Pratt & Whitney Canada Debarment – What Does it Mean for U.S. Distributors?

We recently have had inquiries from our members about the statutory debarment of Pratt & Whitney Canada, and how this affects their ongoing business with that company.

First of all, yes, Pratt & Whitney Canada is debarred from export trade by the United States State Department.  They were debarred last summer.  Debarment was a part of the penalty associated with exports that the company made to China for the Z-10 helicopter.  More details are available in the Justice Department Press Release.

The debarment applies to Pratt & Whitney Canada, located in Quebec, but it also applies to all of their other Pratt & Whitney Canada Corporation locations.  This does NOT appear to apply to Pratt & Whitney (headquartered in Hartford, CT) nor to the remainder of United Technologies Corporation (although they were part of the settlement agreement).

What Does This Mean for Non-Defense-Related Articles Regulated by BIS?

The State Department’s Directorate of Defense Trade Controls (DDTC) regulates articles that fall within the United States Munitions list (USML). This generally applies to parts that are designed, manufactured, or altered for defense related purposes. It also includes some civilian items (including certain aircraft parts) that meet criteria specified in the USML.

Articles that are not regulated for export trade by the DDTC are controlled by the Commerce Department’s Bureau of Industry and Security (BIS). This includes most civil aircraft parts.  BIS frequently does not require a license fpor exporting articles, although there are a significant number of aircraft parts (particularly avionics, which can be regulated as missile technology) that may require a BIS export license when exported (significant exceptions exist for articles shipped to Canada).

The mere fact that Pratt & Whitney Canada has been debarred by DDTC does not per se affect their export law treatment for export articles subject to BIS export regulations.  As of today, Pratt & Whitney Canada is not listed on either the BIS Denied Person List nor the BIS Entity List as those lists are posted on the BIS website.  At this time, we are not aware of any other BIS restrictions imposed on Pratt & Whitney Canada (restrictions change on a daily basis so please confirm this yourself before acting on the assumption that this remains correct). The original charge was violation of the Arms Export Control Act (the statutory parent to the ITAR) so it makes sense that the penalties would come from DDTC and not BIS.

So long as BIS continues NOT to impose special restrictions on Pratt & Whitney Canada, export of civilian aircraft parts (non USM articles) to Pratt & Whitney Canada should continue to be regulated under normal standards.

What Does This Mean for Defense-Related Articles?

The general rule is that if you have knowledge that your potential business partner is debarred, then you can only conduct export business with the debarred person if you first obtain written approval for the transaction from the State Department’s Directorate of Defense Trade Controls (DDTC). This means that under the general rule, U.S. companies cannot participate, directly or indirectly, in any export from which Pratt & Whitney Canada may (a) derive a benefit, (b) have a direct interest or (c) have an indirect interest. See 22 C.F.R. 127.1(c).

The Pratt & Whitney Canada debarment is not a normal debarment. There are specific (very limited) exceptions.

Normally, DDTC only grants transaction exceptions in highly unusual circumstances. For Pratt & Whitney Canada, based on “overriding national security and foreign policy concerns” the U.S. government provided specific limited carve-outs from the statutory debarment of P&W Canada for the following categories:

 1. Support of U.S. Government programs;

2. Support of coalition Operation Enduring Freedom; and

3. Support of government programs for NATO and Major Non-NATO Ally countries.

This does not mean that you can support those programs with impunity. You will still need an export license that comports with the ITARs. But DDTC has pledged to consider license applications that fall within these parameters “in the ordinary course of business,” which means that they should apply the same standards that would have been applied pre-debarment (but of course license applications can be delayed or denied for any legal reason).

Pratt & Whitney Canada remains debarred under normal cirumstances for all other programs that are not listed above.  Their debarment is for three years, although after one year they may be able to petition to end the debarment early.

You can see the DDTC debarment announcement online here: http://www.pmddtc.state.gov/FR/2012/77FR40140.pdf

This article is meant to address US export law provisions ONLY and is meant only to provide basic education. It does not take the place of competent legal advice that is based on your specific fact pattern.

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About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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