State Department proposes to relax aircraft export rules

The Bush administration has taken another key step to answer the aerospace industry's chronic complaints that the cumbersome process of approving licenses to export their products handicaps its ability to compete in an increasingly global market.

The new action is a proposed rule from the State Department that seeks to cut through a cloud of confusion over what are "civil" aircraft components, which can be exported easily to nearly any foreign customer, and what are "military" products for which overseas transfer is tightly controlled.

That distinction can mean the difference between a transaction that is reviewed by the Commerce Department and completed in days and one that falls under State Department scrutiny and can be tied up for months, with no assurance of approval.

The Aerospace Industries Association, which was part of a coalition of export-dependent industries that pushed for the reforms, said the proposed rule "could be an important step in modernizing the U.S. export control system and eliminating confusion for civil aircraft manufacturers.

"Civil aircraft manufacturers must be able to assure customers that their commercial components will not be classified as military items," AIA President Marion Blakey said. "Otherwise they risk being cut out of opportunities in the commercial marketplace.

"This proposed rule, when finalized, will provide U.S. aerospace manufacturers with much needed clarity," Blakey added.

Rep. Donald Manzullo, R-Ill., a co-chairman of the bipartisan House Export Controls Working Group and a longtime advocate for improving the export control process, agreed. "This proposed rule would save U.S. civil aviation manufacturers billions of dollars, create American jobs, and strengthen our national security because the government will have more time and resources to focus enforcement measures on more significant threats," he said.

Manzullo and House Foreign Affairs Terrorism and Trade Subcommittee Chairman Brad Sherman, D-Calif., introduced legislation last year that would make many of the changes in export controls the industry coalition is seeking. Their language was included in a larger security assistance and arms export control reform bill, which sailed through the House Foreign Affairs Committee on April 30 and may be on the House floor this week.

The significance of the issue is indicated by an AIA announcement that total aerospace exports last year reached a record of nearly $97 billion, producing a positive trade balance of $60 billion.

But aerospace and other high-tech producers have complained for years that potential foreign sales are restricted by the export license process that can block a multimillion-dollar deal for an obviously commercial product because a minor component has been used in a military system. Even if the component has no unique military function, its presence can put the entire product on the restrictive "munitions list," requiring a prolonged review by a short-handed State Department office.

Remy Nathan, director of international affairs at AIA, noted that Congress had to address that issue in its recent attempt to prohibit export of parts for U.S.-made F-14 fighters, which Iran still flies.

The legislation had to be modified to say that no part "unique" to an F-14 could be exported. Otherwise, Nathan said, there might be a component used on the F-14 that also is used on a lawnmower, which would mean the lawnmower could not be exported.

"The absence of clarity becomes a source of confusion," that affects producers all the way down the supply chain, he said.

To address that problem, the State Department put into the Federal Register on April 11 a proposed rule that was intended to provide clarification of Section 17(c) of the Export Administration Act of 1979. That provision is supposed to guide the determination of whether an item is civil, which would be cleared for export by the Commerce Department, or military, which would be controlled by State.

Although the EAA expired in 2001, it has been extended in effect by presidential directives. But confusion has emerged over the application of 17(c).

The Federal Register filing said the intent of the proposed rule is to make clear that "certain basic parts and components with a long history of use on both civil and military aircraft ... are not subject to the jurisdiction of the Department of State."

Nathan said confusion has emerged because the munitions list has "line items and categories" of things that are clearly military. But it says that "anything designed or modified to be included on a line item is military," even if it has no unique military function and is used routinely on civil aircraft.

The intended result of the rule, he said, is that civil aviation items, even if used on a military aircraft, remain civil and controlled by Commerce.

The 30-day comment period for the proposed rule ends today. AIA submitted a number of suggested changes in language intended to help the average civil aviation supplier with limited or no experience dealing with the export control rules, Nathan said. One requested elimination of a proposed exemption to 17(c) for items "tested beyond established specifications," a common practice that has no direct military implication.

The administration initially had responded to the industry's complaints with a Jan. 22 presidential directive that promised additional resources to speed up the license process and included guidelines requiring a license application decision within 60 days.

A State Department official said recently that the backlog of license applications delayed more than 60 days had been cut from nearly 700 last year to 67.

The administration has asked the Senate to approve proposed treaties with England and Australia that would allow nearly unrestricted sales of defense-related items. That would be significant, Nathan said, because exports to those two close allies represent about 80 percent of State's license reviews, which had a nearly 99 percent approval.

The Senate Foreign Relations Committee has not held a hearing on either of those agreements, but an aide said the staff is actively reviewing the Australian pact.