ITAR Compliance is Crucial for Aerospace Companies

The aerospace production boom has drawn numerous American companies to establish manufacturing plants in Mexico – but they should be aware of ITAR and its impact on their business, a Customs and international trade attorney advises.

Richard Katz with Snell & Wilmer in Tucson, Ariz., is well acquainted with ITAR, or the International Traffic in Arms Regulations – a set of U.S. State Department guidelines outlining U.S. compliance for the sale, manufacture and cross-border trade in items and technology on the U.S. Munitions List (USML) pertaining to aerospace and defense industries.

ITAR has “a large impact on the aerospace industry, both for commercial and military application,” Katz notes. “You might ask, ‘Why would U.S. federal regulations affect aerospace manufacturing in Mexico?’ Mexico is another country. The reason that the U.S. regulations often apply to aerospace manufacturing in Mexico is because of the cross-border nature of the trade between the U.S. and Mexico, and the entire aerospace industry’s international footprint.

“Often, establishing a manufacturing license agreement between the U.S. entity and its Mexican facility is the easiest and simplest way to deal with the ITAR regulation of manufacturing in the aerospace industry,” he adds. “Both the U.S. manufacture and its Mexican partner are going to have to deal with the ITAR.”

To ensure compliance with ITAR statutes, Katz advises a company’s first step should be determining whether its hardware or technology are on the USML – a list of articles, services and associated technology designated by the U.S. government as defense- or space-related. (In order to be exported – or supplied to any non-U.S. person – any articles, services or data listed on the USML require an export license issued by the U.S. State Department.)

“If a company is a player in this industry, it likely deals with items on the munitions list,” the attorney notes. “If so, they have to register with the office of the State Department overseeing ITAR regulations: The Directorate of the Defense Trade and Control.”

Employees are another area of concern, Katz says. “Often, Mexican nationals have access to aerospace ITAR-regulated technology and materials,” he explains. “It is also possible that nationals of a third country may be involved. U.S. regulations are very specific about the proper licensing of foreign nationals who work on these projects. The U.S. and the Mexican company have to work together to determine who is going to work on the project, and who will have access to defense technology.”

ITAR compliance requirements are strict, with an entire regime of State Department inspectors and enforcement personnel examining records. Penalties for non-compliance are severe, and can amount “in the millions of dollars” for serious violations, Katz says.

However, the Snell & Wilmer attorney notes there also is some tolerance for companies who realize a mistake and report it.

“There is an ITAR procedure that permits a U.S. registrant to go to the State Department preventive to explain any problem or non-compliant activity that’s gone on in the past,” Katz explains, “and, believe it or not, the State department is fairly lenient about prior disclosures. Depending upon on what has happened, sometimes they will greatly reduce any penalty or corrective procedures that may be required.”