[Federal Register Volume 59, Number 170 (Friday, September 2, 1994)]
[Rules and Regulations]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21419]


[[Page Unknown]]

[Federal Register: September 2, 1994]


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DEPARTMENT OF STATE
Bureau of Political-Military Affairs
[Public Notice 2058]
22 CFR Parts 123 and 124
 

Amendment to the International Traffic in Arms Regulations
AGENCY: Bureau of Political-Military Affairs, Department of State.

ACTION: Final rule.

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SUMMARY: This rule amends the regulations implementing section 38 of 
the Arms Export Control Act (AECA). The rule establishes in the 
International Traffic in Arms Regulations (ITAR) a new licensing 
procedure to permit U.S. encryption manufacturers to make multiple 
shipments of items covered by Category XIII(b)(1) of the United States 
Munitions List (USML) directly to end users in an approved country 
without obtaining individual licenses.

EFFECTIVE DATE: September 2, 1994.

FOR FURTHER INFORMATION CONTACT:
Rose Marie Biancaniello, Deputy Director for Licensing or Karen 
Hopkinson, Licensing Officer, Office of Defense Trade Controls, 
Department of State 703 875-6643 or FAX 703 875-6647.

SUPPLEMENTARY INFORMATION: In April 1993, the President ordered a 
review of U.S. policy regarding the domestic use of, and export 
controls on, encryption technology. That review resulted in a 
determination that vital U.S. interests--national security, economic, 
and law enforcement--compel maintaining appropriate control of 
encryption. It also revealed that there are measures which can be taken 
to reform the existing export controls to ensure that controls are not 
unduly burdensome to U.S. exporters. On February 4, 1994, the 
Department of State announced reforms to the export control procedures 
applicable to products incorporating encryption technology.
    This final rule implements one of these reforms. Previously, almost 
every encryption export required an individual license. Only those 
exports covered by a distribution arrangement could be shipped without 
an individual license. This final rule, which adds a Sec. 124.15 to the 
ITAR, provides for a licensing procedure which permits direct 
distribution from the U.S. manufacturer, thus reducing the regulatory 
burden on exporters without a foreign distributor. The number of 
individual license applications required will also be reduced.
    Under this new licensing arrangement, U.S. encryption manufacturers 
may ship their products covered in Category XIII(b)(1) from the United 
States directly to customers within approved countries without 
obtaining individual licenses for each end user. The procedures are 
similar to existing distribution agreement procedures. Exporters are 
required to submit a proposed arrangement identifying, among other 
things, specific items to be shipped, proposed end users and end use 
and countries to which the items are destined. Upon approval of the 
arrangement, exporters will be permitted to ship the specified products 
directly to end users in the approved countries based on a single 
license. Therefore, manufacturers of products covered in Category 
XIII(b)(1) will now have the option to export to foreign distributors 
under a distribution agreement or directly from the U.S. under the new 
arrangement.
    Section 123.16(b)(1) is revised in conformity with the addition of 
Sec. 124.15, and to substitute the more precise term ``defense 
hardware'' for ``defense article''.
    The Department of State views this reform as beneficial to U.S. 
persons and industry and has decided to implement it immediately by 
publication of a final rule. Notwithstanding this final rule, public 
comment is welcomed.
    This amendment involves a foreign affairs function of the United 
States. It is exempt from review under E.O. 12866 and has been reviewed 
internally by the Department to ensure consistency with the purposes 
thereof. It is also excluded from the procedures of 5 U.S.C. 553 and 
554.
List of Subjects
22 CFR Part 123
    Arms and munitions, Exports.
22 CFR Part 124
    Arms and munitions, Exports, Technical assistance.
    Accordingly, for the reasons set forth in the preamble, 22 CFR 
Subchapter M, Parts 123 and 124 are amended as follows:
PART 123--LICENSES FOR THE EXPORT OF DEFENSE ARTICLES

    1. The authority citation for 22 CFR Part 123 continues to read as 
follows:

    Authority: Secs. 2 and 38, Pub. L. 90-629, 90 Stat. 744 (22 
U.S.C. 2752, 2778); E.O. 11958, 42 FR 4311, 3 CFR 1977 Comp. 79; 22 
U.S.C. 2658.

    2. Section 123.16(b)(1) is revised to read as follows:


Sec. 123.16  Exemptions of general applicability.

* * * * *
    (b) * * *
    (1) District Directors of Customs shall permit the export without a 
license of defense hardware being exported in furtherance of a 
manufacturing license agreement, technical assistance agreement, 
distribution agreement or an arrangement for distribution of items 
identified in Category XIII(b)(1), approved in accordance with Part 
124, provided that:
    (i) The defense hardware to be exported supports the activity and 
is identified by item, quantity and value in the agreement or 
arrangement; and
    (ii) Any provisos or limitations placed on the authorized agreement 
or arrangement are adhered to; and
    (iii) The exporter certifies on the Shipper's Export Declaration 
that the export is exempt from the licensing requirements of this 
subchapter. This is done by writing, ``22 CFR 123.16(b)(1) and the 
agreement or arrangement (identify/state number) applicable''; and
    (iv) The total value of all shipments does not exceed the value 
authorized in the agreement or arrangement.
    (v) In the case of a distribution agreement, export must be made 
directly to the approved foreign distributor.
* * * * *

PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE 
SERVICES

    3. The authority citation for 22 CFR Part 124 continues to read as 
follows:

    Authority: Secs. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22 
U.S.C. 2752, 2778, 2797); E.O. 11958, 42 FR 4311, 3 CFR 1977 Comp. 
p. 79; 22 U.S.C. 2658.

