[Federal Register Volume 89, Number 158 (Thursday, August 15, 2024)]
[Rules and Regulations]
[Pages 66210-66214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18249]


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DEPARTMENT OF STATE

22 CFR Part 120

[Public Notice: 12422]
RIN 1400-AF26


International Traffic in Arms Regulations: Amendments to the 
Definition of Activities That Are Not Exports, Reexports, Retransfers, 
or Temporary Imports

AGENCY: Department of State.

ACTION: Final rule.

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SUMMARY: The Department of State (the Department) published a proposed 
rule on December 16, 2022, to include two new entries to the 
International Traffic in Arms Regulations (ITAR) to expand the 
definition of ``activities that are not exports, reexports, 
retransfers, or temporary imports.'' The Department is now responding 
to the public comments received in response to that proposed rule and 
finalizing the proposed rule with changes.

DATES: The rule is effective on September 16, 2024.

FOR FURTHER INFORMATION CONTACT: Sarah Heidema, Office of Defense Trade 
Controls Policy, Department of State, telephone (202) 634-4981; email 
[email protected] ATTN: Regulatory Change, ITAR 120.54 
additions.

SUPPLEMENTARY INFORMATION: On December 16, 2022, the Department of 
State published a proposed rule (87 FR 77046), to include two new 
entries to Sec.  120.54 of the International Traffic in Arms 
Regulations (ITAR) to expand the definition of ``activities that are 
not exports, reexports, retransfers, or temporary imports.'' Activities 
listed in ITAR Sec.  120.54 do not require an authorization from the 
Department's Directorate of Defense Trade Controls (DDTC). The 
Department has received delegated authority under section 38 of the 
Arms Export Control Act (AECA) (22 U.S.C. 2778) to issue regulations 
regarding the export of defense articles and defense services. It has 
long used this authority to define what events are controlled as 
exports and what events are not. Moreover, section 38(b) of the AECA 
also provides supporting authority, as the Department may by regulation 
except instances where a license would otherwise be required. 
Accordingly, the Department proposed this rule to amend ITAR Sec.  
120.54 in two ways. First, the proposed rule provided that, subject to 
certain conditions, the taking of U.S. defense articles outside a 
previously approved country by the armed forces of a foreign government 
or United Nations personnel on a deployment or training exercise is not 
an export, reexport, retransfer, or temporary import. Second, the 
proposed rule provided that a foreign defense article that enters the 
United States, either permanently or temporarily, and that is 
subsequently exported from the United States pursuant to a license or 
other approval under this subchapter, is not subject to the reexport 
and retransfer requirements of this subchapter, provided it has not 
been modified, enhanced, upgraded, or otherwise altered or improved or 
had a U.S.-origin defense article incorporated into it. In that 
proposed rule, the Department requested comments from the public. The 
Department now provides responses to those comments and amends the 
ITAR, with changes from the proposed rule, through this final 
rulemaking.

Summary of Changes From the Proposed Rule

    The following are six changes the Department made in this final 
rule since the development and publication of the December 16, 2022, 
proposed rule (87 FR 77046). First, to provide additional clarity, the 
Department inverted the order of proposed paragraphs (a)(6)(i)

[[Page 66211]]

