The largest actor on the global defence market is the United States Department of Defence (DoD). The logical deduction is that DoD regulations will affect most acquisitions and the question is hence, how does this affect your trade, when comparing DoD regulation with your national export regulation?
– Procurement, design, development and manufacturing for DoD is dictated under the Federal Acquisition Regulations (FAR), Defense Federal Acquisition Regulations Supplement (DFARS) or International Traffic in Arms Regulation (ITAR). The question is what are the most applicable DoD regulations, which affects your trade as a foreign state, says CEO of Elmatica, Didrik Bech.
– A foreign state trading with DoD will in principle not be allowed any exemptions from these regulations except perhaps some elements in regard to a country’s privacy laws. Or putting it simple, if you do not abide by DoD regulation, then you will not be able to sell to or buy from the United States, says CPO of Elmatica, Vidar Olsen.
80% of acquisitions in the nordics governed by DFARS
If you are buying from the United States, ITAR export licensing regulate the control of export from the United States of certain military products, parts, components, materials and technology. The United States is presently selling to more than half the countries in the world
If you are selling to the United States, DFARS regulate all import to the United States, of military goods and services. DFARS impose requirements on United States Government prime contractors and all lower tier subcontractors, regarding the import of goods and services, profit margins, application of certain accounting principles, reporting requirements, terms of payment and provision of various representations and warranties.
– I wonder why we are usually talking about ITAR, when we should be talking more about DFARS? The first questions one should ask oneself is, are you buying from or selling to the United States? In our experience ITAR regulation is the most commonly known compliance regulation, however we estimate that more than 80% of acquisitions in the nordic region is actually governed by DFARS regulation, says Bech.
An example of how DFARS affect your supply chain and what you need to know
The DFARS regulation is complex, applicable and important for all parts of the supply chain. The product owner in a foreign state should early in the development process of a new product consider who the end customers conceivably could be, as this dictates requirements for the supply chain at a much later stage.
– Determining and communicating who the end customer could be will place restrictions on elements as country of origin for the parts necessary to build your product. As a general notice one can state that buying from a NATO country is within all parameters. However, if your product consists of parts produced in China then you are subjecting the whole acquisition to dramatic financial penalties from the United States, says Bech.
An important strategy to ensure compliance
As DFARS Subpart 225.7 prohibits all procurement from Mainland Communist China. DFARS Subpart 225.10 and 225.003 states that foreign acquisition can only be conducted from NATO countries or allies of the United States. Any exemption from this regulation requires a deviation approval according to DFARS Subpart 201.4.
– Initiate all development projects by implementing a strategy in regard to “compliance in” for all products in your supply chain, as this will automatically give you “compliance out” for all products in your supply chain. Ensure that all new products consist of components from DoD approved countries as this will significantly decrease your total cost, reduce administration and provide your sales force with access to the United States defence market, says Bech.
Countries approved in DFARS Subpart 225.003
Albania, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, France, Finland, Germany, Greece, Hungary, Iceland, Italy, Israel, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, Turkey, United Kingdom