[Federal Register Volume 66, Number 33 (Friday, February 16, 2001)]
[Rules and Regulations]
[Pages 10575-10578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3877]


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DEPARTMENT OF STATE

22 CFR Part 126

[Public Notice 3575]


Bureau of Political-Military Affairs; Amendments to the 
International Traffic in Arms Regulation: Canadian Exemption

AGENCY: Department of State.

ACTION: Final rule.

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SUMMARY: This rule amends the Canadian Exemption of the International 
Traffic in Arms Regulations (ITAR) to change the authorized end-users 
to Canadian Federal or Provincial government authority acting in an 
official capacity or a Canadian-registered person. The amendment also 
adds a new defense service exemption. Further, it amends the list of 
defense articles requiring a license.

EFFECTIVE DATE: May 30, 2001.

FOR FURTHER INFORMATION CONTACT: William J. Lowell, Director, Office of 
Defense Trade Controls, Bureau of Political-Military Affairs, 
Department of State, ATTN: Regulatory Change Canadian Exemption (202) 
663-2862 or (202) 261-8264.

SUPPLEMENTARY INFORMATION: The United States Government (USG) and the 
Government of Canada (GOC) have completed bilateral discussions on 
export controls that have resulted in each Government making changes to 
their respective regulations. The Government of Canada has made 
numerous changes to its export control system by law and regulation, 
including providing coverage for all items of the type controlled on 
the United States Munitions List (USML) on its control lists. Their 
changes also involve establishing a system that identifies and permits 
registration of persons who will be eligible on the basis of Canadian 
citizenship or permanent residence and of risk assessment to have 
access to USML articles exported from the United States or re-
transferred within Canada without a U.S. license. Furthermore, the GOC 
promulgated regulations requiring USG approval prior to any re-export 
or retransfer of the International Traffic in Arms Regulations 
(``ITAR'')-controlled items either within Canada or to a third country. 
In response, the USG is amending Section 126.5 of ITAR to expand 
significantly the scope of the Canadian exemption, specifically by 
reflecting the Canadian registration system. The amendment makes 
corresponding changes to permit specified end users eligible to receive 
defense articles exported under this exemption. Those end users are 
Canadian Federal or Provincial government authorities acting in an 
official capacity and Canadian-registered persons. For purposes of this 
section only, a Canadian-registered person is any Canadian national 
(including Canadian business entities organized under the laws of 
Canada), dual national, and permanent resident registered in Canada in 
accordance with the Canadian Defence Production Act. Even where a 
Canadian business entity is so registered, this does not qualify any 
employee to receive items subject to this exemption unless the employee 
is also a national, dual national or permanent resident of Canada.
    The Government of Canada published a regulatory change effective 
April 30, 2001, establishing a registration system that will permit 
Canadian firms to be registered as eligible to receive exports from the 
United States on May 30, 2001, the effective date of this regulatory 
change.
    Section 126.5 is also amended to add a new defense service 
exemption that provides registered United States and Canadian-
registered persons the ability to, without obtaining a license, work 
together to respond to U.S. and Canadian Government requests for a 
quote or a bid proposal. This amendment also permits exchanges 
necessary to respond to a registered U.S. company's request to produce, 
design, assemble, maintain or service a defense article. To utilize 
this amendment, U.S. exporters are advised to ensure that they can meet 
all the criteria prior to export and that adequate records of 
disclosure are maintained to verify that only the information exempt is 
exported.
    Also, the list of items requiring a license prior to export is 
being amended to change the coverage. The changes include a requirement 
to obtain a license prior to export to Canada for all technical data 
and defense services for gas turbine engine hot sections covered by 
Categories VI(f) and VIII(b)--not to include hardware; developmental 
aircraft, engines and components identified in Category VIII(f); all 
category XII(c), except 1st- and 2nd-generation image intensification 
tubes and 1st- and 2nd-generation image intensification night sighting 
equipment and end items in Category XII(c) and related technical data 
limited to basic operations, maintenance and training information as 
authorized under exemption in Section 125.4(b)(5) when exported 
directly to a Canadian Government; chemical agents listed in Category 
XIV(a), biological agents in Category XIV(b), and equipment listed in 
Category XIV(c) for dissemination of the chemical agents and biological 
agents in (a) and (b); nuclear radiation-measuring devices manufactured 
to military specifications listed in XIV(d); all spacecraft in Category 
XV(a), except commercial communications satellites; XV(c), except end 
items when for use by the Federal Government of Canada; Category XV(d); 
certain systems, components and parts included within the coverage of 
XV(e); and, miscellaneous articles covered by Category XXI.
    It remains the responsibility of the U.S. exporter of record to 
determine, in writing, the Canadian end-user, end-use,

