Cross-border defence procurement and trade in USA

International trade rules

What export controls limit international trade in defence and security articles? Who administers them?

The International Traffic in Arms Regulations (ITAR) control the export of defence-related articles and services (including technical data and software) on the United States Munitions List. The ITAR also regulates temporary imports. The Department of State Directorate of Defense Trade Controls is responsible for administering the ITAR. Generally, licences or other approvals are required for all exports, re-exports or re-transfers under the ITAR, including sharing controlled technical data to foreign persons in the United States or providing defence services.

The Department of Commerce’s Bureau of Industry and Security (BIS) is responsible for administering export controls of most commodities, technology and software not controlled by the ITAR (though specialty export control regimes are administered by the Department of Energy and Nuclear Regulatory Commission). The BIS export controls regime is known as the Export Administration Regulations (EAR) and covers very low-level commercial items, ‘dual-use’ items, which are those having both commercial and military applications, and some lower-level military items that recently transitioned from the ITAR as a result of export control reform. BIS export licences under the EAR are required in certain situations involving national security, foreign policy, short-supply, nuclear non-proliferation, missile technology, chemical and biological weapons, regional stability, crime control or terrorist concerns and will depend on the item and country involved. There are also additional restrictions that relate to certain end-uses and end users. Accordingly, whether a licence is required will depend on a number of factors.

What domestic preferences are applied to defence and security procurements? Can a foreign contractor bid on a procurement directly?

Several laws provide domestic preferences for government procurements. The Buy American Act (BAA), as applied, provides that manufactured products made wholly in the US, or products from ‘substantially all’ domestic components, are eligible for a price advantage over foreign products. The BAA applies a two-part test: the item must be manufactured in the United States; and comprising US ‘manufactured’ components, the cost of which exceeds 50 per cent of the total component cost. The component test is waived for commercial off-the-shelf items. Exemptions for public interest and domestic non-availability may also be granted. However, the Department of Defense has modified the application of BAA requirements to its procurements.

Among other things, the DoD has determined it is inconsistent with the public interest to apply BAA restrictions to countries with which DoD has a memorandum of understanding regarding reciprocal procurement. The Trade Agreements Act (TAA), enacted in 1979, provides authority for the President to waive BAA restrictions for products from countries that have signed an international trade agreement with the United States agreeing not to discriminate against US products in their procurements. The President has delegated the waiver authority to the US Trade Representative, and it has issued waivers pursuant to relevant international trade agreements. The TAA applies a ‘rule of origin’ test where a product is of the country in which it was ‘substantially transformed into a new and different article’. Other domestic preferences address specific types of acquisitions, for example, those for textiles (Berry Amendment, 10 USC 2533a) and specialty metals.

Are certain treaty partners treated more favourably?

Different trade agreements may contain different coverage exclusions and thresholds. These are addressed at FAR 25.4.

Are there any boycotts, embargoes or other trade sanctions between this jurisdiction and others?

The Office of Foreign Asset Control (OFAC) within the Department of Treasury administers a number of different sanctions programmes. Some are ‘comprehensive’ and widely prohibit dealings with or related to a sanctioned country and persons or entities associated with it. Others are targeted to certain activities and actions in or related to a sanctioned country. Finally, certain programmes are transnational and deal with terrorism, cybersecurity and narcotics trafficking.

Countries and regions currently subject to comprehensive OFAC sanctions are the region of the Crimea, Cuba, Iran, North Korea and Syria - there are targeted programmes involving a number of other countries, including, for example, Russia, Ukraine and Venezuela. The rules (both for comprehensive and targeted sanctions) vary by programme and are subject to frequent change. Some transactions can be exempt. Others are subject to ‘general licences’. In some instances, the OFAC can also issue ‘specific licences’. There can also be significant parallel export control restrictions.

Pursuant to section 126.1 of the ITAR, the United States also maintains various arms embargoes and related country policies, which lists a number of countries, including China.

Are defence trade offsets part of this country’s defence and security procurement regime? How are they administered?

The United States does not use defence trade offsets in its procurement regime.