International Traffic in Arms Regulations: Defense Services, 20590-20593 [2011-8998]
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20590
Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
IV. Comments
Regardless of attendance at the public
meeting, interested persons may submit
to the Division of Dockets Management
(see table 1 of this document) either
electronic or written comments for
consideration at or after the meeting in
addition to, or in place of, a request for
an opportunity to make an oral
presentation. It is only necessary to send
one set of comments. It is no longer
necessary to send two copies of mailed
comments. Received comments may be
seen in the Division of Dockets
Management between 9 a.m. and 4 p.m.,
Monday through Friday.
V. Transcripts
Please be advised that as soon as a
transcript is available, it will be
accessible at https://www.regulations.gov
and https://www.fda.gov/Food/
FoodSafety/FSMA/default.htm. It may
be viewed at the Division of Dockets
Management (HFA–305), Food and Drug
Administration, 5630 Fishers Lane, rm.
1061, Rockville, MD 20852. A transcript
will also be available in either hardcopy
or on CD–ROM, after submission of a
Freedom of Information request. Written
requests are to be sent to Division of
Freedom of Information (HFI–35), Office
of Management Programs, Food and
Drug Administration, 5600 Fishers
Lane, rm. 6–30, Rockville, MD 20857.
Dated: April 7, 2011.
David Dorsey,
Acting Deputy Commissioner for Policy,
Planning and Budget.
[FR Doc. 2011–8785 Filed 4–12–11; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF STATE
22 CFR Parts 120 and 124
[Public Notice: 7415]
RIN 1400–AC80
International Traffic in Arms
Regulations: Defense Services
Department of State.
Proposed rule.
AGENCY:
ACTION:
The Department of State
proposes to amend the International
Traffic in Arms Regulations (ITAR) to
update the policy regarding defense
services, to clarify the scope of activities
that are considered a defense service,
and to provide definitions of
‘‘Organizational-Level Maintenance,’’
‘‘Intermediate-Level Maintenance,’’ and
‘‘Depot-Level Maintenance,’’ and to
make other conforming changes.
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SUMMARY:
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The Department of State will
accept comments on this proposed rule
until June 13, 2011.
ADDRESSES: Interested parties may
submit comments within 60 days of the
date of the publication by any of the
following methods:
• E-mail:
DDTCResponseTeam@state.gov with the
subject line, ‘‘Regulatory Changes—
Defense Services.’’
• Mail: PM/DDTC, SA–1, 12th Floor,
Directorate of Defense Trade Controls,
Office of Defense Trade Controls Policy,
ATTN: Regulatory Changes—Defense
Services, Bureau of Political Military
Affairs, U.S. Department of State,
Washington, DC 20522–0112.
• Internet: View this notice by
searching for its RIN on the U.S.
Government regulations Web site at
https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Director Charles B. Shotwell, Office of
Defense Trade Controls Policy,
Department of State, Telephone (202)
663–1282 or Fax (202) 261–8199; E-mail
DDTCResponseTeam@state.gov. ATTN:
Regulatory Changes—Defense Services.
SUPPLEMENTARY INFORMATION: As part of
the President’s Export Control Reform
effort, the Department of State is
proposing to amend parts 120 and 124
of the ITAR to reflect new policy
regarding coverage of defense services.
The Department reviewed the ITAR’s
treatment of defense services with a
view to enhancing support to allies and
friends, improving efficiency in
licensing, and reducing unintended
consequences. As a result, it was
determined that the current definition of
defense services in § 120.9 is overly
broad, capturing certain forms of
assistance or services that do not
warrant ITAR control. The proposed
change in subpart (a) of the definition of
‘‘defense services’’ narrows the focus of
services to furnishing of assistance
(including training) using ‘‘other than
public domain data’’, integrating items
into defense articles, or training of
foreign forces in the employment of
defense articles. Consequently, services
based solely upon the use of public
domain data would not constitute
defense services under this part of the
definition and, therefore, would not
require a license, technical assistance
agreement, or manufacturing license
agreement to provide to a foreign
person. The proposed new definition of
defense service also includes a new
provision that would control the
‘‘integration’’ of items, whether
controlled by the U.S. Munitions List
(USML) or the Commerce Control List
(CCL), into USML controlled defense
DATES:
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articles even if ITAR-controlled
‘‘technical data’’ is not provided to a
foreign person during the provision of
such services. Additionally, the new
rule specifies that training for foreign
‘‘units or forces’’ will be considered a
defense service only if the training
involves the employment of a defense
article, regardless of whether technical
data is involved. This operational
definition improves upon the current
open-ended wording of § 120.9(a)(3),
which covers ‘‘military training of
foreign units and forces.’’ Also,
significantly, the proposed new rule
specifies in subpart (b) examples of
activities that do not constitute defense
services. For example, the proposed
new rule would prevent the anomalous
situation where foreign companies are
reluctant to hire U.S. citizens for fear
that such employment alone constitutes
a defense service, even where no
technical data would be transferred to
the employer.
A new § 120.38 is proposed to provide
definitions for ‘‘Organizational-Level
Maintenance’’ (or basic level
maintenance), ‘‘Intermediate-Level
Maintenance,’’ and ‘‘Depot-Level
Maintenance,’’ terms used in the
proposed revision of § 120.9.
