Bureau of Political-Military Affairs; Amendments to the International Traffic in Arms Regulations

DEPARTMENT OF STATE

22 CFR Parts 120, 123, 124, 126, 127, and 129

[Public Notice 2602]

Bureau of Political-Military Affairs; Amendments to the

International Traffic in Arms Regulations

AGENCY: Department of State.

ACTION: Final rule.

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SUMMARY: This rule amends certain provisions of the International

Traffic in Arms Regulations (ITAR) in order to reflect recent changes

to the Arms Export Control Act (AECA).

EFFECTIVE DATE: December 24, 1997.

FOR FURTHER INFORMATION CONTACT: Mary F. Sweeney, Compliance and

Enforcement Branch, Office of Defense Trade Controls, Bureau of

Political-Military Affairs, Department of State (703) 875-6644.

SUPPLEMENTARY INFORMATION: Section 1045(a) of the National Defense

Authorization Act for Fiscal Year 1997 (Public Law 104-201) added a new

paragraph 12 to section 36(a) of the AECA requiring a report on all

concluded agreements involving coproduction or licensed production

outside of the United States of defense articles of United States

origin.

Section 141 of the Defense and Security Assistance Improvements Act

of 1996 (Public Law 104-164) amended and restated the requirements in

section 36(c) and (d) of the AECA for certification to Congress of

certain proposed exports and technical assistance or manufacturing

license agreements, generally reducing the time for transfers involving

member countries of the North Atlantic Treaty Organization, Australia,

Japan and New Zealand.

Section 151 of Public Law 104-164 added a new clause (ii) to

Subsection (b)(1)(A) of section 38 of the AECA requiring the

registration and licensing of persons who engage in the business of

brokering activities of defense articles and defense services.

Section 156 of Public Law 104-164 amended section 38(e) of the

AECA, providing that certain types of information shall not be withheld

from public disclosure unless the President

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determines that the release of such information would be contrary to

the national interest.

Section 144 of Public Law 104-164 amended and restated certain

definitions contained in Section 47 of the AECA.

The civil penalty amount is in accordance with 22 U.S.C. 2778,

2779a and 2780.

In order to ensure consistent application of the ITAR as provided

in law, Parts 120, 123, 124, 126, and 127 are being amended and a new

Part 129 is being established.

Part 129 contains guidance concerning persons required to register

as brokers and the types of brokering activities that require prior

approval of the Department of State. As a general matter, any person in

the United States or otherwise subject to U.S. jurisdiction who is in

the business of brokering transfers of defense articles or services is

required to register and pay a fee. This would include for example,

persons who act as agents for others in arranging arms deals, as well

as so-called finders and other persons who facilitate such deals.

Certain exemptions to this requirement are also established, however,

such as persons exclusively in the business of financing or

transporting defense articles whose business activities do not include

brokering arms deals. Certain prohibitions are also established in Part

129 concerning brokering activities associated with defense articles

and defense services involving ineligible countries or persons, such as

those countries for which the United States maintains an arms embargo

and those persons debarred from receiving U.S. munitions licenses owing

to previous violations of U.S. law. Part 129 identifies those

circumstances or defense articles for which either prior written

approval by, or prior notification to, the Department of State is

necessary, and also specifies exemptions to these requirements.

Further, Part 129 provides a procedure by which persons may seek

guidance from the Department of State in respect to the possible

application of these requirements to their activities.

These amendments involve a foreign affairs function of the United

States. They are excluded from review under Executive Order 12866 (69

FR 51735) and 9 U.S.C. 553 and 554, but have been reviewed internally

by the Department to ensure consistency with the purposes thereof.

In accordance with 5 U.S.C. 808, as added by the Small Business

Regulatory Enforcement Fairness Act of 1996 (the ``Act''), the

Department of State has found for foreign policy reasons that notice

and public procedure under section 251 of the Act is impracticable and

contrary to the public interest. However, interested parties are

invited to submit written comments to the Department of State, Office

of Defense Trade Controls, ATTN: Regulatory Change, Room 200, SA-6,

Washington, D.C. 20520-0602.