and (ii). The first provision now notes there is no change in end-use 
or end-user, and the next provision is the requirement that the items 
be transported by and remain in the possession of the previously 
authorized armed forces or United Nations military personnel.
    Second, the Department amended the text of proposed paragraph 
(a)(6)(ii), which will now become paragraph (a)(6)(i), by changing 
``subject defense article'' to ``defense article'' to reduce 
unnecessary text.
    Third, the Department amended the text of proposed paragraph 
(a)(6)(i), which will now become paragraph (a)(6)(ii), by adding the 
phrase ``previously authorized'' before ``armed forces'' to reinforce 
that the armed forces or United Nations (U.N.) military personnel 
transporting and in possession of the defense articles must be 
previously authorized end-users of the defense articles.
    Fourth, the Department also amended the text of proposed paragraph 
(a)(6)(i), which will now become paragraph (a)(6)(ii), by revising the 
phrase ``U.N. personnel'' to ``U.N. military personnel.'' The 
Department added the additional word to ensure that non-military 
persons associated with U.N. missions, such as civilians, including 
police, working for various U.N. agencies are not mistakenly believed 
to be described by the provision.
    For the fifth and sixth changes, the Department narrowed the scope 
of the proposed excluded list of activities that are not exports, 
reexports, retransfers, or temporary imports, by not excluding 
temporary imports into the United States, or subsequent exports. 
Although exports and temporary imports were originally included in the 
proposed rule, since publication and during the review period, the 
Department reassessed the inclusion of those activities in light of a 
comment received, information received from an interagency partner, and 
the intended purpose of the rule. More specifically, one commenter 
requested clarification that licenses for temporary imports would not 
be required under the proposed rule text. The response to this comment 
is discussed more below, but highlighted aspects of the proposed rule 
the Department was already focused on. In addition, the Department 
conferred with interagency partners regarding the Automated Commercial 
Environment (ACE), the system through which imports, including 
temporary imports, and exports are reported. Considerations of tracking 
temporary imports and a long process to change ACE reporting and coding 
options led the Department to reevaluate this aspect of its proposal in 
this particular rulemaking. Moreover, the intent of the proposed rule 
was to consider eliminating the need to submit reexport and retransfer 
requests for activities that are routinely approved and to provide 
clarity regarding subsequent control of unmodified foreign-origin 
defense articles that have been subject to ITAR control while in the 
United States. The resulting change in this rule does not impose any 
new obligation or requirement. Rather, it is a reduction in the scope 
of the broader exemption initially proposed.
    Accordingly, the Department added a third limitation to proposed 
paragraph (a)(6). This third limitation in what will now become ITAR 
Sec.  120.54(a)(6)(iii), ``the defense article is not being exported 
from or temporarily imported into the United States,'' prohibits the 
applicability of the provision for exports from the United States and 
temporary imports into the United States. The Department added this 
third limitation to avoid complications when transiting the U.S. border 
and to stay within the intent of this portion of the rule, which is to 
clarify policy regarding reexports and retransfers of defense articles 
previously authorized for export from the United States and in the 
possession of the armed forces of a foreign government or United 
Nations military personnel. This makes express in the regulations a 
long-standing practice set forth since 2013 in DDTC's publicly 
available ``Guidelines for Preparing Agreements.''
    Similarly, the Department added a new paragraph (a)(7)(iii), using 
the same language as found in new paragraph (a)(6)(iii). The new 
paragraph (a)(7)(iii) states that a transfer of a wholly foreign 
defense article is not a controlled event, unless it is an export from, 
or a temporary import into, the United States. This addition is for 
clarification purposes only and reinforces that the transfer of a 
wholly foreign defense article outside of the United States and not 
otherwise subject to the ITAR does not require authorization.