The Department proposes to make
several other conforming changes to the
ITAR. The proposed rule modifies
§ 124.1(a), which describes the approval
requirements of manufacturing license
agreements and technical assistance
agreements. The proposed change
removes the requirement in § 124.1(a) to
seek the Directorate of Defense Trade
Controls’ approval if the defense service
that is being rendered uses public
domain data or data otherwise exempt
from ITAR licensing requirements. This
change would be made to conform with
the revisions made to § 120.9. The
Department proposes to delete
§ 124.2(a), as this requirement is no
longer applicable as a result of proposed
changes to § 120.9. Conforming changes
are to be made to § 124.2(c) to reflect the
proposed deletion of § 124.2(a).
This proposed rule was presented to
the Defense Trade Advisory Group
(DTAG), a Department of State advisory
committee, for purposes of comment
and evaluation. The DTAG commented
favorably on most aspects of this
proposed rule, but also recommended
certain changes. Having thoroughly
reviewed and evaluated the comments
and the recommended changes, the
Department has determined that it will
proceed with the proposed rule per the
Department’s evaluation of the written
comments and recommendations as
follows:
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
The DTAG recommended the qualifier
‘‘U.S. origin’’ be added before ‘‘technical
data’’ in the proposed § 120.9. We note
the current definition of technical data
in § 120.10 is not restricted to U.S.
origin data. We do not believe that a
departure from the existing definition of
technical data for the purposes of
defense services is prudent. However,
the confusion caused by the term
‘‘technical data’’ lead to the rewrite of
the definition to require the use of data
‘‘other than public domain data’’ as the
regulatory standard. This rewrite
provides clarity and an objective
standard that can be easily applied.
Using data that is ‘‘other than public
domain data,’’ including proprietary
data or ‘‘technology’’ ‘‘subject to the
Export Administration Regulations,’’ to
provide assistance would constitute a
defense service under this change. The
DTAG also recommended adding
definitions of ‘‘intermediate or depot
level repair or maintenance.’’ We agreed
with the recommendation and added
such definitions in a new § 120.38. The
DTAG agreed with the addition of
‘‘integration’’ but recommended that a
definition of that term be added,
especially to distinguish it from
‘‘installation.’’ We declined to accept
that recommendation, finding that
integration has plain meaning in the
context of the proposed rule. As used in
the proposed definition of defense
services, ‘‘installation’’ means the act of
putting something in its pre-determined
place and does not require changes or
modifications to the item in which it is
being installed (e.g., installing a
dashboard radio into a military vehicle
where no changes or modifications to
the vehicle are required; connecting
wires and fastening the radio inside of
the preexisting opening is the only
assistance that is necessary).
‘‘Integration’’ means the systems
engineering design process of uniting
two or more things in order to form,
coordinate, or blend into a functioning
or unified whole, including
introduction of software to enable
proper operation of the device. This
includes determining where to install
something (e.g., integration of a civil
engine into a destroyer which requires
changes or modifications to the
destroyer in order for the civil engine to
operate properly; not simply plug and
play). The DTAG suggested that
language in § 120.9(a)(3) be changed
from ‘‘whether or not use of technical
data is involved’’ to ‘‘whether or not the
transfer of technical data is involved.’’
We adopted that recommendation.
The DTAG suggested we add
definitions of ‘‘irregular forces’’ and
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‘‘tactical employment.’’ We did not agree
with the need to define the first term,
believing that the meaning should be
clear in the context of the proposed rule.
Subsequent to the DTAG’s evaluation of
this proposed rule, the word ‘‘tactical’’
was removed from before the word
‘‘employment’’ in § 120.9(a)(3). In
§ 120.9(a)(3), the DTAG recommended
we change ‘‘conducting direct combat
operations or providing intelligence
services for a foreign person’’ to
‘‘conducting direct combat operations of
a military function for or providing
military intelligence services to a
foreign person.’’ We do not believe that
adding the words ‘‘military function’’ or
‘‘military’’ are necessary or add clarity.
The clarification in subsection § 120.9
(b)(5) suffices.
The DTAG advised that ‘‘U.S. citizen’’
in § 120.9 (b)(2) be changed to ‘‘U.S.
person.’’ We did not concur with that
recommendation because the proposed
rule was intended to cover individuals,
not business entities such as
corporations. The use of ‘‘U.S. persons’’
would have included the latter. The
DTAG recommended we add the words
‘‘or installed’’ after the word ‘‘integrated’’
in § 120.9 (b)(3). We accepted the
inclusion of those words, but
subsequently changed the word
‘‘integrated’’ to ‘‘incorporated.’’ The
DTAG also suggested adding ‘‘physical
security or personal protective training’’
to § 120.9 (b)(4). We accepted that
change.
Regulatory Analysis and Notices
Administrative Procedure Act
The Department of State is of the
opinion that controlling the import and
export of defense services is a foreign
affairs function of the United States
Government and that rules
implementing this function are exempt
from § 553 (Rulemaking) and § 554
(Adjudications) of the Administrative
Procedure Act. Although the
Department is of the opinion that this
proposed rule is exempt from the
rulemaking provisions of the APA, the
Department is publishing this proposed
rule with a 60-day provision for public
comment and without prejudice to its
determination that controlling the
import and export of defense services is
a foreign affairs function.
