July 29, 2008
The United States Department of State, Directorate of Defense Trade Controls (“DDTC”) recently amended Section 122.3 of the International Traffic in Arms Regulations (“ITAR”) (22 C.F.R. 122.3) to limit the registration renewal options available to exporters, manufacturers, and brokers of defense articles who are required to register with DDTC in accordance with Section 38 of the Arms Export Control Act. Under the amendment, registrants will no longer have the option to renew their DDTC registration every two years, but instead must renew the registration annually. The amendment also changed the deadline for submitting renewal packages from 30 days to 60 days prior to expiration.
DDTC is also proposing to dramatically increase ITAR registration fees, and to have the amount of those fees based on the number of “applications” submitted. The word “applications” is defined to include the actions enumerated in ITAR Sections 123 through 125 that require DDTC review, adjudication, and response. These would include the various export and temporary import authorizations available from DDTC (e.g., DSP-5, DSP-61, DSP-73, DSP-85, Manufacturing License Agreements, Technical Assistance Agreements, Warehouse and Distribution Agreements) and presumably any amendments other than “minor” amendments to agreements that meet the requirements of ITAR Section 124.1(d). The proposed changes to the registration fee structure resulted from the President’s requirement that the Department of State initiate a self-financing mechanism, so that up to 75% of DDTC’s mission will eventually be self-financed.
The current annual registration fee is $1,750 per year for all registrants. Under the proposed regulations, the lowest annual fee will be $2,250 per year. That is the fee that would be charged to new registrants and to registrants who have not submitted any applications during the 12-month period ending 90 days prior to the expiration of their current registration (“registration period”). Inasmuch as brokering license applications are submitted under ITAR Section 129 (rather than ITAR Sections 123 through 125), it appears that the proposed rule would limit annual fees for brokers who do not seek export authorizations to $2,250. Registrants who have submitted ten or fewer applications during the registration period would pay $2,750 per year. Registrants who have submitted more than ten applications during the registration period would pay $2,750 plus $250 for each application in excess of ten applications submitted during the registration period, unless the total fee exceeds 3% of the total value of all applications. Fees would be capped at 3% of total application value or $2,750, whichever is greater. The proposed rule would, therefore, raise the annual fee for most exporters (i.e., those who have filed at least one export authorization application) by at least $1,000.
The proposed rule states that fees for universities and other registrants who are exempt from income taxation pursuant to 26 U.S.C. 501(c)(3) “may be” reduced to the first tier registration fee (i.e., $2,250) if proof of such status is submitted with their registration package. The use of the word “may” rather than “will” is not explained and no standards for any discretionary decision have been articulated.
Comments on the proposed rule are due by August 27, 2008. If the new fee structure or a similar one is implemented, exporters may want to consider appropriate means to consolidate license applications and agreement amendments, and consider the use of authorized exemptions rather than obtaining licenses where licenses are not required under the ITAR.
Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group lawyers have extensive experience in these matters and are prepared to assist clients with any issues arising under the ITAR. Please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, email@example.com) or Jim Slear (202-955-8578, firstname.lastname@example.org) in the firm’s Washington, D.C. office.
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