[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Proposed Rules]
[Pages 20590-20593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8998]


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DEPARTMENT OF STATE

22 CFR Parts 120 and 124

[Public Notice: 7415]
RIN 1400-AC80


International Traffic in Arms Regulations: Defense Services

AGENCY: Department of State.

ACTION: Proposed rule.

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SUMMARY: The Department of State proposes to amend the International 
Traffic in Arms Regulations (ITAR) to update the policy regarding 
defense services, to clarify the scope of activities that are 
considered a defense service, and to provide definitions of 
``Organizational-Level Maintenance,'' ``Intermediate-Level 
Maintenance,'' and ``Depot-Level Maintenance,'' and to make other 
conforming changes.

DATES: The Department of State will accept comments on this proposed 
rule until June 13, 2011.

ADDRESSES: Interested parties may submit comments within 60 days of the 
date of the publication by any of the following methods:
     E-mail: [email protected] with the subject line, 
``Regulatory Changes--Defense Services.''
     Mail: PM/DDTC, SA-1, 12th Floor, Directorate of Defense 
Trade Controls, Office of Defense Trade Controls Policy, ATTN: 
Regulatory Changes--Defense Services, Bureau of Political Military 
Affairs, U.S. Department of State, Washington, DC 20522-0112.
     Internet: View this notice by searching for its RIN on the 
U.S. Government regulations Web site at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Director Charles B. Shotwell, Office 
of Defense Trade Controls Policy, Department of State, Telephone (202) 
663-1282 or Fax (202) 261-8199; E-mail [email protected]. 
ATTN: Regulatory Changes--Defense Services.

SUPPLEMENTARY INFORMATION: As part of the President's Export Control 
Reform effort, the Department of State is proposing to amend parts 120 
and 124 of the ITAR to reflect new policy regarding coverage of defense 
services.
    The Department reviewed the ITAR's treatment of defense services 
with a view to enhancing support to allies and friends, improving 
efficiency in licensing, and reducing unintended consequences. As a 
result, it was determined that the current definition of defense 
services in Sec.  120.9 is overly broad, capturing certain forms of 
assistance or services that do not warrant ITAR control. The proposed 
change in subpart (a) of the definition of ``defense services'' narrows 
the focus of services to furnishing of assistance (including training) 
using ``other than public domain data'', integrating items into defense 
articles, or training of foreign forces in the employment of defense 
articles. Consequently, services based solely upon the use of public 
domain data would not constitute defense services under this part of 
the definition and, therefore, would not require a license, technical 
assistance agreement, or manufacturing license agreement to provide to 
a foreign person. The proposed new definition of defense service also 
includes a new provision that would control the ``integration'' of 
items, whether controlled by the U.S. Munitions List (USML) or the 
Commerce Control List (CCL), into USML controlled defense articles even 
if ITAR-controlled ``technical data'' is not provided to a foreign 
person during the provision of such services. Additionally, the new 
rule specifies that training for foreign ``units or forces'' will be 
considered a defense service only if the training involves the 
employment of a defense article, regardless of whether technical data 
is involved. This operational definition improves upon the current 
open-ended wording of Sec.  120.9(a)(3), which covers ``military 
training of foreign units and forces.'' Also, significantly, the 
proposed new rule specifies in subpart (b) examples of activities that 
do not constitute defense services. For example, the proposed new 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.
    A new Sec.  120.38 is proposed to provide definitions for 
``Organizational-Level Maintenance'' (or basic level maintenance), 
``Intermediate-Level Maintenance,'' and ``Depot-Level Maintenance,'' 
terms used in the proposed revision of Sec.  120.9.
    The Department proposes to make several other conforming changes to 
the ITAR. The proposed rule modifies Sec.  124.1(a), which describes 
the approval requirements of manufacturing license agreements and 
technical assistance agreements. The proposed change removes the 
requirement in Sec.  124.1(a) to seek the Directorate of Defense Trade 
Controls' approval if the defense service that is being rendered uses 
public domain data or data otherwise exempt from ITAR licensing 
requirements. This change would be made to conform with the revisions 
made to Sec.  120.9. The Department proposes to delete Sec.  124.2(a), 
as this requirement is no longer applicable as a result of proposed 
changes to Sec.  120.9. Conforming changes are to be made to Sec.  
124.2(c) to reflect the proposed deletion of Sec.  124.2(a).
    This proposed rule was presented to the Defense Trade Advisory 
Group (DTAG), a Department of State advisory committee, for purposes of 
comment and evaluation. The DTAG commented favorably on most aspects of 
this proposed rule, but also recommended certain changes. Having 
thoroughly reviewed and evaluated the comments and the recommended 
changes, the Department has determined that it will proceed with the 
proposed rule per the Department's evaluation of the written comments 
and recommendations as follows:

[[Page 20591]]

    The DTAG recommended the qualifier ``U.S. origin'' be added before 
``technical data'' in the proposed Sec.  120.9. We note the current 
definition of technical data in Sec.  120.10 is not restricted to U.S. 
origin data. We do not believe that a departure from the existing 
definition of technical data for the purposes of defense services is 
prudent. However, the confusion caused by the term ``technical data'' 
lead to the rewrite of the definition to require the use of data 
``other than public domain data'' as the regulatory standard. This 
rewrite provides clarity and an objective standard that can be easily 
applied. Using data that is ``other than public domain data,'' 
including proprietary data or ``technology'' ``subject to the Export 
Administration Regulations,'' to provide assistance would constitute a 
defense service under this change. The DTAG also recommended adding 
definitions of ``intermediate or depot level repair or maintenance.'' 
We agreed with the recommendation and added such definitions in a new 
Sec.  120.38. The DTAG agreed with the addition of ``integration'' but 
recommended that a definition of that term be added, especially to 
distinguish it from ``installation.'' We declined to accept that 
recommendation, finding that integration has plain meaning in the 
context of the proposed rule. As used in the proposed definition of 
defense services, ``installation'' means the act of putting something 
in its pre-determined place and does not require changes or 
modifications to the item in which it is being installed (e.g., 
installing a dashboard radio into a military vehicle where no changes 
or modifications to the vehicle are required; connecting wires and 
fastening the radio inside of the preexisting opening is the only 
assistance that is necessary). ``Integration'' 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. This includes determining where to install something (e.g., 
integration of a civil engine into a destroyer which requires changes 
or modifications to the destroyer in order for the civil engine to 
operate properly; not simply plug and play). The DTAG suggested that 
language in Sec.  120.9(a)(3) be changed from ``whether or not use of 
technical data is involved'' to ``whether or not the transfer of 
technical data is involved.'' We adopted that recommendation.
    The DTAG suggested we add definitions of ``irregular forces'' and 
``tactical employment.'' We did not agree with the need to define the 
first term, believing that the meaning should be clear in the context 
of the proposed rule. Subsequent to the DTAG's evaluation of this 
proposed rule, the word ``tactical'' was removed from before the word 
``employment'' in Sec.  120.9(a)(3). In Sec.  120.9(a)(3), the DTAG 
recommended we change ``conducting direct combat operations or 
providing intelligence services for a foreign person'' to ``conducting 
direct combat operations of a military function for or providing 
military intelligence services to a foreign person.'' We do not believe 
that adding the words ``military function'' or ``military'' are 
necessary or add clarity. The clarification in subsection Sec.  120.9 
(b)(5) suffices.
    The DTAG advised that ``U.S. citizen'' in Sec.  120.9 (b)(2) be 
changed to ``U.S. person.'' We did not concur with that recommendation 
because the proposed rule was intended to cover individuals, not 
business entities such as corporations. The use of ``U.S. persons'' 
would have included the latter. The DTAG recommended we add the words 
``or installed'' after the word ``integrated'' in Sec.  120.9 (b)(3). 
We accepted the inclusion of those words, but subsequently changed the 
word ``integrated'' to ``incorporated.'' The DTAG also suggested adding 
``physical security or personal protective training'' to Sec.  120.9 
(b)(4). We accepted that change.

Regulatory Analysis and Notices

Administrative Procedure Act

    The Department of State is of the opinion that controlling the 
import and export of defense services is a foreign affairs function of 
the United States Government and that rules implementing this function 
are exempt from Sec.  553 (Rulemaking) and Sec.  554 (Adjudications) of 
the Administrative Procedure Act. Although the Department is of the 
opinion that this proposed rule is exempt from the rulemaking 
provisions of the APA, the Department is publishing this proposed rule 
with a 60-day provision for public comment and without prejudice to its 
determination that controlling the import and export of defense 
services is a foreign affairs function.

