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Proposed ITAR Exemptions Published by DDTC

The export community will no doubt welcome the two new proposed rule changes to ITAR, which will provide new exemptions and thereby ease licensing requirements for exporters of select U.S. origin defense articles, including replacement parts or components and incorporated articles, provided certain conditions are met. The proposed changes, published on 15 March, would add two new sections to the ITAR.

The first new section (123.28) would create exemption RPL (‘replacement’) that will eliminate “the requirement for a license for parts and components for systems approved in a previous license”.  One drawback of the proposed RPL exemption is that it will only be for use by exporters previously named in a license that was previously approved to export the system/end item. The DDTC decided not to adopt a Defence Trade Advisory Group recommendation to allow the exemption to be extended to a “second exporter”, such as a subcontractor or components supplier, but does recognise the logistical issues of industry and may consider other means of broadening the application of the RPL exemption after receiving industry comments.  The second potential drawback of the draft RPL exemption is that the consignee or the replacement parts must be a government entity that was approved under the license for the end item and cannot be a business partner, contract manufacturer, or other entity that may be contracted by the government to service the end item and replace the part in question. Clearly, this restriction limits the advantage of using the exemption. However, even in its current draft state, the RPL exemption will be significant for some exporters and may help to reduce lead times and costs.

To use this exemption, exporters must:

  • Not use it to export a component or replacement part that would enhance the capability of the system/end item. If it’s not the same part that was originally included in the system, a new license must be obtained.
  • Not ship more of the part than an amount that is consistent with the normal repair and maintenance needs of the system/end item.
  • Keep on file a copy of the P.O. from the end user and cite the license number issued for the original export of the system/end item in AES.
  • Not ship an order of parts that would lead to the P.O. exceeding congressional notification thresholds.

The second proposed rule offered by the State Department is amendment of the ‘see through rule’ with the creation of a new section (126.19) in the General Policies and Provisions chapter of the ITAR. The proposed rule would authorise the export of select ‘incorporated articles’ that are currently subject to licensing requirements because these items are the component that give the otherwise EAR controlled end use item, which is a ‘dual use item’, their more controlled status under ITAR.

The proposed rule would eliminate for the licensing for both ITAR controlled parts incorporated into a commercial end item that is subject to the EAR and ITAR controlled parts incorporated into a component that is subject to the EAR.

One issue with the way this proposed rule is written is that it does not contemplate that the end item may be a foreign origin dual use item (produced in Australia for example) and therefore not subject to the EAR. Australian defence contractors may therefore wish to comment to DDTC about this proposed rule.

Another issue is that the term ‘inoperable’ remains vague and this grey area could limit the applicability of the exemption as using an exemption where a license would have been required is a violation of the ITAR. Perhaps the most restrictive condition on this exemption, however, is that the value of the part must not be more than 1% of the value of the end item, meaning that it cannot be used for certain high value components.

For exporters for whom the above issues are not significant, the exemption would be a welcome change to the ITAR.

To use this new exemption, the following conditions will need to be met:

  1. The end item needs to qualify as ‘inoperable’ if the item you are seeking to ship under the exemption would be removed. However, the term is vague and it would be best practice to only use the exemption where the item is rendered completely inoperable.
  2. You may not ship technical data with the article
  3. The incorporation of the article into the system or end item is not related to a military application

The U.S. State Department’s DDTC will accept comments from industry about these proposed rules until 14 April 2011.

Comments are closed.

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