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Submission to DECO

INTERNATIONAL TRADE ADVISORS 

 

Submitted by email to deco@defence.gov.au on 17 February 2012

Department of Defence
Defence Export Control Office
R1-1-A037
PO Box 7901
CANBERRA BC ACT 2610Date

 

17 February 2012

RE: Comments on Defence Trade Controls Regulations 2012

 

Dear Sir/Madam,

International Trade Advisors welcomes the opportunity to provide comment on the Defence Trade Controls Regulations 2012 (Regulations).

It is hoped by industry members that becoming an Approved Australian Community (Community) Member will increase flexibility in, and reduce administrative delays associated with, trading controlled goods, technology and services. However, it is our opinion that the proposed Regulations may require some additional revision and clarification in order for members of industry to consider joining the Australian Community to be a good commercial decision.

Our comments will focus on the aspects of the proposed regulations that could potentially act as deterrents, especially for small and medium sized Australian companies looking to join the Australian Community, due to the uncertain benefits and potential administrative burden and costs of compliance.

Our submission addresses the following areas:

  • Marking Requirements
  • ‘Approved Community Member’ Verification
  • Lists of Treaty Eligible Item
  • Offences

In addition, we will present some questions that we believe require clarification either in the Defence Trade Controls Act 2011, the Regulations or through another government publication or website.

 

Marking Requirements

In the Regulations, Part 3, Division 1, Regulation 17 sets out the requirements for marking U.S. Defence Articles or technology and Part 3, Division 2, Regulation 21 sets out the similar requirements for marking Australian Defence Articles. The Regulations state that the approval holder must ensure Defence Articles are marked as a condition of Community membership. We respectfully request clarification on the following: Is the intended meaning of these regulations that upon joining the Australian Community, all Defence Articles that are intended to be traded under the Treaty must be marked by the Approved Community Member in order to remain in compliance with the regulations? How soon after becoming an Approved Community Member must this be done? Would the marking need to be removed if the article is on-sold to a non-community member in another country, if the hardware is removed from the DTCML, or if the holder’s Community membership is suspended or cancelled?

The marking requirement could result in an onerous task at significant cost to the approved Community Member and this requirement alone may be an economic deterrent for some Australian companies interested in becoming an Approved Community Member. The same regulation would not apply to non-Community members that are trading under a license, potentially making Community membership less attractive and perhaps making non-members more competitive as they would not have to make the same financial investment in complying with the requirements of Community membership. The marking burden would be significantly lessened, and interest in participation potentially increased, if the Regulations instead required that accompanying paperwork (invoices, shipping documents, guides, manuals) be marked.

With respect to technology and services, the Regulations in Part 3, Divisions 1 and 2 do not specify where to mark the technology or service, except that it needs to be on accompanying documentation. By nature, many articles that can be categorised as a technology or service are transmitted electronically, orally or by some intangible means and do not necessarily have accompanying documentation. How can the marking requirement be satisfied in these instances? Guidance should be provided to Community members citing examples of acceptable markings for technology and services.

In the case of a service related to a U.S. defence article under Part 3, Division 1, Regulation 18, how can one evidence to the government’s satisfaction that the marking information has been conveyed orally and how often does it need to be conveyed? For example, if an Australian Community Member’s technician is providing maintenance consulting services to a recipient, he or she would have several conversations with the employees of the receipient in conjunction with the service provided. Regulation 18(5) states that the oral marking should be made at the time providing the service. Would the technician be required to keep a record of each conversation and give the oral marking statement at the start of each conversation? If so, such a requirement may be burdensome on industry.

We respectfully suggest that the wording “at the time of providing the service” be replaced by language that covers an activity or period of time instead as this would better facilitate both compliance and recordkeeping.

Further clarification needs to be provided to industry on what is required for the marking of intangible defence articles so that the cost of becoming an approved Community member can be more accurately estimated. The cost of creating additional policies, procedures, training compliance plans and audit plans will likely be a consideration for Australian companies evaluating the potential benefits of Community membership.

