[Federal Register Volume 81, Number 174 (Thursday, September 8, 2016)]
[Rules and Regulations]
[Pages 62004-62008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21481]
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DEPARTMENT OF STATE
22 CFR Parts 120, 125, 126, and 130
[Public Notice: 9672]
RIN 1400-AD70
International Traffic in Arms: Revisions to Definition of Export
and Related Definitions
AGENCY: Department of State.
ACTION: Final rule.
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SUMMARY: On June 3, 2016, the Department of State published an interim
final rule amending and adding definitions to the International Traffic
in Arms Regulations (ITAR) as part of the President's Export Control
Reform (ECR) initiative. After review of the public comments to the
interim final rule, the Department further amends the ITAR by revising
the definition of ``retransfer'' and making other clarifying revisions.
DATES: The rule is effective on September 8, 2016.
[[Page 62005]]
FOR FURTHER INFORMATION CONTACT: Mr. C. Edward Peartree, Director,
Office of Defense Trade Controls Policy, Department of State, telephone
(202) 663-1282; email [email protected]. ATTN: ITAR
Amendment--Revisions to Definitions.
SUPPLEMENTARY INFORMATION: The Directorate of Defense Trade Controls
(DDTC), U.S. Department of State, administers the International Traffic
in Arms Regulations (ITAR) (22 CFR parts 120 through 130). On June 3,
2015, the Department of State published a rule (80 FR 31525) proposing
to amend the International Traffic in Arms Regulations (ITAR) by
revising key definitions, creating several new definitions, and
revising related provisions, as part of the President's Export Control
Reform (ECR) initiative. After review of the public comments on the
proposed rule, the Department published an interim final rule (81 FR
35611, June 3, 2016) implementing several of the proposed revisions and
additions, with an additional comment period until July 5, 2016. After
reviewing the public comments to the interim final rule, the Department
further amends the ITAR by revising the definition of ``retransfer'' in
Sec. 120.51, adding a new paragraph (f) to Sec. 125.1, revising Sec.
126.16(a)(1)(iii) and Sec. 126.17(a)(1)(iii), revising Sec.
126.18(d)(1), and revising Sec. 130.2.
Changes in This Rule
The following changes are made to the ITAR with this final rule:
(i) Revisions to the definition of ``retransfer'' in Sec. 120.51 to
clarify that temporary transfers to third parties and releases to same-
country foreign persons are within the scope of the definitions; (ii)
addition of a new paragraph (f) in Sec. 125.1 to mirror the new
sections of the ITAR in Sec. Sec. 123.28 and 124.1(e) detailing the
scope of licenses; (iii) revising Sec. 126.16(a)(1)(iii) and Sec.
126.17(a)(1)(iii) to reflect the definitions of reexport and retransfer
in the Defense Trade Cooperation Treaties with Australia and the United
Kingdom, respectively, and to make appropriate revisions to the
definitions of reexport in Sec. 120.19 and retransfer in Sec. 120.51
to reflect that these definitions do not apply in the treaty context;
(iv) revisions to Sec. 126.18(d)(1) to clarify that the provisions
include all foreign persons who meet the definition of regular employee
in Sec. 120.39; and (v) revisions to Sec. 130.2 to ensure that the
scope of the Part 130 requirements does not change due to the revised
and new definitions. The remaining definitions published in the June 3,
2015 proposed rule (80 FR 31525) and not addressed in the June 3, 2016
interim final rule or this final rule, will be the subject of separate
rulemakings and the public comments on those definitions will be
addressed therein.
Response to Public Comments
One commenter stated that Sec. 120.17 (a)(1) is ambiguous and
could lead to misinterpretation as to whether the transfer of a defense
article to a foreign person within the United States would be
considered an export. The Department notes that a transfer of a defense
article to a foreign person in the United States is not an export,
unless it results in a release of technical data under Sec.
