Export Control Blog

Congress Considering Sanctions on Palestinians

That was quick.

In the aftermath of the upset victory of Hamas in the recent Palestinian elections, moves are already afoot in Congress to sanction the Palestinian pseudo-state. Shmuel Rosner of Ha'aretz has the goods on legislation proposed by Rep. Ileana Ros-Lehtinen (R-FL), who not incidentally has never met a sanctions program she didn't like. Included in the text is this suggestion for the Secretary of State:

SEC. 4. DESIGNATION OF TERRITORY CONTROLLED BY THE PALESTINIAN  AUTHORITY AS TERRORIST SANCTUARY.

It is the sense of Congress that, during any period for which a certification described in section 620K(b) of the Foreign Assistance Act of 1961 (as added by section 2(b)(2) of this Act) is not in effect with respect to the Palestinian Authority, the territory controlled by the Palestinian Authority should be deemed to be in use as a sanctuary for terrorists or terrorist organizations for purposes of section 6(j)(5) of the Export Administration Act of 1979 (50 U.S.C. App. 2405(j)(5)) and section 140 of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989 (22 U.S.C. 2656f).

In other words, Ros-Lehtinen wants to see the Palestinian Authority join the company of Cuba, Iran, Libya, North Korea, Sudan and Syria on the US list of state sponsors of terrorism. That would make the PA the first non-state state sponsor of terrorism, something in which I imagine Hamas might take some pride.

Boeing's "ITAR-free" Airplane Encounters Unexpected Turbulence

So says The Seattle Times:

Last April in Everett, in a tense meeting with an investigator sent by Boeing headquarters, a small group of 787 engineers dropped a bombshell.

The engineers, veterans of Boeing's work on the B-2 stealth bomber two decades ago, told investigator Rick Barreiro that technology and know-how developed for that secretive military program would be used in manufacturing the company's newest commercial jet.

The engineers refused to sign forms declaring that the 787 program is free of military data. One said he feared signing would leave him open to federal indictment.

Their assertions set off flashing red lights at Boeing. Federal law prohibits U.S. companies from letting militarily sensitive technical expertise go abroad.

Yet Boeing's entire global manufacturing plan for the 787 hinges on having foreign suppliers build large structures out of advanced composite materials.

There's even some drama:

But after hearing from the engineers, [Boeing internal investigator Ray] Barreiro retagged a list of 787 technical specifications as defense items, not dual-use items, meaning they are subject to stricter State Department jurisdiction under the International Traffic in Arms Regulations (ITAR) law.

Bottom line: The 787 must be "ITAR-free." With even a single ITAR item on a commercial airplane, it cannot be sold overseas.

Barreiro's ITAR classification prompted a furor. Local 787 export-control manager Vanessa Gemmell angrily confronted Barreiro, then stormed out to complain to his boss.

Next day, Barreiro threatened to quit. He stayed only after Boeing legal staffers upheld his concerns.

Then there was the testing to learn what Boeing already knew. Re-education, if you will. ITAR style.

Export, etc. 1/20/06

• SITAC sitdown a week from Tuesday
• Ryan Zelnio of The Space Review tackles export controls on commercial satellites and other space technologies (Part One, Part Two)
• US sanctions Syrian military intelligence chief (Treasury press release here). Blocking Assef Shakat's assets is one thing, but whatever you do don't crack jokes about his wife.
• OFAC relents, allows Cubans to play in World Baseball Classic (and with a turnaround time of four weeks since the league's reapplication sets what must surely be a record of its own)
• Across-the-board mandatory AES delayed yet again
• Iran moving assets out of Europe in anticipation of sanctions threat
• Seoul providing Pyongyang with "strategic" communications gear
• Boeing CIO: ITAR is a "a big deal for us"
   

No Cargo for Hugo

I guess it figures that the first ever protest against extraterritorial US export controls would occur far from our own borders:

Workers of six plants property of European aeronautical trust EADS-CASA in Spain stopped working Monday for five minutes to protest a US ruling. Last week, the US Government issued a decision to prevent Spain from using US technology in the aircraft sold to Venezuela.

