BAE System's Ed Peartree on export controls and how the Ukraine war changed everything

Fri 3 Feb 2023
Posted by: William Barns-Graham

Ed Peartree

For export control professionals, staying abreast of the latest international regulatory changes is an essential task, particularly given the area has been so affected by geopolitics in recent years and given the increasingly extraterritorial reach of certain countries’ control regimes.

Ed Peartree, group head of export controls at BAE Systems, tells the IOE&IT Daily Update that the importance of staying up-to-date has been brought to the fore by the Russian invasion of Ukraine.

“Russia and Ukraine has changed the landscape of trade compliance,” he says. “Not just in sanctions, but in trade restrictions and controls. The importance of understanding your customers, suppliers and business partners has never been more important in Europe and North America.”

He also notes that the implementation of tougher US controls on China has also had an impact, particularly given most supply chains involving technologies such as semiconductors will involve the US in some way, allowing Washington to implement extraterritorial controls.

But he says that, with the rise of more pervasive and tightened control restrictions, governments in Europe and North America have introduced more comprehensive guidance to support trade control compliance.

“The Directorate of Defense Trade Controls (DDTC) in the US has issued its first ever compliance guidelines, following calls from industry for more explicit guidance,” he says. “The UK put out similar guidance just before Christmas. For both, the focus is on ensuring that there’s a commitment from management to compliance, well documented procedures and internal controls, and a solid understanding of the regulatory framework.”

The importance of compliance is also evident in recent enforcement actions, he says, pointing to substantial compound settlements some firms have recently had to pay to the UK government.

“The UK government seems to be taking enforcement of export control regulations more seriously now, and in the US there is a similar dynamic,” he says. “It’s always important to liwork closely with our auditors and regulators to make sure we understand what’s important to them.”

He here talks to the IOE&IT Daily Update about three key updates in the US controls regime that could affect UK control professionals: tightened restrictions on Chinese technology trade, changes to section 120 of the International Traffic in Arms Regulations (ITAR) and an update to US open general licences (OGLs).

Tougher China restrictions

The Biden administration has sought to restrict US companies from supplying Chinese manufacturers with equipment or expertise that enables them to make advanced semiconductor chips, unless they first obtain a licence.

Peartree says that the US can effectively implement these controls on many non-US companies involved in the semiconductor supply chain as US technology is so integral to global production.

“Businesses dealing with the affected microelectronics, semiconductors, microprocessors and other technologies are affected by the downstream effect of extraterritoriality,” he says. “The ratcheting up of technology controls, mostly emanating from the US against China, is now touching areas that previously had only been viewed as commercial.”

He warns that the controls don’t apply just to equipment or components for the manufacture of advanced chip technologies, but also to expertise and knowledge.

“The restrictions aren’t just on the export of the technologies but also the know-how and services associated with it,” he says. “It’s pretty comprehensive, and not limited to travelling to China to provide information. I think any form of support would be looked at dimly and could be subject to some level of enforcement.”

“The new rules have got a lot of people’s attention and provoked a lot of interest because of how wide they are in scope,” he adds. “They’re regulating commercial activities which had not previously been subject to such extensive controls.”

Section 120 of ITAR

The DDTC last year introduced an interim rule to restructure section 120 of ITAR, which in effect reorganises and consolidates the definitions found in that part of and throughout the regulation. According to Peartree, the move had been on the cards for at least half a decade.

“The intention is to streamline and consolidate the information in a much more user-friendly and practical way,” he says. “Previously, it’s been hard to locate certain definitions or exemptions and there hasn’t been a single place where you can find them.

Although he welcomes the move, he warns experienced control professionals that they will need to relearn the citations and reference points that have been moved as a result. He adds that there are more changes to become as the interim measures are part of a long-term project.

“The changes will be really valuable for people that are relatively new to this business,” he says and tougher on more experienced practitioners, at least in the short term.

Approved community for OGLs

US Open General Licenses perform a similar function as Open General Export Licences (OGELs) in the UK, and the DDTC has stated that its intention is “to further the development and maintenance of a modern and agile export control system.”

In July last year, the DDTC announced two new OGLs authorising the “reexports to or retransfers within the UK, Canada and Australia of certain defense articles, services and technical data controlled under ITAR”. It said the new ITAR provisions are “relatively simple and easy to use”.

According to Peartree, the idea of forming an ‘approved community’ of traders among the US’ allies originated with the US-UK and US-Australia Defence Trade Cooperation Treaties.

He said there has been a lot of excitement in the export controls community since the announcement of the new OGLs last year. He said the UK’s Ministry of Defence is now trying to establish a “more streamlined, user-friendly process for getting into the approved community”.