State Proposes Increase to DDTC Registration Fees, Changes to Tier Structure

The State Department is proposing to increase fees for registration with the Directorate of Defense Trade Controls, it said in a notice released April 23. The agency also is proposing changes to the DDTC fee structure, as well as a reorganization of its International Traffic in Arms Regulations on fees and registration.

The increase, the first in 15 years, is “necessary for the continued and modernized operations of DDTC,” State said. “Although DDTC’s operating budget has remained mostly the same over the past few years, apart from inflation, increasing expenses are resulting in operating costs that currently exceed the amount of revenue generated by fees,” it said. “While DDTC has been able to draw from its collections over the past few years to meet its costs, these funds and the current registration fee amounts will not cover DDTC’s increased operational expenses.”

“The need to increase fees to keep up with inflation and increased costs related to enhanced services has therefore become particularly pressing and DDTC would have to cut back on certain services if registration fees are not adjusted in the near future,” State said. Currently, DDTC is mostly fee funded, with congressional appropriations making up “under 17% of its total operating costs,” the agency said.

Under the proposed rule, fees for Tier 1 and Tier 2 registrants would mostly rise in line with inflation. The Tier 1 registration fee would rise from $2,250 to $3,000 per year, while the Tier 2 registration fee would rise from $2,750 to $4,000.

State also would change the criteria for Tier 2 registrants. The threshold between Tier 2 and Tier 3 registrants would be lowered to having received five or fewer favorable determinations on their submitted license applications or other requests for authorization. Previously, it was 10 or fewer favorable determinations.

“This change was based in part on an analysis of DDTC data over the last five years, which found that the average Tier 2 registrant received three favorable determinations on license applications or requests for authorization,” State said. “Consequently, the majority of registrants previously in Tier 2 would remain in this tier under the newly proposed conditions. However, those registrants who have received more than five favorable determinations in the look-back period would become Tier 3 registrants under this proposal.”

The fee for Tier 3 registrants would rise beyond what is needed to adjust for inflation, with the baseline fee rising from $2,750 to $4,000, and the additional fee multiplier for favorable determinations in the past year rising from $250 to $1,100 each.

“Thus, as an example, if an exporter has applied for and obtained seven licenses or other authorizations within the look-back period, this exporter would pay the registration fee prescribed in Tier 3, which would be a baseline of $4,000, plus $2,200 (because there were two favorable determinations obtained above the baseline of five), for a total fee of $6,200,” State said.

The adjustment would be higher than an inflation adjustment because State “has concluded that Tier 3 registrants have benefited the most from DDTC’s improvements, specifically [the Defense Export Control and Compliance System (DECCS)] and customer service improvements, [and] they are best positioned to contribute from their export-derived revenue to continue and improve DDTC’s services,” the agency said.

Registration fees for brokering activities would remain “tied to Tier 1,” State said.

In the proposed rule, State also would restore provisions in its regulations that set out registration fee amounts. The fee amounts and tier groupings had been removed from State’s regulations in 2013, it said.

The proposed rule also includes “additional revisions in keeping with the Department’s ITAR reorganization efforts,” State said. That includes moving portions of the ITAR that covered registration requirements to the same section as other regulations on registration. “The changes proposed would not substantively alter registration requirements, but rather would reword existing provisions for clarity and relocate them from one adjoining section of the ITAR to another,” State said.