Response to Comments

    Two commenters noted the two proposed entries to ITAR Sec.  120.54 
help clarify what activities are controlled events subject to the 
ITAR's jurisdiction. Specifically, both commenters noted the two new 
entries are appropriately narrow in construing events that are and are 
not controlled in a manner consistent with U.S. national security 
interests. One commenter expressed their agreement with proposed 
paragraph (a)(6) but not paragraph (a)(7). The commenter specifically 
stated paragraph (a)(7) ``says that foreign defense articles, 
presumably meaning guns, ammunition, and other weapons, will not be 
subject to the normal procedures of a controlled event. I disagree with 
this because I believe controlling the flow of weapons is of the utmost 
importance, and even if the weapons come from a partner country, they 
deserve a certain level of scrutiny, even if it causes some frustration 
from interested parties. . . .'' The Department notes paragraph (a)(7) 
is an accurate reflection of the current jurisdiction of the ITAR, 
which does not control transfers of foreign defense articles that 
originally entered the United States and have since been exported from 
the United States if the enumerated criteria in paragraph (a)(7)(i) to 
paragraph (a)(7)(iii) are all met. Like foreign persons who generally 
become subject to U.S. laws and regulations when they enter the United 
States, foreign defense articles that enter the United States generally 
become subject to U.S. laws and regulations, including the ITAR, while 
in the United States. However, U.S. laws and regulations generally do 
not govern the activities of foreign persons abroad. Similarly, foreign 
defense articles that leave the United States are no longer subject to 
the ITAR under the circumstances described in paragraph (a)(7). To help 
illustrate this concept, the Department notes the following scenario--
U.S. Company A purchases a foreign defense article from Foreign Company 
B located outside the United States. The purchased foreign defense 
article is imported into the United States but U.S. Company A later 
realizes it no longer needs the foreign defense article and obtains the 
necessary DDTC authorization to export the foreign defense article back 
to Foreign Company B. Foreign Company B does not subsequently need 
further Department authorization to sell the returned foreign defense 
article to a separate party, assuming the criteria in paragraph (a)(7) 
are met. As a result, no change is being made to proposed paragraph 
(a)(7) in response to this comment.
    Several commenters expressed appreciation for the Department's 
effort regarding new paragraph (a)(6). Specifically, these commenters 
noted proposed paragraph (a)(6) provides ``positive assurance to [U.S.] 
partner countries' armed forces'' of an understanding that was 
previously ``only noted in DDTC's Guidelines for Preparing Agreements 
document'' and applauded DDTC for making explicit in the regulations 
DDTC's long-standing policy expressed in that document that

[[Page 66212]]

