When a multinational corporation or U.S. company conducts business overseas, issues and disputes may arise over the goods provided or services performed pursuant to those transactions. For example, questions may occur regarding the scope of upgrade services provided or software assistance rendered. Or questions may exist concerning the performance of products built to specifications. These issues may lead, at times, to arbitration, mediation or litigation in foreign tribunals for breach of contract, breach of merchantability, or failed performance. Participation in overseas disputes usually requires the use of foreign counsel to understand local laws, to litigate in local courts, or to settle matters with the benefit of local advisors who are familiar with the "industry or trade" trends applicable to the dispute.

If the commodities or services in dispute however, are considered to be "defense articles" or "defense services" controlled on the U.S. Munitions List ("USML"), then the use of foreign counsel implicates the International Traffic in Arms Regulations ("ITAR") because discussions of these items constitutes an "export." The regulations broadly define "export" to include the visual or oral disclosure or transfer of technical information to a foreign person, whether in the United States or abroad. As unlikely as it may seem, therefore, discussions with foreign counsel when the advice sought relates to items controlled on the USML, require prior export approval by the Office of Defense Trade Controls ("ODTC").

Although the regulations refer to "arms", the scope of controlled goods and services exceeds firearms, weapons, missiles or fighter aircraft. Commodities and services which can satisfy both military and civilian requirements can be governed by the ITAR. For example, fire control systems for shipboard use, which can be installed on either a destroyer or a cruise liner, are controlled by the ITAR. Since the regulations do not necessarily classify items based on their ultimate end-use, quintessential civilian/military items can find their way onto the USML.

From a practical standpoint, what must a company do, therefore, to address disputes over defense articles in the international context? First the company must coordinate with the Department of State to determine whether the Government will entertain export approvals for the country in which the dispute arose. Second, one must define the relationship

the company expects with foreign counsel. Most attorney/client relationships require free and open dialogue on all aspects of potential disputes. Open exchanges permit the preparation of the best defense or enforcement of rights. Relationships with foreign counsel are no different and require flexibility. This need for flexibility will define the approval mechanism best-suited to achieve these objectives.

Third, the company must prepare a draft "statement of work" ("SOW") which defines the relationship between the U.S. company and foreign counsel. The SOW must identify, at a minimum, the universe of materials or documents which will be exchanged and discussed, the foreign individuals who will have access to the documents, the prior export approvals existing for the information, and the use to which the information will be put. The SOW should then be reviewed in draft by State to ensure that all relevant regulatory requirements have been addressed.

Once the SOW has been informally approved, the ITAR provides 2 possible mechanisms through which information exchanges can occur: export licenses and agreements. Export licenses are used primarily for the transfer of hardware, software, and defined universes of technical data. Agreements, especially "technical assistance agreements" ("TAAs"), are used most often when the information to be exchanged is defined, not so much in particulars, but in broad categories. For example, a TAA can be used to exchange information "directly related to" remote sensing satellites controlled by Category XV of the USML. This description, unless otherwise restricted by ODTC, offers parties the opportunity to discuss most aspects of the satellite as defined in Category XV. The need for flexibility in the discussions, indicates, therefore, that an agreement be used to transfer the information. The agreement allows for the identification of the information exchange -- such as what would occur in a relationship with foreign counsel -- in broader terms.

For example, assume that a dispute arose in Italy between a U.S. manufacturer and an Italian aerospace company over whether software upgrades were provided properly for a heads-up display in the F-16. The upgrades were considered items controlled on the USML and required export authorizations to send the software to the Italian company. The dispute involves not only issues of price, but whether the upgrades were provided by qualified software engineers and whether the resulting product met required specifications. In an attempt to resolve the matter, the U.S. company hires foreign counsel in Italy to assist in settling or litigating the issues. Counsel are all Italian citizens based in Italy, although the firm chosen has offices in New York and Washington, D.C. The U.S. company asks Italian counsel to assess the validity of the claims against it. Discussions between counsel and the U.S. company include the engineering aspects of the claims raised, a list of the engineers involved in the software upgrade, and a review of the software package itself. Italian counsel advises that he will need to interview the U.S. engineers providing the services, run the software upgrade package and analyze the technical specifications upon which the upgrades were based. Before you can provide any of the information requested by Italian counsel or discuss details of the dispute with Italian counsel, you will need to obtain approval from the ODTC.

In the situation noted above, the first section of the TAA SOW could be drafted as follows:

STATEMENT OF WORK

The Statement of Work would be reviewed by the Department of State and if, appropriate, then be incorporated into a standard TAA discussed in Part 124 of the ITAR. Once incorporated, the TAA would be submitted to State for formal approval or denial. Until ODTC approves the TAA, discussions with foreign counsel would be limited only to information that could be found in the public domain or information which is not controlled on the USML. For purposes of the scenario described above, none of the discussions concerning the technical aspects of the services provided, the software upgrade package or the specifications could be reviewed with foreign counsel.

Approval or denial of a TAA can take from 1 to 6 months depending upon the nature of the dispute, the country involved, and the products or services controlled. Close coordination with the Department of State is required to ensure that problems do not arise that would unduly delay a U.S. company’s ability to adequately defend or pursue its rights overseas. Early notification is essential to avoid unnecessary delays.