Trade Compliance Flash: Looking Forward: Anticipated ITAR Developments in 2022
The last several years have been relatively quiet concerning revisions to the International Traffic in Arms Regulations (ITAR) and the U.S. Munitions List (USML). That relative calm should change soon as the U.S. Department of State's Directorate of Defense Trade Controls (DDTC) has announced a significant number of new regulatory developments that will occupy its attention in 2022 and beyond. We summarize these anticipated developments with an eye toward preparing industry for what's on the horizon.
Advanced Notice of Proposed Rulemaking. DDTC is currently undertaking a broad review of the USML by evaluating the "technology frontier" and it anticipates seeking public comment from industry as to what items should be added or removed from the USML, which will include taking into account "critical and emerging technologies."
Although controlling "emerging technologies" is in vogue, given its recent emphasis by the Export Control Reform Act (ECRA) and with the Committee on Foreign Investment in the United States (CFIUS), the ITAR's considerations predate that focus. For example, DDTC recognized in 2002 the emerging technology of directed energy weapons and it brought USML Category XVIII out of reserve to cover them. As before, whether an item such as an emerging technology should be subject to the ITAR primarily depends on whether it provides a critical military or intelligence advantage and the history with directed energy weapons may provide a yardstick for future additions.
Proposed Rulemaking. There are three sets of proposed rules being prepared regarding revisions to the USML: Categories VI, VII, XIII, and XX; Categories V, X, and XI; and Categories IV and XV. The latter two are in responses to advanced notices of proposed rulemaking from 2018 and 2019, respectively. In addition, DDTC is proposing to revise USML Category XI(c)(1-4) to "describe more precisely the articles warranting control on the USML." That area includes the ITAR's controls on printed circuit boards and application specific integrated circuits.
Final Rulemaking. DDTC is preparing an interim final rule that will make various unspecified revisions to the USML, along other associated parts of the ITAR, by removing certain items while also adding "entries for critical and emerging technologies." DDTC notes that these revisions are being made due to feedback it has received from advisory opinion requests, public comments, and commodity jurisdiction (CJ) determinations. Furthermore, the interim final rule "also seeks to limit the items categorized in USML Category XXI." To date, there are only three publicly known instances of Category XXI's use since DDTC started publishing CJ determination information in 2010, and those three instances took place in 2019 and twice in 2021.
Additionally, DDTC is preparing a final rule that will make "minor" revisions to USML Categories IV, V, VIII, XI, and XV. That final rule is in response to public comments received from an interim final rule issued in 2018. An interim final rule is also being prepared to revise USML Category XVI involving nuclear weapons related articles in an effort "to better harmonize its rules with the Department of Energy part 810 regulations and ensure that all items that provide the United States with a critical military or intelligence advantages are listed on the United States Munitions List and remain subject to U.S. Government export controls at all times."
Personal Protective Equipment Exemption. An interim final rule is being prepared to revise the ITAR's personal protective equipment exemption within ITAR section 123.17 by expanding the list of covered equipment. Notably, the Defense Trade Advisory Group (DTAG) recently reviewed this issue in May 2021 and provided DDTC with several recommendations that may materialize within the interim final rule.
Regular Employee Definition. A final rule is expected in 2022 to amend the ITAR's regular employee definition. That final rule is in response to DDTC's proposed rule in 2021, which received several public comments that the revisions do not go far enough to generally cover short-term contractual employees. As such, it is possible that changes from the proposed version may take place to address those comments. At a minimum, however, the final rule is intended to permit certain regular employees to work remotely.
Reorganize Part 120 Definitions: DDTC is expected to issue an interim final rule that reorganizes Part 120 "to consolidate all ITAR definitions into one part and to organize the definitions in a manner that enhances their clarity and ease of use." DDTC has stated elsewhere in public forums that this interim final rule will not make substantive revisions to the definitions, which are instead a separate effort that will take place after the reorganization is completed. It is noted that this interim final rule was sent for interagency review in August 2019, which it cleared in May 2020.
Revise Part 120 Definitions: After DDTC publishes the above-mentioned interim final rule for the Part 120 reorganization, it expects to turn its attention towards issuing an interim final rule to make substantive revisions to those definitions. Those revisions should implement the remaining revisions that were proposed in 2015, such as by making changes to the ITAR's definitions of "technical data" and "defense services."
