ITAR Update
May 15, 2011

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Many years of Canadian lobbying has evidently paid off with the United States’ recent confirmation that it plans to amend its International Traffic in Arms Regulations (ITAR). The State Department says that, effective August 15, it will change contentious nationality restrictions which have made it difficult for foreign firms to do business in sensitive sectors.

This comes two years after President Barack Obama ordered a comprehensive review when an interagency task force found that the long-standing array of complicated and overly-protective export controls had not improved national security. Defense Secretary Robert Gates followed up almost immediately by acknowledging that the ITAR “impedes the effectiveness of our closest military allies, tests their patience and goodwill, and hinders their ability to coordinate with U.S. forces” in an era in which Washington has relied increasingly on allies’ support in foreign theatres.

Entrenched U.S. suspicion of those born in countries such as China, Iran and others has created significant headaches on this side of the border. Canadian companies have risked discrimination against “dual national” employees, including some with top security clearances, in the hope of hanging on to lucrative U.S. contracts.

“As a part of the President’s Task Force on Export Control Reform, the previous policy regarding the treatment of dual nationals and third-country nationals em ployed by approved end users was re-evaluated,” noted the 16 May Federal Register.

Dan Ross, Assistant Deputy Minister (Materiel) at Canada’s Department of National Defence, had been expecting the announcement. Five days earlier, he told an executive breakfast organized by the Ottawa chapter of the Armed Forces Communications & Electronics Association that the U.S. would be making “significant improvements in the openness and accessibility” of ITAR and its impact on Canadian industry. “It will deal with the dual-national issue,” Ross told the audience. If adopted, basing the dual national issue “on security clearances and not on place of birth,” would significantly impact industries in multicultural societies as Canada. “My understanding is they’re using the Canadian model as the basis for that solution,” he said optimistically.

With Washington’s position now officially signed off by Ellen Tauscher, Under Secretary for Arms Control and International Security, Canada’s Minister of Public Works and Government Services, Rona Ambrose, called it a “positive step forward” for Canadian suppliers. “It replaces nationality-based screening with security measures that can be applied to all individuals equally,” said a prepared statement released by her office. “We look forward to working with our U.S. partners on the full and effective implementation of the new rule, which is aligned with ongoing enhancements to Canada’s Controlled Goods Program.”

The announcement was welcomed by the Canadian Association of Defence and Security Industries (CADSI), the Aerospace Industries Association of Canada (AIAC), and the Canadian Manufacturers and Exporters (CME) lobby group in a joint statement. CADSI President Tim Page believes it “should permit Canada’s defence industrial base to re-affirm its role in support of the shared security of North America.” David Schellenberg, AIAC Vice-Chair and President of British Columbia-based Cascade Aerospace, said it would “facilitate our trade south of the border, which represents approximately 60 percent of our industry’s exports.” CME President Jayson Myers called it “a move towards a more common approach to risk.”

The proposed change means that “dual” and “third-country” nationals will have access to information or technologies previously denied, with the onus placed on suppliers to perform the required due diligence to ensure security. That includes “full disclosure” of employees’ travel to countries Washington worries about – or any other form of contact. “Approved end-users must screen employees, make an affirmative decision to allow access, and maintain records of screening procedures to prevent diversion of ITAR-controlled technology for purposes other than those authorized by the applicable export license or other authorization.”

An overwhelming majority of interested parties had expressed “dissatisfaction” with the current rules, citing not only human rights issues but also the basic burden of compliance, such as maintaining separate accounting and licensing of foreign nationals. One critic called for the birthplace standard to remain in place, pointing to recent prosecutions of naturalized U.S. citizens for security violations. Others complained about the loss of business for U.S. companies. One unidentified “large U.S. aerospace firm” urged a return to pre-1999 rules where there was no additional licensing requirement for dual or third-country nationals working for authorized end-users, but that was rejected on grounds that it could have policy implications well beyond State Department jurisdiction. Nor was a proposed exemption for academic institutions accepted.

The announcement noted that “citizens who relinquish citizenship of the former country would not require screening (but) the nature of continuing relationships with the third country for those maintaining citizenship remains relevant, especially if the country is subject to restrictions […] In any event, this rule does not present foreign citizenship alone as a bar to access to ITAR controlled defense articles.”

The status of contract workers has always been a bone of contention in ITAR application, but the State yielded only slightly on that question, saying that only “full time employment” meets a test of full trustworthiness and legal responsibility.

The Office of Defense Trade Controls Policy (DDTC) is prepared to “narrowly” extend the change to contractors with long-term relationships with licensed end-users.

The fact that many aerospace and defence companies tend to be multinational was also considered. The DDTC felt that transfers to locations and end-users within the scope of the relevant licence was not problematic. However, it was “prudent” to require any other proposed transfers to have an additional license or at least an amendment to the existing one. “This rule is not intended to authorize unlimited transfers around the world for end-users with nominal connections,” it stressed.
Ken Pole is a contributing editor at FrontLine Defence & Security magazines.
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