List of Subjects

22 CFR Part 120

Arms and munitions, Exports, Technical assistance.

22 CFR Part 123

Arms and munitions, Exports, Technical assistance.

22 CFR Part 124

Arms and munitions, Exports, Technical assistance.

22 CFR Part 126

Arms and munitions, Exports.

22 CFR Part 127

Arms and munitions, Exports.

22 CFR Part 129

Arms and munitions, Exports, Technical assistance.

Accordingly, for the reasons set forth above, Title 22, Chapter I,

Subchapter M, Parts 120, 123, 124, 126 and 127 are amended and Part 129

is established as follows:

PART 120--PURPOSE AND DEFINITIONS

1. The authority citation for part 120 is revised 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; E.O. 11958, 42 FR 4311; 3

CFR, 1977 Comp. p. 79; 22 U.S.C. 2658.

2. In Sec. 120.7 paragraph (a) is revised to read as follows:

Sec. 120.7 Significant military equipment.

(a) Significant military equipment means articles for which special

export controls are warranted because of their capacity for substantial

military utility or capability.

* * * * *

3. Section 120.9 is revised to read as follows:

Sec. 120.9 Defense service.

(a) Defense service means:

(1) The furnishing of assistance (including training) to foreign

persons, whether in the United States or abroad in the design,

development, engineering, manufacture, production, assembly, testing,

repair, maintenance, modification, operation, demilitarization,

destruction, processing or use of defense articles;

(2) The furnishing to foreign persons of any technical data

controlled under this subchapter (see Sec. 120.10), whether in the

United States or abroad; or

(3) Military training of foreign units and forces, regular and

irregular, including formal or informal instruction of foreign persons

in the United States or abroad or by correspondence courses, technical,

educational, or information publications and media of all kinds,

training aid, orientation, training exercise, and military advice. (See

also Sec. 124.1.)

(b) [Reserved]

PART 123--LICENSES FOR THE EXPORT OF DEFENSE ARTICLES

4. The authority citation for part 123 is revised to read as

follows:

Authority: Secs. 2 and 38, Pub. L. 90-629, 90 Stat. 744 (22

U.S.C. 2752, 2778); 22 U.S.C. 2753; E.O. 11958, 42 FR 4311; 3 CFR

1977 Comp. 79; 22 U.S.C. 2658.

5. Section 123.15 is revised to read as follows:

Sec. 123.15 Congressional notification for licenses.

(a) All exports of major defense equipment, as defined in

Sec. 120.8 of this subchapter, sold under a contract in the amount of

$14,000,000 or more, or exports of defense articles and defense

services sold under a contract in the amount of $50,000,000 or more,

may take place only after the Office of Defense Trade Controls notifies

the exporter through issuance of a license or other approval that

Congress has not enacted a joint resolution prohibiting the export and:

(1) In the case of a license for an export to the North Atlantic

Treaty Organization, any member country of that Organization, or

Australia, Japan or New Zealand, 15 calendar days have elapsed since

receipt by the Congress of the certification required by 22 U.S.C.

2776(c)(1); or

(2) In the case of a license for an export to any other

destination, 30 calendar days have elapsed since receipt by the

Congress of the certification required by 22 U.S.C. 2776(c)(1).

(b) Persons who intend to export defense articles and defense

services pursuant to any exemption in this subchapter (e.g., Sec. 126.5

of this subchapter) under the circumstances described in the first

sentence of paragraph (a) of this section must notify the Office of

Defense Trade Controls by letter of the intended export and, prior to

transmittal to Congress, provide a

[[Page 67276]]

signed contract and a DSP-83 signed by the applicant, the foreign

consignee and end-user.

PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE

SERVICES

6. The authority citation for Part 124 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); E.O. 11958, 42 FR 4311; 3 CFR 1977 Comp.

p. 79; 22 U.S.C. 2658.

7. Section 124.4 is revised to read as follows:

Sec. 124.4 Deposit of signed agreements with the Office of Defense

Trade Controls.

