On April 13, 2011, the Department of State (the
"Department") issued proposed amendments to
various sections of the International Traffic in Arms Regulations
("ITAR") regarding the definition of
"defense service." See
International Traffic in Arms Regulations: Defense Services, 76
Fed. Reg. 20590-93 (amending 22 C.F.R. Parts 120 and 124).
The Department reviewed the current definition of "defense service" in ITAR section 120.9 with an eye toward "enhancing support to allies," "improving efficiency in licensing, and reducing unintended consequences," and determined that the definition is "overly broad." To address these concerns, the Department issued proposed amendments in an attempt to narrow the definition, and thereby reduce the scope of services for which companies must obtain approval from the Directorate of Defense Trade Controls ("DDTC") under the ITAR.
Requirement That Assistance Use "Other Than Public Domain Data"
The Department first seeks to narrow the definition of defense
service by mandating that the "assistance (including
training)" captured in section 120.9(a)(1) falls within
the definition only if it uses "other than public domain
data." ITAR section 120.11 defines
"public domain" data as information that is
published and generally accessible or available to the public in
the following ways:
- Through sales and newsstands or bookstores;
- Through subscriptions available without restriction to any
individual who wishes to obtain or purchase the information;
- Through second-class mailing privileges granted by the U.S.
government;
- At libraries open to the public or from which the public can
obtain documents;
- Through patents available at any patent office;
- Through unlimited distribution at a conference or other meeting
generally accessible to members of the public in the U.S.;
- Through public release in any form after approval by the
cognizant U.S. government department or agency; or
- Through fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community.
This should come as a welcome amendment to all companies that
perform defense services. As a result of this proposed
change, an activity that would otherwise qualify as a defense
service under ITAR section 120.9(a)(1) that is based solely upon
the use of public domain data would not in fact constitute a
defense service. Companies would therefore not be required
to obtain a license, technical assistance agreement or
manufacturing license agreement to provide such a service to a
foreign person. Importantly, companies would have to
exercise diligence in confirming that all data used in connection
with the service is in fact in the "public
domain" as defined by ITAR section 120.11.
Addition of the "Integration" of Certain Items into Defense Articles to the Definition of Defense Service
The Department also seeks to add to the definition of defense
service in ITAR section 120.9(a)(2) the
"integration" of controlled items (whether
controlled by the U.S. Munitions List ("USML") or
the Commerce Control List of the Export Administration Regulations)
into USML controlled defense articles, even if ITAR controlled
"technical data" is not provided to a foreign
person in the provision of such services. The proposed
rule does not include a definition of
"integration," but the Department has clarified
that "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."
In other words, under this proposed amendment, even where the
specific item being employed is controlled only by the EAR (but not
the ITAR), a company may be required to obtain DDTC approval before
assisting a foreign person in integrating the item into a defense
article that is itself controlled by the ITAR. Though the
Department seeks to narrow the definition of defense service by way
of these amendments, this particular change could be a trap for the
unwary, as DDTC approval could be required in a situation where the
company itself transfers neither an ITAR controlled defense article
nor ITAR controlled technical data.
Clarification of Defense Service Involving Training of Foreign Units and Forces
The Department further seeks to amend ITAR section 120.9(a)(3)
to provide that training "or providing advice to"
foreign units and forces will be considered a defense service only
if the training involves "the employment of defense
articles," and "regardless of whether technical
data is transferred to a foreign person." Under
ITAR section 120.6, a "defense article" is any
item or technical data that appears on the USML, including
technical data recorded or stored in any physical form, models,
markups or other items that reveal technical data directly relating
to items on the USML.
This proposed change adds to the current open-ended definition in
ITAR section 120.9(a)(3) which neither expressly requires the
employment of defense articles nor expressly states that technical
data need not be transferred to a foreign person for the training
to fall within the definition. As such, companies should
welcome this amendment as clarification on their ITAR
obligations. If this amendment goes into effect, however,
companies must remain mindful that technical data need not be
transferred to any foreign person for training of foreign units and
forces to be deemed a defense service. All that would be
required is that the service involve the employment of a defense
article.
Addition of Certain Combat Operations and Intelligence Services to Definition of Defense Service
The Department additionally seeks to add a subsection (a)(4) to ITAR section 120.9 that would include in the definition of defense service "conducting direct combat operations for or providing intelligence services to a foreign person directly related to a defense article." Companies that engage in these services would therefore be required obtain DDTC approval before engaging in such activities.
Examples of Activities That Are Not Defense Services
The Department's last proposed amendment to ITAR section
120.9 is the addition of subsection (b), in which the Department
seeks to specify the following examples of activities that do not
constitute defense services:
- Training in the basic operation (functional level) or basic
maintenance of a defense article;
- Mere employment of a U.S. citizen by a foreign person;
- Testing, repair, or maintenance of an item subject to the EAR
that has been incorporated or installed into a defense
article;
- Providing law enforcement, physical security or personal
protective training, advice or services to a foreign person using
only public domain data; or
- Providing assistance (including training) in medical, logistical (other than maintenance) or other administrative services to a foreign person.
In connection with this amendment, the Department seeks to add a
section 120.38 to the ITAR, in part to set forth a definition of
"basic maintenance" (also referred to as
organizational-level maintenance) – a term used in the
first example of activities that do not constitute a defense
service under the proposed ITAR section 120.9(b). The
Department's proposed definition of "basic
maintenance" can be summarized as the first level of
maintenance performed by an end-user unit or organization directly
on the defense article or support equipment assigned to the
inventory of the end-users. This includes inspecting,
testing and/or repairing equipment, as well as replacing minor
parts.
This amendment would be beneficial for many companies, as it would
provide added peace of mind for companies performing the specific
services listed in the proposed ITAR section
120.9(b). Before relying on this proposed subsection in
determining that DDTC approval is not needed, however, companies
must take all measures necessary to ensure that their specific
service is covered by one of the five enumerated activities.
Conclusion
If these amendments take effect, they have the potential to have
a significant impact on U.S. companies. Companies that
perform defense services using solely data that is already in the
public domain will be able to rest assured that their activities do
not require DDTC aproval. Companies will also benefit from
the clear examples of activities that do not constitute defense
services. While the amendments will confer the
above-stated benefits on U.S. companies, they will also create new
risks as the ITAR would now include as "defense
services" some activities that do not involve the transfer
or use of technical data. Comments on the proposed
regulations are due on June 13, 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.