[Federal Register Volume 59, Number 170 (Friday, September 2, 1994)]
[Rules and Regulations]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21419]
[[Page Unknown]]
[Federal Register: September 2, 1994]
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DEPARTMENT OF STATE
Bureau of Political-Military Affairs
[Public Notice 2058]
22 CFR Parts 123 and 124
Amendment to the International Traffic in Arms Regulations
AGENCY: Bureau of Political-Military Affairs, Department of State.
ACTION: Final rule.
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SUMMARY: This rule amends the regulations implementing section 38 of
the Arms Export Control Act (AECA). The rule establishes in the
International Traffic in Arms Regulations (ITAR) a new licensing
procedure to permit U.S. encryption manufacturers to make multiple
shipments of items covered by Category XIII(b)(1) of the United States
Munitions List (USML) directly to end users in an approved country
without obtaining individual licenses.
EFFECTIVE DATE: September 2, 1994.
FOR FURTHER INFORMATION CONTACT:
Rose Marie Biancaniello, Deputy Director for Licensing or Karen
Hopkinson, Licensing Officer, Office of Defense Trade Controls,
Department of State 703 875-6643 or FAX 703 875-6647.
SUPPLEMENTARY INFORMATION: In April 1993, the President ordered a
review of U.S. policy regarding the domestic use of, and export
controls on, encryption technology. That review resulted in a
determination that vital U.S. interests--national security, economic,
and law enforcement--compel maintaining appropriate control of
encryption. It also revealed that there are measures which can be taken
to reform the existing export controls to ensure that controls are not
unduly burdensome to U.S. exporters. On February 4, 1994, the
Department of State announced reforms to the export control procedures
applicable to products incorporating encryption technology.
This final rule implements one of these reforms. Previously, almost
every encryption export required an individual license. Only those
exports covered by a distribution arrangement could be shipped without
an individual license. This final rule, which adds a Sec. 124.15 to the
ITAR, provides for a licensing procedure which permits direct
distribution from the U.S. manufacturer, thus reducing the regulatory
burden on exporters without a foreign distributor. The number of
individual license applications required will also be reduced.
Under this new licensing arrangement, U.S. encryption manufacturers
may ship their products covered in Category XIII(b)(1) from the United
States directly to customers within approved countries without
obtaining individual licenses for each end user. The procedures are
similar to existing distribution agreement procedures. Exporters are
required to submit a proposed arrangement identifying, among other
things, specific items to be shipped, proposed end users and end use
and countries to which the items are destined. Upon approval of the
arrangement, exporters will be permitted to ship the specified products
directly to end users in the approved countries based on a single
license. Therefore, manufacturers of products covered in Category
XIII(b)(1) will now have the option to export to foreign distributors
under a distribution agreement or directly from the U.S. under the new
arrangement.
Section 123.16(b)(1) is revised in conformity with the addition of
Sec. 124.15, and to substitute the more precise term ``defense
hardware'' for ``defense article''.
The Department of State views this reform as beneficial to U.S.
persons and industry and has decided to implement it immediately by
publication of a final rule. Notwithstanding this final rule, public
comment is welcomed.
This amendment involves a foreign affairs function of the United
States. It is exempt from review under E.O. 12866 and has been reviewed
internally by the Department to ensure consistency with the purposes
thereof. It is also excluded from the procedures of 5 U.S.C. 553 and
554.
List of Subjects
22 CFR Part 123
Arms and munitions, Exports.
22 CFR Part 124
Arms and munitions, Exports, Technical assistance.
Accordingly, for the reasons set forth in the preamble, 22 CFR
Subchapter M, Parts 123 and 124 are amended as follows:
PART 123--LICENSES FOR THE EXPORT OF DEFENSE ARTICLES
1. The authority citation for 22 CFR Part 123 continues to read as
follows:
Authority: Secs. 2 and 38, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778); E.O. 11958, 42 FR 4311, 3 CFR 1977 Comp. 79; 22
U.S.C. 2658.
2. Section 123.16(b)(1) is revised to read as follows:
Sec. 123.16 Exemptions of general applicability.
* * * * *
(b) * * *
(1) District Directors of Customs shall permit the export without a
license of defense hardware being exported in furtherance of a
manufacturing license agreement, technical assistance agreement,
distribution agreement or an arrangement for distribution of items
identified in Category XIII(b)(1), approved in accordance with Part
124, provided that:
(i) The defense hardware to be exported supports the activity and
is identified by item, quantity and value in the agreement or
arrangement; and
(ii) Any provisos or limitations placed on the authorized agreement
or arrangement are adhered to; and
(iii) The exporter certifies on the Shipper's Export Declaration
that the export is exempt from the licensing requirements of this
subchapter. This is done by writing, ``22 CFR 123.16(b)(1) and the
agreement or arrangement (identify/state number) applicable''; and
(iv) The total value of all shipments does not exceed the value
authorized in the agreement or arrangement.
(v) In the case of a distribution agreement, export must be made
directly to the approved foreign distributor.
* * * * *
PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE
SERVICES
3. The authority citation for 22 CFR 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.
4. Section 124.15 is added to read as follows:
Sec. 124.15 Arrangements for U.S. encryption (Category XIII(b)(1))
distribution by manufacturers.
