The Ministry of Defense will begin a substantial loosening of restrictions on defense exporters, and will significantly shorten the list of products for which overseas marketing requires prior approval from the Defense Export Controls Agency.
According to the changes, which are scheduled to take effect in the coming months, defense companies will be exempt from obtaining a marketing license for many hundreds of cyber and electro-optic systems and tools, and for courses in security and anti-terrorism warfare. These concessions will apply to companies exporting to any of the 102 countries on the list of permitted countries, which the Ministry of Defense revises from time to time in consultation with the Ministry of Foreign Affairs.
Defense Export Controls Agency director Rachel Chen said today that the anticipated exemptions would affect hundreds of defense exporters, while improving their competitive ability throughout the world. She noted that the concessions would apply to marketing of products defined by the Ministry of Defense as unclassified, while marketing of products defined as classified would still require a license in advance.
Up until now, exports of defense systems required a two-stage licensing process: a marketing license was required before the system was presented at an exhibition or demonstration to a potential customer, and at the end of the negotiations between the exporter and the customer of the supply of a system, an export license was required under the Defense Export Controls Law.
"If unclassified items are involved, the Defense Export Controls Agency will meet with the exporter when an export license is granted for the item. There is a list of 27 items, and each item can be a family of hundreds of different products, such as cyber and electro-optic systems, including night vision systems," Chen says.
The expected changes in the law are designed to make it easier for Rafael Advanced Defense Systems Ltd., which has extensive business in electro-optics, and other defense companies, including Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) and Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), which have cyber activity, as well as hundreds of relatively small companies active in this sector.
1,200 licenses for cyber products
The scheduled exemptions are part of the reform in defense exports formulated over the past two years, parts of which were recently discussed at a number of meetings of the Knesset Foreign Affairs and Defense Committee. Chen unveiled the anticipated concessions druing the annual conference of the Defense Export Controls Agency, which took place today in the presence of Ministry of Defense director general Major General (res.) Udi Adam, other senior Ministry of Defense officials, and the heads of Israeli defense companies.
The exemptions announced by Chen are projected to affect most of the initial marketing actions by defense companies, so that in addition to the ability of defense companies to operate more freely in 102 countries throughout the world, it will also significantly relieve the burden on the Defense Export Controls Agency, which previously handled tens of thousands of requests for marketing and export licenses every year. These exemptions are also expected to have a positive impact on the timetables of exporting companies, because the procedures for obtaining a marketing license for systems formerly took an average of 120 days.
At the same time, together with the exemptions, the Ministry of Defense is planning to reserve the right to prevent a deal, even after the exporter has presented a system to a customer, and has even signed a deal to supply it. Implementation of such a deal will be subject to obtaining an export license, and the Defense Export Controls Agency can then prevent it by not issuing the suitable export license for security or policy reasons.
"I urge the defense exporters to protect themselves in the framework of the agreements that they are reaching with potential customers to make the deal contingent on obtaining the appropriate export licenses from the Ministry of Defense," Chen added. "Such a clause will avoid exposing them to possible lawsuits if the Ministry of Defense eventually does not allow the deal to go through. This is still a risk that we're willing to take upon ourselves, because an examination of previous years we conducted showed that the number of refusals was negligible, compared with the deals that were eventually approved."
One of the sectors that will profit the most from the emerging exemptions is the cybersecurity sector. Of 73 cyber products supervised by the Defense Export Controls Agency, only 16 are defined as classified. 1,200 marketing and export licenses were granted last year for exports of Israeli products to other countries. These products included systems for monitoring and gathering information from smartphones, systematic cyber defense solutions at the national level, cyber intelligence gathering and management centers, and cyber training centers. It should be noted that this involves only systems for defense against cyber attacks.
"The expected changes will reduce the number of marketing and export license requests submitted to the Ministry of Defense each year by 30%. This reform will reshape all the supervisory procedures for Israeli defense exports, which up until now were a drawn-out and exhausting ordeal. The exporters will be able to substantially improve their worldwide competitive capability," a defense source told "Globes."
Israeli defense exports totaled $5.6 billion in 2016, 14% more than in 2015. More than 35,000 requests for marketing systems and various weapons are submitted to the Defense Export Controls Agency annually, which grants 9,000 export licenses to defense companies. It is believed that Israel's defense exports will grow, among other things due to a series of deals totaling $2.5 billion signed by IAI in India for the sale of Barak 8 defense missiles.
Published by Globes [online], Israel Business News - www.globes-online.com - on October 30, 2017
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