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17 May 2019
After years of waiting, the new 22 CFR 126.4 International Traffic in Arms Regulations (ITAR) licence exemption for transfers of defence articles and services by or for the US government came into effect on 19 April 2019.
While the introduction of the revised 22 CFR 126.4 exemption is largely positive for exporters, there are a few new boxes to check.(1)
Bills of lading
Exporters no longer have to explain what a government bill of lading is, as the requirement in the old 22 CFR 126.4(a) that "all aspects of a transaction (export, carriage, and delivery abroad) are affected [sic] by a United States Government agency or when the export is covered by a United States Government Bill of Lading" has been removed.
Use of revised 22 CFR 126.4(a)
Importantly, 22 CFR 126.4(a) should be used only by US government agencies and departments.
The new exemption is divided into two parts. 22 CFR 126.4(a) covers transfers by a US government department or agency. Thus, companies that are not part of the US government cannot make use of this section. That said, US government contractors can use this section, but only for official use by a US government department or agency:
In other words, 22 CFR 126.4(a) is of limited use for most US government contracts.
Can contractors use 22 CFR 126.4(a)(1)?
The short answer is yes – if they are careful. However, the new 22 CFR 126.4(b) may be a better option, as US government contractors can use this exemption with written consent. 22 CFR 126.4(b) authorises US government contractors to export, re-export, retransfer or temporarily import a defence article or provide a defence service to:
What's the catch?
There is no requirement that the US government effect an export or that a contractor obtain a government bill of lading. Further, the situation need not be an emergency wherein the parties involved have tried and failed to get a licence (as under the old 22 CFR 126.4(c)).
While the new 22 CFR 126.4(b) is excellent news, a number of important boxes must be checked before the exemption can be used:
Application of 22 CFR 126.1 for proscribed countries
While the DDTC has stated that no 22 CFR 126.1 proscribed countries can make use of the exception, these countries can use three 22 CFR 126.4 exemptions. However, this will be permitted only where an export is made to or by the US government for cooperative projects and programmes.
The amended 22 CFR 126.1 reads as follows:
The exemptions provided in this subchapter, except § 123.17 of this subchapter and §§ 126.4(a)(1) or (3) and (b)(1) and 126.6, or when the recipient is a US Government department or agency, do not apply with respect to defense articles or defense services originating in or for export to any proscribed countries, areas, or persons. (Emphasis added.)
In short, if the recipient is the US government in (for example) Iraq or Afghanistan (22 CFR 126.4(a)(1) and (b)(1)) – or it is to carry out a cooperative project, programme or other activity in furtherance of an agreement or arrangement and the US government is responsible for the export – the exemption can be used for a 22 CFR 126.1 proscribed country.
Unfortunately, it is highly likely that exporters will be confused and export to the Afghan forces at the direction of the US government under the 22 CFR 126.4(b)(2) exemption, and then be required to immediately disclose to the US government because Afghanistan is still a 22 CFR 126.1 proscribed country.
Thankfully, the new exemption is significantly clearer – it covers "the export, reexport, retransfer, or temporary import of a defense article or the performance of a defense service" made by or for the US government, not just the "temporary import, or temporary export, of any defence article, including technical data or the performance of a defense service". As technical data exports are permanent, the new regulation is worded correctly.
Is the new 22 CFR 126.4 better? Yes – this is a huge and long-awaited improvement. However, when it comes to those who export to 22 CFR 126.1 countries on behalf of the US government, but deliver to a non-US government party, a licence or other approval will be necessary in most cases. Exporters outside the 22 CFR 126.1 proscribed countries must obtain a written direction from the right person in the relevant US government agency and check all of the boxes mentioned above.
For further information on this topic please contact Kay C Georgi or Regan K Alberda at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (firstname.lastname@example.org or email@example.com). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
(1) Click here to compare the old and new 22 CFR 126.4.
(1) For official use by a department or agency of the US Government…
(2) For carrying out a cooperative project, program, or other activity in furtherance of an agreement or arrangement that provides for the export, reexport, retransfer, or temporary import of the defense article, or the performance of activities that constitute the defense service, and is one of the following:
(i) A binding international agreement to which the United States or any agency thereof is a party; or
(ii) An arrangement with international partners authorized by Title 10 or 22 of the United States Code or pertinent National Defense Authorization Act provisions.
(3) For carrying out any foreign assistance or sales program authorized by law and subject to control by the President by other means.
(4) For any other security cooperation programs and activities of the Department of Defense authorized by law and subject to control by the President by other means.
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