120.17(a)(2), is a defense article covered under Sec. 120.17(a)(3), or
involves an embassy under Sec. 120.17 (a)(4). The Department confirms
that simply allowing a foreign person in the United States to possess a
defense article does not require authorization under the ITAR unless
technical data is revealed to that person through the possession,
including subsequent inspection, of the defense article, or that person
is taking the defense article into an embassy.
One commenter stated that Sec. 120.17(a)(2) implies that only
transfers to foreign persons that occur in the United States constitute
an export and asked the Department to add ``or abroad'' to include
transfers to foreign persons outside of the United States. The
Department does not accept the comment. One of the improvements of the
new definitions for export, reexport, and retransfer is that they more
specifically delineate the activities described by each term. The
Department confirms that the transfer of technical data to a foreign
person is always a controlled activity that requires authorization from
the Department. The shipment of technical data, in physical,
electronic, verbal, or any other format, from the United States to a
foreign country is an export under Sec. 120.17(a)(1). The release of
technical data to a foreign person in the United States is an export
under Sec. 120.17(a)(2). The release of technical data to a foreign
person in a foreign country is a retransfer under Sec. 120.51(a)(2),
if the person is a national of that country, or a reexport under Sec.
120.19(a)(2), if the person is a dual or third country national (DN/
TCN). The shipment of technical data, in physical, electronic, verbal,
or any other format, from one foreign country to another foreign
country is a reexport under Sec. 120.19(a)(1). Finally, the shipment
of technical data, in physical, electronic, verbal, or any other
format, within one foreign country is a retransfer under Sec.
120.51(a)(1).
One commenter asked why paragraph (b) in Sec. Sec. 120.17 and
120.19 is not within paragraph (a)(2) of each definition, as that
paragraph deals with releases of technical data. The Department did not
include the text of paragraph (b) in Sec. Sec. 120.17 and 120.19 as a
note because it warrants being included in the ITAR as regulatory text.
The Department notes that paragraph (b) applies to all of paragraph (a)
and not just to paragraph (a)(2). The Department did not include
paragraph (b) in Sec. 120.51 because a retransfer will only involve
same country nationals. A release to a dual or third country national
will be an export or reexport.
One commenter asked if theoretical or potential access to technical
data is a release. The Department confirms that theoretical or
potential access to technical data is not a release. As stated in the
preamble to the interim final rule however, a release will have
occurred if a foreign person does actually access technical data, and
the person who provided the access is an exporter for the purposes of
that release.
One commenter asked how extensively an exporter is required to
inquire as to a foreign national's past citizenships or permanent
residencies. The Department confirms that any release to a foreign
person is a controlled event that requires authorization to all
countries where that foreign person holds or has held citizenship or is
a permanent resident. The Department also confirms that it will
consider all circumstances surrounding any unauthorized release and
will assess responsibility pursuant to its civil enforcement authority
based on the relative culpability of all of the parties to the
transaction.
One commenter asked if an exporter is required to inquire into
citizenships a foreign national has renounced. The Department confirms
that any release to a foreign person is a controlled event that
requires authorization to all countries where that foreign person has
held citizenship.
One commenter asked which citizenship controls (for purposes of
DDTC authorizations) apply where a foreign national has multiple
citizenships. The Department confirms that any release to a foreign
person is a controlled event that requires authorization to all
countries where that foreign person holds or has held citizenship or is
a permanent resident, and that such authorization or authorizations
must authorize all applicable destinations.
[[Page 62006]]
One commenter asked if DDTC considers an individual's country of
birth sufficient to establish a particular nationality for that
individual for ITAR purposes (i.e., will DDTC consider a person born in
a particular country as a national of that country, even if the person
does not hold citizenship or permanent residency status in his/her
country of birth?). The Department confirms that in circumstances where
birth does not confer citizenship in the country of birth, it does not
confer citizenship or permanent residency in that country for purposes
of the ITAR. One commenter noted that the DDTC Agreement Guidelines
refer to the country of origin or birth, in addition to citizenship, as
a consideration when vetting DN/TCNs. The Department has updated the
Agreement Guidelines consistent with the interim final rule.
