State Proposes New License Exceptions for Replacement Parts & Incorporated Articles

The State Department has issued a proposed rule to amend the International Traffic in Arms Regulations to add new license exceptions for the export of (i) replacement parts and components for U.S.-origin end items and components, and (ii) articles to incorporate into EAR end items.

Comments are due by April 14, 2011.

(This proposed rule is very similar to a July 2010 Plenary Session Directorate of Defense Trade Controls' (DDTC) Defense Trade Advisory Group (DTAG) proposal for export license exemptions under the ITAR for components and spare parts for previous exports of U.S. origin end-items. See ITT's Online Archives or 07/15/10 news, 10071524, for BP summary.)

License Exemption Proposed for Replacement Parts & Components

Would Facilitate the Repair of U.S. Origin End-Items Sent Abroad

DOS states the current rule regarding replacement parts and components imposes burdensome requirements for additional licenses for licensed end-users and end-uses for systems and components already vetted in earlier licenses. Therefore, DOS is proposing to streamline the flow of parts and components and eliminate this redundancy in licensing by adding a new section 28 to 22 CFR 123, to facilitate the expeditious repair of U.S. origin end-items that were sent abroad.¹

Exporters Must be Previously Approved, Parts Must Not Upgrade Capability, Etc.

The proposed rule would amend 22 CFR 123 by adding section 28 on "exemptions for the export of replacement parts or components in support of end-items previously exported from the U.S.," to read as follows:

(a) Port Directors of U.S. Customs and Border Protection (CBP) shall permit the export without a license of parts or components of U.S.-origin end-items, as defined in section 121.8(a), held in the inventory of a foreign government when all of the following conditions are met:

(1) The exporter is not subject to policy of denial (22 CFR 126.7 and 127.7), is not otherwise ineligible (22 CFR 120.1(c)), and the authority to claim the exemption has not been revoked in accordance with paragraph (c) of this section; and

(2) The exporter was the applicant of a previously approved authorization to export the U.S.-origin end-item as defined in 22 CFR 121.8(a); and

(3) The replacement parts or components being exported do not upgrade the capability of the end item as originally exported. (Note: This does not preclude the export of replacement parts or components that would result in enhancements or improvements only in the reliability or maintainability of the U.S.-origin end-item, such as an increased mean time between failure (MTBF) when a part identical to that originally exported is not available); and

(4) The type, amount, and frequency of the exports are consistent with repair and replacement in accordance with normal logistical support requirements for the number of end-items in the end-user inventory; and

(5) The value of the purchase order or contract for the export does not exceed the requirements for congressional notification set forth in 22 CFR 123.15; and

(6) The consignee of the shipment is the foreign government approved under the original export authorization; and

(7) The foreign government end-user is not subject to restrictions under 22 CFR 126.1 of this subchapter; and

(8) The replacement parts or components being exported meet all the restrictions, limitations, and provisos (including those on the handling or control of the replacement parts or components) in the original export authorization for the end-item; and

(9) The replacement parts or components being exported are consistent with the U.S. Government authorized maintenance activities.

Exporters Must Have PO, Cite License No. in AES Filing, Etc. to Claim Exemption

The proposed rule would add paragraph 28(b) to 22 CFR 123 to state that in order to claim the exemption, the exporter must meet all the following conditions:

(1) Be in possession of a purchase order from the foreign government end-user; and

(2) Cite in its Automated Export System (AES) filing at the time of export the license number authorizing the previously approved export of the U.S.- origin defense article as required under paragraph (a)(2) of this section; and

(3) Provide, upon request of the Port Director, a copy of the license cited in paragraph (b)(2) of this section and a copy of a purchase order required by paragraph (b)(1) of this section; and

(4) If the replacement parts or components are shipped, the exporter must use the U. S. Postal Service (USPS), or only those freight forwarders registered with the DDTC and eligible, or licensed customs brokers that are subject to background investigation and have passed a comprehensive examination administered by CBP. If export is by hand carry, the exporter must ensure that the AES filing is completed at the time of export; and

(5) Maintain records, to be provided on request to the DDTC, U.S. Immigration and Customs Enforcement (ICE), CBP, and other authorized U.S. law enforcement agencies, that support the exporter’s authority to use the exemption in accordance with the requirements of paragraphs (a)(1) through (9) and (b)(1) and (2) of this section.