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Unfunded Mandates Reform Act of 1995
This proposed amendment does not
involve a mandate that will result in the
expenditure by State, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any year and it will not significantly
or uniquely affect small governments.
Therefore, no actions were deemed
necessary under the provisions of the
Unfunded Mandates Reform Act of
1995.
Small Business Regulatory Enforcement
Fairness Act of 1996
This proposed amendment has been
found not to be a major rule within the
meaning of the Small Business
Regulatory Enforcement Fairness Act of
1996.
Executive Orders 12372 and 13132
This proposed amendment will not
have substantial direct effects on the
States, on the relationship between the
national government and the States, or
on the distribution of power and
responsibilities among the various
levels of government. Therefore, in
accordance with Executive Order 13132,
it is determined that this proposed
amendment does not have sufficient
federalism implications to require
consultations or warrant the preparation
of a federalism summary impact
statement. The regulations
implementing Executive Order 12372
regarding intergovernmental
consultation on Federal programs and
activities do not apply to this proposed
amendment.
Executive Order 12866
The Department of State does not
consider this proposed rule to be a
‘‘significant regulatory action’’ under
Executive Order 12866, section 3(f),
Regulatory Planning and Review. The
Department is of the opinion that
controlling the import and export of
defense articles and services is a foreign
affairs function of the United States
Government and that rules governing
the conduct of this function are exempt
from the requirements of Executive
Order 12866.
Regulatory Flexibility Act
Executive Order 13563
The Department of State has
considered this rule in light of Section
1(b) of Executive Order 13563, dated
January 18, 2011, and affirms that this
regulation is consistent with the
guidance therein.
Since this proposed amendment is not
subject to 5 U.S.C. 553, it does not
require analysis under the Regulatory
Flexibility Act.
Executive Order 12988
The Department of State has reviewed
this proposed amendment in light of
sections 3(a) and 3(b)(2) of Executive
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
Order 12988 to eliminate ambiguity,
minimize litigation, establish clear legal
standards, and reduce burden.
Executive Order 13175
The Department of State has
determined that this proposed
amendment will not have tribal
implications, will not impose
substantial direct compliance costs on
Indian tribal governments, and will not
pre-empt tribal law. Accordingly, the
requirement of Section 5 of Executive
Order 13175 does not apply to this
proposed amendment.
Paperwork Reduction Act
This proposed amendment does not
impose any new reporting or
recordkeeping requirements subject to
the Paperwork Reduction Act, 44 U.S.C.
Chapter 35.
List of Subjects in 22 CFR Parts 120 and
124
Arms and munitions, Exports.
Accordingly, for the reasons set forth
above, title 22, chapter I, subchapter M,
parts 120 and 124 are amended as
follows:
PART 120—PURPOSE AND
DEFINITIONS
1. The authority citation for part 120
continues to read as follows:
Authority: Secs. 2, 38, and 71, Pub. L. 90–
629, 90 Stat. 744 (22 U.S.C. 2752, 2778,
2797); 22 U.S.C. 2794; E.O. 11958, 42 FR
4311; E.O. 13284, 68 FR 4075; 3 CFR, 1977
Comp. p. 79; 22 U.S.C. 2651a; Pub. L. 105–
261, 112 Stat. 1920.
2. Section 120.9 is amended by
revising paragraphs (a)(1), (a)(2), and
(a)(3), and adding new paragraphs (a)(4)
and (b) to read as follows:
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§ 120.9
Defense service.
(a) * * *
(1) The furnishing of assistance
(including training) using other than
public domain data to foreign persons
(see § 120.16 of this subchapter),
whether in the United States or abroad,
in the design, development,
engineering, manufacture, production,
assembly, testing, intermediate or depot
level repair or maintenance (see
§ 120.38 of this subchapter),
modification, demilitarization,
destruction, or processing of defense
articles (see § 120.6 of this subchapter);
or
(2) The furnishing of assistance to
foreign persons, whether in the United
States or abroad, for the integration of
any item controlled on the U.S.
Munitions List (USML) (see § 121.1 of
this subchapter) or the Commerce
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Control List (see 15 CFR part 774) into
an end item (see § 121.8(a) of this
subchapter) or component (see
§ 121.8(b) of this subchapter) that is
controlled as a defense article on the
USML, regardless of the origin; or
(3) Training or providing advice to
foreign units and forces, regular and
irregular, regardless of whether
technical data is transferred to a foreign
person, including formal or informal
instruction of foreign persons in the
United States or abroad by any means
including classroom or correspondence
instruction, conduct or evaluation of
training and training exercises, in the
employment of defense articles; or
(4) Conducting direct combat
operations for or providing intelligence
services to a foreign person directly
related to a defense article.
(b) The following is not a defense
service:
(1) Training in the basic operation
(functional level) or basic maintenance
(see § 120.38) of a defense article; or
(2) Mere employment of a U.S. citizen
by a foreign person; or
(3) Testing, repair, or maintenance of
an item ‘‘subject to the Export
Administration Regulations’’ (see 15
CFR 734.2) administered by the
Department of Commerce, Bureau of
Industry and Security, that has been
incorporated or installed into a defense
article; or
(4) Providing law enforcement,
physical security or personal protective
training, advice, or services to or for a
foreign person (see § 120.16 of this
subchapter), using only public domain
data; or
(5) Providing assistance (including
training) in medical, logistical (other
than maintenance), or other
administrative support services to or for
a foreign person.