Several commenters asked whether a temporary retransfer to a
separate legal entity within the same country, such as for the purpose
of testing or to subcontractors or intermediate consignees, is within
the scope of Sec. 120.51. The Department confirms that such a
temporary retransfer is a temporary change in end-user or end-use and
is within the scope of Sec. 120.51. The Department revises Sec.
120.51 to clarify this point by adding ``. . . or temporary transfer to
a third party. . . .''
Several commenters asked that the Department remove ``letter of
explanation'' from Sec. Sec. 123.28 and 124.1(e), stating that foreign
parties do not have access to ``letters of explanation'' and other side
documents which may have been submitted by the U.S. applicant, and
which may impact the scope of the authorization. The Department does
not accept the comments to the extent that they recommend a change to
the regulatory text. However, the Department acknowledges the
importance of the foreign parties being informed of the scope of the
authorization relevant to their activities and will address the
commenters' concerns in the licensing process.
One commenter noted that, based upon the consolidation of Sec.
124.16 into Sec. 126.18, the reference to Sec. 124.16 under Sec.
126.18(a) is no longer accurate. The Department notes that amendatory
instruction #16 in the interim final rule makes this amendment.
One commenter asked if use of the word reexport in new Sec.
126.18(d) means that only employees who have the same nationality as
their employer can receive technical data directly from, or interact
with, the U.S. exporter, with attendant responsibility on the employer
who reexports such technical data to its DN/TCN. The Department
confirms that, to the extent that a DN/TCN employee of an authorized
end user, foreign signatory, or consignee acts as an authorized
representative of that company, the provision of technical data by an
authorized U.S. party to the foreign company through the DN/TCN
employee is a reexport from the foreign company to the DN/TCN employee
that may be authorized under Sec. 126.18.
One commenter noted that new Sec. 126.18(d)(4) will require
individual DN/TCNs to sign an non-disclosure agreement (NDA) unless
their employer is a signatory to a relevant agreement, meaning that
authorized DN/TCNs will have to sign an NDA for access to articles
covered by a license. The commenter further noted that the exemptions
progressively introduced for DN/TCNs were motivated at least in part by
concerns among U.S. allies about domestic anti-discrimination law. The
Department does not accept this comment. All activities that could be
authorized under Sec. 124.16 remain available under Sec. 126.18(d).
If a foreign party is not able to utilize the expansion of the
authorization to non-agreement-related reexports due to its domestic
law, the other provisions of Sec. 126.18 remain available.
One commenter asked whether the requirement of Sec. 126.18(d)(5)
that authorized individuals are ``[n]ot the recipient of any permanent
transfer of hardware'' is intended to limit authorized recipients of
temporary hardware transfers or to require, in the case of reexports to
an individual person, the separate authorization by name or controlling
entity on the agreement. The Department intended that permanent
retransfers of hardware not be authorized under Sec. 126.18(d).
Eligible individuals may receive temporary hardware transfers or
receive hardware on a temporary basis. If a permanent retransfer to an
individual is intended, that person should be separately authorized by
name or controlling entity on the agreement.
One commenter noted that in Sec. Sec. 125.4(b)(9) and 126.18(d),
the defined term regular employee is modified. Revised Sec.
125.4(b)(9)(iii) requires that an employee, including foreign person
employees, be ``directly employed by'' a U.S. person. Revised Sec.
126.18(d)(1), refers to ``bona fide regular employees directly employed
by the foreign business entity . . . .'' The commenter requested that
the Department clarify the use of the term ``regular employee'' and
state clearly if conditions apply beyond those stated in the definition
of ``regular employee'' set forth in Sec. 120.39. The Department
accepts the comment in part. The Department also confirms that a
regular employee is any party who meets the definition set forth in
Sec. 120.39 and that Sec. 126.18(d) is updated to clarify that the
control relates to regular employees as defined in Sec. 120.39.