(a) The United States party to a manufacturing license or a

technical assistance agreement must file one copy of the concluded

agreement with the Office of Defense Trade Controls not later than 30

days after it enters into force. If the agreement is not concluded

within one year of the date of approval, the Office of Defense Trade

Controls must be notified in writing and be kept informed of the status

of the agreement until the requirements of this paragraph or the

requirements of ( 124.5 are satisfied.

(b) In the case of concluded agreements involving coproduction or

licensed production outside of the United States of defense articles of

United States origin, a written statement must accompany filing of the

concluded agreement with the Office of Defense Trade Controls, which

shall include:

(1) The identity of the foreign countries, international

organization, or foreign firms involved;

(2) A description and the estimated value of the articles

authorized to be produced, and an estimate of the quantity of the

articles authorized to be produced:

(3) A description of any restrictions on third-party transfers of

the foreign-manufactured articles; and

(4) If any such agreement does not provide for United States access

to and verification of quantities of articles produced overseas and

their disposition in the foreign country, a description of alternative

measures and controls to ensure compliance with restrictions in the

agreement on production quantities and third-party transfers.

8. Section 124.11 is revised to read as follows:

Sec. 124.11 Certification to Congress for agreements.

Regardless of dollar value, a Technical Assistance Agreement or a

Manufacturing License Agreement that involves the manufacture abroad of

any item of significant military equipment (as defined in Sec. 120.7 of

this subchapter) shall be certified to Congress by the Department as

required by 22 U.S.C. 2776(d). Additionally, any technical assistance

agreement or manufacturing license agreement providing for the export

of major defense equipment, as defined in Sec. 120.8, sold under a

contract in the amount of $14 million or more, or of defense articles

or defense services sold under a contract in the amount of $50 million

or more, shall be certified to Congress by the Department as required

by 22 U.S.C. 2776(c)(1). The Office of Defense Trade Controls will not

approve agreements requiring Congressional notification unless Congress

has not enacted a joint resolution prohibiting the agreement and:

(a) In the case of an agreement for or in a country which is a

member of the North Atlantic Treaty Organization or Australia, Japan,

or New Zealand, at least 15 calendar days have elapsed since receipt by

the Congress of the certification required by 22 U.S.C. 2776(d); or

(b) In the case of an agreement for or in any other country, at

least 30 calendar days have elapsed since receipt by the Congress of

the certification required by 22 U.S.C. 2776(d).

PART 126--GENERAL POLICIES AND PROVISIONS

9. The authority citation for Part 126 is revised 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. 2778;

E.O. 11958, 42 FR 4311; 3 CFR, 1977 Comp., p. 79; 22 U.S.C. 2658; 22

U.S.C. 287c; E.O. 12918, 59 FR 28205, 3 CFR, 1994 Comp., p. 899.

10. In Sec. 126.10 paragraph (b) is revised to read as follows:

Sec. 126.10 Disclosure of information.

* * * * *

(b) Determinations required by law. Section 38(e) of the Arms

Export Control Act (22 U.S.C. 2778) provides by reference to certain

procedures of the Export Administrative Act that certain information

required by the Department of State in connection with the licensing

process may generally not be disclosed to the public unless certain

determinations relating to the national interest are made in accordance

with the procedures specified in that provision, except that the names

of the countries and the types and quantities of defense articles for

which licenses are issued under this section shall not be withheld from

public disclosure unless the President determines that release of such

information would be contrary to the national interest. Determinations

required by section 38(e) shall be made by the Assistant Secretary for

Political-Military Affairs.

* * * * *

PART 127--VIOLATIONS AND PENALTIES

11. The authority citation for part 127 is revised to read as

follows:

Authority: Secs. 2, 38, and 42, Pub. L. 90-629, 90 Stat. 744 (22

U.S.C. 2752, 2778, 2791); E.O. 11958, 42 FR 4311, 3 CFR, 1977 Comp.,

p. 79; 22 U.S.C. 401; 22 U.S.C. 2658; 22 U.S.C. 2779a; 22 U.S.C.