3. Sections 120.33 through 120.37 are
added and reserved, and a new § 120.38
is to be added to read as follows:
§ 120.33–120.37
§ 120.38
[Reserved]
Maintenance levels.
(a) Organizational-level maintenance
(or basic level maintenance) is the first
level of maintenance performed by an
end-user unit or organization ‘‘onequipment’’ (directly on the defense
article or support equipment) assigned
to the inventory of the end-user unit or
organization. Its phases consist of
repair, inspecting, servicing, or
calibration, testing, lubricating and
adjusting equipment, as well as
replacing minor parts, components,
assemblies and line-replaceable spares
or units.
(b) Intermediate-level maintenance is
second-level maintenance performed
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‘‘off-equipment’’ (on removed
components, parts, or equipment) by
designated maintenance shops or
centers, tenders, and mobile teams in
direct support of end-users units or
organizations. Its phases consist of:
Calibration, repair, or testing and
replacement of damaged or
unserviceable parts, components, or
assemblies.
(c) Depot-level maintenance is thirdlevel maintenance performed on-or offequipment at or by a major repair
facility, shipyard, or field team with
extensive equipment, and personnel of
higher technical skill in direct support
of end-user units or organizations. It
consists of providing evaluation or
repair beyond unit or organizations
capability. Its phases include:
Inspection, testing, calibration or repair,
including overhaul, reconditioning and
one-to-one replacement of any defective
items, parts or components; and
excluding any modification,
enhancement upgrade or other form of
alteration or improvement that enhances
the performance or capability of the
defense article.
PART 124—AGREEMENTS, OFFSHORE PROCUREMENT AND OTHER
DEFENSE SERVICES
4. The authority citation for part 124
continues to read as follows:
Authority: Sec. 2, 38, and 71, Pub. L. 90–
629, 90 Stat. 744 (22 U.S.C. 2752, 2778,
2797); E.O. 11958, 42 FR 4311; 3 CFR 1977
Comp. p. 79; 22 U.S.C. 2651a; 22 U.S.C. 2776;
Pub. L. 105–261.
5. Section 124.1(a) is revised to read
as follows:
§ 124.1 Manufacturing license agreements
and technical assistance agreements.
(a) Approval. The approval of the
Directorate of Defense Trade Controls
must be obtained before the defense
services described in § 120.9(a) of this
subchapter may be furnished. In order
to obtain such approval, the U.S. person
must submit a proposed agreement to
the Directorate of Defense Trade
Controls. Such agreements are generally
characterized as manufacturing license
agreements, technical assistance
agreements, distribution agreements, or
off-shore procurement agreements, and
may not enter into force without the
prior written approval of the Directorate
of Defense Trade Controls. Once
approved, the defense services
described in the agreements may
generally be provided without further
licensing in accordance with §§ 124.3
and 125.4(b)(2) of this subchapter. This
requirement also applies to the training
of any foreign military forces, regular
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
and irregular, in the employment of
defense articles. Technical assistance
agreements must be submitted in such
cases. In exceptional cases, the
Directorate of Defense Trade Controls,
upon written request, will consider
approving the provision of defense
services described in § 120.9(a) of this
subchapter by granting a license under
part 125 of this subchapter.
*
*
*
*
*
6. In § 124.2, paragraph (a) is removed
and reserved and paragraph (c)
introductory text is revised to read as
follows:
§ 124.2 Exemptions for training and
military service.
(a) [Reserved]
*
*
*
*
(c) For NATO countries, Australia,
Japan and Sweden, in addition to the
basic maintenance information
exemption in § 125.4(b)(5) of this
subchapter, no technical assistance
agreement is required for maintenance
training or the performance of
maintenance, including the export of
supporting technical data, when the
following criteria can be met:
*
*
*
*
*
*
Dated: April 5, 2011.
Ellen O. Tauscher,
Under Secretary, Arms Control and
International Security, Department of State.
[FR Doc. 2011–8998 Filed 4–12–11; 8:45 am]
BILLING CODE 4710–25–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–154159–09]
RIN 1545–BJ14
Guidance Under Section 108(a)
Concerning the Exclusion of Section
61(a)(12) Discharge of Indebtedness
Income of a Grantor Trust or a
Disregarded Entity
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations relating to the
exclusion from gross income under
section 108(a) of discharge of
indebtedness income of a grantor trust
or an entity that is disregarded as an
entity separate from its owner. The
proposed regulations provide rules
regarding the term ‘‘taxpayer’’ for
purposes of applying section 108 to
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discharge of indebtedness income of a
grantor trust or a disregarded entity. The
proposed regulations affect grantor
trusts, disregarded entities, and their
owners.
DATES: Written or electronic comments
and requests for a public hearing must
be received by July 12, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–154159–09), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–154159–
09), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC; or sent
electronically, via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–154159–
09).
FOR FURTHER INFORMATION CONTACT:
Bryan A. Rimmke or Benjamin H.
