature requiring licenses appear on a controlled items list in the ITAR. A company can unwittingly make an illegal export of technical data simply by conveying the wrong specifics regarding a controlled item to a foreigner over the phone. The serious nature of ITAR violations can be seen in case histories at the following web site:

Federal Contractor Misconduct Data Base

For an excellent article on ITAR compliance please see:

ITAR Compliance: What It Is, Who Needs It, and the Penalties for Ignoring It


The web site for the US State Department and US Customs and Border Protection respectively are as follows:

U.S. Department Of State

U.S. Customs and Border Protection

You will need to research the above regulatory sites as appropriate once you identify the specific products in which you intend to deal. It will be necessary to determine licensing, declaration, tariffs, taxes and trade implications. All these factors should be fully documented in your business plan before you undertake operations in a product area.

FINANCE AND CREDIT:

Finally your business plan will be your best long -term asset in establishing your credibility with the banking community and with prospective investors. My advice is to start small and slow, with minimal personal investment and begin dealing in products only after you have a well developed business plan and market research indicates they will be profitable. As the business establishes itself, a demonstrated cash flow and projected earnings statement can be used as leverage with a good business plan to achieve a small business loan, perhaps working with the SBA for a guarantee. Small business credit cards are a possibility if you can work the interest rates into your planned expenses and recover them in your product pricing.

Your planned banking arrangements should involve setting up accounts that involve automatic currency conversion features in the countries you plan to do business in.

I recommend being careful not to make your inventory a burden. Carrying excessive financed inventory without associated sales to pay the bills is one of the biggest traps you can fall into. Also remember many products have a shelf life which must be considered in the storage environment.”

https://www.smalltofeds.com/2008/11/importexport-management-and-small.html

What Is The American Export Control System?

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“STRATFOR Worldview Enterprise

The export control system is not failproof; it requires vigilance on both the part of private companies and the federal government. It is intended to allow businesses to flourish and national security to be maintained.

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“An integral component of the American system, export controls lie at an important confluence of U.S. foreign policy. Designed to facilitate the intersection of commerce and national security, export controls are utilized to not only protect American businesses and national security but to further American foreign policy objectives. They are meant to restrict the export of critical technologies, hardware, software and information to foreign nationals both within and outside of the United States.

Export controls have been utilized since the founding of the United States when George Washington banned the export of goods to Britain. Export controls continued to be utilized by American presidents to punish their adversaries, especially during times of war.

It was not until the 1940s under President Truman’s leadership, however, that the first peacetime export control law was introduced to prevent the Soviet bloc from receiving American goods without a license. It was during this time period when export controls were altered to look less like a punishment mechanism and more as an instrument of foreign policy.

Over time, this system has become gradually more complicated, as technology and globalization have advanced. Conceptually easy to understand, but laden with complex regulations, at the most basic level “export controls” simply means one thing: to control exports. Today the system is less focused on a singular adversary and increasingly concerned with maintaining American economic superiority.

These controls are not intended to blatantly prevent other countries from obtaining American goods. It’s quite the opposite. Items essential to national security must be licensed and must be controlled. Export controls are not an isolationist technique, but rather a system of knowing where American products are going and how they are being used.’

The system is characterized by two primary regulatory regimes: The International Traffic in Arms Regulation (ITAR) and the Export Administration Regulations (EAR). Administered by the Department of State’s Directorate of Defense Trade Controls, ITAR is concerned with controlling the export of military and defense-related items. These items, which are found on the United States Munitions List include such items as grenades, missiles, and rocket launchers — essentially those items not typically found in a household. The Department of Commerce’s Bureau of Industry and Security oversees the EAR and is the licensing authority for export commodities and dual-use items (goods that have both civilian and military use). Any business that produces and exports items of national security interest must comply with these regulations. There is a third regulatory regime administered by the Department of Treasury’s Office of Foreign Assets Control, which enforces economic and trade sanctions. Additionally, the president can use the authority vested unto to him or herself by the International Emergency Economic Powers Act to issue sanctions during times when the country is faced with an “unusual and extraordinary threat.”

