1. Defense Trade Regulatory Requirements & National Security Reviews of Foreign Investment in the United States Presentation to IACC Aerospace, Defense & Homeland Security Session
Ajay Kuntamukkala, Partner
May 24, 2012
International Trade / Washington D.C.

2. Agenda Overview Export Controls
History of U.S. Export Control Policy Towards India
Export Administration Regulations
International Traffic in Arms Regulations
The Committee on Foreign Investment in the United States (CFIUS)
Summary Matrix of Regulatory Issues
Questions

3. Overview
The aerospace, defense, and homeland security industries are highly regulated in the United States
U.S. export controls apply to the transfer of technology, export and import of equipment, export of software and source code, and the employment of foreign persons in the United States
Mergers, acquisitions, and joint ventures involving foreign entities may require national security reviews by CFIUS
Indian companies, like other foreign companies, may be subject to these rules when they enter the U.S. market

4. U.S. Export Control Laws

5. History of U.S. Export Policy Towards India
Export controls policy is a key issue in the U.S.-India commercial relationship
Exports controls affect only a small fraction of overall bilateral trade
However, export controls are viewed by India as a significant strategic and economic issue
History of technology denial
Need for technology as a developing country
U.S. has gradually liberalized its export controls regulations with regard to India to reflect India’s role as a strategic partner
India is in the process of integrating into international export controls and nonproliferation regimes

6. History of U.S. Export Control Policy Regarding India
Post-Independence Era ( )
US-India Technology Cooperation Agreement
Early nuclear cooperation: purchase of GE nuclear reactor for Tarapur
Early space cooperation: India launches U.S. rocket at Thumba
Era of Technology Denial ( )
NPT comes into force, India does not sign
Zangger Committee established
India’s first nuclear tests; nuclear cooperation with India ceases
Nuclear Suppliers Group formed in response to Indian nuclear tests
India’s second nuclear tests; range of sanctions imposed by U.S. Government
Renaissance (2000-present)
President Clinton visit and removal of certain sanctions against India
President Bush waives remaining sanctions on India
U.S.-India High Technology Cooperation Group
Next Steps in Strategic Partnership
U.S.-India Civil Nuclear Deal announced
New Framework for US-India Defense Relationship signed
End-Use Monitoring Arrangement; increased defense trade
President Obama visit and subsequent removal of Indian firms from Entity List and agreement on other export control initiatives

7. U.S.-India Bilateral Understanding
On November 8, 2010, President Obama and Prime Minister Singh committed to strengthen bilateral cooperation on export controls and nonproliferation
U.S. to support India’s full membership in Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement
India to implement additional controls and meet requirements of each regime
U.S. to remove Indian space and defense entities from the Entity List
U.S. to realign U.S. export control licensing policy to reflect India’s status as a strategic partner, including removing India from list of “countries of concern”
Expanded export control cooperation through U.S.-India High Technology Cooperation Group

8. Structure of U.S. Nuclear Export Controls
Nuclear Regulatory Commission
Department of Energy
Part 110 Regulations
Part 810 Regulations
Nuclear reactors, fuel cycle facilities, components and materials
Nuclear technology and technical assistance
Department of Commerce:
Bureau of Industry and Security (BIS)
State Department:
Directorate of Defense Trade Controls (DTC)
Additional U.S. Government agencies with possible jurisdiction over export activities include the Department of Energy (Nuclear Regulatory Commission), Food and Drug Administration, and the Bureau of Alcohol, Tobacco and Firearms
Export Administration Regulations (EAR)
International Traffic in Arms Regulations (ITAR)
Commercial and “dual use” commodities and technology
Military items, including nuclear weapons

9. Export Administration Regulations
Administered by the Commerce Department’s Bureau of Industry and Security (BIS)
The EAR’s Commerce Control List (CCL) controls the export and reexport of commercial and “dual-use” (i.e., both commercial and military applications) goods, software and technology
EAR also controls the transfer of certain technology to foreign persons, including Indian nationals, in the United States (“deemed exports”)
Only a small fraction of exports to India now require export licenses from BIS
In CY 2000, 24% of U.S. exports to India required export licenses
In CY 2009, 0.3% of U.S. exports to India required export licenses

