Trade Compliance Flash: Looking Forward: Anticipated ITAR Developments in 2023
After a period of fewer regulatory updates, last year saw a noticeable uptick involving changes to the International Traffic in Arms Regulations (ITAR) by the U.S. Department of State's Directorate of Defense Trade Controls (DDTC), including:
- Reorganizing Part 120 to consolidate the ITAR's global definitions into a single part and to provide a more logical structure for organizing those definitions and describing the ITAR's general policies and procedures.
- Publishing new versions of the Agreement Guidelines in February (with another update in September) and the ITAR Compliance Program Guidelines in December.
- Introducing a pilot program for general open license authorizations concerning certain types of re-exports and re-transfers involving Australia, Canada, and the U.K.
- Proposing to revise the ITAR by controlling a release of technical data "only to any countries in which that foreign person currently holds citizenship or permanent residency," as "a foreign person's former citizenship or permanent residency status in a country should not be deemed to automatically result in an export or reexport to that country."
- Proposing to revise the ITAR by making explicit DDTC's long-standing policy that the mere import of a foreign-origin defense article into the U.S., without more, does not render it subject to the ITAR after it lawfully leaves the U.S.
There is still more to come as there are several announced regulatory developments that are intended to take place this year or soon after. We summarize these anticipated developments with an eye toward preparing industry for what's on the horizon.
Conspicuously absent from recent ITAR developments were any changes (or proposed changes) to the U.S. Munitions List (USML). As the table below shows, major portions of the USML have not been updated for years (in some cases nearly a decade) to reflect now-existing dual-use and technological realities. DDTC appears to understand this issue at it announced in November 2022 that it would exercise its authority to temporarily suspend the ITAR's see-through rule under ITAR § 120.11(c) for certain controlled capacitors, when incorporated into items subject to the EAR, because such items "are now extensively integrated into commercial applications, such as Wi-Fi routers and civil aviation aircraft transponders." Given DDTC's awareness of the issue, a greater focus on USML revisions should be expected.
|Category||Initial Effective Date for Export Control Reform Revisions||Last Revision(s)||Latest Status|
|I. Firearms and Related Articles||March 2020||None||None|
|II. Guns and Armament||March 2020||None||None|
|III. Ammunition and Ordnance||March 2020||None||None|
|IV. Launch Vehicles, Missiles, Rockets||July 2014||November 2014 (revisions to defense services controls relating to Category XV revisions); October 2018 (minor revision adding note 2 to paragraph (d))||March 2019: Notice of Inquiry for Public Comment|
|V. Explosives and Energetic Materials||July 2014||October 2018 (minor revision adding note 3)||February 2018: Notice of Inquiry for Public Comment|
|VI. Surface Vessels||January 2014||October 2014 (moving related interpretations from ITAR § 121.15 to within the control criteria)||October 2015: Notice of Inquiry for Public Comment|
|VII. Ground Vehicles||January 2014||October 2014 (moving related interpretations from ITAR § 121.4 to within the control criteria)||October 2015: Notice of Inquiry for Public Comment|
|VIII. Aircraft and Related Articles||October 2013||October 2014 (moving related interpretations from ITAR § 121.3 to within the control criteria and making other revisions to various entries within paragraph (h)); December 2014 (revisions to paragraph (h)(2) concerning wing-folding systems); December 2016 (significant revisions); October 2018 (revisions to paragraph (h)(12) concerning UAV swarming capability)||None|
|IX. Military Training Equipment and Training||July 2014||October 2014 (revising paragraph (e) to capture military training not directly related to a defense article)||None|
|X. Personal Protective Equipment||July 2014||None||February 2018: Notice of Inquiry for Public Comment|
|XI. Military Electronics||July 2014||October 2018 (minor revisions adding notes to paragraphs (a)(3)(i) and (xii) and changes to paragraph (c)(4)); annual temporary change in control criteria to paragraph (b)||February 2018: Notice of Inquiry for Public Comment|
|XII. Fire Controls, Sensors, Night Vision||December 2016||None||January 2017: Notice of Inquiry for Public Comment|
|XIII. Materials and Miscellaneous Articles||January 2014||None||October 2015: Notice of Inquiry for Public Comment|
|XIV. Toxicological Agents||December 2016||None||None|
|XV. Spacecraft and Related Articles||November 2014||January 2017 (changes in response to public comments from 2014 interim final rule); October 2018 (revisions to paragraph (f) concerning certain defense services)||March 2019: Notice of Inquiry for Public Comment|
|XVI. Nuclear Weapons and Related Articles||July 2014||None||None|
|XVII. Classified Items||October 2013||None||None|
|XVIII. Directed Energy Weapons||December 2016||None||None|
|XIX. Gas Turbine Engines and Associated Equipment||October 2013||October 2014 (revisions to paragraph (f)(1) note); December 2016 (significant revisions)||None|
|XX. Submersible Vessels and Related Articles||January 2014||October 2014 (moving related interpretations from ITAR § 121.14 to within the control criteria)||October 2015: Notice of Inquiry for Public Comment|
|XXI. Items Otherwise Not Enumerated||October 2013||None||None|
As no revisions to the USML took place in 2022, the previously announced anticipated changes from last year remain mostly the same, though DDTC has indicated it is looking more near-term at a targeted revisions rule, making clarifications and corrections, and on USML Categories IV, XI, XV, and XVI:
Advanced Notice of Proposed Rulemaking. DDTC is 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 considering "critical and emerging technologies."
