DDTC Modifies Procedures to Utilize ITAR Section 126.18 Exemption to Transfer Technical Data to Foreign Nationals Via Agreements

The State Department's Directorate of Defense Trade Controls (DDTC) has issued updated procedures for exporters utilizing the exemption contained in section 126.18 of the International Traffic in Arms Regulation (ITAR) authorizing the intra-company or intra-organization transfer of ITAR-controlled technical data via technical assistance agreements (TAAs) and manufacturing licensing agreements (MLAs).

Section 126.18 of the ITAR, which was published by DDTC in May 2011 and went into effect on August 15, 2011, allows companies, governmental entities and international organizations, to transfer unclassified defense articles, including technical data, to their dual and third-country full-time employees as long as “effective procedures” are in place to prevent diversion to unauthorized destinations, entities or for unauthorized purposes.

In guidance issued on July 25, 2011, DDTC required all TAAs and MLAs to be amended prior to use of the ITAR § 126.18 exemption to (1) update the new verbatim clause at ITAR § 124.8(5); and (2) to add specific language to the ITAR § 124.7(4) section of the agreement.

Based on DDTC's review of these requirements and through experience gained by DDTC in administering the new provision, DDTC has decided to change the requirement for utilizing the § 126.18 in connection with TAAs and MLAs.

Effective immediately, TAAs and MLAs do not have to be amended to include the modifications cited above in order to utilize the ITAR § 126.18 exemption. However, all agreement holders and foreign parties utilizing the ITAR § 126.18 exemption must maintain a copy of DDTC's web notice in their records.

However, DDTC will require all TAAs or MLAs that are amended to be updated to include the updated ITAR §124.8(5) verbatim clause. All pending TAAs and MLAs, or amendments, which do not include the updated ITAR § 124.8(5) verbatim clause will receive a proviso to correct prior to execution of the agreement or amendment.

In addition, the requirement to specifically request use of the ITAR § 126.18 exemption in the ITAR § 124.7(4) paragraph of the agreement is no longer required. However, in order to continue the use of ITAR § 124.16 under Option 1 (foreign vetting), or the initial request of ITAR § 124.16, the TAA or MLA must be amended to include Option 2 (DDTC vetting) language.

DDTC will soon update its guidelines for preparing electronic agreements to reflect this policy change.

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Obama Administration Notifies Congress of Proposed Transfer of Certain Defense Articles from USML to CCL and President Issues Export Control Reform Administration Executive Order

As part of the ongoing Export Control Reform process that could eventually move many parts and components associated with defense articles from the U.S. Munitions List and the International Traffic in Arms Regulations (ITAR) to the jurisdiction of the Bureau of Industry and Security (BIS) and the Export Administration Regulations (EAR), President Obama today issued an Executive Order (see below) that delegates the various responsibilities associated with the reformed export control system to the appropriate Cabinet Department.

The Executive Order makes the following changes to the existing U.S. export control system:

1. Consolidates brokering responsibilities with the State Department's Directorate of Defense Trade Controls (DDTC).
2. Eliminates possible “double licensing” requirements by allowing  the State Department to authorize the accompanying items that may have moved to the Commerce Control List (CCL) and prevent any potential double-licensing requirement. 
3. Modifies the Congressional notification process by requiring BIS to establish procedures for notifying Congress of approved export licenses for a certain subset of items that are moved or that may move from the USML to the CCL.
4. Other Administrative Updates: The Executive Order delegates to the Attorney General the functions previously assigned in 2003 to the Secretary of the Treasury, reflecting the move of ATF to the Department of Justice. ATF will remain responsible for permanent imports of most defense articles.

This Executive Order was timed to coincide with the notifications by the State Department to the U.S. Congress required by section 38(f)(1) of the Arms Export Control Act (22 USC 2778(f)(1)) regarding the defense articles that will be transferred from the USML to the CCL as part of the Export Control Reform process.

The initial notifications to Congress for USML Categories VIII (aircraft) and XIX (gas turbine engines) were submitted yesterday to the Speaker of the House, Chairman and Ranking Members of the Senate Foreign Relations Committee and House Foreign Affairs Committee. The House and Senate now have 30 days to review the proposed transfer. Absent a Congressional resolution of disapproval, the Obama Administration will have the authority to transfer the designated items from the USML to the CCL, which will take place after BIS and DDTC issue the final rules modifying the USML and CCL, as well as the other required regulations, including the transition rules. 

Further information on the Export Control Reform process can be found at www.export.gov/ecr.

Export Control Reform Administration EO (3.8.2013) by

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