the taking of a defense article outside a previously approved country 
by the armed forces of a foreign government or international 
organization is not a controlled event, provided certain criteria are 
met. One commenter noted that it would simplify the process their 
country's armed forces must follow to take U.S. defense articles 
outside a previously approved country during a deployment or on 
exercises, while another expressed their belief that new paragraph 
(a)(6) would enhance interoperability amongst allies.
    However, one commenter suggested the language of paragraph (a)(6) 
is too narrow and requested an expansion to enable other foreign or 
U.S. parties to an agreement (who are not the armed forces of a foreign 
government or United Nations personnel) to take defenses articles on 
operations or deployments outside a previously approved country without 
requesting additional authorization from the Department. The commenter 
suggested a specific modification to the ``Deployment Clause'' language 
included in DDTC's ``Guidelines for Preparing Agreements'' to implement 
their suggestion. The Department emphasizes the goal of this rulemaking 
is to memorialize long-standing Department polices that were specified 
in the ``Guidelines for Preparing Agreements.'' Therefore, the 
Department notes its purposeful limited intent for this rulemaking to 
be applicable to activities of armed forces of a foreign government or 
United Nations military personnel. In contrast, the Department assesses 
that activities undertaken by other foreign or U.S. parties to an 
agreement who are not the armed forces of a foreign country or United 
Nations military personnel still warrant additional review and should 
continue to require authorization from the Department in order to take 
defenses articles outside a previously approved country. For these 
reasons, the Department is not revising the text of proposed paragraph 
(a)(6) in response to this comment.
    Another commenter noted with respect to paragraph (a)(6) ``that the 
proposed addition lacks any reference to related technical data.'' 
Specifically, the commenter explained that ``codifying the Department's 
long-standing policy without an explicit reference to `related 
technical data' might lead to confusion [as to] whether separate 
authorization is required for the export, reexport, retransfer or 
temporary import of technical data needed to operate the defense 
article and/or generated by the defense article.'' Subsequently, the 
commenter suggested adding ``and any related technical data'' to the 
term ``defense article'' in ITAR Sec.  120.54(a)(6). The Department 
notes, per ITAR Sec.  120.31, ``defense article'' means any item or 
technical data designated in ITAR Sec.  121.1; therefore, the addition 
of ``and any related technical data'' would be duplicative. For this 
reason, the Department is not making the changes proposed by this 
commenter.
    As introduced above, one commenter requested that the Department 
provide clarification that, as a result of this rulemaking, licenses 
for temporary imports into the United States that meet the criteria of 
ITAR Sec.  120.54(a)(6) are not required. The Department declines to 
adopt this recommendation for the reasons previously expressed in this 
preamble. Specifically, the Department wishes to stay within the intent 
of this portion of the rule, which is to clarify long-standing policy 
regarding reexports and retransfers outside of the United States of 
properly authorized defense articles previously exported from the 
United States and in the possession of the armed forces of a foreign 
government or United Nations military personnel. The comment did, 
however, bring to the attention of the Department the issues which led 
to the inclusion of new paragraphs (a)(6)(iii) and (a)(7)(iii), as 
discussed above. The commenter also recommended a revision to proposed 
paragraph (a)(6) to enable the armed forces of a foreign government or 
United Nations personnel to ``[share] equipment with foreign partners 
that also have access to the same equipment, albeit via different 
licenses and agreements'' during deployments and training exercises. 
The Department notes that foreign partners who have access to the same 
equipment via different licenses and agreements do not always have 
access to the same configuration of the equipment and thus foreign 
partners would not always have the ability to make an accurate 
determination as to whether their specific defense article 
configurations are the same. Therefore, the Department is not revising 
the text of the proposed rule as suggested by the commenter.
    The same commenter also requested revisions to proposed paragraph 
(a)(6) to expand the entry to include third-party contractors in 
addition to the armed forces of a foreign government and United Nations 
personnel. The Department emphasizes that the goal of this rulemaking 
is to memorialize long-standing Department polices that were 
articulated in the ``Guidelines for Preparing Agreements.'' Therefore, 
the Department notes its purposeful limited intent for this rulemaking 
to apply only to the activities of the armed forces of a foreign 
government or United Nations military personnel. In contrast, 
activities undertaken by other foreign or U.S. persons who are not the 
armed forces of a foreign country or United Nations military personnel 
should continue to require additional authorization from the 
Department. For these reasons, the Department is not making the changes 
suggested by this commenter.
    The same commenter also requested that ``end-use'' be removed from 
proposed paragraph (a)(6)(ii) since Department export control licenses 
and agreements do not often explicitly include ``use by a foreign 
government (armed forces) for deployment or training exercise,'' even 
though such activity is often an implied end-use. The position of the 
Department is that the taking of a defense article subject to the 
reexport or retransfer requirements of the ITAR on a deployment or 
training exercise outside a previously approved country is not a change 
in end-use if the enumerated criteria in ITAR Sec.  120.54(a)(6)(i) 
through (iii) are met. This Department position is applicable even if 
such deployments or training exercises are not explicitly included on a 
license or agreement. For this reason, the Department is not revising 
the text of the proposed rule as proposed by the commenter.
    Regarding proposed paragraph (a)(7), the same commenter welcomed 
this new entry. The commenter further requested the Department provide 
clarification on several matters. First, the commenter requested 
clarification as to whether a foreign defense article will become 
subject to the ITAR's ``reexport/retransfer license obligations if it 
had been modified, enhanced, upgraded or otherwise altered or improved 
in a manner that changed the basic performance of the item but did not 
have a U.S.-origin defense article incorporated while it is in the 
United States.'' The Department confirms that in such a scenario the 
foreign defense article will be subject to the ITAR and will require 
reexport or retransfer authorizations for all subsequent transfers 
after it leaves the United States.
    The commenter also requested the Department provide ``a clear 
threshold for activities undertaken whilst the wholly foreign defense 
article is in the United States for controls to be triggered under ITAR 
Sec.  120.54(a)(7)(i)'' and to provide guidance on the meaning of 
``modified, enhanced, upgraded or otherwise altered or improved in a 
manner that changed the basic performance.'' The Department does not 
believe it needs to offer definitions of commonly used terms and 
phrases such as ``modified,'' ``enhanced,'' ``upgraded''