Proposed Rulemaking. There are two sets of proposed rules being prepared regarding revisions to the USML involving Categories IV and XV (which is in responses to an advanced notice of proposed rulemaking from 2019) and 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 (PCBs) and application specific integrated circuits (ASICs). DDTC is also seeking to propose unspecified changes to "modernize" the USML "in a manner that enhances its clarity, consistency, and ease of use." (Note: In last year's edition, DDTC had revealed it was preparing two other proposed rules involving USML Categories VI, VII, XIII, and XX and Categories V, X, and XI. Neither of these proposals were included in DDTC's latest regulatory agenda.)
Final Rulemaking. DDTC is preparing an interim final rule that will make various unspecified revisions to the USML by removing certain items while adding "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 determinations. Furthermore, the interim final rule "also seeks to limit the items categorized in USML Category XXI." An interim final rule is being prepared to revise USML Category XVI for nuclear weapons related articles in an effort, among other things, "to better harmonize its rules with the Department of Energy part 810 regulations." Another final rule is also anticipated to make other unspecified clarifications and corrections to the USML. Additionally, DDTC is preparing a final rule to address public comments that were received when minor revisions were made to USML Categories IV, V, VIII, XI, and XV from an interim final rule in 2018.
Update to Part 126 Supplement No. 1. A final rule is expected to update Supplement No. 1 within ITAR Part 126, which is used to determine whether an item is covered by the Canadian exemptions as well as U.K. and Australia defense trade cooperation treaties. The supplement has not been revised in more than five years, and this broader effort was announced in January 2020 when USML Categories I, II, and III were revised.
Regular Employee Definition. Another proposed rule is expected in 2023 to amend the ITAR's regular employee definition. This second proposed rule is in response to DDTC's first proposed rule in 2021, which received several public comments that the revisions do not go far enough to generally cover short-term contractual employees. DDTC has indicated that it has taken those public comments into consideration and the second proposed rule will address them.
Exemptions Consolidation and Reorganizing Parts 123 to 125. Similar to the Part 120 effort to consolidate all the global definitions to within that part, DDTC expects to issue a proposed rule for consolidating all the ITAR's exemptions to within Part 125. Another aspect of the consolidation is reorganizing the ITAR to describe the process and the requirements in a clearer and more linear way. Thus, Part 123 is expected to focus on the licensing requirements, Part 124 on the licensing process, and Part 125 on exemptions.
Personal Protective Equipment Exemption. A proposed rule is being prepared to revise the ITAR's personal protective equipment (PPE) 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.
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 regulatory action may be forthcoming:
"ITAR Reorg 1.5." DDTC is working on a follow-up to the Part 120 reorganization effort by addressing similar types of consistency, style, and structure issues for areas of the ITAR that were not affected by the original reorganization rule.
Part 130 Reforms. DDTC is working on reforming the Part 130 requirements, where it has already made internal process improvements and is now providing Congress with more detailed information regarding commissions, fees, and political contributions. DTAG has been tasked four times with advising DDTC on possible reforms to the Part 130 requirements, and with the most recent presentation taking place in November 2022.
Additional Compliance Program Documents. In addition to the latest Compliance Program Guidelines published in December 2022, DDTC is planning to release a compliance risk matrix and an overview of compliance requirements that are specified within the ITAR.
Section 125.4(b)(9) Revisions. DDTC is looking to revise ITAR section 125.4(b)(9), which provides a licensing exemption for technical data provided "by or to a U.S. person, or a foreign person employee of a U.S. person travelling or on temporary assignment abroad" if certain terms and conditions are satisfied. The intention of these revisions would be to improve the exemption's function.
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 North Atlantic Treaty Organization (NATO) exemption.
Revise Part 120 Definitions. Now that the Part 120 reorganization rule has been published, DDTC expects to turn its attention towards substantive revisions to the definitions. Those revisions should implement the remaining revisions that were proposed in 2015, such as to the ITAR's definitions of "technical data" and "defense services."
Brokering Updates. 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.
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 information as technical data while "directly related" has a broader impact that also concerns software as technical data and defense services.
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, and it can provide feedback to the government in the form of a public comment to seek preferred changes.
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