Weaver, (202) 622–3050 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
statute; examples of statutory
disregarded entities include a
corporation that is a qualified REIT
subsidiary (within the meaning of
section 856(i)(2)), and a corporation that
is a qualified subchapter S subsidiary
(within the meaning of section
1361(b)(3)(B)).
The activities of an entity that is a
disregarded entity are treated in the
same manner as a sole proprietorship,
branch, or division of the owner (except
for certain employment and excise tax
rules). Accordingly, for Federal income
tax purposes, all assets, liabilities, and
items of income, deduction, and credit
of a disregarded entity are treated as
assets, liabilities, and such items (as the
case may be) of the owner of the
disregarded entity.
A grantor trust is any portion of a
trust that is treated (under subpart E of
part I of subchapter J of chapter 1) as
being owned by the grantor or another
person. In the case of any grantor trust,
items of income, deductions, and credits
attributable to the trust are includable in
computing the taxable income and
credits of the owner.
Background
Section 61(a)(12) of the Internal
Revenue Code (the Code) provides that
income from the discharge of
indebtedness is includable in gross
income. However, such income may be
excludable from gross income under
section 108 in certain circumstances.
Section 108(a)(1)(A) and (B) excludes
from gross income any amount that
would be includible in gross income by
reason of the discharge of indebtedness
of the taxpayer if the discharge occurs
in a Title 11 case or to the extent the
taxpayer is insolvent when the
discharge occurs. Section 108(d)(1)
through (3) provides the meaning of the
terms ‘‘indebtedness of the taxpayer,’’
‘‘Title 11 case,’’ and ‘‘insolvent,’’ for
purposes of applying section 108, and
each definition uses the term ‘‘taxpayer.’’
Section 7701(a)(14) defines a taxpayer
as any person subject to any internal
revenue tax.
Several types of disregarded entities
exist under the Code and regulations.
For instance, § 301.7701–2(a) of the
Procedure and Administration
Regulations provides that the term
business entity includes an entity with
a single owner that may be disregarded
as an entity separate from its owner
under § 301.7701–3; an example of a
disregarded entity under this provision
is a domestic single member limited
liability company that does not elect to
be classified as a corporation for Federal
income tax purposes. Additionally,
some disregarded entities are created by
Explanation of Provisions
The proposed regulations provide
that, for purposes of applying section
108(a)(1)(A) and (B) to discharge of
indebtedness income of a grantor trust
or a disregarded entity, the term
taxpayer, as used in section 108(a)(1)
and (d)(1) through (3), refers to the
owner(s) of the grantor trust or
disregarded entity. The proposed
regulations further provide that grantor
trusts and disregarded entities
themselves will not be considered
owners for this purpose. Finally, the
proposed regulations provide that, in
the case of a partnership, the owner
rules apply at the partner level to the
partners of the partnership to whom the
discharge of indebtedness income is
allocable. Thus, for example, if a
partnership holds an interest in a
grantor trust or disregarded entity, the
applicability of section 108(a)(1)(A) and
(B) to discharge of indebtedness income
of the grantor trust or disregarded entity
is tested by looking to the partners to
whom the income is allocable. If any
partner is itself a grantor trust or
disregarded entity, the applicability of
section 108(a)(1)(A) and (B) is
determined by looking through such
grantor trust or disregarded entity to the
ultimate owner(s) of such partner.
Some taxpayers have taken the
position that the insolvency exception is
available to the extent a grantor trust or
disregarded entity is insolvent, even if
its owner is not. The IRS and the
Treasury Department do not believe this
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]]>Agencies
[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Proposed Rules]
[Pages 20590-20593]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8998]
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DEPARTMENT OF STATE
22 CFR Parts 120 and 124
[Public Notice: 7415]
RIN 1400-AC80
International Traffic in Arms Regulations: Defense Services
AGENCY: Department of State.
ACTION: Proposed rule.
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SUMMARY: The Department of State proposes to amend the International
Traffic in Arms Regulations (ITAR) to update the policy regarding
defense services, to clarify the scope of activities that are
considered a defense service, and to provide definitions of
``Organizational-Level Maintenance,'' ``Intermediate-Level
Maintenance,'' and ``Depot-Level Maintenance,'' and to make other
conforming changes.
DATES: The Department of State will accept comments on this proposed
rule until June 13, 2011.
ADDRESSES: Interested parties may submit comments within 60 days of the
date of the publication by any of the following methods:
E-mail: DDTCResponseTeam@state.gov with the subject line,
``Regulatory Changes--Defense Services.''
Mail: PM/DDTC, SA-1, 12th Floor, Directorate of Defense
Trade Controls, Office of Defense Trade Controls Policy, ATTN:
Regulatory Changes--Defense Services, Bureau of Political Military
Affairs, U.S. Department of State, Washington, DC 20522-0112.
Internet: View this notice by searching for its RIN on the
U.S. Government regulations Web site at https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Director Charles B. Shotwell, Office
of Defense Trade Controls Policy, Department of State, Telephone (202)
663-1282 or Fax (202) 261-8199; E-mail DDTCResponseTeam@state.gov.
ATTN: Regulatory Changes--Defense Services.
SUPPLEMENTARY INFORMATION: As part of the President's Export Control
Reform effort, the Department of State is proposing to amend parts 120
and 124 of the ITAR to reflect new policy regarding coverage of defense
services.