[[Page 66213]]

or ``otherwise altered or improved.'' The regulated community should 
apply the ordinary meaning of those words consistent with how it has 
interpreted those terms as they already exist in the ITAR (e.g., ITAR 
Sec.  123.4(b)).
    Finally, the commenter also requested the Department put in place 
``a mechanism in U.S. export licenses to indicate that a wholly foreign 
defense article has been modified, enhanced, upgraded or otherwise 
altered or improved in a manner that changed the basic performance of 
the item.'' The commenter asserted that, if such a mechanism were not 
put in place, ``that these changes [would] place the onus of 
identifying whether controls apply on foreign recipients [which] may 
lead to excessive and unnecessary licensing to avoid non-compliance.'' 
The Department notes that an authorization would be required for a 
person modifying, enhancing, upgrading, or otherwise altering or 
improving a foreign defense article while in the United States. 
Therefore, the subsequent recipient of an altered or improved foreign 
defense article should have clear notice of whether the criteria in 
paragraph (a)(7)(i) are met. Consequently, the Department does not 
envision any excessive or unnecessary licensing will occur because of 
these changes. For this reason, the Department is not adopting the 
commenter's recommendation.
    One commenter requested that the Department provide additional 
guidance regarding the word ``transported'' in paragraph (a)(6)(i). 
Specifically, the commenter requested guidance or amendments to the 
proposed rule that would enable transport of defense articles by third-
party contractors in addition to the armed forces of a foreign 
government or United Nations personnel. The Department notes its 
purposeful limited intent for this rulemaking to be applicable only to 
the activities of the armed forces of a foreign government or United 
Nations military personnel. In contrast, activities undertaken by other 
foreign or U.S. parties to an agreement that are not the armed forces 
of a foreign country or United Nations military personnel should 
generally be reviewed on a case-by-case basis and continue to require 
authorization from the Department. For this reason, the Department is 
not revising the text of the proposed rule in response to the comment.
    The same commenter expressed their support for proposed paragraph 
(a)(7), noting that it is a ``welcome clarification over an issue that 
has caused different risk-based approaches by [companies] over many 
years.'' The commenter also requested the Department provide additional 
guidance regarding when a foreign defense article is imported into the 
United States for testing and how any generated test data should be 
controlled. In addition, the commenter requested the Department provide 
further clarification regarding how a foreign defense article that 
contains U.S.-origin defense articles should be treated when undergoing 
testing in a foreign country. The Department notes such requests are 
outside the scope of this rulemaking. For this reason, the Department 
is not revising the text of the proposed rule in response to this 
comment.

Regulatory Analysis and Notices

Administrative Procedure Act

    This rulemaking is exempt from the requirements of section 553 of 
the Administrative Procedure Act (APA) as a military or foreign affairs 
function of the United States. Without prejudice to this determination, 
the Department elected to solicit comments on the proposed regulatory 
changes and has responded to those comments in this final rule.

Regulatory Flexibility Act

    Since this rule is exempt from the notice-and-comment rulemaking 
provisions of 5 U.S.C. 553, it does not require analysis under the 
Regulatory Flexibility Act.

Unfunded Mandates Reform Act of 1995

    This rulemaking 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 are deemed necessary under the provisions of the Unfunded 
Mandates Reform Act of 1995.

Congressional Review Act

    The Office of Management and Budget has determined that this 
rulemaking is not a major rule within the definition of 5 U.S.C. 804.

Executive Orders 12372 and 13132

    This rulemaking 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 rulemaking.