[[Page 10576]]

that the Canadian recipient is registered with the Canadian Government, 
and that the defense articles are for end-use in Canada and not for 
reexport or retransfer to another foreign destination. Should this 
information not be available or the exporter has knowledge or reason to 
know that the export would result in a transfer or sale to a proscribed 
destination (see 126.1), this exemption is not available.
    As a general matter, the regulation does not affect the continuing 
application of requirements of this subchapter to parties utilizing 
this exemption, in particular Sec. 126.1(e) which requires any person 
who knows or has reason to know of a prohibited activity involving a 
proscribed destination to immediately inform the Office of Defense 
Trade Controls. Specifically, too, Canadian-registered persons will be 
eligible recipients of ITAR-controlled items under this exemption for 
purposes of this regulation, except where application of U.S. law may 
require prohibiting (e.g., by treating a transaction as non-exempt or a 
Canadian-registered person as ineligible on a case-by-case basis, or 
more broadly) an export, reexport or transfer of such an item to a 
person with citizenship or nationality of a country to which U.S. 
defense exports are prohibited by law.
    This amendment involves a foreign affairs function of the United 
States and therefore, is not subject to the procedures required by 5 
U.S.C. 553 and 554. It is exempt from review under Executive Order 
12866 but has been reviewed internally by the Department to ensure 
consistency with the purposes thereof. This rule does not require 
analysis under the Regulatory Flexibility Act or the Unfunded Mandates 
Reform Act. It has been found not to be a major rule within the meaning 
of the Small Business Regulatory Enforcement Act of 1966. It will not 
have substantial direct effects on the States, 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 Sec. 6 of Executive Order 13132, it is determined 
that this rule does not have sufficient federalism implications to 
warrant application of Executive Order Nos. 12372 and 13123. However, 
interested parties are invited to submit written comments to the 
Department of State, Office of Defense Trade Controls, ATTN: Regulatory 
Change, Canadian Exemption, 13th Floor, H1304, 2401 E Street, NW., 
Washington, DC 20037. Such persons must be so registered with the 
Department of State's Office of Defense Trade Controls (DTC) pursuant 
to the registration requirements of Sec. 38 of the Arms Export Control 
Act. Comments are welcomed and could assist both governments in joint 
outreach program to be conducted following this publication.

List of Subjects in 22 CFR Part 126

    Arms and munitions, Exports.

    Accordingly, for the reasons set forth above, Title 22, chapter I, 
subchapter M, part 126, is being amended as follows:

PART 126--GENERAL POLICIES AND PROVISIONS

    1. The authority citation for part 126 continues to reads as 
follows:

    Authority: Secs. 2, 38, 40, 42, and 71, Pub. L. 90-629, 90 Stat. 
744 (22 U.S.C. 2752, 2778 (as amended by P.L. 106-280), 2780, 2791, 
and 2797); 22 U.S.C. 2778; E.O. 11958, 42 FR 4311; 3 CFR, 1977 
Comp., p. 79; 22 U.S.C. 2658; 22 U.S.C. 287c; E.O. 12918, 59 FR 
28205, 3 CFR 1994 Comp., p 899.

    2. Section 126.5 is revised to read as follows:


Sec. 126.5  Canadian exemptions.