The Department reviewed the ITAR's treatment of defense services
with a view to enhancing support to allies and friends, improving
efficiency in licensing, and reducing unintended consequences. As a
result, it was determined that the current definition of defense
services in Sec. 120.9 is overly broad, capturing certain forms of
assistance or services that do not warrant ITAR control. The proposed
change in subpart (a) of the definition of ``defense services'' narrows
the focus of services to furnishing of assistance (including training)
using ``other than public domain data'', integrating items into defense
articles, or training of foreign forces in the employment of defense
articles. Consequently, services based solely upon the use of public
domain data would not constitute defense services under this part of
the definition and, therefore, would not require a license, technical
assistance agreement, or manufacturing license agreement to provide to
a foreign person. The proposed new definition of defense service also
includes a new provision that would control the ``integration'' of
items, whether controlled by the U.S. Munitions List (USML) or the
Commerce Control List (CCL), into USML controlled defense articles even
if ITAR-controlled ``technical data'' is not provided to a foreign
person during the provision of such services. Additionally, the new
rule specifies that training for foreign ``units or forces'' will be
considered a defense service only if the training involves the
employment of a defense article, regardless of whether technical data
is involved. This operational definition improves upon the current
open-ended wording of Sec. 120.9(a)(3), which covers ``military
training of foreign units and forces.'' Also, significantly, the
proposed new rule specifies in subpart (b) examples of activities that
do not constitute defense services. For example, the proposed new rule
would prevent the anomalous situation where foreign companies are
reluctant to hire U.S. citizens for fear that such employment alone
constitutes a defense service, even where no technical data would be
transferred to the employer.
A new Sec. 120.38 is proposed to provide definitions for
``Organizational-Level Maintenance'' (or basic level maintenance),
``Intermediate-Level Maintenance,'' and ``Depot-Level Maintenance,''
terms used in the proposed revision of Sec. 120.9.
The Department proposes to make several other conforming changes to
the ITAR. The proposed rule modifies Sec. 124.1(a), which describes
the approval requirements of manufacturing license agreements and
technical assistance agreements. The proposed change removes the
requirement in Sec. 124.1(a) to seek the Directorate of Defense Trade
Controls' approval if the defense service that is being rendered uses
public domain data or data otherwise exempt from ITAR licensing
requirements. This change would be made to conform with the revisions
made to Sec. 120.9. The Department proposes to delete Sec. 124.2(a),
as this requirement is no longer applicable as a result of proposed
changes to Sec. 120.9. Conforming changes are to be made to Sec.
124.2(c) to reflect the proposed deletion of Sec. 124.2(a).
This proposed rule was presented to the Defense Trade Advisory
Group (DTAG), a Department of State advisory committee, for purposes of
comment and evaluation. The DTAG commented favorably on most aspects of
this proposed rule, but also recommended certain changes. Having
thoroughly reviewed and evaluated the comments and the recommended
changes, the Department has determined that it will proceed with the
proposed rule per the Department's evaluation of the written comments
and recommendations as follows:
[[Page 20591]]
The DTAG recommended the qualifier ``U.S. origin'' be added before
``technical data'' in the proposed Sec. 120.9. We note the current
definition of technical data in Sec. 120.10 is not restricted to U.S.
origin data. We do not believe that a departure from the existing
definition of technical data for the purposes of defense services is
prudent. However, the confusion caused by the term ``technical data''
lead to the rewrite of the definition to require the use of data
``other than public domain data'' as the regulatory standard. This
rewrite provides clarity and an objective standard that can be easily
applied. Using data that is ``other than public domain data,''
including proprietary data or ``technology'' ``subject to the Export
Administration Regulations,'' to provide assistance would constitute a
defense service under this change. The DTAG also recommended adding
definitions of ``intermediate or depot level repair or maintenance.''
We agreed with the recommendation and added such definitions in a new
Sec. 120.38. The DTAG agreed with the addition of ``integration'' but
recommended that a definition of that term be added, especially to
distinguish it from ``installation.'' We declined to accept that
recommendation, finding that integration has plain meaning in the
context of the proposed rule. As used in the proposed definition of
defense services, ``installation'' means the act of putting something
in its pre-determined place and does not require changes or
modifications to the item in which it is being installed (e.g.,
installing a dashboard radio into a military vehicle where no changes
or modifications to the vehicle are required; connecting wires and
fastening the radio inside of the preexisting opening is the only
assistance that is necessary). ``Integration'' means the systems
engineering design process of uniting two or more things in order to
form, coordinate, or blend into a functioning or unified whole,
including introduction of software to enable proper operation of the
device. This includes determining where to install something (e.g.,
integration of a civil engine into a destroyer which requires changes
or modifications to the destroyer in order for the civil engine to
operate properly; not simply plug and play). The DTAG suggested that
language in Sec. 120.9(a)(3) be changed from ``whether or not use of
technical data is involved'' to ``whether or not the transfer of
technical data is involved.'' We adopted that recommendation.