However, in Sec. 125.4(b)(9), the term ``directly employed'' is used
to distinguish employees of a U.S. person from employees of related
business entities, such as foreign subsidiaries. The Department
confirms that all regular employees of the U.S. person, under Sec.
120.39, are included within the authorization, including an individual
in a long-term contractual relationship hired through a staffing
agency.
One commenter noted that Sec. 125.4(a) excludes use of the Sec.
125.4(b) exemptions for Sec. 126.1 countries and stated that it would
be advantageous for the U.S. government if U.S. exporters could utilize
Sec. 125.4(b)(9) in the context of U.S. persons or foreign person
employees supporting the U.S. government in a Sec. 126.1 country. The
Department does not accept the comment. Exports by private companies to
Sec. 126.1 countries require individual authorizations, unless
authorized under Sec. 126.4. Changes to Sec. 126.4 to account for
transfers in support of U.S. government efforts will be addressed in a
separate rulemaking.
One commenter noted that the revision to Sec. 125.4(b)(9) expands
the scope of the provision to allow exports, reexports, and retransfers
to and between U.S. persons employed by different U.S. companies and
the U.S. government. The commenter stated their opinion that this
expansion is appropriate and desirable, as it benefits the U.S.
government in practical situations. The Department accepts this comment
and confirms that such exports, reexports, and retransfers may be
authorized under the revised Sec. 125.4(b)(9), if all other terms and
conditions are met.
One commenter asked the Department to clarify the impact of the new
and revised definitions on the requirements under Part 130. The
Department confirms that the changes to the ITAR in the interim final
rule did not change the requirements under Part 130. The Department
also revises Sec. 130.2 to clarify this understanding.
One commenter noted that the Department did not publish a final
rule for activities that are not exports, reexports, or retransfers,
and that the Bureau of Industry and Security (BIS) at the Department of
Commerce did publish such a provision. The commenter asked the
Department to clarify if any of the activities described
[[Page 62007]]
by BIS as not being exports, reexports, or transfers under the Export
Administration Regulations (EAR) would be exports, reexports, or
retransfers under the ITAR. The Department confirms that it would not
be appropriate to rely on provisions outside of the ITAR or guidance
provided by any entity other than the Department for authoritative
interpretive guidance regarding the provisions or scope of the ITAR.
The Department also notes that any activity meeting the definition of
export, reexport, or retransfer requires authorization from the
Department unless explicitly excluded by a provision of the ITAR, the
Arms Export Control Act, or other provision of law.
One commenter asked if, as the Department did not publish a final
rule defining ``required'' or ``directly related,'' exporters can rely
on definitions in the EAR or guidance from the BIS on those two terms.
The ITAR does not define ``required'' or ``directly related.'' The
Department confirms that it would not be appropriate to rely on
definitions outside of the ITAR or guidance provided by any entity
other than the Department for authoritative interpretive guidance
regarding the provisions or scope of the ITAR. Further questions
regarding the application of the terms ``required'' or ``directly
related'' should be referred to the Department for additional
interpretive guidance.
Several commenters submitted comments regarding definitions and
other provisions that were included in the proposed rule, but not
published in the interim final rule. The Department did not accept
comments on issues not addressed in the interim final rule and will
address those definitions and other provisions included in the proposed
rule, but not published in the interim final rule, in a separate
rulemaking.
Other Changes in This Rulemaking
In this final rule, the Department has also made changes to
Sec. Sec. 126.16 and 126.17 to ensure that they remain consistent with
the definitions contained in the treaties (with Australia and the
United Kingdom, respectively) that they implement. These treaties are
controlling law, and the Department realized that, unless a correction
were made in this final rule, the ITAR definitions of ``reexport'' and
``retransfer'' would be inconsistent with the treaty definitions.
Therefore, for those two sections and the matters controlled therein,
the treaty definitions will control. Conforming edits were also made to
the definitions in Sec. Sec. 120.19 and 120.51 to clarify that the
definitions did not apply to matters covered by the treaties.