...[the protesters] failed to understand the veto on the use of US technological components to equip CN-235 and C-295 planes, as in 2004 the United States provided Venezuela with weaponry estimated at USD 24.6.

The US embassy to Madrid advised the Spanish authorities last Thursday that the US government had denied the clearance requested by EADS-CASA to transfer Venezuela US technology embedded in the aircraft.

That's right, the State Department is blocking the sale to Venezuela by Spain of military cargo aircraft, as the NYT first reported this past Saturday:

The Spanish government, led by Prime Minister José Luis Rodríguez Zapatero, said it regretted the decision, but vowed to move forward with the deal after acquiring the necessary technology elsewhere.

Under the accord, which was signed in November, Spain agreed to sell Venezuela 12 transport airplanes and 8 patrol boats for about 1.7 billion euros, or $2 billion.

Because the airplanes, which are not yet built, were to contain American technology, Spain was required to obtain a license from Washington before completing the sale. Neither Spanish nor American officials would describe the technology.

The see-through rule strikes again.

Wampum has more. They trace the US content in the Spanish aircraft to the Pratt & Whitney and GE engines, which I agree do seem to be part of the aircraft, though I doubt that's the full extent of the American technology incorporated into these military transports. In any event, this fracas has relatively little to do with the (unexceptional) technology involved and much more to do with the Bush Administration's antipathy toward Hugo Chavez.

According to the AP (via WaPo) EADS-CASA's planned sale to Venezuela would be "Spain's largest-ever defense deal". Sounds like good news for Rolls-Royce to me.

Cribbing Hibbs on Pakistan

Jeffrey Lewis is following Mark Hibbs' reporting out of the Netherlands on an intriguing and disturbing prosecution of a man for exporting dual-use items suspected of use in Pakistan's nuclear program.

Speaking of Hibbs, I confess that I'd never heard of him until I read the second part of William Langewiesche's feature on A.Q. Khan in this month's Atlantic, which relies heavily on the Bonn-based journalist's work. Readers may recall that I quoted extensively from the first part of Langewiesche's double feature on Khan. This time, go buy a copy. If there's any magazine that's worth its price it's the Atlantic.

Unfortunately, getting direct access to Hibbs' reporting isn't as simple as a quick stop at your neighborhood newsstand. His writing largely appears in NuclearFuel, a publication so expensive its publisher's website doesn't even name a price (if you have to ask...). If you're hankering for a taste though, a sample from last August (pdf) is available.

Ney Tried to Help Cypriot Firm Get License for Iran Export

Thanks to Newsweek (via Josh Marshall), the heretofore elusive House Republican ethics scandal-export controls connection is coming into focus:

Ohio Rep. Robert Ney personally lobbied the then Secretary of State Colin Powell to relax U.S. sanctions on Iran. Who asked him to? A convicted airplane broker who had just taken the congressman and a top aide on an expense-paid trip to London, NEWSWEEK has learned. Ney's lawyer confirmed to NEWSWEEK that federal prosecutors have subpoenaed records on Ney's February 2003 trip paid for by Nigel Winfield, a thrice-convicted felon who ran a company in Cyprus called FN Aviation. Winfield was seeking to sell U.S.-made airplane spare parts to the Iranian government—a deal that would have needed special permits because of U.S. sanctions against Tehran.

Winfield never got the license, but things worked out better for Ney himself. On a subsequent gambling outing with Winfield's business partner the Ohio congressman just happened to parlay $100 into $34,000 in winnings. Quite a coincidence considering the $30,000 in credit card debt Ney carried at the time.