2780.

12. In Sec. 127.10 paragraph (a) is revised to read as follows:

Sec. 127.10 Civil penalty.

(a) The Assistant Secretary of State for Political-Military

Affairs, Department of State, is authorized to impose a civil penalty

in an amount not to exceed that authorized by 22 U.S.C. 2778, 2779a and

2780 for each violation of 22 U.S.C. 2778, 2779a and 2780, or any

regulation, order, license or approval issued thereunder. This civil

penalty may be either in addition to, or in lieu of, any other

liability or penalty which may be imposed.

* * * * *

13. Part 129 is added to read as follows:

PART 129--REGISTRATION AND LICENSING OF BROKERS

Sec.

129.1 Purpose.

129.2 Definitions.

129.3 Requirement to register.

129.4 Registration statement and fees.

129.5 Policy on embargoes and other proscriptions.

129.6 Requirement for license/approval.

129.7 Prior approval (license).

129.8 Prior notification.

129.9 Reports.

129.10 Guidance.

Authority: Sec. 38, Pub. L. 104-164, 110 Stat. 1437, (22 U.S.C.

2778).

Sec. 129.1 Purpose.

Section 38(b)(1)(A)(ii) of the Arms Export Control Act (22 U.S.C.

2778) provides that persons engaged in the business of brokering

activities shall register and pay a registration fee as prescribed in

regulations, and that no person may engage in the business of brokering

activities without a license issued in accordance with the Act.

Sec. 129.2 Definitions.

(a) Broker means any person who acts as an agent for others in

negotiating or

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arranging contracts, purchases, sales or transfers of defense articles

or defense services in return for a fee, commission, or other

consideration.

(b) Brokering activities means acting as a broker as defined in

Sec. 129.2(a), and includes the financing, transportation, freight

forwarding, or taking of any other action that facilitates the

manufacture, export, or import of a defense article or defense service,

irrespective of its origin. For example, this includes, but is not

limited to, activities by U.S. persons who are located inside or

outside of the United States or foreign persons subject to U.S.

jurisdiction involving defense articles or defense services of U.S. or

foreign origin which are located inside or outside of the United

States. But, this does not include activities by U.S. persons that are

limited exclusively to U.S. domestic sales or transfers (e.g., not for

export or re-transfer in the United States or a foreign person).

(c) The term ``foreign defense article or defense service''

includes any non-United States defense article or defense service of a

nature described on the United States Munitions List regardless of

whether such article or service is of United States origin or whether

such article or service contains United States origin components.

Sec. 129.3 Requirement to Register.

(a) Any U.S. person, wherever located, and any foreign person

located in the United States or otherwise subject to the jurisdiction

of the United States (notwithstanding Sec. 120.1(c)), who engages in

the business of brokering activities (as defined in this part) with

respect to the manufacture, export, import, or transfer of any defense

article or defense service subject to the controls of this subchapter

(see Sec. 121) or any ``foreign defense article or defense service''

(as defined in Sec. 129.2) is required to register with the Office of

Defense Trade Controls.

(b) Exemptions. Registration under this section is not required

for:

(1) Employees of the United States Government acting in official

capacity.

(2) Employees of foreign governments or international organizations

acting in official capacity.

(3) Persons exclusively in the business of financing, transporting,

or freight forwarding, whose business activities do not also include

brokering defense articles or defense services. For example, air

carriers and freight forwarders who merely transport or arrange

transportation for licensed United States Munitions List items are not

required to register, nor are banks or credit companies who merely

provide commercially available lines or letters of credit to persons

registered in accordance with Part 122 of this subchapter required to

register. However, banks, firms, or other persons providing financing

for defense articles or defense services would be required to register

under certain circumstances, such as where the bank or its employees

are directly involved in arranging arms deals as defined in

Sec. 129.2(a) or hold title to defense articles, even when no physical

custody of defense articles is involved.

Sec. 129.4 Registration statement and fees.