10. ITAR: Controlled Activities
Administered by State Department’s Directorate of Defense Trade Controls (DDTC)
Broad restrictions on exports, reexports, imports, and brokering of:
Defense Articles
Technical Data
Defense Services
Generally speaking, the ITAR are more restrictive than the EAR
Manufacturers, exporters, and brokers are required to register with DDTC

11. ITAR: Controlled Activities
With limited exceptions, prior U.S. Government authorization required for:
Exports and reexports of Defense Articles
Exports and reexports of Technical Data to foreign persons (wherever located)
Provision of Defense Services to foreign persons (wherever located)
Temporary imports of Defense Articles or Technical Data
Proposal to sell or manufacture certain Defense Articles
Brokering transactions involving Defense Articles or Services

12. ITAR: Who Must Comply? All individuals located in the United States
U.S. citizens and permanent residents, wherever located
Companies organized under U.S. laws and their employees, wherever located
U.S. branches of non-U.S. companies
Foreign entities and persons dealing in U.S.-origin Defense Articles (including Technical Data) or U.S.-origin Defense Services

13. ITAR: Licenses and Approvals
Primary types of licenses and approvals under the ITAR
Permanent Export License (DSP-5)
Temporary Export License (DSP-73)
Temporary Import License (DSP-61)
Agreements
Technical Assistance Agreement (TAA)
Manufacturing Licensing Agreement (MLA)
Distribution Agreement
Export license and agreements generally now bust be filed via D-Trade

14. Relevant ITAR Reform Initiatives
DDTC has not made any India-specific regulatory changes, but overall export control reform efforts should improve defense trade with India
Ongoing reform of U.S. Munitions List (USML)
Proposed rule on components (3/15/11)
Proposed rule on defense services (4/13/11)
Final rule on dual nationals and third-country nationals (5/16/11)

15. The Committee on Foreign Investment in the United States

16. The Committee on Foreign Investment in the United States
CFIUS created to conduct national security reviews of foreign investment and make recommendations to the President
U.S. continues to maintain an open, non-discriminatory investment policy and to welcome foreign investment
CFIUS mandated to conduct its reviews within context of overall investment policy; intended to ensure that foreign direct investment remains benign

17. Exon-Florio Amendment
Authorizes the review of any acquisition of control of a US business by a non-US entity to determine if the acquisition poses a threat to national security
Grants the President the authority to block, restrict or order divestment of any such acquisition if he determines that there is a national security threat and no other law is adequate to deal with it
President’s authority only terminates if transaction is reviewed and found not to threaten national security

18. Covered Transactions Under CFIUS
US Business
Any entity engaged in US interstate commerce (even if foreign owned), but only to the extent of its activities in interstate commerce
US business need not have separate legal identity; acquisition of a division that operates as a business meets the test.
For Exon-Florio to apply, transaction must involve:
A merger, acquisition or takeover
By or with a foreign person
Which could result in foreign control
Of a US business
Foreign government-controlled transactions
Any covered transaction that could result in control of a US business, directly or indirectly, by a foreign government

19. CFIUS Procedures
Process initiated by voluntary notice by parties to transaction
Significant amount of information required from parties (target and acquirer)
Submission of draft notice in advance of formal filing encouraged and often advisable
CFIUS also might initiate its own review
Review process has up to three formal stages
Initial review – 30 days (CFIUS may request additional information from parties)
CFIUS decides whether to proceed with an extended 45-day review (investigation)
If CFIUS decides to pursue investigation, at end of 45 days CFIUS must present report to President
President must make a decision within 15 days

20. Regulatory Issues Relevant to Indian Corporations in the U. S
Regulatory Issues Relevant to Indian Corporations in the U.S. Aerospace, Defense, and Homeland Security Industry
CFIUS
ITAR
EAR
Acquisition of U.S. Company
ITAR Registration
60-Day Notification
Exports/Imports
Technology Transfer
Employment of Foreign Persons
Exports
Establishing Joint Ventures in the U.S.
Establishing a U.S. Branch or Greenfield Operation
Supplying Equipment or Services to U.S. Government or U.S. Company

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