Yesterday the Department of State’s Directorate of Defense Trade Controls (“DDTC”) updated the website page of frequently asked questions (“FAQs”) relating to the agency’s commodity jurisdiction (“CJ”) request procedure. Although this update occurs just days before the requirement that all CJ requests must be made on Form DS-4076 and submitted electronically, only one of the revised FAQs relates to this upcoming requirement.

One of the FAQs relating to electronic submission now clarifies the file formats that can be used for supporting documentation. Those formats are BMP, CSV, GIF, JPEG, JPG, PDF, PNG, RTF, TIF, TXT and XML. The other FAQ on electronic submission continues to say that once the CJ request is filed, the only way to submit additional information is by putting it on a CD (!!) and then delivering the physical copy of the CD by horse and buggy to the agency.

Most of the new FAQs deal with general issues that, while known to regular practitioners before the agency, have not previously been stated clearly by the agency. Key among them is the statement that a license is required to export each item subject to a CJ while the CJ is pending. Two new FAQs clarify that a request to change an item from the United States Munitions List to the Commerce Control List can be done by a new CJ request but that a request to change USML category should be made in general correspondence sent to the agency. The other new FAQ is the following:

Submitting Request for Similar or Like Items: I have several items that are very similar. May I submit one CJ covering those items, or a catalog of like items?

The CJ form addresses single items, not a group, family or catalog of items.

Although this is accurate as far as it goes, it does not address the problem of whether various models or configurations of an item are all “single items” or a “group, family or catalog” of items. In the past, DDTC has granted single CJ requests that cover multiple configurations of the same item. Certainly this is easier for the exporter and the agency than the submission of 100 CJ requests for each and every configuration of the same item. Presumably this will remain the case, particularly where the item has the same name but differing model numbers.

As has been anticipated since March 29, 2010, when the State Department’s Directorate of Defense Trade Controls (“DDTC”) issued a Notice of Proposed Rulemaking eliminating the advance notice and approval requirements of section 126.8 of the International Traffic in Arms Regulations (“ITAR”), the agency has now officially eliminated those requirements and deleted the section from the ITAR. During the rulemaking, DDTC received submissions from three — count ‘em, three — commenters, probably because the defense industry as a whole prefers to fly well below DDTC’s radar and avoid doing anything that might possibly annoy the regulators.

The rationale for the change was simple and justified. It was too much trouble for the agency to have to review certain export transactions twice, particularly where the average time to process a license had dropped from sixty or more days to fifteen days. If an exporter is concerned that a license might not be granted, the exporter retains an option to request an advisory opinion under section 126.9 of the ITAR. Prior written approval is still required under section 126.1(e) for any sales proposals to a country subject to an arms embargo under section 126.1.

In response to a comment that elimination of section 126.8 would eliminate a requirement to keep records of sale proposals, DDTC had an interesting comment:

We do not agree, since the § 126.8 requirement to report certain proposals is an obligation separate and independent from recordkeeping requirements. It will continue to be good practice to maintain records of such transactions for an appropriate duration in compliance with § 122.5, particularly to rebut any post hoc allegations that ITAR controlled technical data were transferred without a license or authorization.

I added the emphasis to the quotation to underscore DDTC’s interesting locution here. I’m not sure that all of the documents relating to a proposal — particularly one that is never consummated — fit comfortably within the records covered by § 122.5, namely records concerning the “manufacture, acquisition and disposition” of defense articles. That is no doubt why DDTC talks about this being a “good practice” rather than a requirement of the regulations. Of course, DDTC is right that maintenance of these records, regardless of whether required or not, can help rebut any subsequent allegations that the exporter improperly transferred controlled technical data without a DDTC license.

Last Friday, the State Department’s Directorate of Defense Trade Controls (“DDTC”) issued a Notice of a Proposed Rule that would eliminate the requirement for DDTC approval before a foreign licensee could transfer technical data about a licensed defense article to an employee not of the same nationality as the licensee. The notice indicated the following as the reason for the change:

The current requirement for the provision of additional information within a license to cover dual national and third-country national foreign employees has created a tremendous administrative burden on approved end-users and has evolved into a human rights issue, which has become a focus of contention between the U.S. and allies and friends without a commensurate gain in national security.

The proposed rule would add a new section 126.18 to the International Traffic in Arms Regulations that would create a new exemption for intracompany transfers of technical data to employees with dual nationality or third-country nationality other than the nationality of the licensee. The transfer must take place completely within the country in which the licensee is located. Also, in order to prevent diversion of technical data transferred to third-country and dual nationals, the licensee must either require a local security clearance for such employees or must have in place a requirement that the employee sign a Non Disclosure Agreement and be subject to proper due diligence to assure that there is no risk of diversion.

The human rights concern addressed obliquely by DDTC in its justification for the rule (and more directly by me in title of this post) relates to employees who are third-country or dual nationals of a country embargoed under section 126.1 of the ITAR. Even if an employee of the licensee was a naturalized citizen of the licensee’s country, DDTC still considers that employee to be a national of the employee’s original country of citizenship. So if the employee was originally a Chinese citizen by virtue of his birth to Chinese parents, he would be considered a Chinese national even after he became a citizen of, say, the United Kingdom and would be prohibited from receiving controlled technical data because of the arms embargo imposed on China under section 126.1. Most countries, including the United States, make discrimination based solely on national origin illegal.

There had been some thought that DDTC would adopt a rule similar to that used by the Bureau of Industry and Security (“BIS”) to determine nationality for purposes of the deemed export rules, but that did not happen. BIS looks at the latest citizenship of the employee so the employee in the example above would be considered a British citizen and not a Chinese national. Although DDTC altered its rules for these intracompany transfers, the rules relating to transfers to individuals that aren’t employees, such as contractors and sublicensees, remain in place and would continue to require an inquiry to insure that the transferee wasn’t born in an embargoed country or born to parents from an embargoed country where such birth would make the employee a citizen of the embargoed country. (Approved transfers to corporate sublicensees, however, would presumably allow the use of this exemption by the sublicensee with respect to its individual employees.)

And although the rule is certainly a welcome change, it is not without its own problems. The Notice describes the due diligence obligations of licensees as follows:

The end-user or consignee must screen its employees for substantive contacts with restricted or prohibited countries listed in § 126.1. Substantive contacts include, but are not limited to, recent or regular travel to such countries, recent or continuing contact with agents and nationals of such countries, continued allegiance to such countries, or acts otherwise indicating a risk of diversion. Though nationality does not, in and of itself, prohibit access to defense articles or defense services, an employee that has substantive contacts with persons from countries listed in § 126.1(a) shall be presumed to raise a risk of diversion, unless DDTC determines otherwise.

In other words if the employee in my example went home to visit his parents in China, he could be deemed to be no longer eligible to receive controlled technical data. Actually it might be enough if the employee simply called his parents frequently in China. Without substantive guidance from DDTC on how far the employer must go in determining the extent to which the employee has renounced substantive contact with his parents in China, the licensees natural inclination would be to exclude this employee from receiving technical data in the first place. And then we are right back at the place we started.