(a) General. The Department of State Form DSP-9 (Registration

Statement) and a transmittal letter meeting the requirements of

Sec. 122.2(b) of this subchapter must be submitted by an intended

registrant with a payment by check or money order payable to the

Department of State of one of the fees prescribed in Sec. 122.3(a) of

this subchapter. The Registration Statement and transmittal letter must

be signed by a senior officer who has been empowered by the intended

registrant to sign such documents. The intended registrant shall also

submit documentation that demonstrates that it is incorporated or

otherwise authorized to do business in the United States.

(b) A person required to register under this part who is already

registered as a manufacturer or exporter in accordance with part 122 of

this subchapter must also provide notification of this additional

activity by submitting to the Office of Defense Trade Controls by

registered mail a transmittal letter meeting the requirements of

Sec. 122.2(b) and citing the existing registration, and must pay an

additional fee according to the schedule prescribed in Sec. 122.3(a).

Any person who registers coincidentally as a broker as defined in

Sec. 129.2 of this subchapter and as a manufacturer or exporter must

submit a Registration Statement that reflects the brokering activities,

the Sec. 122.2(b) transmittal letter, as well as the additional fee for

registration as a broker.

(c) Other provisions of part 122, in particular, Sec. 122.4

concerning notification of changes in information furnished by

registrants and Sec. 122.5 concerning maintenance of records by

registrants, apply equally to registration under this part (part 129).

Sec. 129.5 Policy on embargoes and other proscriptions.

(a) The policy and procedures set forth in this subparagraph apply

to brokering activities defined in Sec. 129.2 of this subchapter,

regardless of whether the persons involved in such activities have

registered or are required to register under Sec. 129.3 of this

subchapter.

(b) No brokering activities or brokering proposals involving any

country referred to in Sec. 126.1 of this subchapter may be carried out

by any person without first obtaining the written approval of the

Office of Defense Trade Controls.

(c) No brokering activities or proposal to engage in brokering

activities may be carried out or pursued by any person without the

prior written approval of the Office of Defense Trade Controls in the

case of other countries or persons identified from time to time by the

Department of State through notice in the Federal Register, with

respect to which certain limitations on defense articles or defense

services are imposed for reasons of U.S. national security or foreign

policy (e.g., Cyprus, Guatemala, Yemen) or law enforcement interests

(e.g., an individual subject to debarment pursuant to Sec. 127.7 of

this subchapter).

(d) No brokering activities or brokering proposal may be carried

out with respect to countries which are subject to United Nations

Security Council arms embargo (see also Sec. 121.1(c)).

(e) In cases involving countries or persons subject to paragraph

(b), (c), or (d), above, it is the policy of the Department of State to

deny requests for approval, and exceptions may be granted only rarely,

if ever. Any person who knows or has reason to know of brokering

activities involving such countries or persons must immediately inform

the Office of Defense Trade Controls.

Sec. 129.6 Requirement for License/Approval.

(a) No person may engage in the business of brokering activities

without the prior written approval (license) of, or prior notification

to, the Office of Defense Trade Controls, except as follows:

(b) A license will not be required for:

(1) Brokering activities undertaken by or for an agency of the

United States Government--

(i) for use by an agency of the United States Government; or

(ii) for carrying out any foreign assistance or sales program

authorized by law and subject to the control of the President by other

means.

(2) Brokering activities that are arranged wholly within and

destined exclusively for the North Atlantic Treaty Organization, any

member country of that Organization, Japan, Australia, or New Zealand,

except in the case of the defense articles or defense services

specified in Sec. 129.7(a) of this

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subchapter, for which prior approval is always required.

Sec. 129.7 Prior Approval (License).

