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How the United State’s ‘ITAR’ Influences Mexican Aerospace Industry

02 Jun 2012

The Aerospace Industry in Mexico

Aerospace manufacturing in Mexico is increasing rapidly every year— global aerospace manufacturers are establishing facilities in Mexico, prompted by lower wages, government encouragement, and a progressively more sophisticated workforce. With the exception of 2009, Mexican aerospace manufacturing has increased about 20% annually since 2002, with an increase in aerospace jobs of approximately 36% since 2006. In 2004 aerospace companies operating in Mexico exported a total of $146 million worth of products, and in 2010 the number had risen to $3.5 billion. Furthermore, today aerospace manufacturing in Mexico consists of over 230 companies that employ approximately 29,000 workers.

Since the growth in Mexican aerospace industry has been impressive, the Mexican government now provides financial support to help the industry to help to develop skills, therefore national engineering-education efforts are establishing highly developed aerospace programs at Mexico’s leading institutions. The support from universities to provide skilled labor and qualified administrative positions in combination with Mexico’s perfect geographical location has put Mexico in a position to be one of this century’s leading aerospace manufacturers.

U.S. Involvement in Mexican Aerospace Industry Boom

Since the enactment of the North American Free Trade Act (NAFTA), Mexico has been a leader in lower-cost, duty-free manufacturing to supply North American markets. With wages that are 50-80% below the U.S., low travel costs, and over 10,000 bilingual engineering students enrolled at accredited university programs each year, Mexico is at the forefront for nearshore manufacturing. In addition to a strong and dedicated workforce that provides a competitive gain to many foreign companies, quick border crossing with four entry points into the U.S. and a friendly manufacturing environment supported by local and state governments, NAFTA was an impetus that, to a degree, fueled the aerospace industry boom in Mexico. Aerospace companies in Mexico are typically foreign owned and produce parts of aircrafts for both commercial and military aircraft. Since the US accounts for about half of Mexico’s aerospace exports, manufacturers in both the U.S. and Mexico often encounter something called the ITAR.

What is ITAR?

The International Traffic in Arms Regulations (ITAR), under the authority of the Department of State, controls the permanent and temporary export and import of defense articles and services (governed by 22 U.S. C. 2778 of the Arms Export Control Ac and Executive Order 11958). All U.S. manufacturers, exporters, and brokers of defense articles, defense services, or related technical data, as defined on the U.S. munitions list, must register with the U.S. Department of State. Registration is simply a precondition for the administration of any license and costs about $2,225.00 annually.

ITAR Eligibility: 22 CFR § 120.1 (2) (c)

• Only U.S. citizens and foreign governmental entities in the U.S. may be granted licenses or approvals

• Foreign persons (non-U.S. citizens) are not eligible

• U.S. citizens who have been convicted of criminal violations found in § 120.27, who have been debarred, who are the subject of an indictment involving criminal statues are ineligible

*Applications for licenses or approvals will only be considered if the applicant has registered with the Directorate of Defense Trade Controls.

ITAR Registration Requirements: 22 CFR § 122.1 (a)

• Anyone who engaged in the U.S. business of either manufacturing or exporting defense articles or defense services must register with the Directorate of Defense Trade Controls

• Manufacturers who do not engage in exporting must still register

Purpose of ITAR: 22 CFR § 122.1(c)

• Provides the U.S. Government with necessary information on those involved in certain manufacturing and exporting activities

• Registration does NOT bestow any export rights/privileges

• Registration is a precondition to the issuance of any license or approval

Prohibited Exports, Imports or Sales: 22 CFR § 126.1 (a)

• The U.S. should deny licenses and approvals for exports/imports of defense articles and services to/from:

o Belarus

o Cuba

o Eritrea

o Iran

o North Korea

o Syria

o Venezuela

o Countries that maintain an arms embargo with the U.S.

o If an export would not be in furtherance of world peace and security

How ITAR Affects Aerospace Manufacturers in Mexico

The ITAR influences trade with many foreign countries, as any U.S. person who wants to export items on the U.S. munitions list to a foreign person must obtain authorization from the U.S. Department of State before the export can take place. Therefore, due to the nature of trade between the U.S. and Mexico, ITAR is often applied to the aerospace manufacturers in Mexico—it could include materials or technology going from the U.S. to Mexico for manufacturers.

For U.S. companies, ITAR regulations come into effect when a product is clearly defined as military—it’s not impossible to manufacture defense products in Mexico, it just requires government approval. The company must apply for special licenses from the State Department to build apparatus in Mexico to ensure the components and the technology remain in the hands of responsible entities.

Both the U.S. manufacturer and its Mexican partner are going to have to deal with the ITAR. The U.S. munitions list is an extensive directory of items and technology that have relation to the aerospace and defense industry. Companies that manufacture items on the U.S. munitions list must be aware of ITAR.

Listen to a discussion on the effects of ITAR regulations on aerospace manufacturers in Mexico.

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