We've been down this road before here at ECB, but by way of a quick summary -- a license is required to export most anything of US origin to Iran, including aircraft parts. Most of the time, the mandarins at the Office of Foreign Assets Control review applications for exports to Iran under a policy of denial. (Note to Newsweek: if you had contacted the agency with primary jurisdiction over the Iran sanctions rather than Commerce and State perhaps someone would have been able to comment.) But there are a few categories of prospective transactions which get an upgrade to case-by-case review. Such is the case with exports related to aircraft safety, or, as the Iranian Transactions Regulations put it:

Specific licenses may be issued on a case-by-case basis for the exportation and reexportation of goods, services, and technology to insure the safety of civil aviation and safe operation of U.S.-origin commercial passenger aircraft.

Some claim that OFAC is capricious in its application of this provision, favoring suppliers to particular airframe manufacturers. What's clear enough is the OFAC does issue licenses under the aircraft safety carve-out, as in this case from 1999:

The Clinton Administration has approved a license to allow Boeing, through a European intermediary, to provide aircraft parts to Iran Air. After a painstaking review, the administration agreed to grant a waiver for the export and approve the license because the parts are necessary to ensure the safety of seven Iran Air 747s. According to State Department spokesman James P Rubin, "The American government seeks to ensure safe air travel for citizens of all nations. This waiver should not be viewed in terms of political content or messaging."

In October 1992, an El Al cargo jet crashed when two engines fell off its wing. That crash killed over 50 people. Following the crash the FAA (and its European counterpart) ordered modifications to 747s to prevent the engines from falling off. The modifications require that a special kit be installed to modify the struts used to attach engines to the wings of 747s. The Clinton Administration crafted its approval to ensure that the kits are installed on seven known passenger 747s operated by Iran Air and to prevent the kits from being installed on cargo aircraft.

Here's a bit of unsolicited career counseling for Rep. Ney. When you eventually resign in disgrace, send your resume on over to former Attorney General John Ashcroft's eponymous consulting firm. He's already lobbying on behalf of an Israeli defense company looking to reexport some US technology to South Korea, so I'm sure he'd be thrilled to bring someone on board with your experience. And what better way for a high-class outfit like the Ashcroft Group to hedge its bets than to lobby for both Israeli concerns and the country whose president would like to see them "wiped off the map"? (Just make sure you get a retainer.)

Export, etc. 1/13/06

• Canberra to Beijing: buying Australian uranium mines isn't a way around our export controls (earlier)
• Seattle Post-Intelligencer unimpressed with David McCormick's moonlighting as an administration economic policy spokesman
• From AECA to Abramoff
• OFAC chases after "Pastors for Peace" (you guessed it, Cuba)
• Ireland still working on arms brokering and enforcement crackdown
• Singaporeans boast of bulge bust

Speaking Up Against the Military Catch-All Rule

Writing in the Asia Times Online, attorneys Donald Weadon and Carol Kalinoski (a former BIS Operating Committee chair) take a closer look at the anticipated military (read "China") catch-all rule and don't very much like what they see:

The actual regulation has yet to be published, but the US Bureau of Industry and Security (BIS) has been sharing drafts. In sum, the rule requires any US exporter of commercial goods who "knows" or is "informed" that the commodity is intended for "military end use" in any country subject to an arms embargo (either international, regional or unilateral) to seek a US export license - or not undertake the transaction.

For exports and re-exports where the transaction would make a "direct and significant contribution" (as yet undefined) to the military capabilities of the embargoed nation, such license applications would be denied. The rule would also establish new restrictions on the activities of US persons who knowingly support a military end use in China.

In essence, the rule is a disfavored unilateral control in "multilateral control" clothing, since no other allied nations implement the SoU comparably, and none implement the SoU against China. Moreover, the facilitation or transfer provisions of the rule directly apply to banks, freight forwarders and others in the logistics chain, and when viewed through the lens of the corporate-knowledge doctrine, the opportunities for serious liability exposure abound for service providers as well.                              

