Unintended Consequences of Export Reform Subject of Talk
As export reform continues inching to fruition stakeholders are analyzing potential consequences of the deep changes sparked by the Obama administration in 2010. Unintended consequences of export reform, as it stands now, was the subject of a Feb. 26 talk hosted by the law firm Jones Day. The talk was led by Jones Day partners Giovanna Cinelli and Kenneth Nunnenkamp. The State Department began talks with Congress on USML-CCL moves earlier this month (See ITT’s Online Archives 13020841). The Office of Management and Budget approved the “beast rule” -- part of the Congressional notification sent to Congress by State in January (see Online Archives 13012233).
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Some of the potential consequences cited by Cinelli and Nunnenkamp include:
- Confusion over the extraterritorial application of U.S. export laws. A 2010 Supreme Court case, Morrison v. National Bank of Australia, could affect this issue. In the case, the court unanimously decided that U.S. law against securities fraud does not apply to investment deals occurring outside the country, even if they have a domestic impact or effect. (All the documents related to that case can be found here.) Though it doesn’t relate to export laws specifically, the case does say U.S. laws are for domestic purposes only, which could effect the application of export restrictions extraterritorially.
- Dual disclosures for export violations. As items are transitioned from the USML to the CCL, exporters may have to file two separate yet overlapping disclosures -- with both the State and Commerce Department -- at least in the initial post-reform period.
- ITAR violation issues could become more severe. One of the Obama administration’s export reform goals is to restructure the USML so only key defense items remain on the list. Yet if the USML is limited to crucial, national security related items, every export in violation must have a great significance to national security and foreign policy. A related potential consequence is the increasing classification of the USML. As the list concentrates, the information on it specifies, becomes more of a national security concern, and then has the potential to become classified information.
- Possibility of Chinese procurements for the U.S. military. This comes from a statute relating to a DFARS clause banning the U.S. military from procuring goods or services from any Chinese military company (DFARS 252.225-7007, 225.770-1 and 225.770-5). The statute (Public Law 109-163, Section 1211) says the goods and services described are on the ITAR. If unchanged, this could allow for extensive procurements from China for the U.S. military.
- Lapse in license transfers. As items move from the USML to the CCL, exporters will have to transition their licenses from State to Commerce. Lag time between the granting of the new license -- which could be up to 60 days -- could affect exports.
- Loss of U.S. jobs. ITAR-required technological restrictions are a big block to overseas production. If technology is moved from ITAR to EAR control, companies will be allowed to release detailed technology for export and will likely move production to cheaper offshore locations. Companies should expect this to be an issue when export reform is discussed in Congress, Nunnenkamp said.
For a list of some of the USML-CCL rewrite final and proposed rules see ITT’s Online Archives 13010402.