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Jun

19

Left Behind

Posted by Clif Burns at 5:32 pm on June 19, 2007

Category: DDTC

OMV logo For those of you who didn’t get to go to the Paris Air Show at Le Bourget and have been left behind, like me, to swelter in the heat and humidity of late June in the District of Columbia (or elsewhere), ExportLawBlog brings you the next best thing — a blog post on Le Bourget! (Well, maybe not the next best thing.)

It seems that John Douglass, president of the Aerospace Industries Association, did get to go to Le Bourget where he got to wash down a few amuse-gueules with a few coupes de champagne and to complain about U.S. export controls. Now that’s the life!

As reported in today’s EE Times:

John Douglass . . said that while export controls are necessary to protect national security, both sides agreed that more liberal export policies could help spur effective aerospace trade and technology cooperation among allies. . . . Global civil aviation sales are particularly strong, and Douglass said “We could even do better if we had a better rule set” for exports, said Douglass.

So far, so good.

The current U.S. export control is “based on two systems,” said the AIA president. One is for military exports that are tightly controlled by State Department, which “essentially says ‘no’ to exports,” Douglass argued.

That’s either the champagne talking or the reporter misunderstood Douglass. For as much as we criticize DDTC here at ExportLawBlog, we have never accused them of just saying “no” to exports.

Douglass then suggested, somewhat more sensibly, that international technology cooperation programs should be licensed based on the countries involved:

If you are a NATO country, you will be given ‘level- one’ cooperation, for example. But if you are a level-two nation, more controls are imposed.

It might make sense to codify a tiered approach, but it is quite clear that such an approach does currently inform licensing decisions at DDTC. It’s easier to get a TAA with a company based in a NATO country, for example, then it is to get one with a company in the UAE.

But the most interesting thing Douglass had to say he saved for last:

AIA hopes to ensure that the current U.S. export control system can be made more efficient and transparent. “But the best time to get this done is when the administration changes after the election next year,” said Douglass.

Notice how Douglass just slipped that in. The best time is after “the administration changes.” This is a tacit admission that the export reform proposals that the AIA made to President Bush through an industry group, and that we previously reported here, aren’t going anywhere.

Anyway, that’s the end of our trip to Le Bourget which, like all trips to France, are always too brief. Alors, trÃ¨s chers lecteurs de mon blog, Ã la prochaine!

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Jun

18

OMV to State: Pound Sand

Posted by Clif Burns at 8:36 pm on June 18, 2007

OMV logo Last week we reported on increased jawboning by the State Department, which has been threatening to impose sanctions under the Iran Sanctions Act on foreign oil companies that do business in Iraq. One target singled out by State is the Austrian oil company OMV. In a daily press briefing, State Department spokesman Sean McCormack had this to say:

Well, we have talked to I think — the company is OMV. We’ve talked to the Austrian Government about these negotiations. I understand that OMV has recently signed a preliminary deal . . . [W]e would question why at this point given Iran’s behavior in the international community . . . [it] would want to encourage these sorts of business dealings with Iran at this . . . particular time.

It’s going to be a choice that each individual state, each individual business is going to have to make. We have also talked to them about the fact that there are potentially applicable U.S. laws that could be triggered under the Iran Sanctions Act for basically over a certain dollar amount for investment in the Iranian oil and gas sector there’s a possibility of looking at applying sanctions to the relevant companies. I’m not saying we’re at that point, by any means, but it is something about which countries around the world, businesses around the world need to be aware of.

Thomas Huemer, a spokesman for OMV, was quick to respond:

OMV spokesman Thomas Huemer said that the company would respect all Austrian, EU and relevant international laws in its dealings with Iran’s National Iranian Oil Company (NIOC).

Hmm, I don’t see U.S. law or the Iranian Sanctions Act included in that list.

Of course, to be fair to OMV, it is in a difficult position. E.U. Council Regulation No 2271/96 explicitly forbids E.U. companies like OMV from complying with the Iran Sanctions Act. And McCormack’s threats were, after all, only of the “we’re only just saying” variety.

In other news, the Bureau of Industry and Security (“BIS”) wins the double plus good Newspeak award for headlining it’s announcement of new, and widely criticized, export controls on China with this headline: “Enhancing U.S. China Technology Trade.”

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Jun

14

DDTC Still Can’t Find Its Way With Inertial Navigational Chips

Posted by Clif Burns at 9:31 pm on June 14, 2007

Category: BIS • DDTC • ITAR Creep

QRS-11 Inertial Navigational Chip The QRS-11 navigational chip, perhaps the poster child for the so-called ITAR creep phenomenon, still bedevils the Directorate of Defense Trade Controls. Today, the DDTC issued a final rule amending the rule excluding the QRS-11 chip from the United States Munitions List. The rule attempts to address wider integration of the chip in civil aircraft but still doesn’t quite solve the problem.

First, a little background is in order. As you may recall, the integration of the QRS-11 chip into Boeing aircraft sold to China led to a $15 million fine being imposed on Boeing when it failed to get DDTC export licenses for these aircraft. Recognizing the absurdity of requiring a license because of a $2,000 part in a commercial aircraft costing $100 million or more, DDTC added a Note to category VIII of the ITAR to exempt the QRS-11 chip and other quartz rate sensor chips when (a) it was integrated into the standby navigational system of a commercial aircraft and (b) the Department of Commerce’s Bureau of Industry and Security (“BIS”) determined that the chip was subject to its own licensing jurisdiction.

