[Federal Register Volume 75, Number 166 (Friday, August 27, 2010)]
[Rules and Regulations]
[Pages 52622-52625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-21451]


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DEPARTMENT OF STATE

22 CFR Parts 124, 125, 126, and 129

[Public Notice: 7134]
RIN 1400-AC62


Amendment to the International Traffic in Arms Regulations: 
Removing Requirement for Prior Approval for Certain Proposals to 
Foreign Persons Relating to Significant Military Equipment

AGENCY: Department of State.

ACTION: Final rule.

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SUMMARY: The Department of State is amending the International Traffic 
in Arms Regulations (ITAR) to remove the requirements for prior 
approval or prior notification for certain proposals to foreign persons 
relating to significant military equipment.

DATES: Effective Date: This rule is effective August 27, 2010.

FOR FURTHER INFORMATION CONTACT: Director Charles Shotwell, Office of 
Defense Trade Controls Policy, Department of State, Telephone (202) 
663-2792 or Fax (202) 261-8199; E-mail [email protected]. 
ATTN: Regulatory Change, Section 126.8.

SUPPLEMENTARY INFORMATION: In accordance with the President's Export 
Control Reform effort, on March 29, 2010, the Department published a 
Notice of Proposed Rulemaking (NPRM) to eliminate the requirements for 
prior approval or prior notification for certain proposals to foreign 
persons relating to significant military equipment at Sec.  126.8 of 
the ITAR. Effective September 1, 1977, the Department of State amended 
Sec.  123.16 to require Department of State approval before a proposal 
or presentation is made that is designed to constitute the basis for a 
decision to purchase significant combat equipment, involving the export 
of an item on the U.S. Munitions List, valued at $7,000,000 or more for 
use by the armed forces of a foreign country (42 FR 41631, dated August 
18, 1977). Also, Sec.  124.06, entitled, ``Approval of proposals for 
technical assistance and manufacturing license agreements,'' was 
amended to require similar prior approval with respect to proposals and 
presentations for technical assistance and manufacturing license 
agreements involving the production or assembly of significant combat 
equipment.
    ``Proposals to foreign persons relating to significant military 
equipment'' became Sec.  126.8 in a final rule effective January 1, 
1985 (49 FR 47682, dated December 6, 1984). Section 126.8 did not 
require prior approval of the Department of State when the proposed 
sale was to the armed forces of a member of the North Atlantic Treaty 
Organization (NATO), Australia, Japan, or New Zealand, except with 
respect to manufacturing license agreements or technical assistance 
agreements.
    A prior notification requirement, instead of prior approval, was 
added to Sec.  126.8 in a final rule effective March 31, 1985 (50 FR 
12787, dated April 1, 1985). Prior notification to the Department of 
State was required 30 days in advance of a proposal or presentation to 
any foreign person where such proposals or presentations concerned 
equipment previously approved for export.
    The current Sec.  126.8 requires prior approval or prior 
notification for certain proposals and presentations to make a 
determination whether to purchase significant military equipment valued 
at $14,000,000 or more (other than a member of NATO, Australia, New 
Zealand, Japan, or South Korea), or whether to enter into a 
manufacturing license agreement or technical assistance agreement for 
the production or assembly of significant military equipment, 
regardless of dollar value.
    These types of proposals and presentations usually involve large 
dollar amounts. Before the defense industry undertakes the effort 
involved in formulating its proposals and presentations, if there is 
any doubt that the corresponding license application or proposed 
agreement would be authorized by the Department of State, the industry 
may request an advisory opinion (see Sec.  126.9). The written advisory 
opinion, though not binding on the Department, helps inform the defense 
industry whether the Department would likely grant a license 
application or proposed agreement. Currently, the time between 
submitting a license application or proposed

[[Page 52623]]

agreement and obtaining a decision from the Department of State whether 
to authorize such transactions has been decreased sufficiently that 
requiring prior approval or prior notification for proposals is 
unnecessary and imposes an administrative burden on industry.
    References to Sec.  126.8 have been removed at Sec. Sec.  124.1(a), 
125.4(a), 126.13, 129.7(e), and 129.8(c).
    The Proposed Rule had a comment period ending May 28, 2010. Three 
parties filed comments by May 28 recommending changes. Having 
thoroughly reviewed and evaluated the comments and the recommended 
changes, the Department has determined that it will, and hereby does, 
adopt the Proposed Rule, with minor edits, and promulgates it as a 
Final Rule. The Department's evaluation of the written comments and 
recommendations follows.

