1. Defense Trade Advisory Group
SMALL BUSINESS REGISTRATION
WORKING GROUP
Plenary Session
March 30, 2017

2. Agenda
Working Group Members
Task Description
Recommendations

3. Working Group Members Michael Caton M-3 Technology
Ashley Farhat HRL Laboratories, LLC
Brandt Pasco IN-Q-TEL, Inc.
Kim Pritula National Shooting Sports Foundation (Chair)
Johanna Reeves F.A.I.R. Trade Group
Bill Schneider International Planning Services, Inc.
Olga Torres Torres International Law

4. TASKING
Provide feedback and recommendation as to whether generally a "small business" concept should be incorporated into the DDTC registration and fee structure - and/or whether alternative approaches should be considered.
Identify data elements DDTC would need to possess in order to fully evaluate the impact implementation of various "small business" registration approaches would have on current and potential future registrants. Identify specific data elements not currently collected via the DS-2032 form.
Provide feedback and recommendations regarding implementation approaches and "small business" definition options. Some issues for consideration: should a structure distinguish between individuals and small/medium/large entities? If so, should determinations be based on number of employees, annual revenue, other factors, or a combination, and how should the determining factors be calculated/evaluated? Should potential "small business" distinctions apply only to non-exporting registrants or to the base fee amount for all registrants?

5. Working Group Approach
Gather relevant information from:
Working Group/DTAG members
Companies (all sizes)
Law firms
Non-profits, trade groups & universities
Research
Definitions
Currently used similar fee structures
Develop recommendations

6. Small Business Concept
Issues facing small businesses with current registration requirements:
Regulations not understood – many small companies think having the registration letter is all they need – “ITAR certified”
Small companies refusing business due to ITAR implications
Small tech incubators – when does design become manufacture hence requiring registration?
Manufacturing as a service – new trend
Industry needs small companies as suppliers and vendors (niche manufacturers) to continue to support defense manufacturing

7. Small Business Concept
DDTC current registration information:
70% of registrants show no licensing activity
Non-exporting manufacturers
Exporters using exemptions only
Of registrants with licensing activity:
approximately 12% of all licensing actions were agreements
approximately 59% of all licenses issued were staffed
approximately % of registration renewals are based on the 3% renewal allowance for low value licenses

8. Small Business Concept
Hurdles in defining a Small Business:
SBA approval is required for any USG agency to adopt a small business definition – unless statute allows
SBA establishes small business size standards on an industry-by-industry basis (based on NAICS). Some industries defined by revenue, some defined by number of employees
Because of the diversity, extremely difficult to have a consistent small business definition to encompass the variety of defense companies.
Example of divergent definitions:
Aircraft Manufacturing – 1500
Aircraft Part and Auxiliary Equipment Manufacturing
Printed Circuit Assembly (Electronic Assembly) Manufacturing – 750

9. Small Business Concept
Should the concept be:
Small business exporter OR
Small (low volume) exporter OR
Non-exporting manufacturer
Does DDTC need a “small business” designation? Or is a “non-exporting manufacturer/entity” better suited?
Registration statistics show a majority of registrants do not having licensing activity
Recommendation: separate the “non-exporting” group from the “exporting” group of registrants rather than carving out small businesses

10. Small Business Concept
AECA requirement for registration of manufacturers:
Definition of manufacturer is a necessity
Recommendation for manufacturer definition:
A manufacturer is any person who is engaged in the business of “manufacturing,” where “manufacturing” is the mechanical, physical, or chemical transformation of raw materials, substances, components or parts into new tangible products.
GCA definition: the term “engaged in the business” is defined by 18 U.S.C. 921(a)(21)(D) and 27 CFR as a “person who devotes time, attention, and labor to engaging in such activity as a regular course of trade or business with the principal objective of livelihood and profit …”

11. Small Business Concept
Defining “manufacture” is difficult
Recommendation: Use the “catch and release” format (e.g. “specially designed”) to define manufacturing broadly, then carve out specific groups or circumstances which would not require DDTC registration.

12. Small Business Concept
Registration fees based on complexity/use of service
More complex applications would have higher fees:
Agreements - require significant DDTC personnel resources – 12% of license cases but representing considerable portion of licensed values
Staffed cases – require additional time and effort for LO’s - 59% of license cases
Simpler applications would have a flat fee:
LO’s can approve within a day – routine transactions that are almost always approved

13. Implementation
Individual vs. business designation not needed if DDTC adopts non-exporter vs. exporter approach
Fee structure – 3 tiers remain, but different levels:
Non-exporting manufacturer – minimal flat fee $250
Simple applications – flat fee per application
Complex applications - agreements, staffed applications – fees to be determined based on complexity/use of service (i.e. DDTC resources used)

14. Implementation
DOD advocacy for small business – interagency communication to assist with reduction of registration burden in conjunction with DOD current outreach to small businesses and FMS process reforms
These changes can help DDTC show a reduction of regulatory burden and cost as required by new administration’s Executive Orders

15. New Data Elements Needed
Current DS2032 registration form already has 3 types of activities (manufacturer, exporter, broker) – no need to add new data element
New DECCS system – include better reporting functions – ability to pull in more data elements from licensing activity module to determine renewal fees based on above “use of services” recommendation:
Number of cases per registrant, and final determination (approved, RWA’d, etc.)
Value of cases – individually and total
Agreements and staffed cases
Better metrics on licensing activities can help DDTC see how internal resources are utilized, and help determine use of service fees

16. Other Recommendations
A high number of registrants are non-exporting manufacturers
Many of these non-exporting manufacturers lack ITAR experience and in-house resources
Recommend DDTC modify its current compliance program guidelines to provide a set of guidelines specific to these companies (DTAG is willing to help draft this)
Recommend DDTC offer some targeted outreach to these registrants to enhance their ITAR knowledge and alleviate concerns
Industry needs these companies to continue to support manufacturing operations

17. Thank you