Regulatory Findings
Administrative Procedure Act
The Department of State is of the opinion that controlling the
import and export of defense articles and services is a foreign affairs
function of the U.S. government and that rules implementing this
function are exempt from sections 553 (rulemaking) and 554
(adjudications) of the Administrative Procedure Act (APA). Although the
Department is of the opinion that this rulemaking is exempt from the
rulemaking provisions of the APA and without prejudice to its
determination that controlling the import and export of defense
articles and defense services is a foreign affairs function, the
Department provided a 30-day public comment period and is responding to
the comments received.
Regulatory Flexibility Act
Since this rulemaking is exempt from the rulemaking provisions of 5
U.S.C. 553, there is no requirement for an 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 were deemed necessary under the provisions of the Unfunded
Mandates Reform Act of 1995.
Small Business Regulatory Enforcement Fairness Act of 1996
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (the ``Act''), a major rule is a rule that the
Administrator of the Office of Management and Budget's Office of
Information and Regulatory Affairs (OIRA) finds has resulted or is
likely to result in: (1) An annual effect on the economy of
$100,000,000 or more; (2) a major increase in costs or prices for
consumers, individual industries, federal, state, or local government
agencies, or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and foreign markets. The Department does
not believe this rulemaking will meet these criteria.
Executive Orders 12372 and 13132
This rulemaking 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 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 and 13563
Executive Orders 12866 and 13563 direct agencies to assess 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). The executive orders stress
the importance of quantifying both costs and benefits, of reducing
costs, of harmonizing rules, and of promoting flexibility. OIRA has not
designated this rulemaking a ``significant regulatory action'' under
section 3(f) of Executive Order 12866.
Executive Order 12988
The Department of State has reviewed the rulemaking in light of
sections 3(a) and 3(b)(2) of Executive 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 rulemaking will
not have tribal implications, will not impose substantial direct
compliance costs on Indian tribal governments, and will not preempt
tribal law. Accordingly, Executive Order 13175 does not apply to this
rulemaking.
Paperwork Reduction Act
This rulemaking does not impose any new reporting or recordkeeping
requirements subject to the Paperwork Reduction Act, 44 U.S.C. Chapter
35; however, the Department of State seeks public comment on any
unforeseen potential for increased burden.
[[Page 62008]]
List of Subjects
22 CFR 120 and 125
Arms and munitions, Classified information, Exports.
22 CFR 126
Arms and munitions, Exports.
22 CFR 130
Arms and munitions, Campaign funds, Confidential business
information, Exports, Reporting and recordkeeping requirements.
Accordingly, for the reasons set forth above, the interim final
rule that was published at 81 FR 35611 on June 3, 2016, is adopted as a
final rule with the following changes:
PART 120--PURPOSE AND DEFINITIONS
0
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; 22 U.S.C. 2651a; Pub.
L. 105-261, 112 Stat. 1920; Pub. L. 111-266; Section 1261, Pub. L.
112-239; E.O. 13637, 78 FR 16129.
0
2. Section 120.19 is amended by revising paragraph (a) introductory
text to read as follows:
Sec. 120.19 Reexport.
(a) Reexport, except as set forth in Sec. 126.16 or Sec. 126.17,
means:
* * * * *
0
3. Section 120.51 is revised to read as follows:
Sec. 120.51 Retransfer.
(a) Retransfer, except as set forth in Sec. 126.16 or Sec.
126.17, means:
(1) A change in end use or end user, or a temporary transfer to a
third party, of a defense article within the same foreign country; or
(2) A release of technical data to a foreign person who is a
citizen or permanent resident of the country where the release or
transfer takes place.
(b) [Reserved]
PART 125--LICENSES FOR THE EXPORT OF TECHNICAL DATA AND CLASSIFIED
DEFENSE ARTICLES
0
4. The authority citation for part 125 continues to read as follows:
Authority: Secs. 2 and 38, 90-629, 90 Stat. 744 (22 U.S.C.