(a) The following brokering activities require the prior written

approval of the Office of Defense Trade Controls:

(1) Brokering activities pertaining to certain defense articles (or

associated defense services) covered by or of a nature described by

Part 121, to or from any country, as follows:

(i) Fully automatic firearms and components and parts therefor;

(ii) Nuclear weapons strategic delivery systems and all components,

parts, accessories, attachments specifically designed for such systems

and associated equipment;

(iii) Nuclear weapons design and test equipment of a nature

described by Category XVI of Part 121;

(iv) Naval nuclear propulsion equipment of a nature described by

Category VI(e);

(v) Missile Technology Control Regime Category I items

(Sec. 121.16);

(vi) Classified defense articles, services and technical data;

(vii) Foreign defense articles or defense services (other than

those that are arranged wholly within and destined exclusively for the

North Atlantic Treaty Organization, Japan, Australia, or New Zealand

(see Secs. 129.6(b)(2) and 129.7(a)).

(2) Brokering activities involving defense articles or defense

services covered by, or of a nature described by, Part 121, in addition

to those specified in Sec. 129.7(a), that are designated as significant

military equipment under this subchapter, for or from any country not a

member of the North Atlantic Treaty Organization, Australia, New

Zealand, or Japan whenever any of the following factors are present:

(i) The value of the significant military equipment is $1,000,000

or more;

(ii) The identical significant military equipment has not been

previously licensed for export to the armed forces of the country

concerned under this subchapter or approved for sale under the Foreign

Military Sales Program of the Department of Defense;

(iii) Significant military equipment would be manufactured abroad

as a result of the articles or services being brokered; or

(iv) The recipient or end user is not a foreign government or

international organization.

(b) The requirements of this section for prior written approval are

met by any of the following:

(1) A license or other written approval issued under parts 123,

124, or 125 of this subchapter for the permanent or temporary export or

temporary import of the particular defense article, defense service or

technical data subject to prior approval under this section, provided

the names of all brokers have been identified in an attachment

accompanying submission of the initial application; or

(2) A written statement from the Office of Defense Trade Controls

approving the proposed activity or the making of a proposal or

presentation.

(c) Requests for approval of brokering activities shall be

submitted in writing to the Office of Defense Trade Controls by an

empowered official of the registered broker; the letter shall also meet

the requirements of Sec. 126.13 of this subchapter.

(d) The request shall identify all parties involved in the proposed

transaction and their roles, as well as outline in detail the defense

article and related technical data (including manufacturer, military

designation and model number), quantity and value, the security

classification, if any, of the articles and related technical data, the

country or countries involved, and the specific end use and end

user(s).

(e) The procedures outlined in Sec. 126.8(c) through (g) are

equally applicable with respect to this section.

Sec. 129.8 Prior Notification.

(a) Prior notification to the Office of Defense Trade Controls is

required for brokering activities with respect to significant military

equipment valued at less than $1,000,000, except for sharing of basic

marketing information (e.g., information that does not include

performance characteristics, price and probable availability for

delivery) by U.S. persons registered as exporters under Part 122.

(b) The requirement of this section for prior notification is met

by informing the Office of Defense Trade Controls by letter at least 30

days before making a brokering proposal or presentation. The Office of

Defense Trade Controls will provide written acknowledgment of such

prior notification to confirm compliance with this requirement and the

commencement of the 30-day notification period.

(c) The procedures outlined in Sec. 126.8(c) through (g) are

equally applicable with respect to this section.

Sec. 129.9 Reports.

(a) Any person required to register under this part shall provide

annually a report to the Office of Defense Trade Controls enumerating

and describing its brokering activities by quantity, type, U.S. dollar

value, and purchaser(s) and recipient(s), license(s) numbers for

approved activities and any exemptions utilized for other covered

activities.

Sec. 129.10 Guidance.

(a) Any person desiring guidance on issues related to this part,

such as whether an activity is a brokering activity within the scope of

this Part, or whether a prior approval or notification requirement

applies, may seek guidance in writing from the Office of Defense Trade

Controls. The procedures and conditions stated in Sec. 126.9 apply

equally to requests under this section.

Dated: November 24, 1997.

Strobe Talbott,

Acting Secretary of State.

[FR Doc. 97-33649 Filed 12-23-97; 8:45 am]

BILLING CODE 4710-25-P