Expansion of ITAR Section 120.54. An interim final rule that will "expand the definition of activities that are not exports, reexports, retransfers, or temporary imports by specifying two additional activities" is expected to be published soon. DDTC submitted this rule for final interagency review on August 25, 2021; the review has not yet concluded. It appears that those revisions will be in response to public comments it received during the initial interim final rule that implemented ITAR section 120.54 in 2019.
Update to Part 126 Supplement No. 1. Also expected is a notice of proposed rulemaking that seeks public comments on updating Supplement No. 1 within ITAR Part 126, which is used to determine whether an item is covered by the Canadian exemptions as well as United Kingdom and Australia defense trade cooperation treaties. The supplement has not been revised in more than five years – this broader effort was announced in January 2020 when USML Categories I, II, and III were revised: "the Department is currently undertaking a review of Supplement No. 1 to ITAR Part 126 and any changes will be the subject of a separate rulemaking."
Finally, DDTC is seeking to issue a notice of proposed rulemaking to receive public comments concerning various revisions to the ITAR. That includes revisions to the ITAR's definitions of export and reexport, updating the Canadian exemptions "to replace the term national with person," revisions to ITAR section 126.18 regarding the exemption for intra-company, intra-organization, and intra-governmental transfers to dual or third country nationals, and to fix errors within ITAR section 127.12 regarding voluntary disclosures.
In addition to the regulatory developments discussed above that have been published by the Office of Information and Regulatory Affairs (OIRA), DDTC has separately identified other areas where agency or regulatory action may be forthcoming:
Brokering. DDTC still anticipates providing formal responses to the public comments it received from its 2013 interim final rule that revised the ITAR's brokering provisions within Part 129. Since issuing that rule, DDTC has published website guidance in the form of frequently asked questions that covers at least some of the public comments.
General License Concept. DDTC is reviewing whether to initiate a pilot program that would introduce a new authorization mechanism to permit exports with certain allies or in other low-risk situations where a general license would be provided rather than individual licenses for every export or transfer.
Exemptions Consolidation. Similar to the forthcoming effort to consolidate all the definitions within Part 120, DDTC also is working to consolidate all the ITAR's exemptions under a single Part. This is an effort that DTAG recently reviewed in October 2020 and provided DDTC with several recommendations.
Missile Technology Control Regime (MTCR) Annex. When Export Control Reform started, DDTC recognized that it would ultimately remove the MTCR Annex from the ITAR: "Once all revised USML categories are published as final rules, ITAR § 121.16 will be placed in reserve, and the parenthetical '(MT)' will be used at the end of each USML section containing such articles." DDTC reiterated this forthcoming revision in 2016 and all USML categories have been now revised as of 2020.
Defining "Directly Related." DDTC is expected to propose a definition for "directly related," a relative term that is used in every USML category to qualify the scope of what constitutes catch-all controlled "technical data" and "defense services." In 2015, DDTC proposed to define the term "required," but it accepted a public comment that advocated for defining "directly related" instead because "required" concerns only informational technical data while "directly related" has a broader impact.
Section 123.9 Revisions. DDTC has signaled it will seek to make numerous revisions to ITAR section 123.9 to clarify the reexport and retransfer language, as well as to disaggregate the destination control statement and NATO exemption.
Licensing Revisions. Another aspect of DDTC's consolidation of the ITAR's definitions and exemptions is also revisiting the structure of the current licensing process. It is anticipated that DDTC will revise Parts 123-125 to make the process and the requirements clearer and more linear. It is also expected to revise its Agreement Guidelines, as the last revision took place in 2016.
Next Steps for Industry
Although most of these potential regulatory changes will take time to develop, it is important that organizations review how it might be affected by them and prepare accordingly. For instance, being aware that DDTC is considering future rulemaking involving a regulatory provision that currently presents complications for a company may impact whether that company should interact with DDTC now (as its response may be tentative due to the forthcoming rulemaking efforts), wait for the public comment process to press its case (where it can be joined by other industry participants to strengthen its position), or seek other alternatives such as a legal opinion. Furthermore, when the proposed or interim final rule is issued, an organization should carefully analyze its consequences and whether it lacks clarity, providing feedback to the government in the form of a public comment.
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