11. Italian companies participating in the US aerospace & defense industry

The integration of Italian technology into the US aerospace industry is becoming increasingly prominent resulting in Italian defense suppliers undertaking substantial capital investments in aerospace and defense manufacturing facilities in the US,

It is easy to understand the attractiveness of Italian Companies to the US aerospace and defense sector (A&D); the US market is easily the largest in the world in terms of infrastructure and manufacturing activities. In terms of dollars, The US A&D Market size is estimated at USD 496.56 billion in 2024, and is expected to reach USD 656.93 billion by 2029, growing at a CAGR of 5.76% during the forecast period (2024-2029).

The US A&D market is expected to grow primarily due to the US armed forces’ procurement and upgrade activities to counter emerging global threats. Several contracts from the military, air force, and naval force are currently underway, and large multi-year defense programs are anticipated to be dispersed during this forecast period, creating a parallel demand for defense equipment.

Navigating and operating within the US A&D market however is challenging and rife with complexities for the Italian enterprise, particularly for those exporting defense related products or services into the US or having a US subsidiary operating in this sector. This is primarily due to the simple fact that US export laws and regulations are the “tip of the spear” in implementing US foreign policy. Specifically, US foreign policy is unparalleled in global reach and supremacy and is wielded via a highly intricate and complex web of US export and trade controls with the aim to control and restrict the end destination of US goods and technology as well as the ultimate end user.

Italian Export of A&D Products, Technology or Services

While a direct export of Italian goods to a US customer seemingly poses no issue from US export law perspective, where however the Italian export is destined or earmarked for a US defense program, serious US legal implications come into play. In many instances, the US customer may be a defense contractor who requires technical assistance in connection with the deployment or use of the Italian product or equipment. If the technical assistance requested involves the US contractor disclosing to the Italian exporter technical information regarding a US defense program, the Italian exporter (i) must be equipped to receive and safeguard any US government information deemed “Controlled Unclassified Information” (“CUI”)[1]; and (ii) can only disclose the information pursuant to the relevant export license procured by the US Customer. Specifically, separate and apart from the safeguarding of any CUI, the rendering of technical assistance by the Italian supplier will be subject to either the dual use export regulations administered by the US Department of Commerce or the strict export licensing restrictions imposed via the Directorate of Defense Trade Controls via ITAR Regulations (“DDTC”).[2]

US Subsidiary of Italian Parent

Many Italian enterprises have established wholly owned US subsidiaries operating within the US defense sector. The US subsidiary may be a sales or distribution channel, or a manufacturer of products and systems destined for the US A&D market. In either scenario, the US subsidiary will be constrained in its ability to solicit its Italian parent’s assistance. For example, the US subsidiary may need training upon the Italian product line or need actual manufacturing assistance. To this end, the US subsidiary cannot disclose to its parent any technical information which is subject to US export laws[3]. Moreover, if the technical information emanates from a US defense program, this information is deemed CUI and the Italian parent must safeguard same pursuant to relevant applicable cyber security standards. In addition, no Italian employee of the Parent can provide technical assistance without the US subsidiary procuring the necessary export license authorizing said assistance.

In many instances, the Italian parent may become frustrated in its ability to provide the necessary technical assistance due to the time synch in applying for and receiving the necessary export licenses from either the US Commerce Department or the DDTC as the case may be. Moreover, US personnel will be reluctant to send technical drawing and information to the Parent as they are cognizant of personal liability, both civil and criminal for violation of US export laws. In the meantime, the US operating unit’s customer may be demanding on-time performance and will not tolerate lengthy delay due to export license approval. In short, the unwary Italian parent may find supporting its US operations has been stymied by required compliance with US export regulations.

Thus, it behooves the US operating unit to have established as early as possible a robust US Export Trade Compliance Program which establishes an operating rhythm for any given US defense program which permits the lawful and continual technical support of the Italian Parent. To this end, an effective US Trade Compliance Program must comply with standards mandated by the US Department of Commerce Bureau of Industry & Security. An effective Export Compliance Program encompasses the following elements:

Management Commitment
Risk Assessment
Export Authorization
Record Keeping
Training
Audits
Handling Export Violation and Taking Corrective Action
Build and Maintain Export Compliance Manual

Like any other compliance program, an Export Compliance Program must not exist on paper; rather, it must spring into life and be proactively managed by a professional export compliance team. Moreover, the US compliance team must seamlessly interact with the Italian parent early in the life of a subject defense program so as to identify the nature of the technical assistance needed by the US operating unit as well as the Italian nationals who will be providing said assistance. As this stage, the US compliance team will sort thru the various export license options which best fit the needed assistance and liaise with their Italian counterparts as well. It may seek a temporary export license which authorizes the US Operating Unit to export to the Italian parent any technical drawings or documents which the Italian parent will need in order to provide the necessary assistance. Where however the US defense program at hand is a long term, multi-year US defense program, the US compliance team may pursue either a technical assistance or manufacturing assistance agreement which covers the export licensing needs for the life of the program[4].

In short, US export laws will dictate whether needed technical assistance from the Italian parent becomes an procedural and costly impediment to the US operating unit’s contractual obligations vis a vis its customer, or allows the US operating unit to timely and effectively liaise with its Italian parent in an matter consistent with US export laws and regulations. In the final analysis, there is simply no substitute for a robust and comprehensive Export Control Compliance Program which is designed to ensure the US operating unit can access the Italian parent’s technical assistance in timely fashion and in accordance with all relevant US export laws.

[1] Controlled Unclassified Information (CUI) is a US government safeguarding system for unclassified information that is sensitive and important enough to warrant protection

[2] The International Traffic in Arms Regulations (ITAR) & United States Munitions List (USML). The ITAR (22 CFR parts 120-130) governs the manufacture, export, and temporary import of defense articles, the furnishing of defense services, and brokering activities involving items described on the Unites States Munitions List (ITAR section 121.1) and is administered by the DDTC.

[3] U.S. export controls encompass both the Export Administration Regulations (“EAR”) and the International Traffic in Arms Regulations (“ITAR”) as well as U.S. economic and trade sanctions administered by the Office of Foreign Assets Control (“OFAC”). It should be noted that US export laws are that comprise laws are administered separately and apart from the CDI Safeguarding Requirements set forth above.

[4] Technical Assistance and Manufacturing License Agreements come under the purview of the US Directorate of Defense Trade Controls (“DDTC”).