State Dept Issues Final Rule on Exports under UK Defense Trade Treaty

March 21, 2012 by Brian Feito|Exports, OFAC and DoD

The State Department has issued a final rule amending the International Traffic in Arms Regulations (ITAR) to implement the 2007 Defense Trade Cooperation Treaty between the U.S. and the United Kingdom, which provides for, among other things, an exemption from otherwise applicable licensing requirements for persons or entities exporting defense articles or services to the UK for certain end-uses. The final rule also identifies the defense articles and services that may not be exported pursuant to the Treaty, and adds Israel to the list of countries and entities that have a shorter certification time period and a higher dollar value reporting threshold.

(This final rule adopts, with changes and minor edits, the portion of State Department’s November 22, 2011 proposed rule to implement the Defense Trade Cooperation Treaties between the U.S. and the UK. The final rule implementing the Treaty between the U.S. and Australia will be published later in the year once that treaty enters into force. According to sources at the Department, implementation of the U.S.-Australia Treaty will occur at a later date because the Australian Parliament must still pass implementing legislation.)

Effective Date

The final rule states that it will be effective upon the entry into force¹ of the Treaty, and State will publish a rule in the Federal Register announcing the effective date.

Highlights of Final Rule

The following are highlights of the provisions in the final rule:

New section on Treaty to allow defense exports w/out license, etc. The final rule adds a new section to the ITAR on the exemptions pursuant to the Defense Trade Cooperation Treaty between the U.S. and the United Kingdom (22 CFR 126.17).

Among other things, this new section:

defines export, transfers, intermediate consignee, etc. under the Treaty;
states that those persons or entities exporting or transferring defense articles or defense services pursuant to the Treaty are exempt from the otherwise applicable licensing requirements if they comply with the requirements set forth in the sections;
requires that a non-governmental exporter be registered with the Directorate of Defense Trade Controls and must be eligible to obtain an export license (or other form of authorization to export) from any agency of the U.S. Government without restriction;
states that the defense article or service exported may not be one that is excluded from the Treaties, as identified in Supplement No. 1 to 22 CFR Part 126;
requires the export to be for an end-use specified in the Treaty^2;
requires the exporter to maintain all required documentation;
describes how to appropriately mark defense articles subject to the Treaties;
describes a statement to be included in all shipping documentation that states the defense commodities are authorized for export to the UK for use in approved projects; etc.

EEI filing. The rule adds the UK to 22 CFR 123.16 (on exemptions of general applicability) to state that all shipments of defense articles, including, but not limited to, those to and from Australia, Canada, and the United Kingdom, require an Electronic Export Information (EEI) filing using the Automated Export System (AES) or notification letter.

Exclusions. The new regulations identify via a separate supplement (Supplement No. 1 to 22 CFR Part 126) those defense articles and services that are excluded from the scope of its Treaties with the UK and Canada (e.g., classified defense articles and services, defense articles listed in the Missile Technology Control Regime, etc.), and reserves a column in the table for Australia.

Israel certification. The new regulations require Congressional certification for transfers to Israel prior to granting any license or other approval for transactions of major defense equipment sold under a contract in the amount of $25,000,000 or more (from $14,000,000 or more) or for defense articles and defense services sold under a contract in the amount of $100,000,000 or more (from $50,000,000 or more), provided the transfer does not include any other countries. The final rule also shortens from 30 to 15 calendar days the Congressional certification time period during which approval may not be granted. This amendment affects 22 CFR parts 123, 124, and 129.

Congressional Notification Requirement. State is required to notify Congress of exports of defense articles that meet the dollar thresholds for notification in the Arms Export Control Act of $25 million for major defense equipment and $100 million for other defense articles and services.

Clarifying amendments. State also makes various “clarifying” amendments throughout 22 CFR Parts 120, 123, 126, 127, and 129. For example, it replaces references to the Shipper’s Export Declaration (SED) with Electronic Export Information (EEI); adds references to the treaty and the new supplement; inserts reserved sections for the U.S.-Australia Treaty final rule; etc.

Changes from Proposed Rule

Changes from the proposed rule include, among other things: (1) Supplement No. 1 to 22 CFR Part 126, which identifies defense articles that may not be exported pursuant to the Treaty, is revised to clarify that all previous requirements of the Canadian exemption remain in response to an unintentional omission by state; and (2) According to State, the scope and wording of Supplement No. 1 to Part 126 has been reworded in response to comments that the Supplement was too broad and excluded too much.

¹Article 20 of the Treaty states that it will enter into force upon an exchange of notes confirming that each Party has completed the necessary domestic requirements to bring this treaty into force.

²End-uses specified in the Treaty include: (i) U.S. Government end-uses; (ii) combined military or counter-terrorism operations; (iii) mutually determined security and defense research, development, production, and support programs; and (iv) mutually determined security and defense projects where the end-user is the Government of the UK or the Government of Australia is the end-user; (v) etc.

(See ITT’s Online Archives 11112215 for summary of the proposed rule, which was pursuant to Title I of the Security Cooperation Act, the Defense Trade Cooperation Treaties Implementation Act of 2010. See ITT’s Online Archives 10101311 for summary of President Obama signing the Security Cooperation Act into law.

See ITT’s Online Archives 12030943 for summary of a Presidential memorandum delegating to State the authority to make all certifications, reports, and notifications to Congress prior to entry into force of the Treaty, as well as provide annual reports thereafter, etc.)

(FR Pub 03/21/12)