The rule also provides no reasonable avenues of due diligence where one could limit exposure to liability. Based on the current compliance environment, even approvable licenses will be seriously delayed for want of resources, lack of definitional clarity and the lack of a published list of entities or projects that would trigger the rule's prohibitions.

All potential non-US competitors are not similarly restricted and could supply most goods straight away. The prospect is the loss of commercial opportunity for US firms in a highly competitive global market, without the intended negative impact upon a Chinese military entity or its projects.

It's worth reading the whole thing. Like the authors, I'm dubious that the benefits of this proposal outweigh the costs and I'm alarmed by the compliance challenges inherent in a muddy end-use based restriction. You don't have to be Nostradamus to predict ferocious internecine warfare between Republican China hawks and the big business wing of the party.

I do have one small beef with the Asia Times Online piece though, related to this bit:

In early 2005, the administration of US President George W Bush proposed an expansion of the "deemed export" rule to scrutinize and license technology access for individuals of Chinese and foreign birth, even if they had been citizens of allied nations since their youth. Industry and academia violently reacted to this proposal, in essence faulting it for useless overreaching that would damage the access of industry and academia to talent, and thus adversely impact US innovation. More than 315 lengthy negative comments were lodged.

The purpose of this paragraph seems to be to claim a ham-handed and overly aggressive pattern of Bush Administration export policies on China. None of what's written is inaccurate, but Weadon and Kalinoski exclude a few key facts inconvenient to their argument:

1. The original deemed export rule change notice never specifically targeted China.
2. Neither does the as-yet-unpublished military catch-all proposal.
3. BIS chief David McCormick publicly disavowed the silly "birth" rule for deemed exports a month ago. Shouldn't the article have mentioned this? After all, maybe the real lesson is that the administration will respond when faced with overwhelming industry opposition. If enough companies scream loudly enough about the military catch-all maybe it will be softened somewhat, just like the deemed export proposals.

Another Good Global Excon Resource

The latest newsletter from the University of Georgia's Center for International Trade & Security is up -- check it out (pdf).

Reading This Post Is Mandatory

Question: What do you think might happen if a government agency blasted their mailing list of corporate compliance types with notice that they "need to attend" a "mandatory" conference (which, by the way, isn't the least bit compulsory)?

Answer: Don't ask me, ask the Census Bureau, who set off a mild panic earlier this week with this an email broadcast which started like this:

Mandatory AES Compliance Conference: Seminars $199/Person

If you are currently exporting or even plan to export in the future you need to attend this new Mandatory AES Compliance Conference. Experts from the U.S. Government will teach you about the new export regulations and the stiffer penalties of up to $10,000 per non-compliant transaction.  Let us help you get it right the first time and avoid unwanted and costly encounters with government enforcement agencies.

I'm no grammar expert (try him), but this is ambiguous enough that it doesn't seem so crazy that some folks might not be sure whether the adjective "mandatory" is supposed to modify "AES" or "Compliance Conference". (Hey! You snot-nosed kids in the front -- quit your snickering. Sure, those of us who've been closely following the slow transition from paper Shipper's Export Declarations to the Automated Export System probably figured this out right away. But let's remember that not everyone can follow every development in the world of exporting quite so obsessively.)

So, no you are not obliged to pay the government $199 so you can dedicate nine and a half hours of your life listening to them explain what you could almost certainly figure out for yourself in twenty minutes by reading this FAQ. AES will indeed soon be mandatory (it already is for items on the CCL or USML), but these Census conferences are not. Which is just as well since the nearest one to me is in Detroit. (Clevelanders poke fun at Detroit. Not sure who those in Detroit ridicule...Windsor?)

The missive from Census pointed recipients to a website with similarly confusing language. Someone in the Foreign Trade Division must have figured out how confusing this all was because they edited the site, but they couldn't edit Google's cache, which I've reproduced below for posterity's sake (click to enlarge).