State Dept Proposes Rule to Narrow ITAR Coverage of Defense Services, Etc.

Comments are due by June 13, 2011.

(DOS states it reviewed the ITAR’s treatment of defense services in order to enhance support to allies, improve efficiency in licensing, and reduce unintended consequences. As a result, DOS determined that the current coverage of defense services in the ITAR (22 CFR 120.9) is overly broad, capturing certain forms of assistance or services that do not warrant ITAR control.)

ITAR Would be Amended to Narrow Definition of Defense Services, Etc.

As part of the Export Control Reform effort, DOS states it is proposing to amend 22 Parts 120 (on purpose and definitions) and 124 (on agreements, off-shore procurement and other defense services) of the ITAR to reflect this new policy regarding the coverage of defense services.

DOS proposes the following amendments to the ITAR:

Proposed Revisions to Definition of "Defense Services"

DOS proposes to amend paragraphs (1) through (3) and add new paragraph (4) to 22 CFR 120.9(a) on the definition of “defense services.” The proposed changes would narrow the focus of services to include: (i) furnishings of assistance (including training) using other than public domain data; (ii) integrating items into defense articles; (iii) training of foreign forces in the employment of defense articles and (iv) conducting direct combat for or providing intelligence to a foreign person if related to a defense article.

The definition of defense services in 22 CFR 120.9(a) would be revised to include those four parts as follows:

Furnishing Assistance (Including Training) Using Other than Public Domain Data

Under the proposed rule, services based solely upon the use of public domain data would not constitute defense services and would not require a license, technical assistance agreement (TAA), or manufacturing license agreement (MLA) to provide to a foreign person.

However, using data that is “other than public domain data”, including proprietary data or “technology” “subject to the EAR”, to provide assistance would constitute a defense service under this proposed change.

The proposed rule would revise 22 CFR 120.9(a)(1) to state as follows (proposed deletions are struck, proposed additions are underlined):

(1) The furnishing of assistance (including training) using other than public domain data to foreign persons, whether in the United States or abroad, in the design, development, engineering, manufacture, production, assembly, testing, intermediate or depot level repair or maintenance, modification, demilitarization, destruction, or processing or use of defense articles; or

Integrating Items into USML Controlled Defense Articles

The proposed rule also includes revisions that would control the “integration¹” of certain items into USML controlled defense articles, even if ITAR-controlled “technical data” is not provided to a foreign person during the provision of such services.

The proposed rule would revise 22 CFR 120.9(a)(2) to state as follows (proposed deletions are struck, proposed additions are underlined):

(2) The furnishing of assistance to foreign persons, of any technical data controlled under this subchapter (see 120.10), whether in the United States or abroad, for the integration of any item controlled on the U.S. Munitions List (USML) or the Commerce Control List into an end item or component that is controlled as a defense article on the USML, regardless of the origin; or

Training Foreign Units/Forces in the Employment of Defense Articles

The proposed rule also specifies that training for foreign units or forces would be considered a defense service only if the training involves the employment of a defense article, regardless of whether technical data is involved.

The proposed rule would revise 22 CFR 120.9(a)(3) to state as follows (proposed deletions are struck, proposed additions are underlined):

(3)MilitaryTraining or providing advice toof foreign units and forces, regular and irregular, regardless of whether technical data is transferred to a foreign person, including formal or informal instruction of foreign persons in the United States or abroad by any means including classroom correspondence instructioncourses, technical, educational, or information publications and media of all kinds, training aid, orientation, conduct or evaluation of training and training exercises, and military advicein the employment of defense articles.(See also 124.1.); or

Conducting Direct Combat Operations, Providing Intelligence to Foreign Persons

The proposed rule would add paragraph (4) to 120.9(a) to include in the definition of defense services:

(4) Conducting direct combat operations for or providing intelligence services to a foreign person directly related to a defense article.

Examples of Activities that Do Not Constitute Defense Services

DOS is also proposing examples of activities that do not constitute defense services. For example, DOS states that the proposed rule would prevent the anomalous situation where foreign companies are reluctant to hire U.S. citizens for fear that such employment alone constitutes a defense service, even where no technical data would be transferred to the employer.

The proposed rule would add a new 22 CFR 120.9(b) to state that the following are not a defense service:

(1) "Training in the basic operation (functional level) or basic maintenance (see 22 CFR 120.38) of a defense article; or

(2) Mere employment of a U.S. citizen by a foreign person; or

(3) Testing, repair, or maintenance of an item “subject to the Export Administration Regulations” (see 15 CFR 734.2) administered by the Department of Commerce, Bureau of Industry and Security, that has been incorporated or installed into a defense article; or

(4) Providing law enforcement, physical security or personal protective training, advice, or services to or for a foreign person (see 22 CFR 120.16), using only public domain data; or

(5) Providing assistance (including training) in medical, logistical (other than maintenance), or other administrative support services to or for a foreign person."

Proposed Definitions for Organizational, Intermediate, & Depot Level Maintenance

DOS also proposes to add a new section 120.38, to provide the following additional definitions to 22 CFR of terms used in the proposed revision of 120.9:

(a) Organizational-level maintenance (or basic level maintenance) is the first level of maintenance performed by an end-user unit or organization “on-equipment” (directly on the defense article or support equipment) assigned to the inventory of the end-user unit or organization. Its phases consist of repair, inspecting, servicing, or calibration, testing, lubricating and adjusting equipment, as well as replacing minor parts, components, assemblies and line-replaceable spares or units.

(b) Intermediate-level maintenance is 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. Its phases consist of: calibration, repair, or testing and replacement of damaged or unserviceable parts, components, or assemblies.

(c) Depot-level maintenance is 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 end-user units or organizations. It consists of providing evaluation or repair beyond unit or organizations capability. Its phases include: inspection, testing, calibration or repair, including overhaul, reconditioning and one-to-one replacement of any defective items, parts or components; and excluding any modification, enhancement upgrade or other form of alteration or improvement that enhances the performance or capability of the defense article.

Conforming Changes for Mfr Licenses & Technical Assistance Agreements

To conform to the proposed revisions to section 120.9 of the ITAR, DOS proposes to modify 22 CFR 124.1(a) to remove the requirement to seek the DDTC's approval if the defense service that is being rendered uses public domain data or data otherwise exempt from ITAR licensing requirements. Similar conforming changes would also made by deleting 22 CFR 124.2(a) and making conforming changes to 124.2(c).

¹Integration means the systems engineering design process of uniting two or more things in order to form, coordinate, or blend into a functioning or unified whole, including introduction of software to enable proper operation of the device.

(See ITT's Online Archives or 04/21/10 news, 10042125, for BP summary of the Obama Administration’s export control reform program.)

DOS Contact -- Charles Shotwell (202) 663-1282

(FR Pub 04/13/11, Public Notice 7415)