Export controls are not unique to the United States and provide an important arena for international collaboration. There are four major multilateral export control regimes that often align with American objectives: the Wassenaar Arrangement (conventional arms and dual-use goods), the Missile Technology Control Regime (missile proliferation), the Australia Group (chemical and biological weapons), and the Nuclear Suppliers Group (nuclear proliferation). These venues for export control collaboration are voluntary, non-binding partnerships that rely on the individual states to uphold their laws and regulations.

The system will continue to evolve as the world changes and as new and old threats, such as cyberattacks and espionage, persist. “

https://worldview.stratfor.com/horizons/united-states-export-control-reform-foreign-policy-stratfor-blog-part-1

US Leads Military Weapons Technology Exports

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Mammoth Military Exports

“MILITARY AND AEROSPACE ELECTRONICS”

“Overall global defense trade reached a record-breaking $65 billion in 2015.

The United States remains the world’s top exporter of military weapons and technology in 2016, controlling more than one-third of military spending for defense technology sent to outside nations.

That’s the word from analysts at market researcher IHS Inc. in Englewood, Colo. Global defense trade numbers do not include purchases for internal military use.

The U.S. will export military weapons and technologies worth $24.4 billion in 2016, followed by Russia at $7.7 billion; France at $6 billion; Germany at $4.8 billion, the United Kingdom at $4.4 billion; Canada at $4.3 billion; Israel at $3 billion; Italy at $2.5 billion; Spain at $1.8 billion; and China at $1.6 billion, analysts predict.

The global defense trade market is small compared with internal defense spending among the world’s most developed nations. The U.S. Congress, for example, is formulating a fiscal 2017 Pentagon budget that will exceed $600 billion.

The U.S. share of the global defense trade market will grow by 6.3 percent in 2016, rising from $23 billion to $24.4 billion, analysts say. This dramatic growth may exceed $30 billion as deliveries of the F-35 combat aircraft begin to ramp up, analysts say.

France, meanwhile, has doubled its backlog of orders from $36 billion in 2014 to $55 billion last year, meaning that $55 billion worth of defense equipment has yet to be exported. This increase means that France will overtake Russia as the second-largest global defense equipment exporter, IHS experts say in the annual Global Defence Trade Report released this week.

The report examines trends in the global defense market across 65 countries and is based on 40,000 programs from the IHS Aerospace, Defence & Security’s Markets Forecast database.

“The global defense trade market has never seen an increase as large as the one we saw between 2014 and 2015,” says Ben Moores, senior analyst at IHS. Markets rose $6.6 billion, bringing the value of the global defense market in 2015 to $65 billion. IHS forecasts that the market will increase further to $69 billion in 2016.

Saudi Arabia will lead the world’s military importers in 2016 with $10.1 billion in military purchases. Following Saudi Arabia among the world’s top military importers in 2016 will be India at $4 billion; the United Arab Emirates at $3.1 billion; South Korea at $2.5 billion; Iraq at $2.3 billion; Australia at $2.1 billion; Egypt at $2 billion; Taiwan at $2 billion; Algeria at $1.8 billion; and Qatar at $1.7 billion.

In 2015 the Middle East was the largest importing region, with $21.6 billion in deliveries of defense equipment, IHS analysts say. Total defense spending accelerated in Asia-Pacific last year as states bordering the South China Sea boosted defense spending.

The largest global exporter, the United States, saw another 10 percent increase in exports over the past year, bringing the total to $23 billion (35 percent of the global total). There was significant change in the top five importing countries last year, with Taiwan, China, and Indonesia all dropping out of the top five and Australia, Egypt, and South Korea replacing them.

The IHS report indicates that U.S. trade flow to the Middle East has been driven by sales of military aircraft and associated mission systems. Russia, meanwhile, is likely to increase its trade in the region as post-sanctions Iran begins to replace its exhausted aviation assets.

The value of military imports throughout Western Europe rose from $7.9 billion in 2013 to $9.6 billion in 2015. from Norway, pan-European programs and the United Kingdom. United Kingdom imports nearly doubled as imports of MARS tanker ships from South Korea and CH-47 helicopters from the United States have begun.”

http://www.militaryaerospace.com/articles/2016/06/military-spending-defense-technology.html?cmpid=enl_MAE_WrapUp_2016-06-17&eid=297842363&bid=1436197