Hi,
Here is what DDTC has been tasked with after the Defense Trade Advisory Group meeting last September: NOTE-Nothing has been changed as of yet and there is no tentative date in regards to the final version of changes or what the final version of changes will consist of. Next meeting is Feb 1 from 1:00 p.m. until 5:00 p.m. at 1777 F Street NW., Washington, DC 20006.
State Department Tasking • Develop a definition of “manufacturing” for use in the ITAR. – Considering the possibility of revisions of Cats I-III and removal of most commercial firearms and related activities from the ITAR, DDTC requests DTAG to review and provide feedback to accurately and effectively define “manufacturing” (and distinguish from other related activities like assembly, integration, installment, various services) for remaining defense articles and services.
Clarification of State Department Tasking • Based on discussions with DDTC • Determine who needs to register as manufacturer: – AECA §2778 (b)(1)(A)(i) / ITAR §122.1(a): ‘Any person who engages in the business of manufacturing, exporting, or importing any defense articles or defense services.’ • Identify activities not requiring Registration – ‘Simple’ assembly – ….
Clarification of State Department Tasking • Key Assumptions: – A Defense Article (§120.6) is any item designated (i.e., enumerated or described) in §121.1 – the USML – Manufacturing does not include the production of unclassified technical data (§122.1(b)(2)), which includes “software” (§120.1(a)(4)) – Therefore, ‘manufacture’ is limited to defense article commodities – Definition intentionally does not capture ‘manufacture’ of classified technical data Task: Identify those entities that Congress wants State to review when it comes to producing Defense Article Commodities.
Purpose of Registration • To give DoS visibility into areas of risk. – The purpose of registration “is primarily a means to provide the U.S. Government with necessary information on who is involved in certain manufacturing and exporting activities.” (§122.1(c)) – Every ‘manufacturer’ is a potential exporter, whether they know it or not- • Deemed exports / Supply chain / Espionage target – DOS/DOD Awareness – • Technology Security /Emerging Technologies /Dual-Use Applications, etc. • Negative Impacts of Registration: – Requirement doesn’t scale – significant financial burden on small entities – Inundate State with low-risk entities.
OTHER CONSIDERATIONS Registration is still required of non-manufacturers: – Exporters – Importers – Brokers Allows the definition of ‘manufacture’ to be narrower, as a ‘significant’ manufacturer that doesn’t also import, export, or engage in brokering activities is rare. Definition is just for entities engaged in ‘manufacture’.
Approach • ‘Catch and Release’ – Broad Catch, with Selective Releases • Possible Releases: – Those that do not ‘substantially transform’ • Analogous but not identical to Customs definition • §120.6 specifies that a defense article “…includes forgings, …clearly identifiable …as defense articles.” – Less than $X in defense article sales per year • i.e., ‘small business’ without the baggage of the SB definition – Specific assembly activities – Specific ‘minor’ components • Low military utility - concern is the technical data.
Substantial Transformation • Used to determine Country of Origin • Well-litigated (see 19 U.S. Code section 1304) – The item undergoes a fundamental change as a result of processing or manufacturing in form, appearance, nature, or character, which adds to its value an amount or percentage that is significant in comparison to the value which the item (or its components or materials) had prior to the processing or manufacture – Concept: Adapt definition to differentiate between ‘minor’ production activities not requiring registration and ‘substantial’ production activities worthy of registration • The resulting item must be a Defense Article – The components and/or materials may or may not be defense articles.
Concept Language a) Except as described in Paragraph (b), a ‘manufacturer’ is a person whose actions through making, building, fabricating, machining, or assembling raw materials, parts, components, or systems result in a defense article b) A person does not need to register as a manufacturer if: 1) They fall under an existing exemption in 122.1(b); 2) Do not ‘substantially transform*’ Defense Articles or non-Defense Articles into Defense Articles; 3) Have less than $X in sales of Defense Articles per year; 4) Subject activities are exclusive to one-off prototyping or integration (see §122.1(b)(4)); or 5) Only perform the following activities: i. ….. Note: Relief through a paragraph (b) release does not remove the requirement to register as an exporter or importer (§122.1(a)) or broker (§129)).
Test Cases ‘Manufacturer’ for Registration Purposes: – Add military value – ‘Significant’ producers – Creates a new and different article – Utilize Manufacturing Know-how Exclude – ‘Simple’ assembly – Common product manufacturers that just happen to have USML items – PCB manufacturer/assembler – Custom tooling supply house (e.g., jigs, fixtures) – ‘Mom & Pop’ shops (burdened) – Hobbyist (not in the business) – Common processes on Defense Articles without use of ITAR Technical Data – Other purposes not “in the business” of manufacturing defense articles.
Additional Items to Explore • Maintenance and Repair – Clarify that manufacture creates a ‘new’ (i.e., ‘born’) item • Disassembly, cleaning, then reassembly is not ‘manufacture’ – Does Depot Level Repair always invoke ‘manufacturing’? • Possible clarification/release for O- and I-level.
Additional Items to Explore • Intent – inadvertent manufacture of Defense Articles – Release & documentation requirements similar to § 120.41(b)(4)/(5) • Serial Production vs. ‘one-off’ – What if you make just one? (other than §122.1(b)(4) release) • ‘Manufacture’ of classified data • Eliminate annual registration renewals – If no material changes since previous registration.
Sincerely,
THEIS