Comment Analysis

    One commenting party commended the proposed change as removing an 
unnecessary and redundant licensing burden, without suggesting any 
changes.
    One commenting party supported the proposed change, but recommended 
certain ``clerical'' changes to other parts of the ITAR for purposes of 
consistency. Specifically, Sec.  126.1(e) requires the Directorate of 
Defense Trade Controls' (DDTC) written approval or a license prior to a 
proposal to sell defense articles or services to any country covered in 
that section (i.e., restricted destinations). The commenting party 
suggested the definition of ``proposal'' in Sec.  126.8(b) be 
incorporated into Sec.  126.1(e). We believe the incorporation of the 
Sec.  126.8(b) definition of ``proposal'' could confuse exporters, 
potentially encouraging ``preliminary discussions'' with prohibited 
destinations. Therefore, we do not support that change. We do, however, 
concur with this commenting party's recommendation that we delete the 
references to Sec.  126.8 in Sec. Sec.  124.1(a), 125.4(a), and 
129.7(e). This has been accomplished in our proposed change to Sec.  
124.1(a). Appropriate changes to Sec.  125.4(a) and Sec.  129.7(e) have 
been added to this notice.
    One commenting party expressed concern that the elimination of the 
prior notification requirement would contravene ``the fundamental goals 
of the ITAR'' through arms deals furthering the persecution of 
individuals, denial of human rights, terrorism, and genocide, with 
special concern about foreign military sales. We note at the outset 
that foreign military sales are not controlled by the ITAR, as opposed 
to direct commercial sales. We also note that we are not lessening 
control over the export of any defense article, technology, or service. 
Nor are we lessening scrutiny over prohibited/restricted destinations 
(Sec.  126.1(e) remains in place). Rather, we are eliminating the 
requirement for reviewing an export transaction twice, which we 
consider to be a redundant burden on industry and government.
    One commenting party stated that the change would ``limit or 
eliminate the President's ability to remain informed of `negotiations' 
* * * '' in contravention of the spirit of Sec.  2778(a)(3) of the Arms 
Export Control Act (AECA). Our experience from a practical day-to-day 
review of exports gives us a different perspective. We note that 
advance notice of pending export transactions was a meaningful concept 
in the days when the average license processing time was over 60 days. 
But when the average processing time is approximately 15 days, it is 
easier and faster to review the export transaction (e.g., manufacturing 
licensing agreement) as a whole rather than piecemeal. With the 
challenge of over 84,000 licenses per year, a requirement to review 
export transactions (in effect) twice is an unnecessary burden that 
provides the executive branch with effectively no advance notice. Most 
importantly, the requirement to obtain a license or other authorization 
before passing ITAR controlled technical data remains in place, placing 
a significant limitation on the content of negotiations. Furthermore, 
we will maintain the Sec.  126.1(e) requirement of notice for proposed 
transactions with restricted destinations, where in most cases there 
would be a presumption against the export.
    The same commenting party also advised that an unintended 
consequence of the change is the ``elimination of any recordkeeping 
requirements'' for proposals. We do not agree, since the Sec.  126.8 
requirement to report certain proposals is an obligation separate and 
independent from recordkeeping requirements. It will continue to be 
good practice to maintain records of such transactions for an 
appropriate duration in compliance with Sec.  122.5, particularly to 
rebut any post hoc allegations that ITAR controlled technical data were 
transferred without a license or authorization.
    The same commenting party recommended alternatively that Sec.  
126.8 be retained, but the definition of ``proposal'' in Sec.  126.8(b) 
be expanded to better define what constitutes ``sufficient detail.'' 
For the reasons already mentioned above, we believe that elimination of 
Sec.  126.8 altogether is simpler and less confusing than whittling 
away at the definition of proposal. Another alternative recommended was 
elimination of Sec.  126.8, but replacement with an exemption. We note 
that exemptions are used to exempt transactions from licensing 
requirements when they would otherwise apply. If we eliminate Sec.  
126.8, there would be no requirement from which the exporter would 
require exemption. Therefore, the recommendation is rejected.
    Finally, we disagree with the commenting party's allegation that by 
this action DDTC would ``abandon its authority to implement Sec.  
2778(a)(3) of the AECA.'' Since the operative language was that the 
``President may require that persons engaged in the negotiation of 
defense articles and services keep the President fully and currently 
informed of the progress and future prospects of such negotiations,'' 
this is a discretionary authority. Practical experience has 
demonstrated that the prior notification/approval requirement is an 
unnecessary burden on industry without adding any information of value 
to DDTC's review of exports.