Regulatory Flexibility Act

    Since this proposed 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 proposed 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 proposed 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 proposed amendment will not have substantial direct effects on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, in accordance with Executive 
Order 13132, it is determined that this proposed 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 proposed amendment.

Executive Order 12866

    The Department of State does not consider this proposed rule to be 
a ``significant regulatory action'' under Executive Order 12866, 
section 3(f), Regulatory Planning and Review. The Department is of the 
opinion that controlling the import and export of defense articles and 
services is a foreign affairs function of the United States Government 
and that rules governing the conduct of this function are exempt from 
the requirements of Executive Order 12866.

Executive Order 13563

    The Department of State has considered this rule in light of 
Section 1(b) of Executive Order 13563, dated January 18, 2011, and 
affirms that this regulation is consistent with the guidance therein.

Executive Order 12988

    The Department of State has reviewed this proposed amendment in 
light of sections 3(a) and 3(b)(2) of Executive

[[Page 20592]]

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 proposed amendment 
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 proposed amendment.

Paperwork Reduction Act

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

List of Subjects in 22 CFR Parts 120 and 124

    Arms and munitions, Exports.

    Accordingly, for the reasons set forth above, title 22, chapter I, 
subchapter M, parts 120 and 124 are amended as follows:

PART 120--PURPOSE AND DEFINITIONS

    1. The authority citation for part 120 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); 22 U.S.C. 2794; E.O. 11958, 42 FR 4311; 
E.O. 13284, 68 FR 4075; 3 CFR, 1977 Comp. p. 79; 22 U.S.C. 2651a; 
Pub. L. 105-261, 112 Stat. 1920.

    2. Section 120.9 is amended by revising paragraphs (a)(1), (a)(2), 
and (a)(3), and adding new paragraphs (a)(4) and (b) to read as 
follows:


Sec.  120.9  Defense service.

    (a) * * *
    (1) The furnishing of assistance (including training) using other 
than public domain data to foreign persons (see Sec.  120.16 of this 
subchapter), whether in the United States or abroad, in the design, 
development, engineering, manufacture, production, assembly, testing, 
intermediate or depot level repair or maintenance (see Sec.  120.38 of 
this subchapter), modification, demilitarization, destruction, or 
processing of defense articles (see Sec.  120.6 of this subchapter); or
    (2) The furnishing of assistance to foreign persons, whether in the 
United States or abroad, for the integration of any item controlled on 
the U.S. Munitions List (USML) (see Sec.  121.1 of this subchapter) or 
the Commerce Control List (see 15 CFR part 774) into an end item (see 
Sec.  121.8(a) of this subchapter) or component (see Sec.  121.8(b) of 
this subchapter) that is controlled as a defense article on the USML, 
regardless of the origin; or
    (3) Training or providing advice to 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 or correspondence instruction, conduct or 
evaluation of training and training exercises, in the employment of 
defense articles; or
    (4) Conducting direct combat operations for or providing 
intelligence services to a foreign person directly related to a defense 
article.
    (b) The following is not a defense service:
    (1) Training in the basic operation (functional level) or basic 
maintenance (see Sec.  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 Sec.  120.16 of this subchapter), 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.
    3. Sections 120.33 through 120.37 are added and reserved, and a new 
Sec.  120.38 is to be added to read as follows:


Sec.  120.33-120.37  [Reserved]


Sec.  120.38  Maintenance levels.

    (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.

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

    4. The authority citation for part 124 continues to read as 
follows:

    Authority: Sec. 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.

    5. Section 124.1(a) is revised 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. This requirement also applies to 
the training of any foreign military forces, regular

[[Page 20593]]

and irregular, in the employment 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.
* * * * *
    6. In Sec.  124.2, paragraph (a) is removed and reserved and 
paragraph (c) introductory text is revised to read as follows:


Sec.  124.2  Exemptions for training and military service.

    (a) [Reserved]
* * * * *
    (c) For NATO countries, Australia, Japan and Sweden, in addition to 
the basic maintenance information exemption in Sec.  125.4(b)(5) of 
this subchapter, no technical assistance agreement is required for 
maintenance training or the performance of maintenance, including the 
export of supporting technical data, when the following criteria can be 
met:
* * * * *

    Dated: April 5, 2011.
 Ellen O. Tauscher,
Under Secretary, Arms Control and International Security, Department of 
State.
[FR Doc. 2011-8998 Filed 4-12-11; 8:45 am]
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