The aviation and space industries are highly sensitive from a national security perspective because much of the technology they use has dual-use potential, serving both civilian and military purposes. Consequently, these sectors are specifically regulated by export controls. Understanding and managing these controls and sanction regimes is crucial for companies operating in these industries. Compliance with the complex landscape of export controls and sanctions presents numerous challenges for companies in the aviation and space industries. These challenges include the varying interpretations of regulations among EU member states, the broad definitions and extraterritorial effects of US export control rules, and the impact of restrictive measures following geopolitical events such as the Russian aggression and tensions between China and the US. In this article, we will explore the intricacies of export control and sanction regulations from both the EU and US perspectives for the industry, highlighting the key rules, challenges, and compliance requirements that companies in the aviation and space sectors must adhere to.

THIS ARTICLE IS WRITTEN BY HERMAN ANNINK ([email protected]) AND SEFA GECIKLI ([email protected]). HERMAN AND SEFA ARE BOTH PART OF RSM NETHERLANDS BUSINESS CONSULTING SERVICES WITH A SPECIFIC FOCUS ON SUSTAINABILITY AND INTERNATIONAL TRADE.  

EU Perspective

The EU Dual-Use Regulation establishes rules across the EU to control the export, brokering, technical assistance, transit, and transfer of items and technologies that could be used for both military and commercial purposes ("dual-use"). Annex I of the regulation lists the dual-use items that require export authorization, which includes aerospace and propulsion systems. Additionally, catch-all clauses may require authorization and compliance even if an item is not listed. A key clause for the industry pertains to the export of cybersurveillance items that could be used for internal repression or serious violations of human rights and international humanitarian law. Regarding military applications, although the EU’s Common Position 2008/944/CFSP provides guidelines on how member nations should handle controls for military technology and equipment, the decision-making and administrative authority remains with each member state. 

Compliance with EU export control and sanction rules necessitates a holistic, organization-wide approach. Member states and the EU have been promoting the implementation of internal compliance programs (ICPs) by companies and other affected entities. Despite this emphasis, the available guidance for establishing and maintaining these programs is often too generic, failing to address the specific needs of different sectors and entities. Therefore, entities should conduct their own risk assessments and design their ICPs accordingly.

Another challenge for sector players arises from the varying interpretations and classifications of goods by EU member states. Terms like ‘specially modified for military use’ in the dual-use and military lists are open to interpretation, leading to discrepancies where an item may be governed by dual-use controls in one country and listed under military controls in another.

Furthermore, the restrictive measures adopted by the European Union following the Russian aggression target several economic sectors, with aviation and space industries among the most affected. Since 2014, the export of goods classified as 'military equipment' to Russia has been banned. This prohibition was later extended to include all dual-use items, with a few exceptions. Sanctions specifically impact certain goods and technologies used in aviation and space industries, including not only aircraft and their components but also related services such as repairs, technical assistance, insurance, and financing. Furthermore, after recent amendments, the EU mandates that aircraft lessors, airlines, and manufacturers based in the EU include a “no re-export to Russia” clause in contracts with third-country counterparties. This applies even if the sale involves a title transfer to an EU entity nominee.

U.S. Perspective

The United States government controls the export of launch vehicles, spacecraft, component technologies, and other space-related items for national security reasons. This export control process involves two main sets of regulations: the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), each overseen by different departments.

ITAR governs the control of items, information, or activities that could be used for threatening foreign military purposes. These include actual products ("defense articles") such as satellites, launch vehicles, and telemetry equipment for ground stations, as well as technical data and support ("defense services") like blueprints, photographs, instructions, and software directly related to the items. Almost all space-related technologies, including launch vehicles, spacecraft, and fuel, fall under ITAR. EAR, on the other hand, controls dual use items. While EAR has its own set of categories, almost all items relevant to the space industry are typically governed by ITAR.

The details of articles and services are specified in the ITAR under the United States Munitions List (USML), which includes 21 categories of defense articles or services. The most relevant categories for the aerospace industry are:

  • Category IV: Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets (including missile and space launch vehicle powerplants).
    Category XV: Spacecraft and Related Articles (including communication, remote sensing, scientific, research, navigation, experimental, or multi-mission satellites; ground stations and support equipment for telemetry, tracking, and control; fuel).

Under the EAR’s Commerce Control List, the most relevant category for the space industry is:

  • Category 9: Aerospace and Propulsion Systems Equipment and Components. However, these items are often referred to ITAR for export licensing.

One critical aspect for aerospace companies operating in the EU is the extraterritorial effect of US export control rules. If any ITAR-controlled technical data, technology, software, or products are incorporated into their products, the entire product becomes ITAR-controlled. This requires compliance with US export control and sanction rules, from licensing to setting up a compliance program. If an item incorporates EAR-controlled components, or if it is a direct product of US technology under EAR, then the EAR also applies extraterritorial control.

Therefore, EU companies in the aerospace industry should carefully check whether they use any US-origin defense articles or services. If they do, they need to evaluate the implications and ensure compliance with ITAR regulations.

Additionally, the broad definitions under US export control rules poses further challenges. Even the transfer of controlled technology -whether tangible or intangible- through employee access or travel can be deemed as export.

The US sanctions regime also significantly impacts the sector, especially since many industry players import items from China, against which the US has restrictive measures. Additionally, the complex and fragmented nature of US sanction programs further complicates compliance. Again, this underscores the importance of having a robust Internal Compliance Program (ICP) that aligns with the guidelines published by US authorities.

Forward Thinking

Looking ahead, companies in the aviation and space industries must remain proactive in their approach to export controls and sanctions. The regulatory landscape is continually evolving, influenced by geopolitical developments and technological advancements. As such, staying informed about changes in regulations and their interpretations is crucial for maintaining compliance and mitigating risks. Investing in robust Internal Compliance Programs (ICPs) is essential for navigating these complexities. Companies should tailor their ICPs to address the specific needs of their sector, incorporating detailed risk assessments and elements from the guidelines by EU and US authorities. Continuous education, strategic investment in compliance infrastructure, and close collaboration with regulatory experts will be key to successfully managing this challenging landscape.

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