Executive Orders 12866, 13563, and 14094

    Executive Orders 12866, as amended by Executive Orders 13563 and 
14094, direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects; distributed 
impacts; and equity). Because the scope of this rule does not impose 
additional regulatory requirements or obligations, the Department 
believes costs associated with this rule will be minimal. Although the 
Department cannot determine based on available data how many fewer 
licenses will be submitted as a result of this rule, the amendments to 
the definition of activities that are not exports, reexports, 
retransfers, or temporary imports will relieve licensing burdens. 
Qualitatively, this rule should have significant benefits for industry. 
The rule will provide more certainty and clarity by expressly stating 
in regulatory text what was already in Guidelines published by the 
Department. Additionally, it should have helpful impacts on our 
nation's foreign policy, more clearly conveying that the Department 
does not attempt to impose restrictions on other nations transporting 
defense articles during deployments or training exercises to other 
foreign countries. In turn, this may also encourage other nations to 
purchase additional defense articles from U.S. industry. This rule is 
consistent with Executive Order 13563, which emphasizes the importance 
of quantifying both costs and benefits, of reducing cost, of 
harmonizing rules, and of promoting flexibility. This rule has been 
designated a ``significant regulatory action,'' although not 
significant within the meaning of section 3(f)(1) of Executive Order 
12866, by the Office of Information and Regulatory Affairs under 
Executive Order 12866.

Executive Order 12988

    The Department of State reviewed this rulemaking in light of 
Executive Order 12988 to eliminate ambiguity, minimize litigation, 
establish clear legal standards, and reduce burden.

Executive Order 13175

    The Department of State determined that this rulemaking will not 
have tribal implications, will not impose substantial direct compliance 
costs on Indian tribal governments, and will not preempt tribal law. 
Accordingly,

[[Page 66214]]

Executive Order 13175 does not apply to this rulemaking.

Paperwork Reduction Act

    This final rule does not impose or revise any new information 
collections subject to 44 U.S.C. chapter 35.

List of Subjects in 22 CFR Part 120

    Arms and munitions, Classified information, Exports.

    For the reasons set forth above, the Department of State amends 
title 22, chapter I, subchapter M, part 120 of the Code of Federal 
Regulations as follows:

PART 120--PURPOSE AND DEFINITIONS

0
1. The authority citation for part 120 continues to read as follows:

    Authority:  22 U.S.C. 2651a, 2752, 2753, 2776, 2778, 2779, 
2779a, 2785, 2794, 2797; E.O. 13637, 78 FR 16129, 3 CFR, 2013 Comp., 
p. 223.


0
2. Amend Sec.  120.54 by:
0
a. Removing the period at the end of paragraph (a)(5)(v) and adding a 
semicolon in its place; and
0
b. Adding paragraphs (a)(6) and (7).
    The additions read as follows:


Sec.  120.54  Activities that are not exports, reexports, retransfers, 
or temporary imports.

    (a) * * *
    (6) The taking of a defense article subject to the reexport or 
retransfer requirements of this subchapter on a deployment or training 
exercise outside a previously approved country, provided:
    (i) There is no change in end-use or end-user with respect to the 
defense article;
    (ii) The defense article is transported by and remains in the 
possession of the previously authorized armed forces of a foreign 
government or United Nations military personnel; and
    (iii) The defense article is not being exported from or temporarily 
imported into the United States; and
    (7) The transfer of a foreign defense article previously imported 
into the United States that has since been exported from the United 
States pursuant to a license or other approval under this subchapter, 
provided:
    (i) The foreign defense article was not modified, enhanced, 
upgraded, or otherwise altered or improved in a manner that changed the 
basic performance of the item prior to its return to the country from 
which it was imported or a third country;
    (ii) A U.S.-origin defense article was not incorporated into the 
foreign defense article; and
    (iii) The defense article is not being exported from or temporarily 
imported into the United States.
* * * * *

Bonnie D. Jenkins,
Under Secretary, Arms Control and International Security, Department of 
State.
[FR Doc. 2024-18249 Filed 8-14-24; 8:45 am]
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