Whether you love the President or hate the President, there is no denying that he has made US trade agreements a central focus of his administration. He has cancelled US participation in the Trans-Pacific Partnership, removed the United States from the Paris Climate Accords and threatened to exit from NAFTA. But did you ever expect that this Administration would sign an agreement that stops the US from exporting, and cedes those sales to another country?
The FAA has signed a new 2017 Agreement with China. This agreement has dramatic trade effects, and stops US parts manufacturers from selling certain parts that compete with non-US manufacturers.
PMA exports to China from the US – a Quick History
In 1995, the United States signed a Schedule of Implementation Procures (SIP) with China. This was the detailed annex to the Bilateral Airworthiness Agreement between the US and China. The SIP explains that “[t]he importing authority shall accept the certificate of airworthiness for export of the exporting authority on parts and materials.” It includes a caveat that the part must be documented – the language is similar to the language in our other agreements that requires an 8130-3 tag. The SIP represented a reasonable set of requirements that were consistent with international norms for accepting PMA parts. Generally, it permits US PMA holders (and their distributors) to sell any FAA-PMA parts to Chinese customers for use on Chinese aircraft.
In 2003, the FAA and CAAC signed a clarification document explaining that Chinese acceptance of parts from the United States included PMA parts. This was an important caveat as it cleared up any doubt that PMA parts could be sold to Chinese carriers and MROs.
The 2017 Agreement is a new Implementation Procedure for Airworthiness (IPA), which is an annex to the US-China bilateral agreement. The IPA replaces the SIP. And in doing so, it changed the scope of PMA parts that could be sold into China.
Under the new IPA, the following new PMA parts are acceptable in China:
- FAA-PMA parts to be installed on products for which the US is the State of Design – this would include PMA parts for Boeing aircraft (US State of Design);
- FAA-PMA parts to be installed on products for which the US is not the SoD, provided that the design approval basis is STC (meaning that it was a major change to type design) or identicality with a licensing agreement – If the design approval for a PMA is an STC, then the STC must be validated in China;
But for PMA parts that are intended for installation on products for which the US is NOT the State of Design (e.g. PMA parts for Airbus aircraft or Rolls Royce engines) and that were approved based on test and computation, China will only accept parts where the article’s consequence of failure has a failure condition of ‘no safety effect’ or ‘minor’ as defined in FAA ACs: AC 23.1309-1E, AC 25.1309-1A, AC 27-1B, AC 29-2C.
Historically, the failure condition has been used to gauge the level of FAA scrutiny during the approval process. Where an article is “on the fence” or where the applicant has limited experience with that sort of part, the applicant and FAA may have agreed on a higher level of failure condition in order to drive a higher level of FAA scrutiny. It did not matter to the future of the part, if the FAA scrutiny was higher during approval. But now, such decisions could prohibit the export of that part to China!
This seems counter-intuitive, because the PMA parts that have experienced a higher level of FAA scrutiny (and are therefore better-vetted by the FAA) are the ones that are no longer able to be exported to China.
There is an additional problem with this limitation. It is based on information that is not public – it is typically only known to the PMA applicant and the FAA office. As a consequence, a third party distributor who attempts to export a part to China may be unable to independently identify whether the PMA’s failure mode at the time of application was identified as minor or major. And PMA parts that were approved before the issue of the advisory circulars that established these terms will have no documented failure condition. These factors could make it practically impossible for third party distributors to sell ANY test-and-computation PMA parts into China, for lack of categorization data.
This affects PMA parts on non-US (state of design) aircraft.
Many independent PMA parts for these aircraft, which have competed with the parts available from the non-US production approval holder, will be unable to be sold into China. It is likely that Chinese buyers could insist on affirmative statements that the PMA parts were approved as “minor” or “no safety affect,” or buyers could use this as a justification for refusing all PMA parts on non-US (state of design) aircraft.
Under this Agreement, the US has gone from being competitive with European aircraft parts manufacturers to exiting the market for these parts.
You Can Help
Industry will meet with the FAA next month to discuss this Agreement. It would help to have hard data to share with the FAA. With this in mind, we are asking the PMA community to provide us with the following information:
- How much sales volume your company had to China in 2016;
- How much sales volume your company expects to have to China in 2017;
- How much of that 2017 sales volume you think could be adversely impacted by the China IPA? I would appreciate it if you would render this into two different categories:
- Parts sales affected because the part has a major or catastrophic failure mode; and,
- Parts sales affected for other reasons, despite the part having a minor or “no affect” failure mode.
I would appreciate it if each PMA company could let me know the answers to these questions. The answers should be sent to us by email or by fax [(202) 628-8948]. We will keep the individual answers confidential, and will only report information to the FAA in the aggregate.