On Monday, the Directorate of Defense Trade Controls (“DDTC”) published on its website the minutes of the June 19th meeting of the Defense Trade Advisory Group, and attached to those minutes was a draft of the proposed implementing rules for the Defense Trade Cooperation Treaty between the United States and the United Kingdom. The purpose of that treaty was to eliminate the requirement for export licenses for certain exports of defense articles between the United States and the United Kingdom. These rules go a long way in answering questions that had been raised about the scope of the treaty.

First, the treaty eliminated the export license requirement for certain exports between the “United States Community” and the “United Kingdom Community.” This language and structure led to some question as to whether the benefits would be accorded to all exporters. In fact, the rules make clear that the “United States Community” includes all exporters registered with DDTC and not otherwise disqualified from exporting due to commission of a disqualifying felony, debarment, etc.

Second, the treaty contemplated that certain items on the United States Munitions List of particular sensitivity would be excluded from the benefits of the treaty. The draft rules provide a side-by-side list comparing the USML and the items that are approved for export under the treaty.

Of particular significance here is the provision of the rules which states that, notwithstanding the list of acceptable items, no exports will be allowed without licenses under the treaty of

Defense articles specific to reduced observable, or counter low observables in any part of the spectrum, including radio frequency (RF), infrared (IR), Electro-Optical, visual, ultraviolet (UV), acoustic, and magnetic shall not be exported.

The problematic language here is “in any part of the spectrum” which led DTAG Vice-Chair Sam Sevier to note that “almost all” military items would fall somewhere within that broad spectrum and that this exception could render the treaty meaningless and unusable. It does, indeed, seem broad since ordinary camouflage could be seen as a reduced observable in the visual spectrum.

Additionally the proposed rules exclude “sensor fusion capabilities beyond that required for display or identification correlation.” Participants at the DTAG meeting pointed out the unnecessary breadth of this provision by noting that it would cover export of Google Maps which put sensors and processing together beyond what is required for display or identification correlation.

Further comments on these issues are being solicited and should be sent to Terry Otis, DTAG Recorder, before the close of business on June 20 at [email protected]

Last week Lockheed-Martin agreed to pay $4 million in fines arising from (1) a proposal it made to the UAE for the sale of Hellfire missiles without providing prior notice of the proposal to the Directorate of Defense Trade Controls (“DDTC”); (2) technical data it transferred to UAE officials without a license in connection with that proposal; and (3) disclosure of classified information on the Joint Air-to-Surface Standoff Missile to foreign persons of a major non-NATO ally. The settlement agreement between DDTC and Lockheed-Martin provided that $1 million of that fine would be suspended provided that Lockheed-Martin undertakes certain prospective compliance activities.

The most interesting part of this settlement relates to the charge that Lockheed-Martin failed to provide prior notice to the DDTC of its proposal to the UAE regarding the Hellfire missiles. Section 126.8(a)(2) of the International Traffic in Arms Regulations (“ITAR”) provides that prior notice must be given to DDTC of any proposal to sell more than $14 million dollars of “significant military equipment” to a country other than one that is a NATO member, Australia, New Zealand or Japan, provided that a license for permanent export of the article has been previously granted or a Foreign Military Sale of the item has been previously approved. If no such license has been granted, or FMS sale approved, the proposal requires prior approval by DDTC.

The issue is usually what constitutes a “proposal.” Is a casual conversation at the Farnborough Air Show covered? Does the proposal have to be a binding contractual offer? Section 126.8(b) of the ITAR attempts to define a proposal, but raises more questions than it answers

The terms proposal or presentation … mean the communication of information in sufficient detail that the person communicating that information knows or should know that it would permit an intended purchaser to decide either to acquire the particular equipment in question … For example, a presentation which describes the equipment’s performance characteristics, price, and probable availability for delivery would require prior notification or approval, as appropriate, where the conditions specified in paragraph (a) of this section are met. By contrast, the following would not require prior notification or approval: Advertising or other reporting in a publication of general circulation; preliminary discussions to ascertain market potential; or merely calling attention to the fact that a company manufactures a particular item of significant military equipment.

By contrast, the proposal given by Lockheed seems short of one “which describes the equipment’s performance characteristics, price, and probable availability for delivery.” According to the Charging Letter:

[Lockheed-Martin] sent its first proposal to the UAE on June 11, 2003, specifically providing a planning estimate and quoting a price for 360 Hellfire Heat missiles and 100 Hellfire Blast Missiles.

The takeaway from this is, I think, that any written proposal that provides a price for the item to be exported should be considered a proposal subject to section 126.8 and that this proposal will require prior approval or notification if the other requirements of that section are met.