Shortly thereafter BIS amended the EAR to include ECCN 7A994 which covers the QRS-11 chip (but not other quartz rate sensors) when integrated into a commercial standby instrument system of a civil aircraft. Under ECCN 7A994, the QRS-11 chip requires a BIS license for exports to all destinations except for Canada.

Traditionally inertial navigational chips and systems had been used in standby systems to the GPS used in the primary system. A standby or backup system supplies navigational information when the primary GPS is unable to get a lock on the GPS satellites and is unable to provide location information. The QRS-11 chip, however, is increasingly being integrated into primary navigational systems of civil aircraft and thus no longer subject, in those instances, to the exemption adopted by DDTC.

The new rule reflects this change and exempts the QRS-11 chip and other quartz rate sensors integrated into a primary instrument system of a commercial aircraft. The amended rule also requires a notification from BIS that the chip when integrated into a primary system is subject to BIS jurisdiction. And that’s the rub. BIS has not yet amended its rules to include in ECCN 7A994 chips integrated into primary instrument systems. Accordingly, notwithstanding DDTC’s amendment, no chip integrated into a primary system will be subject to the DDTC exemption. And there’s no indication when BIS will get around to amending its rules to add chips in primary instrument systems.

It should probably come as no surprise that as the price of quartz rate sensor chips drops, they are also being integrated into the navigational and stabilization systems of automobiles. So you may soon or already be driving an export-controlled car. As the pace of ITAR creep accelerates we may have to call it something else — ITAR surge, perhaps.

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Jun

13

U.S. Threatens Secondary Boycott of Companies Doing Business in Iran

Posted by Clif Burns at 9:57 pm on June 13, 2007

Category: Iran Sanctions

Iranian oil field Threats by the United States to impose new sanctions against Iran include threats to take the Iran Sanctions Act out of mothballs and to start imposing sanctions authorized by that act against foreign companies investing in Iran’s petroleum sector. According to this report from the BBC:

Oil firms may face fines and other penalties if they sign deals to develop Iranian reserves of oil and gas, a State Department source told the BBC. Nicholas Burns, one of the most senior officials at the State Department, has a blunt message for energy companies considering Iranian deals. “We have been going round to the major oil and gas firms to let them know that this law [the Iranian Sanctions Act] exists and that we implement it if they cross the line,” he said.

Under the Iranian Sanctions Act, the President may impose certain specified sanctions on foreign companies that make investments exceeding $20 million in a twelve-month period that materially enhance the ability of Iran to develop its petroleum resources. Among those sanctions are a denial of the company’s ability to import into the United States.

When the law was initially enacted in 1996, the E.U. filed a complaint with the WTO that this secondary boycott of companies doing business with Iran violated the obligations of the United States under the General Agreement on Tariffs and Trade. In response the E.U. and the U.S. entered into a Memorandum of Understanding that attempted to avoid a confrontation over the secondary boycott. Relying on the Memorandum, the Clinton administration waived sanctions under section 9(c) of the Iranian Sanctions Act with respect to a proposed investment of $2 billion by Total SA of France to develop the South Pars oil field in Iran. Subsequent investments by European companies in the Iranian oil sector have not been sanctioned by the U.S.

The re-institution of the secondary boycott will likely lead the E.U. to reinstate its WTO complaint. According to the previously mentioned BBC report:

A number of European energy giants – including Shell, Repsol of Spain and France’s Total – are at the moment considering multi-billion dollar contracts to develop Iranian gas fields.

This will put the U.S. in a difficult situation given its earlier arguments that secondary boycotts by Arab countries of firms doing business with Israel violate the GATT.

For an excellent discussion of the illegality of secondary boycotts under the GATT, see Professor Eugene Kontorovich’s comprehensive article in the Chicago Journal of International Law.

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Jun

12

I Do Suspect the Lusty Moore

Posted by Clif Burns at 11:58 pm on June 12, 2007

Category: Cuba Sanctions • OFAC

Michael Moore Here’s more on Moore — which is a transparent ploy by me to start another food fight in the comments section to this post about whether Moore is a big fat liar or a champion of the people. Export Law Blog has no official position on whether Moore is a BFL or a COTP (notwithstanding the title of this post, which is simply an opportunity to make a cheap Shakespearean pun)

Update 1:

Moore has responded to the inquiry of the Office of Foreign Assets Control (“OFAC”) through high-profile lawyer David Boies. After noting that Moore has been critical of the Bush administration, Moore’s lawyer stated:

For this reason, I am concerned that Mr. Moore has been selected for discriminatory treatment by your office.

Unfortunately, all I could find were stories that quoted parts of the Boies response. A full copy of the response, which presumably would provide some better documentation of this charge of discrimination, has not yet been released. We’ll post it when we find a copy.

Update 2:

The New York Post reports that the three workers from Ground Zero who accompanied Moore to Cuba to “demand” medical treatment at Guantanamo are also being investigated by OFAC. Unlike Moore, they can’t even claim to be eligible for the general license for journalists. Even so, every dollar spent by OFAC investigating these Ground Zero rescue workers is a dollar that OFAC can’t spend investigating the terrorists that were responsible for creating Ground Zero.

Update 3:

Michael Moore has announced that he has secreted a copy of Sicko in Canada out of fear that OFAC will confiscate a copy of the film. I’m not clear what under what theory OFAC could do such a thing unless Moore gave the Cuban government a financial interest in the film. Even then, the film couldn’t be blocked under the information exception to the Cuba embargo, which clearly permits transactions relating to films and other informational material. I don’t think I’m being cynical in suggesting that Moore is taking maximum advantage of OFAC’s decision to investigate him.

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