(a) Arrangements for the export of unclassified defense articles
identified in Category XIII(b)(1) must be approved by the Office of
Defense Trade Controls before they enter into force. Such arrangements
will be limited to unclassified defense articles identified in Category
XIII(b)(1) and must contain conditions for special distribution, end-
use and reporting. Licenses for export pursuant to such arrangements
must be obtained prior to export of the defense article unless an
exemption under Sec. 123.16(b)(1) of this subchapter is applicable.
(b) Required information. Proposed arrangements shall be submitted
to the Office of Defense Trade Controls for review and approval. The
following information must be included in all such proposed
arrangements:
(1) A description of the U.S. Munitions List articles involved.
This shall include when applicable the Federal Stock Number, nameplate
data, and any control numbers under which the articles were developed
or procured by the U.S. Government;
(2) A detailed statement of the terms and conditions under which
the articles will be exported and distributed;
(3) The duration of the proposed arrangement; and
(4) Specific identification of the country or countries that
comprise the distribution territory. A Nontransfer and Use Certificate
(DSP-83) will be required in accordance with Sec. 123.10.
(c) Required Statements. The following statements must be included
in all arrangements:
(1) This arrangement shall not enter into force, and shall not be
amended or extended, without the prior written approval of the
Department of State of the U.S. Government.
(2) This arrangement is subject to all United States laws and
regulations relating to exports and to all administrative acts of the
U.S. Government pursuant to such laws and regulations.
(3) The arrangement shall not affect the performance of any
obligations created by prior contracts or subcontracts which the
applicant may have individually or collectively with the U.S.
Government.
(4) No liability will be incurred by or attributed to the U.S.
Government in connection with any possible infringement of privately
owned patent or proprietary rights, either domestic or foreign, by
reason of the U.S. Government's approval of this arrangement.
(5) No export, sale, transfer, or other disposition of the U.S.
Munitions List articles covered by this arrangement is authorized to
any country outside the distribution territory without the prior
written approval of the Office of Defense Trade Controls of the U.S.
Department of State.
(6) The applicant agrees that a semi-annual report of sales or
other transfers pursuant to this arrangement of the licensed articles,
by quantity, type, U.S. dollar value, and purchaser or recipient shall
be provided by (applicant) to the Department of State. Such reports may
cover calendar or fiscal years. Reporting shall continue until such
time as all articles authorized under the arrangement or a permanent
unclassified license (DSP-5) authorized in support of the arrangement
have been reported. Reports shall be deemed proprietary information by
the Department of State and will not be disclosed to unauthorized
persons. (See Sec. 126.10(b) of this subchapter.)
(7) The applicant agrees to notify (identify foreign end-user) of
any end use or retransfer restrictions and (identify foreign end user)
agrees to incorporate the following statement as an integral provision
of a contract, invoice or other appropriate document when the articles
covered by this arrangement are sold or otherwise transferred:
``These commodities are authorized for export by the U.S.
Government only to (identify country of ultimate destination). They may
not be resold, diverted, transferred, transshipped, or otherwise be
disposed of in any other country, either in their original form or
after being incorporated through an intermediate process into other
end-items, without the prior written approval of the U.S. Department of
State.''
(8) All provisions in this arrangement which refer to the United
States Government and the Department of State will remain binding on
the applicant after the termination of the arrangement.
(d) The license will be valid for four years and quantities and
values should reflect those for this time period. No application will
be accepted for any export for which Congressional notification is
required.
The application shall be filled out in accordance with the
instructions; however, in this instance, foreign end-user, foreign
consignee, and foreign intermediate consignees need not be identified.
In each block state: ``The foreign person in this block will be
reported in accordance with Sec. 124.15 of the ITAR.'' The provisions
of Sec. 126.13(b) with regards to foreign consignee and foreign
intermediate consignee need not be complied with at the time the
application is transmitted but will be reported semi-annually.
(e) Transmittal letter. Requests for approval of the arrangement
must be made by letter. The original letter and seven copies of the
proposed arrangement shall be submitted to the Office of Defense Trade
Controls. The letter shall contain the following:
(1) A statement giving the applicant's Defense Trade Controls
registration number.
(2) A statement identifying the country or countries to comprise
the distribution territory.
(3) A statement identifying the defense articles to be distributed
under the arrangement.
(4) A statement identifying any U.S. Government contract under
which the equipment may have been generated, improved, developed or
supplied to the U.S. Government, and whether the equipment was derived
from any bid or other proposal to the U.S. Government.
(5) A statement that no classified defense articles or classified
technical data are involved.
(6) A statement identifying any patent application which discloses
any of the subject matter of the equipment or related technical data
covered by an invention secrecy order issued by the U.S. Patent and
Trademark Office.
(7) A statement that the applicant will not permit any exports to
take place until the arrangement and the export license have been
approved by the Department of State.
Dated: August 1, 1994.
Lynn E. Davis,
Under Secretary for Arms Control and International Security Affairs,
Department of State.
[FR Doc. 94-21419 Filed 9-1-94; 8:45 am]
BILLING CODE 4710-25-M