Regulatory Analysis and Notices

Administrative Procedure Act

    This amendment involves a foreign affairs function of the United 
States and, therefore, is not subject to the procedures contained in 5 
U.S.C. 553 and 554.

Regulatory Flexibility Act

    Since this amendment is not subject to 5 U.S.C. 553, it does not 
require analysis under the Regulatory Flexibility Act.

Unfunded Mandates Reform Act of 1995

    This amendment does not involve a mandate that will result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any year and it 
will not significantly or uniquely affect small governments. Therefore, 
no actions were deemed necessary under the provisions of the Unfunded 
Mandates Reform Act of 1995.

Small Business Regulatory Enforcement Fairness Act of 1996

    This amendment has been found not to be a major rule within the 
meaning of the Small Business Regulatory Enforcement Fairness Act of 
1996.

Executive Orders 12372 and 13132

    This amendment will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the

[[Page 52624]]

distribution of power and responsibilities among the various levels of 
government. Therefore, in accordance with Executive Order 13132, it is 
determined that this amendment does not have sufficient federalism 
implications to require consultations or warrant the preparation of a 
federalism summary impact statement. The regulations implementing 
Executive Order 12372 regarding intergovernmental consultation on 
Federal programs and activities do not apply to this amendment.

Executive Order 12866

    This amendment is exempt from review under Executive Order 12866, 
but has been reviewed internally by the Department of State to ensure 
consistency with the purposes thereof.

Executive Order 12988

    The Department of State has reviewed the proposed amendments in 
light of sections 3(a) and 3(b)(2) of Executive Order 12988 to 
eliminate ambiguity, minimize litigation, establish clear legal 
standards, and reduce burden.

Executive Order 13175

    The Department of State has determined that this rulemaking will 
not have tribal implications, will not impose substantial direct 
compliance costs on Indian tribal governments, and will not pre-empt 
tribal law. Accordingly, the requirement of Section 5 of Executive 
Order 13175 does not apply to this rulemaking.

Paperwork Reduction Act

    This rule does not impose any new reporting or recordkeeping 
requirements subject to the Paperwork Reduction Act, 44 U.S.C. Chapter 
35.

List of Subjects

22 CFR Parts 124 and 129

    Arms and munitions, Exports, Technical assistance.

22 CFR Part 125

    Arms and munitions, Exports.

22 CFR Part 126

    Arms and munitions, Exports.

0
Accordingly, for the reasons set forth above, Title 22, Chapter I, 
Subchapter M, parts 124, 125, 126, and 129 are amended as follows:

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

0
1. The authority citation for part 124 is revised 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. 2651a; 22 U.S.C. 2776; Pub. L. 105-261.


0
2. Section 124.1 is amended by revising paragraph (a) to read as 
follows:


Sec.  124.1  Manufacturing license agreements and technical assistance 
agreements.