2752, 2778); 22 U.S.C. 2651a; E.O. 13637, 78 FR 16129.
0
5. Section 125.1 is amended by adding paragraph (f) to read as follows:
Sec. 125.1 Exports subject to this part.
* * * * *
(f) Unless limited by a condition set out in an agreement, the
export, reexport, retransfer, or temporary import authorized by a
license is for the item(s), end-use(s), and parties described in the
agreement, license, and any letters of explanation. DDTC approves
agreements and grants licenses in reliance on representations the
applicant made in or submitted in connection with the agreement,
letters of explanation, and other documents submitted.
PART 126--GENERAL POLICIES AND PROVISIONS
0
6. The authority citation for part 126 continues to read as follows:
Authority: Secs. 2, 38, 40, 42, and 71, Pub. L. 90-629, 90
Stat. 744 (22 U.S.C. 2752, 2778, 2780, 2791, and 2797); 22 U.S.C.
2651a; 22 U.S.C. 287c; E.O. 12918, 59 FR 28205; 3 CFR, 1994 Comp.,
p. 899; Sec. 1225, Pub. L. 108-375; Sec. 7089, Pub. L. 111-117; Pub.
L. 111-266; Sections 7045 and 7046, Pub. L. 112-74; E.O. 13637, 78
FR 16129.
0
7. Section 126.16 is amended by revising paragraph (a)(1)(iii) to read
as follows:
Sec. 126.16 Exemption pursuant to the Defense Trade Cooperation
Treaty between the United States and Australia.
(a) * * *
(1) * * *
(iii) Reexport and retransfer. (A) Reexport means, for purposes of
this section only, the movement of previously Exported Defense Articles
by a member of the Australian Community from the Approved Community to
a location outside the Territory of Australia.
(B) Retransfer means, for purposes of this section only, the
movement of previously Exported Defense Articles by a member of the
Australian Community from the Approved Community to a location within
the Territory of Australia;
* * * * *
0
8. Section 126.17 is amended by revising paragraph (a)(1)(iii) to read
as follows:
Sec. 126.17 Exemption pursuant to the Defense Trade Cooperation
Treaty between the United States and United Kingdom.
(a) * * *
(1) * * *
(iii) Reexport and retransfer. (A) Reexport means, for purposes of
this section only, movement of previously Exported Defense Articles by
a member of the United Kingdom Community from the Approved Community to
a location outside the Territory of the United Kingdom.
(B) Retransfer means, for purposes of this section only, the
movement of previously Exported Defense Articles by a member of the
United Kingdom Community from the Approved Community to a location
within the Territory of the United Kingdom.
* * * * *
0
9. Section 126.18 is amended by revising paragraph (d)(1) to reads as
follows:
Sec. 126.18 Exemptions regarding intra-company, intra-organization,
and intra-governmental transfers to employees who are dual nationals or
third-country nationals.
* * * * *
(d) * * *
(1) Regular employees of the foreign business entity, foreign
governmental entity, or international organization;
* * * * *
PART 130--POLITICAL CONTRIBUTIONS, FEES AND COMMISSIONS
0
10. The authority citation for part 130 continues to read as follows:
Authority: Sec. 39, Pub. L. 94-329, 90 Stat. 767 (22 U.S.C.
2779); 22 U.S.C. 2651a; E.O. 13637, 78 FR 16129.
0
11. Section 130.2 is revised to read as follows:
Sec. 130.2 Applicant.
Applicant means any person who applies to the Directorate of
Defense Trade Controls for any license or approval required under this
subchapter for the export, reexport, or retransfer of defense articles
or defense services valued in an amount of $500,000 or more which are
being sold commercially to or for the use of the armed forces of a
foreign country or international organization. This term also includes
a person to whom the required license or approval has been given.
Rose E. Gottemoeller,
Under Secretary, Arms Control and International Security, Department of
State.
[FR Doc. 2016-21481 Filed 9-7-16; 8:45 am]
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