How new U.K. export controls will hit U.S. (Government Policy Notes).

The United Kingdom's Export Control Act--passed by Parliament in 2002 and scheduled to take effect before the end of this year--represents the greatest single change to the government's control system since the current regulations were introduced in 1939.

While the act introduces no new controls on technology, it does attempt to regulate certain commercial activities not previously controlled. The full text of the measure can be viewed at: http://www.legislation.hmso.gov.uk/acts/acts2002/20020028.htm.

U.K. industry is trying to come to terms with the potential implications of new controls on its activities. However, there are also fears about how overseas firms could be affected. As currently written, the act could have an impact on activities of foreign companies and their representatives in the United Kingdom. It also could have an impact on foreign business officials visiting or working in the country.

The U.K. government's proposed regulations implementing the new law were published in January. The full text of those proposals can be viewed at: http://www.dti.gov.uk/export.control/legislation/exportcontrolconsult .htm

While the regulations will not seek to introduce any additional restrictions on new areas of technology not previously controlled, the scope of the U.K. export control regime is to be expanded. As a result, the proposed regulations will bring the U.K. export control system very much more into line with that of the United States, especially through the introduction of the series of new controls covering intangible transfer of technology and "trafficking and brokering" activities.

The U.K. government's intangible transfer-of-technology proposals impose an export-control regime upon the transfer of military technology from the United Kingdom. The new controls cover the transfer of technology by electronic means, including by e-mail, fax and telephone. Any means of transferring technology related to weapons of mass destruction also is covered.

In addition, video conferencing is covered, as is military technology or software placed on an intranet and a U.K. company's employee electronically accessing licensable technology from overseas (e.g. via a laptop). If the recipient is overseas at the time of receipt, intra company transfers of military technology is covered.

This proposal alone makes the United Kingdom's proposed new regulations more burdensome than those of the United States, which exempt intra company transfers.

U.K. industry agrees that new controls on intangible transfer of technology need to be introduced, but it has urged that it be done in such a way as not to impinge upon legitimate free exchange of information. Controls on intangible transfer of technology come down to practicalities.

Ready and rapid access to information is essential within multinational companies and in multinational collaborative development programs.

Engineers working together need to be able to exchange information freely, and controls on the sharing of technology could greatly inhibit the effectiveness of the United Kingdom as a partner in multinational joint development programs.

Anything that increases the bureaucracy involved in the exchange and free flow of information and technology across national boundaries will be detrimental, and a pragmatic approach is essential. Strict interpretation and enforcement of controls on intangible transfer of technology by U.K. government officials could create a nightmare for industry and seriously inhibit the essential flow of information between legitimate companies and cross-fertilization within multinational firms.

There is general agreement within U.K. industry that the new controls on intangible transfer of technology do not represent a simple extension of the current controls, but raise a number of essential practical issues which needed to be addressed before they can be regarded as workable.

The legislation attempts to define in vague terms what constitutes an act that will be affected by the new trade controls. Included are trading in goods owned by the company or individual, trading in goods as a mediator or broker, and trading in goods in return for a fee or consideration. These new controls will affect the transfer of goods owned by a U.K. person or company between two overseas nations.

Potential areas of "collateral damage" that could be inadvertently covered by the controls include:

* Visits to the United Kingdom by overseas representatives of multinational firms, when they need to do anything which might be construed as "facilitating" a deal.

* Offset activities.

* Activities of subsidiaries.

* Shipments between overseas subsidiaries of U.K. firms.

* Shipments between overseas suppliers to U.K. firms.

* Shipments between overseas partners of U.K. firms in collaborative projects.

* Assembly activities in the acquisition of complete packages customers.

* Provision of spares to overseas customers from overseas suppliers.

* U.K. agents of overseas firms.

* Overseas exhibitors and visitors attending international exhibitions in the United Kingdom.

Currently, the U.K. government is seeking to reinforce its efforts to ensure that potential impediments to transatlantic defense trade are reduced, through the negotiation of a number of initiatives with U.S. counterparts. The U.K. government also is intending to minimize the potential impact of the new regulations through the use of "open licenses." However, if the current proposals are seen through to full fruition, some impact still will be felt by U.S. firms.

For instance, under the U.K. government's current proposal, any U.S. citizen based in or visiting the United Kingdom who does anything to facilitate a deal to supply technologies that are export licensable under U.K. law will render that deal subject to licensing approval. Those deals that could be covered by the proposed open general trade license will require the overseas company involved to register with the U.K. Department of Trade and Industry.

Major trade fairs in the United Kingdom, such as the biennial Defense Systems and Equipment International and the Farnborough Air Show, also could be affected. Overseas firms attending such events, either as exhibitors or visitors, could need to be made aware of how the new U.K. controls will effect their ability to do business, network and undertake other normal commercial activity at these events.

Brinley Salzmann is director of exports for the Defense Manufacturers Association in the United Kingdom. He may be reached at [e-mail]. DMA and NDIA recently signed a Memorandum of Understanding, increasing the level of cooperation between the two organizations.