International Legal Affairs: Volume 3, Number 4
Those involved in the international arms trade are (or should be) intimately familiar with the International Trade in Arms Regulations, frequently known by its acronym, ITAR. As a regulatory document, it is not uncommon for regulations and policies to change – sometimes with little notice or fanfare.
Prior Approval/Prior Notification for Brokered Activities
Under the old rule, the Department of State required prior approval before a proposal or presentation was made regarding the purchase of significant combat equipment listed on the U.S. Munitions List, valued at $7,000,000 or more, for use by the armed forces of a foreign country. In addition, prior notification to the Department of State was required 30 days in advance of a proposal or presentation to any foreign person that concerned equipment previously approved for export. Similar restrictions were in place for Technical Assistance Agreements and Manufacturing License Agreements.
The current regulation (found at 22 CFR126.8) requires prior approval or prior notification for certain proposals and presentations. The prior approval/notification is required to allow the U.S. State Department to make a determination whether significant military equipment valued at $14,000,000 or more is being purchased by a country other than a member of NATO, Australia, New Zealand, Japan, or South Korea.
Similarly, the prior approval/notification requirements will allow the U.S. State Department to review manufacturing license agreements and technical assistance agreements for the production or assembly of significant military equipment, regardless of dollar value.
New Definition of “Defense Services”
The following is a proposed change to 22 CFR 124.1. The proposed change would remove the requirement enumerated at 22 CFR 124.1(a) to seek DDTC approval if the defense service that is being rendered uses public domain data or data otherwise exempt from ITAR licensing requirements. Within the proposed change is guidance for determining what is (and what is not) a defense service:
The following is not a defense service:
- Training in the basic operation (functional level) or basic maintenance;
- Mere employment of a U.S. citizen by a foreign person;
- Testing, repair, or maintenance of an item subject to the Export Administration Regulations
- Providing law enforcement, physical security or personal protective training, advice, or services to or for a foreign person
- Providing assistance (including training) in medical, logistical (other than maintenance), or other administrative support services to or for a foreign person.
Under the proposed rule change, Organizational, Intermediate, and Depot level maintenance is better defined. The proposed definitions would create a better understanding of what is permitted when performing maintenance services to foreign end users. Under the proposed rule change, Organizational-level maintenance (or basic level maintenance) would be defined as the first level of maintenance performed by an end-user unit or organization, “on equipment” assigned to the inventory of the end-user unit or organization.
Under the proposed rule change, Intermediate-level maintenance would be second-level maintenance performed ‘‘off-equipment’’ (on removed components, parts, or equipment) by designated maintenance shops or centers, tenders, and mobile teams in direct support of end-users units or organizations. Finally, under the proposed rule change, Depot-level maintenance would be third level maintenance performed on or off equipment at or by a major repair facility, shipyard, or field team with extensive equipment and personnel of higher technical skill in direct support of the end-user units or organizations. Depot-level maintenance consists of providing evaluation or repair beyond the unit or organizations capability.
Readers are reminded that the above rule change has only been proposed, and is not yet finalized. The U.S. State Department accepted comments on the proposed rule until June 13, 2011; a final determination of the proposed rule change can be expected in the latter part of 2011.
New Exemption for Replacement Parts
The U.S. State Department has issued a new exemption for the export of replacement parts. The new exemption may be found at 22 CFR 123.28. Under the new exemption, an exporter may ship replacement parts without an export license if all of the following terms are met:
- The exporter is not subject to policy of denial
- The exporter was the applicant of a previously approved authorization to export the U.S.-origin end-item as defined in §121.8(a); and
- The replacement parts or components being exported do not upgrade the capability of the end item as originally exported.
- The type, amount, and frequency of the exports are consistent with repair and replacement in accordance with normal logistical support requirements for the number of end-items in the end user inventory; and
- The value of the purchase order or contract for the export does not exceed the requirements for congressional notification set forth in §123.15; and
- The consignee of the shipment is the foreign government approved under the original export authorization; and
- The foreign government end-user is not subject to restrictions under §126.1 of this subchapter; and
- The replacement parts or components being exported meet all the restrictions, limitations, and provisos (including those on the handling or control of the replacement parts or components) in the original export authorization for the end-item; and
- The replacement parts or components being exported are consistent with the U.S. Government authorized maintenance activities.
In the event that all nine requirements are not met, the exemption may not be used. Readers are required that the usual shipping requirements still apply – documentary requirements, AES filings, and appropriate shipping methods must still be employed.
Shipping Defense Articles for the U.S. Government
Readers are reminded that the current restrictions within 22 CFR 126.4 remain unchanged. There is a disagreement between the Department of Defense and the U.S. State Department about how to execute the exemption on shipping defense articles on behalf of the U.S. Government. As a result, the prudent course of action would be to follow the U.S. State Department interpretation, as they are the implementing authority of the exemption.
In order to use the exemption, the defense articles must be shipped on a Government issued bill of lading, and ALL aspects of transport (to include export, carriage, and delivery abroad) must be fulfilled by the U.S. Government.
Electronic Payment of Annual Registration Fees
The U.S. State Department has proposed changing the payment of annual registration fees from a paper system to an electronic system. While the change has not been implemented, the rule would modernize the payment system and eliminate the need for registered parties to write a check when making payment. Other concerns expressed by the U.S. State Department included difficulties on the part of foreigners who (under the current requirement) must make payment via a U.S. bank. In the event that electronic payment is implemented, expect to see ACH or wire transfers as permissible means of making payment to the State Department. The comment period for the proposal closed on April 25, 2011; look for implementation in late summer or early fall of 2011.
This article is not intended to list all of the recent changes within the ITAR. Instead, the changes listed within this article (whether final or proposed) were selected due to their relevance within the small arms community. One may find the complete ITAR online at the U.S. State Department website: http://pmddtc.state.gov/regulations_laws/itar.html. As usual, the above guidance does not constitute legal counsel; in the event that readers have any questions regarding laws or regulations governing small arms, qualified legal counsel should be consulted.
Jason Wong is a Washington licensed attorney. He regularly provides legal counsel to manufacturers, importers, and exporters in the firearms and defense industries via his law firm, The Firearms Law Group. He may be contacted by emailing jmwong@FirearmsLawGroup.com.