    (a) Approval. The approval of the Directorate of Defense Trade 
Controls must be obtained before the defense services described in 
Sec.  120.9(a) of this subchapter may be furnished. In order to obtain 
such approval, the U.S. person must submit a proposed agreement to the 
Directorate of Defense Trade Controls. Such agreements are generally 
characterized as manufacturing license agreements, technical assistance 
agreements, distribution agreements, or off-shore procurement 
agreements, and may not enter into force without the prior written 
approval of the Directorate of Defense Trade Controls. Once approved, 
the defense services described in the agreements may generally be 
provided without further licensing in accordance with Sec. Sec.  124.3 
and 125.4(b)(2) of this subchapter. The requirements of this section 
apply whether or not technical data is to be disclosed or used in the 
performance of the defense services described in Sec.  120.9(a) of this 
subchapter (e.g., all the information relied upon by the U.S. person in 
performing the defense service is in the public domain or is otherwise 
exempt from licensing requirements of this subchapter pursuant to Sec.  
125.4 of this subchapter). This requirement also applies to the 
training of any foreign military forces, regular and irregular, in the 
use of defense articles. Technical assistance agreements must be 
submitted in such cases. In exceptional cases, the Directorate of 
Defense Trade Controls, upon written request, will consider approving 
the provision of defense services described in Sec.  120.9(a) of this 
subchapter by granting a license under part 125 of this subchapter.
* * * * *

PART 125--LICENSES FOR THE EXPORT OF TECHNICAL DATA AND CLASSIFIED 
DEFENSE ARTICLES

0
3. The authority citation for part 125 is revised 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. p.79; 
22 U.S.C. 2651a.


0
4. Section 125.4 is amended by revising paragraph (a) to read as 
follows:


Sec.  125.4  Exemptions of general applicability.

    (a) The following exemptions apply to exports of technical data for 
which approval is not needed from the Directorate of Defense Trade 
Controls. The exemptions, except for paragraph (b)(13) of this section, 
do not apply to exports to proscribed destinations under Sec.  126.1 of 
this subchapter or for persons considered generally ineligible under 
Sec.  120.1(c) of this subchapter. The exemptions are also not 
applicable for purposes of establishing offshore procurement 
arrangements or producing defense articles offshore (see Sec.  124.13), 
except as authorized under Sec.  125.4(c). Transmission of classified 
information must comply with the requirements of the Department of 
Defense National Industrial Security Program Operating Manual (unless 
such requirements are in direct conflict with guidance provided by the 
Directorate of Defense Trade controls, in which case the latter 
guidance must be followed) and the exporter must certify to the 
transmittal authority that the technical data does not exceed the 
technical limitation of the authorized export.
* * * * *

PART 126--GENERAL POLICIES AND PROVISIONS

0
5. The authority citation for part 126 continues to read as follows:

    Authority:  Secs. 2, 38, 40, 42 and 71, Pub. L. 90-629, 90 Stat. 
744 (22 U.S.C. 2752, 2778, 2780, 2791 and 2797); E.O. 11958, 42 FR 
4311; 3 CFR, 1977 Comp., p. 79; 22 U.S.C. 2651a; 22 U.S.C. 287c; 
E.O. 12918, 59 FR 28205; 3 CFR, 1994 Comp., p. 899; Sec. 1225, Pub. 
L. 108-375.

Sec.  126.8  [Removed and Reserved]

0
6. Section 126.8 is removed and reserved.
0
7. Section 126.13 is amended by revising paragraph (a) introductory 
text to read as follows:


Sec.  126.13  Required information.

    (a) All applications for licenses (DSP-5, DSP-61, DSP-73, and DSP-
85), all requests for approval of agreements and amendments thereto 
under part 124 of this subchapter, and all requests for written 
authorizations must include a letter signed by a responsible official 
empowered by the applicant and addressed to the Directorate of Defense 
Trade Controls, stating whether:
* * * * *

[[Page 52625]]

PART 129--REGISTRATION AND LICENSING OF BROKERS

0
8. The authority citation for part 129 is revised to read as follows:

    Authority:  Sec. 38, Pub. L. 104-164, 110 Stat. 1437, (22 U.S.C. 
2778).

Sec.  129.7  [Amended]

0
9. Section 129.7 is amended by removing paragraph (e).


Sec.  129.8  [Amended]

0
10. Section 129.8 is amended by removing paragraph (c).

    Dated: August 18, 2010.
Ellen O. Tauscher,
Under Secretary, Arms Control and International Security, Department of 
State.
[FR Doc. 2010-21451 Filed 8-26-10; 8:45 am]
BILLING CODE 4710-25-P