The DTAG suggested we add definitions of ``irregular forces'' and
``tactical employment.'' We did not agree with the need to define the
first term, believing that the meaning should be clear in the context
of the proposed rule. Subsequent to the DTAG's evaluation of this
proposed rule, the word ``tactical'' was removed from before the word
``employment'' in Sec. 120.9(a)(3). In Sec. 120.9(a)(3), the DTAG
recommended we change ``conducting direct combat operations or
providing intelligence services for a foreign person'' to ``conducting
direct combat operations of a military function for or providing
military intelligence services to a foreign person.'' We do not believe
that adding the words ``military function'' or ``military'' are
necessary or add clarity. The clarification in subsection Sec. 120.9
(b)(5) suffices.
The DTAG advised that ``U.S. citizen'' in Sec. 120.9 (b)(2) be
changed to ``U.S. person.'' We did not concur with that recommendation
because the proposed rule was intended to cover individuals, not
business entities such as corporations. The use of ``U.S. persons''
would have included the latter. The DTAG recommended we add the words
``or installed'' after the word ``integrated'' in Sec. 120.9 (b)(3).
We accepted the inclusion of those words, but subsequently changed the
word ``integrated'' to ``incorporated.'' The DTAG also suggested adding
``physical security or personal protective training'' to Sec. 120.9
(b)(4). We accepted that change.
Regulatory Analysis and Notices
Administrative Procedure Act
The Department of State is of the opinion that controlling the
import and export of defense services is a foreign affairs function of
the United States Government and that rules implementing this function
are exempt from Sec. 553 (Rulemaking) and Sec. 554 (Adjudications) of
the Administrative Procedure Act. Although the Department is of the
opinion that this proposed rule is exempt from the rulemaking
provisions of the APA, the Department is publishing this proposed rule
with a 60-day provision for public comment and without prejudice to its
determination that controlling the import and export of defense
services is a foreign affairs function.
Regulatory Flexibility Act
Since this proposed amendment is not subject to 5 U.S.C. 553, it
does not require analysis under the Regulatory Flexibility Act.
Unfunded Mandates Reform Act of 1995
This proposed amendment does not involve a mandate that will result
in the expenditure by State, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any
year and it will not significantly or uniquely affect small
governments. Therefore, no actions were deemed necessary under the
provisions of the Unfunded Mandates Reform Act of 1995.
Small Business Regulatory Enforcement Fairness Act of 1996
This proposed amendment has been found not to be a major rule
within the meaning of the Small Business Regulatory Enforcement
Fairness Act of 1996.
Executive Orders 12372 and 13132
This proposed amendment will not have substantial direct effects on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 13132, it is determined that this proposed amendment does not
have sufficient federalism implications to require consultations or
warrant the preparation of a federalism summary impact statement. The
regulations implementing Executive Order 12372 regarding
intergovernmental consultation on Federal programs and activities do
not apply to this proposed amendment.
Executive Order 12866
The Department of State does not consider this proposed rule to be
a ``significant regulatory action'' under Executive Order 12866,
section 3(f), Regulatory Planning and Review. The Department is of the
opinion that controlling the import and export of defense articles and
services is a foreign affairs function of the United States Government
and that rules governing the conduct of this function are exempt from
the requirements of Executive Order 12866.
Executive Order 13563
The Department of State has considered this rule in light of
Section 1(b) of Executive Order 13563, dated January 18, 2011, and
affirms that this regulation is consistent with the guidance therein.
Executive Order 12988
The Department of State has reviewed this proposed amendment in
light of sections 3(a) and 3(b)(2) of Executive
[[Page 20592]]
Order 12988 to eliminate ambiguity, minimize litigation, establish
clear legal standards, and reduce burden.
Executive Order 13175
The Department of State has determined that this proposed amendment
will not have tribal implications, will not impose substantial direct
compliance costs on Indian tribal governments, and will not pre-empt
tribal law. Accordingly, the requirement of Section 5 of Executive
Order 13175 does not apply to this proposed amendment.
Paperwork Reduction Act
This proposed amendment does not impose any new reporting or
recordkeeping requirements subject to the Paperwork Reduction Act, 44
U.S.C. Chapter 35.
List of Subjects in 22 CFR Parts 120 and 124
Arms and munitions, Exports.
Accordingly, for the reasons set forth above, title 22, chapter I,
subchapter M, parts 120 and 124 are amended as follows:
PART 120--PURPOSE AND DEFINITIONS
1. The authority citation for part 120 continues to read as
follows:
Authority: Secs. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); 22 U.S.C. 2794; E.O. 11958, 42 FR 4311;
E.O. 13284, 68 FR 4075; 3 CFR, 1977 Comp. p. 79; 22 U.S.C. 2651a;
Pub. L. 105-261, 112 Stat. 1920.
2. Section 120.9 is amended by revising paragraphs (a)(1), (a)(2),
and (a)(3), and adding new paragraphs (a)(4) and (b) to read as
follows:
Sec. 120.9 Defense service.
