Proposed ITAR Defense Services Expansion to Cause Licensing Struggles, Industry Says

Several trade groups, including the Aerospace Industries Association, said they appreciated the agency’s efforts to clarify the scope of its defense services definition, an effort that has been underway for years. But they also said portions of the July proposed rule from the Directorate of Defense Trade Controls (see 2407250032) are unclear or too sweeping, including how the new definition captures consulting services and services related to intelligence and military assistance.

AIA said the rule would likely cause its members to “experience increased administrative burdens,” including by requiring them to apply for more export licenses and use more technical assistance agreements, which could lead to delivery delays.

The Satellite Industry Association made similar points, saying the new rules are “vague” and “risk sweeping into their scope the purely commercial activities that the satellite industry has long provided internationally without the need for export licensing.”

“Such vague and broad rules, if adopted as written, will be costly and complex for U.S. satellite companies to navigate,” SIA said.

Many of the comments were similar to feedback that exporters and trade groups submitted to the Bureau of Industry and Security about a set of complementary rules, issued alongside the DDTC proposal, that could introduce new export controls over U.S. persons’ support for certain foreign military, intelligence and security services activities. Industry said those rules could disadvantage American exporters compared with their foreign competitors and place too much strain on both the government and industry compliance departments (see 2410220020).

Defense industry compliance officers would also feel strain from DDTC’s proposed changes, SIA said.

The group said companies are more likely to submit license applications or commodity jurisdiction requests -- requests for DDTC to determine whether a commodity or service is covered by the U.S. Munitions List -- when export controls are “vague or uncertain in application.” Companies will likely “submit a variety of such requests to determine the scope of the broad new rules and how DDTC and BIS intend them to apply to provision of satellite-related products and services,” it said.

SIA is expecting this “anticipated surge” in requests from industry to “overwhelm” licensing officers from both agencies and slow processing times. “BIS and DDTC already face resource constraints and industry already faces lengthy license application reviews that do not conform to the pace of modern global commerce; the broad and vague proposed rules would exacerbate these existing issues,” it said.

Hawkeye 360, a geospatial analytics company, said a license application review for its products or services “all too often extends to a year or more,” and commodity jurisdiction requests sometimes take “multiple years.”

“It is doubtful that DDTC could handle a surge in filings without additional resources; which is unlikely to happen in the current appropriation environment,” the company said.

Those licensing issues could be made worse if DDTC doesn’t clarify how some of its proposed controls would interact with licensing requirements under the Export Administration Regulations overseen by BIS, AIA said.

For instance, the DDTC rule notes that certain “repair or maintenance” services are covered under the ITAR, including when repairing an EAR commodity or software “incorporated into a defense article,” the aerospace industry trade group said. But the term “incorporated” is creating “confusion among compliance experts as commercial commodities can interact with defense articles through a variety of ways,” AIA said. “For example, it is unclear if a manufacturer providing support to an EAR-controlled AM/FM radio installed in an ITAR-controlled vehicle is subject to the same controls.”

AIA also noted that the proposed revision to defense services would include activities “regardless of whether a defense article is involved.” This makes it potentially unclear whether a company providing a covered defense service that involves an EAR item would need to apply for licenses from both DDTC and BIS.

The rule “appears to require double licensing for certain commodities subject to the EAR,” AIA said. “U.S. firms would subsequently need to identify if export authorizations are required from both the Departments of State and Commerce for the activity, which could create confusion on the varying degrees of controls.”

This could also “inadvertently negate” previously issued commodity jurisdiction determinations issued by DDTC that have said EAR-controlled products aren’t subject to the ITAR, AIA said.

AIA addressed a host of other areas of the proposed rule that it said DDTC should clarify, including how the new definition of defense services applies to consulting. The group said the changes could “capture a wide array of activities that are not ITAR-controlled and do not relate to military training” along with companies that traditionally haven’t been required to register with DDTC under ITAR registration requirements.

Any company “providing high-level advice or information technology (IT) support related to workforce or enterprise risk management could require export authorization,” AIA said. “The provisions of informal policy positions could result in an increased volume of export license applications that may not align with DDTC’s expanded definition of defense services.”

The National Defense Industrial Association also said the proposed expansion to cover consulting services could “inadvertently create a broad licensing requirement for ordinary business activities” that normally don’t need a license. The definition could capture U.S. companies that give “standard marketing briefings” about how U.S. defense products and services could help a foreign country’s military, it said, even if those briefings don’t include controlled technical data. NDIA said those briefings could be interpreted as providing “assistance, including training or consulting, to a foreign government,” which would be captured under the proposed rule.

It asked DDTC to clarify that its expanded definition doesn’t cover these “standard business engagements” with foreign allies.

U.S. aerospace firm RTX said it’s “generally supportive” of the proposed changes but agreed with other commenters that DDTC should clarify which specific activities are captured by the defense services definition. It specifically said the rule doesn’t provide enough information to help companies decide whether “services performed on commercial items” are considered defense services.

The company asked DDTC to “clearly explain” when providing a commercially available service to a customer operating “ITAR-controlled platforms” constitutes a defense service. It should also consider publishing a list of “activities not deemed to be defense services,” RTX said.

SIA, which represents satellite companies and space launch service providers, said DDTC needs a clearer definition for the “intelligence activities” that would qualify as a controlled defense service. It said intelligence can sometimes mean “general or commercial news and information” -- not just secret military or national security information.

“DDTC should make clear that it does not seek to regulate general commercial news and information and related activities under the ITAR and should narrowly define intelligence activities to those activities within the unique purview of foreign government military and intelligence agencies,” the association said.

The Association of University Export Control Officers also said DDTC should issue a definition for “intelligence activities” that clarifies those activities don’t apply to published information used by university researchers. DDTC should “distinguish between clandestine operations and work product vs. open-source collection and analyses for civilian, governmental, economic, political, or other research in similar disciplines,” the association said. Even though the proposed rule says publicly available information that could be used in intelligence activities isn’t considered a defense article, the proposed wording in USML Category IX(s) “expressly governs activities that need not involve defense articles,” it said.

“Given the complexities and diversity of ‘intelligence activities,’ the relative low risk posed by published or freely publishable information, and implications for rights of free expression protected by the First Amendment," AUECO said, "a definition of ‘intelligence activities’ that explicitly excludes services using only open-source information would be welcome.”