Export Controls, Simplified
Nov 15, 2014

A paradigm policy shift gathering momentum in the United States bodes well for Canada’s aerospace sector and its many suppliers, according to Kevin Wolf, Assistant Secretary for Export Administration at the U.S. Department of Commerce. It is already simplifying how Canadian companies can export and re-export a broad range of aviation-related hardware which previously couldn’t move an inch without State Department authorization.

Kevin Wolf, Assistant Secretary for Export Administration at the U.S. Department of Commerce, speaks at AIAC annual Summit.

A classic example was the Royal Air Force C-17 Boeing Globemaster that was stranded in Australia several years ago by a part failure. The part was on State’s prohibited list, so Britain had to request U.S. permission for the repair! “These are two of our very strongest allies, for God’s sake,” fumed the U.S. Defense Secretary at the time, Robert Gates. He pointed out that this kind of bureaucratic obstructionism served only to undermine U.S. credibility and long-standing relationships.

Wolf explained to the 2014 Aerospace Industries Association of Canada (AIAC) annual summit, in Ottawa, that the shift began in 2009 when President Barack Obama directed Gates and others in his cabinet to review the export controls regime with a view to reforming it in ways that would enhance national security.

A former U.S. Air Force officer and Central Intelligence Agency officer, Gates is generally considered to have special credibility in that he was the only Defense Secretary who served Republican (George W. Bush) and Democrat (Obama) presidents.

At one point early in the review, Gates acknowledged that the U.S. had, and still does in some ways, one of the most stringent export regimes in the world. But, as he pointed out, “stringent” wasn’t synonymous with “effective.”

To the contrary, it has been, especially to Canada and other close allies, a major pain, mainly because of a sweeping broad definition of what should be subject to export controls (items Gates used to track in his CIA days). This cumbersome Cold War legacy was so pervasive that the list of prohibited technologies overloaded U.S. monitoring capabilities. “We were […] tracking technologies you could buy at RadioShack,” he famously admitted.

It reflected a bureaucracy, built up over decades, which had become “a byzantine amalgam of authorities, roles, and missions scattered around different parts of the federal government.”

While that theoretically balanced defence and commercial needs, it drove prospective exporters to “shop” at various U.S. agencies for one that might give them a break. One individual, caught exporting unlicensed carbon composites used in ­missile nose cones, escaped prosecution by presenting conflicting determinations from two agencies.

The system also has resulted in some multinational companies moving U.S. production offshore, which not only cost jobs for America, but also undercut the controls regime and threatened U.S. security by potentially hampering interoperability in theatres such as Afghanistan and, more recently, Libya and Iraq.

Attendees at AIAC annual conference.

Faced with the presidential directive, the Defense, State, Commerce and Homeland Security departments got to work, together with the intelligence community and Obama’s national security advisor. The goal was a more sensible Export Controls List, central licensing and enforcement, and a common information technology system.

Wolf told the AIAC audience that the initiative resulted in an exhaustive rewrite of the rulebook, including working with Canada and other allies to ensure that “everybody was in the same loop” as the U.S. moved to its new regime.

The first “final rule” change was applied to aircraft, engines and parts, followed by others for vehicles, ships, personnel equipment and, just a week before the AIAC summit, “some rather dramatic” changes for government satellites and spacecraft.

Wolf said the process had transferred most of the oversight from State to “more flexible, tailorable” regime at Commerce and that, by the end of 2014, rules governing defence electronics would also be covered.

Instead of one sentence in the regulations that vaguely encompasses what Wolf described as “all military stuff”, there will be a list of “20 or so particular types of electronics” that will be considered militarily significant. Vendors will recognize this as a clear improvement going forward.

Defence technologies still require a worldwide licence but Wolf said that the “strategic tradeoff” means there will be a large exemptions list. “So long as the end-user is one of the governments of […] NATO and a list of other close allies, exports and re-exports […] may occur without a government licence both for the specific item and the related technology […] so long as the parties agree to keep the items […] among and between themselves.”

The old Export Controls system treated the tiniest, most innocuous switch with the same level of scrutiny as the newest fighter aircraft. Soon, clearly sensitive technologies such as next generation weapons and sensor systems will still be closely held by the State Department, while less-sensitive and, more importantly, dated technologies will be handled more quickly and flexibly by the Department of Commerce.

The transition sets the stage for what Wolf characterizes as a “very radical change” in aerospace trade between the two North American allies. “Trade between the United States and Canada, for the vast majority of military items, is no longer a licensed event, either for the export or the import,” he said. However, it also means that Canadian companies will be in “the same shoes” as U.S. companies, putting the onus on them to be aware of any rules on a technology or service being exported. Moreover, he said it is essentially a self-policing setup, that requires companies to keep records that are open to U.S. inspection.

Asked by an audience member how U.S. companies which still seem unaware of the changes can be brought up to speed, Wolf agreed that a “massive amount of outreach is needed” and that he was already involved in weekly teleconferences with industry to ensure it happens expeditiously.

However, he said, it was inevitable that some companies would be ignorant of the change even though the process has been in train for four years.  That was why there has been a six-month delay in making changes effective once a draft final rule has been published. There also is a two-year grandfathering of companies which have relied on State’s authorizations.

Truly recalcitrant companies can expect “tough love” from the administration. “When a company tries to do business in the old way, the State Department should kick it out,” Wolf said. “Then they’ll be forced to start getting used to the new system.”

That being said, he took heart from the fact that “we have a lot of companies that are early-adopters, that have been following this quite closely. There was a significant amount of compliance program pain in the short term […] as they reclassified their items, retrained their engineers, and got used to the new system, but every one of those companies tell me that once they got through that pain of getting used to the new system, their compliance lives are a lot simpler.”

However, for Canadian companies or any other non-U.S. interests, he said “they can inevitably […] run across U.S. companies who have no idea.” The solution, he said, is for non-U.S. companies to simply go on-line at Commerce and check what’s permissible and what’s not. The latter is still critically important under the ostensibly relaxed and still evolving new regime in Washington.

Ken Pole is a Contributing Editor at FrontLine Defence magazine.
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