(a) * * *
(1) The furnishing of assistance (including training) using other
than public domain data to foreign persons (see Sec. 120.16 of this
subchapter), whether in the United States or abroad, in the design,
development, engineering, manufacture, production, assembly, testing,
intermediate or depot level repair or maintenance (see Sec. 120.38 of
this subchapter), modification, demilitarization, destruction, or
processing of defense articles (see Sec. 120.6 of this subchapter); or
(2) The furnishing of assistance to foreign persons, whether in the
United States or abroad, for the integration of any item controlled on
the U.S. Munitions List (USML) (see Sec. 121.1 of this subchapter) or
the Commerce Control List (see 15 CFR part 774) into an end item (see
Sec. 121.8(a) of this subchapter) or component (see Sec. 121.8(b) of
this subchapter) that is controlled as a defense article on the USML,
regardless of the origin; or
(3) Training or providing advice to foreign units and forces,
regular and irregular, regardless of whether technical data is
transferred to a foreign person, including formal or informal
instruction of foreign persons in the United States or abroad by any
means including classroom or correspondence instruction, conduct or
evaluation of training and training exercises, in the employment of
defense articles; or
(4) Conducting direct combat operations for or providing
intelligence services to a foreign person directly related to a defense
article.
(b) The following is not a defense service:
(1) Training in the basic operation (functional level) or basic
maintenance (see Sec. 120.38) of a defense article; or
(2) Mere employment of a U.S. citizen by a foreign person; or
(3) Testing, repair, or maintenance of an item ``subject to the
Export Administration Regulations'' (see 15 CFR 734.2) administered by
the Department of Commerce, Bureau of Industry and Security, that has
been incorporated or installed into a defense article; or
(4) Providing law enforcement, physical security or personal
protective training, advice, or services to or for a foreign person
(see Sec. 120.16 of this subchapter), using only public domain data;
or
(5) Providing assistance (including training) in medical,
logistical (other than maintenance), or other administrative support
services to or for a foreign person.
3. Sections 120.33 through 120.37 are added and reserved, and a new
Sec. 120.38 is to be added to read as follows:
Sec. 120.33-120.37 [Reserved]
Sec. 120.38 Maintenance levels.
(a) Organizational-level maintenance (or basic level maintenance)
is the first level of maintenance performed by an end-user unit or
organization ``on-equipment'' (directly on the defense article or
support equipment) assigned to the inventory of the end-user unit or
organization. Its phases consist of repair, inspecting, servicing, or
calibration, testing, lubricating and adjusting equipment, as well as
replacing minor parts, components, assemblies and line-replaceable
spares or units.
(b) Intermediate-level maintenance is second-level maintenance
performed ``off-equipment'' (on removed components, parts, or
equipment) by designated maintenance shops or centers, tenders, and
mobile teams in direct support of end-users units or organizations. Its
phases consist of: Calibration, repair, or testing and replacement of
damaged or unserviceable parts, components, or assemblies.
(c) Depot-level maintenance is third-level maintenance performed
on-or off-equipment at or by a major repair facility, shipyard, or
field team with extensive equipment, and personnel of higher technical
skill in direct support of end-user units or organizations. It consists
of providing evaluation or repair beyond unit or organizations
capability. Its phases include: Inspection, testing, calibration or
repair, including overhaul, reconditioning and one-to-one replacement
of any defective items, parts or components; and excluding any
modification, enhancement upgrade or other form of alteration or
improvement that enhances the performance or capability of the defense
article.
PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE
SERVICES
4. The authority citation for part 124 continues to read as
follows:
Authority: Sec. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); E.O. 11958, 42 FR 4311; 3 CFR 1977 Comp.
p. 79; 22 U.S.C. 2651a; 22 U.S.C. 2776; Pub. L. 105-261.
5. Section 124.1(a) is revised to read as follows:
Sec. 124.1 Manufacturing license agreements and technical assistance
agreements.
(a) Approval. The approval of the Directorate of Defense Trade
Controls must be obtained before the defense services described in
Sec. 120.9(a) of this subchapter may be furnished. In order to obtain
such approval, the U.S. person must submit a proposed agreement to the
Directorate of Defense Trade Controls. Such agreements are generally
characterized as manufacturing license agreements, technical assistance
agreements, distribution agreements, or off-shore procurement
agreements, and may not enter into force without the prior written
approval of the Directorate of Defense Trade Controls. Once approved,
the defense services described in the agreements may generally be
provided without further licensing in accordance with Sec. Sec. 124.3
and 125.4(b)(2) of this subchapter. This requirement also applies to
the training of any foreign military forces, regular
[[Page 20593]]
and irregular, in the employment of defense articles. Technical
assistance agreements must be submitted in such cases. In exceptional
cases, the Directorate of Defense Trade Controls, upon written request,
will consider approving the provision of defense services described in
Sec. 120.9(a) of this subchapter by granting a license under part 125
of this subchapter.
* * * * *
6. In Sec. 124.2, paragraph (a) is removed and reserved and
paragraph (c) introductory text is revised to read as follows:
Sec. 124.2 Exemptions for training and military service.
(a) [Reserved]
* * * * *
(c) For NATO countries, Australia, Japan and Sweden, in addition to
the basic maintenance information exemption in Sec. 125.4(b)(5) of
this subchapter, no technical assistance agreement is required for
maintenance training or the performance of maintenance, including the
export of supporting technical data, when the following criteria can be
met:
* * * * *
Dated: April 5, 2011.
Ellen O. Tauscher,
Under Secretary, Arms Control and International Security, Department of
State.
[FR Doc. 2011-8998 Filed 4-12-11; 8:45 am]
BILLING CODE 4710-25-P