 

‘Approved Community Member’ Verification

Australian Community Members must have access to an accurate list of U.S. and Australian Approved Community Members with whom they can trade regulated goods and technology under the terms of the Treaty. Without such a list, it will be difficult for Community members to ensure they are compliant with the Regulations and trading under the Treaty with other Approved Community Members. To avoid errors and reduce the risk of non-compliance, the list should be maintained on a centralised website, with dated revisions that are accessible to all Community members. Ideally, the list would allow U.S. and Australian Approved Community Members to verify dates of Community membership of business partners and also view any notifications of suspension and cancellations of Community membership. With this type of tool, companies trading in Defence Articles can verify eligibility to ship without a license or permit under the Treaty by consulting the list, just as ‘denied parties’ lists can be consulted prior to exporting Defence Articles under an export license.

One commercial concern that may also be a deterrent trading under the Treaty instead of a license or permit is that in marketing defence articles as eligible for license/permit-free trade between Approved Community Members, the supplier of the articles cannot provide any concrete assurances that the supplier will continue to remain an approved Community member or that the article will continue to be eligible for export under the Treaty. Part 3, Division 2, Sections 29 and 30 of the Bill outline reasons for suspending or cancelling a Community membership approval, and both suspension and cancellation have immediate effect. It seems that the best way to continue to ensure that a product can be sold to a particular party for a particular use, and avoid costly supply chain issues, remains obtaining a license or permit from either the U.S. or Australian Government (as the case may be).

Further, the Regulations do not provide guidance as to what should happen with Defence Articles where they are in the possession of an entity whose membership has been suspended or cancelled. There is also a lack of guidance regarding the process of discontinuing Community membership, should a company wish to do so for commercial reasons. We respectfully request that the Australian Government publish guidance in respect of these issues.

 

Lists of Treaty Eligible Items

With U.S. export reform initiatives under way, the USML will continue to undergo revisions. We understand from the Bill’s Part 3, Division 5, Section 36 that the Minister will create an Australian Defence Trade Cooperation Munitions List (DTCML), which will consist of two Parts. Part 1 will be a positive list of DSGL and USML goods that are within the scope of the Treaty, while Part 2 will be a list of goods that are exempt from the Treaty. The U.S. will maintain its own list of exempted goods that may or may not be the same as the Australian list of exempted goods.

There is potential for confusion where an item is eligible to be traded under the Treaty per the U.S. regulations, but not the Australian regulations, or vice versa. Further, there is potential that the reforms in the U.S. will remove the benefits of trading certain Defence Articles under the Treaty altogether for some companies.

Understanding how the U.S. Government and Australian Government intend to work together to harmonise their lists of exempted articles would be valued by industry in both countries.

 

Offences

The Regulations stipulate that Approved Community Members must file a mandatory Annual Compliance Report to retain their membership status. If this report is to be an accurate report of compliance, the approved Community member may face suspension or cancellation of their approved Community status should they admit committing an offence under Australian law. The Australian Government should provide guidance to industry as to the required format and contents of this report and whether Community members are required to admit to committing offences in their report to the Minister, as well as separately to Customs.

The Regulations do not contain any provisions for industry to make voluntary disclosures to the Australian Government of unintentional offences, with a potential outcome of mitigated penalties. Committing the offence of an unintentional export of a DSGL item without approval is required to be reported to the Australian Customs and Border Protection Service (Customs) and voluntary disclosure provisions for non-duty loss offences are found in Section 243U(4) of the Customs Act 1901.

We respectfully suggest that a mechanism for making a voluntary disclosure, similar to ITAR 127.12, be created in the Regulations for Australian companies, should the Annual Compliance Report not be intended to serve as such for Community members. With respect to new laws governing DSGL and DTCML articles, brokering activities and the provision of defence services and intangible technology transfers, there may be an increased potential for inadvertently committing an offence as industry transitions to the new export laws and Regulations.

In conclusion, International Trade Advisors applauds the Australian Government’s efforts to reach out to industry for comment on the Regulations.

If you have any questions concerning this submission, please contact the undersigned at 0421 506 095 or by email at eva@internationaltradeadvisors.com.au.

 

Sincerely,

 

Eva Galfi

Principal

International Trade Advisors Pty Ltd

ABN: 85 149 496 631

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