    4. Section 124.15 is added to read as follows:


Sec. 124.15  Arrangements for U.S. encryption (Category XIII(b)(1)) 
distribution by manufacturers.

    (a) Arrangements for the export of unclassified defense articles 
identified in Category XIII(b)(1) must be approved by the Office of 
Defense Trade Controls before they enter into force. Such arrangements 
will be limited to unclassified defense articles identified in Category 
XIII(b)(1) and must contain conditions for special distribution, end-
use and reporting. Licenses for export pursuant to such arrangements 
must be obtained prior to export of the defense article unless an 
exemption under Sec. 123.16(b)(1) of this subchapter is applicable.
    (b) Required information. Proposed arrangements shall be submitted 
to the Office of Defense Trade Controls for review and approval. The 
following information must be included in all such proposed 
arrangements:
    (1) A description of the U.S. Munitions List articles involved. 
This shall include when applicable the Federal Stock Number, nameplate 
data, and any control numbers under which the articles were developed 
or procured by the U.S. Government;
    (2) A detailed statement of the terms and conditions under which 
the articles will be exported and distributed;
    (3) The duration of the proposed arrangement; and
    (4) Specific identification of the country or countries that 
comprise the distribution territory. A Nontransfer and Use Certificate 
(DSP-83) will be required in accordance with Sec. 123.10.
    (c) Required Statements. The following statements must be included 
in all arrangements:
    (1) This arrangement shall not enter into force, and shall not be 
amended or extended, without the prior written approval of the 
Department of State of the U.S. Government.
    (2) This arrangement is subject to all United States laws and 
regulations relating to exports and to all administrative acts of the 
U.S. Government pursuant to such laws and regulations.
    (3) The arrangement shall not affect the performance of any 
obligations created by prior contracts or subcontracts which the 
applicant may have individually or collectively with the U.S. 
Government.
    (4) No liability will be incurred by or attributed to the U.S. 
Government in connection with any possible infringement of privately 
owned patent or proprietary rights, either domestic or foreign, by 
reason of the U.S. Government's approval of this arrangement.
    (5) No export, sale, transfer, or other disposition of the U.S. 
Munitions List articles covered by this arrangement is authorized to 
any country outside the distribution territory without the prior 
written approval of the Office of Defense Trade Controls of the U.S. 
Department of State.
    (6) The applicant agrees that a semi-annual report of sales or 
other transfers pursuant to this arrangement of the licensed articles, 
by quantity, type, U.S. dollar value, and purchaser or recipient shall 
be provided by (applicant) to the Department of State. Such reports may 
cover calendar or fiscal years. Reporting shall continue until such 
time as all articles authorized under the arrangement or a permanent 
unclassified license (DSP-5) authorized in support of the arrangement 
have been reported. Reports shall be deemed proprietary information by 
the Department of State and will not be disclosed to unauthorized 
persons. (See Sec. 126.10(b) of this subchapter.)
    (7) The applicant agrees to notify (identify foreign end-user) of 
any end use or retransfer restrictions and (identify foreign end user) 
agrees to incorporate the following statement as an integral provision 
of a contract, invoice or other appropriate document when the articles 
covered by this arrangement are sold or otherwise transferred:
    ``These commodities are authorized for export by the U.S. 
Government only to (identify country of ultimate destination). They may 
not be resold, diverted, transferred, transshipped, or otherwise be 
disposed of in any other country, either in their original form or 
after being incorporated through an intermediate process into other 
end-items, without the prior written approval of the U.S. Department of 
State.''
    (8) All provisions in this arrangement which refer to the United 
States Government and the Department of State will remain binding on 
the applicant after the termination of the arrangement.
    (d) The license will be valid for four years and quantities and 
values should reflect those for this time period. No application will 
be accepted for any export for which Congressional notification is 
required.
    The application shall be filled out in accordance with the 
instructions; however, in this instance, foreign end-user, foreign 
consignee, and foreign intermediate consignees need not be identified. 
In each block state: ``The foreign person in this block will be 
reported in accordance with Sec. 124.15 of the ITAR.'' The provisions 
of Sec. 126.13(b) with regards to foreign consignee and foreign 
intermediate consignee need not be complied with at the time the 
application is transmitted but will be reported semi-annually.
    (e) Transmittal letter. Requests for approval of the arrangement 
must be made by letter. The original letter and seven copies of the 
proposed arrangement shall be submitted to the Office of Defense Trade 
Controls. The letter shall contain the following:
    (1) A statement giving the applicant's Defense Trade Controls 
registration number.
    (2) A statement identifying the country or countries to comprise 
the distribution territory.
    (3) A statement identifying the defense articles to be distributed 
under the arrangement.
    (4) A statement identifying any U.S. Government contract under 
which the equipment may have been generated, improved, developed or 
supplied to the U.S. Government, and whether the equipment was derived 
from any bid or other proposal to the U.S. Government.
    (5) A statement that no classified defense articles or classified 
technical data are involved.
    (6) A statement identifying any patent application which discloses 
any of the subject matter of the equipment or related technical data 
covered by an invention secrecy order issued by the U.S. Patent and 
Trademark Office.
    (7) A statement that the applicant will not permit any exports to 
take place until the arrangement and the export license have been 
approved by the Department of State.

    Dated: August 1, 1994.
Lynn E. Davis,
Under Secretary for Arms Control and International Security Affairs, 
Department of State.
[FR Doc. 94-21419 Filed 9-1-94; 8:45 am]
BILLING CODE 4710-25-M