Exemption Would Not Apply to Otherwise Ineligible Exporters

DOS explains that this exemption would not apply to exporters who are otherwise ineligible. 22 CFR 123.28(c) states that the authority to use this exemption could be revoked at any time by the Managing Director of DDTC if the exporter is found to be not in compliance with the requirements listed in this section.

License Exemption Proposed for Articles Incorporated in EAR End-Items

No License Would be Needed if No Concern of Diversion

DOS states that the proposed rule would limit ITAR coverage to where diversion of the embedded defense article is a realistic and practical concern. The proposed rule would amend 22 CFR 126 by adding section 19 to set out conditions under which a DDTC license would not be required for the export or re-export of defense articles incorporated into an end-item subject to the EAR.

End-Items Would Have to be Rendered Inoperable, Not Include Tech Data, Etc.

The proposed rule would add paragraph 19(a) to 22 CFR 126 to state that a license or other DOS approval would not be required for the export or re-export of a defense article(s) that has/have been incorporated into an EAR subject end-item (15 CFR 734.3), when all of the following conditions are met:

(1) The end-item would be rendered inoperable, for purposes of intended applications or enhanced capabilities for which the defense article was incorporated into the end-item, by the removal of the defense article(s); and

(2) “Technology” subject to the EAR for the “production,” “development,” or “use” (15 CFR 772.1) of the end-item does not include any technical data (22 CFR 120.10) or “technical assistance” (15 CFR 772.1) qualifying as defense services (22 CFR 120.9) about the defense article(s) incorporated into the end-item; and

(3) Incorporation of the defense article(s) does/do not provide, nor is it related to, a military application or “military end-use” (15 CFR 744.21), or does not result in a “military commodity” (15 CFR 772.1); and

(4) The value of the defense articles is less than 1% of the value of the end-item.

Component Removal Would Destroy Article, Not Provide Military End-Use, Etc.

The proposed rule would add paragraph 19(b) to 22 CFR 126, to similarly state that a license or other DOS approval is not required for the export or re-export of a defense article(s) that has/have been incorporated into a EAR subject component (section 121.8(b)of the ITAR) or end-item, when all the following conditions are met:

(1) The defense article would be destroyed (i.e., rendered useless beyond the possibility of restoration) by its removal from the component, major assembly or end-item;

(2) “Technology” subject to the EAR for the “production,” “development,” or “use” (as defined in 15 CFR 772.1) of the component, or major assembly does not include any technical data (22 CFR 120.10) or “technical assistance” (15 CFR 772.1) qualifying as defense services (22 CFR 120.9) about the defense article incorporated into the component or major assembly; and

(3) Incorporation of the defense article does not provide, nor is it related to, a military application or “military end-use” (as defined in 15 CFR 744.21), or does not result in a “military commodity” (as defined in 15 CFR 772.1).

Exemption Would Not Take Effect Until Commerce Amends CCL Regs

DOS states that the proposed 22 CFR 126.19 would not go into effect until the Department of Commerce's Bureau of Industry and Security (BIS) amends its regulations such that the CCL and DOS' ITAR provide complimentary coverage of the articles in question. Proposed paragraph 19(c) to 22 CFR 126 states that a license or other approval from DOS would be required for the export or re-export of the defense article when exported or re-exported as a replacement part or component for a component, major assembly, or end-item subject to the EAR.

¹DOS states that the proposed addition of section 28 to 22 CFR 123 would enable more timely response to coalition forces, as well as other allies and friends, by eliminating the requirement for a license for parts and components for systems approved in a previous license.

(See ITT's Online Archives or 08/11/10 news, 10081120, for BP summary of DOS proposed ITAR exemption for intra-company transfers to dual or third-country nationals.

See ITT's Online Archives or 06/24/09 news, 09062420, for BP summary of the Defense Trade Controls Performance Improvement Act.

See ITT's Online Archives or 09/09/10 news, 10090928, for BP summary of DTAG proposed exemptions for ITAR items used in EAR commodities.

See ITT's Online Archives or 12/16/10 news, 10121629, for BP summary of an October 2010 DTAG meeting on export license system, USML, etc.)

DOS Contact -- Nicholas Memos (202) 663-2804

(PN 7258, FR Pub 03/15/11)