    (a) Temporary import of defense articles. District Director of 
Customs and postmasters shall permit the temporary import and return to 
Canada without a license of any unclassified defense articles (see 
Sec. 120.6 of this subchapter) that originate in Canada for temporary 
use in the United States and return to Canada. All other temporary 
imports shall be in accordance with Secs. 123.3 and 123.4 of this 
subchapter.
    (b) Permanent and temporary export of defense articles. Except for 
the defense articles and related technical data, and defense services 
identified in paragraph (b) (1) through (20) of this section for 
exports that transit third countries, and provided the requirements of 
this subchapter are met, (to include Sec. 120.1 (c) and (d), parts 122 
and 123 (except insofar as exemption from licensing requirements is 
herein authorized) and Sec. 126.1, and the requirement to obtain non-
transfer and use assurances for all significant military equipment), 
District Director of Customs and postmasters shall permit, when for 
end-use in Canada by Canadian Federal or Provincial governmental 
authorities acting in an official capacity or by a Canadian-registered 
person or return to the United States, the permanent and temporary 
export to Canada without a license of defense articles and related 
technical data identified in Sec. 121.1 of this subchapter, except as 
described in paragraphs (b)(1) through (20) of this section and the 
defense services and technical data described in paragraph (c) of this 
section. For purposes of this section, ``Canadian-registered person'' 
is any Canadian national (including Canadian business entities 
organized under the laws of Canada), dual national, and permanent 
resident registered in Canada in accordance with the Canadian Defence 
Production Act, and such other Canadian Crown Corporations as may be 
identified by the Department of State. The defense articles, related 
technical data, and defense services identified in Sec. 121.1 of this 
subchapter continuing to require a license are:
    (1) All classified articles, technical data and defense services 
covered by Sec. 121.1 of this subchapter.
    (2) All Missile Technology Control Regime (MTCR) Annex Items.
    (3) Defense services covered by part 124 of this subchapter, except 
for those in paragraph (c) of this section.
    (4) Any transaction involving the export of defense articles and 
defense services for which congressional notification is required in 
accordance with Sec. 123.15 and Sec. 124.11 of this subchapter.
    (5) All technical data and defense services for gas turbine engine 
hot sections covered by Categories VI(f) and VIII(b). (This does not 
include hardware).
    (6) Firearms listed in Category I.
    (7) Ammunition listed in Category III for the firearms in Category 
I.
    (8) Nuclear weapons strategic delivery systems and all components, 
parts, accessories and attachments specifically designed for such 
systems and associated equipment.
    (9) Naval nuclear propulsion equipment listed in Category VI(e).
    (10) Aircraft listed in Category VIII(a) and developmental 
aircraft, engines and components identified in Category VIII(f).
    (11) All Category XII(c), except any 1st- and 2nd-generation image 
intensification tube and 1st- and 2nd-generation image intensification 
night sighting equipment. End items (see Sec. 121.8 of this subchapter) 
in Category XII(c) and related technical data limited to basic 
operations, maintenance and training information as authorized under 
the exemption in Sec. 125.4(b)(5) of this subchapter may be exported 
directly to a Canadian Government entity (i.e. federal, provincial, 
territorial, or municipal) without a license.
    (12) Chemical agents listed in Category XIV(a), biological agents 
in Category XIV(b), and equipment listed in Category XIV(c) for 
dissemination of

[[Page 10577]]

the chemical agents and biological agents listed in Category XIV(a) and 
(b).
    (13) Nuclear radiation measuring devices manufactured to military 
specifications listed in Category XIV(d).
    (14) All spacecraft in Category XV(a), except commercial 
communications satellites.
    (15) Category XV(c), except end items (see Sec. 121.8 of this 
subchapter) for end use by the Federal Government of Canada exported 
directly or indirectly through a Canadian-registered person.
    (16) Category XV(d).
    (17) The following systems, components and parts included within 
the coverage of Category XV(e):
    (i) Anti-jam systems with the ability to respond to incoming 
interference by adaptively reducing antenna gain (nulling) in the 
direction of the interference.
    (ii) Antennas:
    (A) With aperture (overall dimension of the radiating portions of 
the antenna) greater than 30 feet; or
    (B) With all sidelobes less than or equal to -35dB, relative to the 
peak of the main beam; or
    (C) Designed, modified, or configured to provide coverage area on 
the surface of the earth less than 200 nautical miles in diameter, 
where ``coverage area'' is defined as that area on the surface of the 
earth that is illuminated by the main beam width of the antenna (which 
is the angular distance between half power points of the beam).
    (iii) Optical intersatellite data links (cross links) and optical 
ground satellite terminals.
    (iv) Spaceborne regenerative baseband processing (direct up and 
down conversion to and from baseband) equipment.
    (v) Propulsion systems which permit acceleration of the satellite 
on-orbit (i.e., after mission orbit injection) at rates greater than 
0.1g.
    (vi) Attitude control and determination systems designed to provide 
spacecraft pointing determination and control or payload pointing 
system control better than 0.02 degrees per axis.
    (vii) All specifically designed or modified systems, components, 
parts, accessories, attachments, and associated equipment for all 
Category XV(a) items, except when specifically designed or modified for 
use in commercial communications satellites.
    (18) Nuclear weapons design and test equipment listed in Category 
XVI.
    (19) Submersible and oceanographic vessels and related articles 
listed in Category XX(a) through (d).
    (20) Miscellaneous articles covered by Category XXI.
    (c) Defense service exemption. A defense service is exempt from the 
licensing requirements of part 124 of this subchapter, when the 
following criteria can be met.
    (1) The item, technical data, defense service and transaction is 
not identified in paragraphs (b)(1) through (20) of this section; and
    (2) The transfer of technical data and provision of defense service 
is limited to the following activities:
    (i) Canadian-registered person or a registered and eligible U.S. 
company (in accordance with part 122 of this subchapter) preparing a 
quote or bid proposal in response to a written request from a 
Department or Agency of the United States Federal Government or from a 
Canadian Federal, Provincial, or Territorial Government; or
    (ii) Produce, design, assemble, maintain or service a defense 
article (i.e. hardware, technical data) for use by a registered U.S. 
company; or, a U.S. Federal Government Program; or for end use in a 
Canadian Federal, Provincial, or Territorial Government Program; and
    (iii) The defense services and technical data are limited to that 
defined in paragraph (c)(6) of this section; and
    (3) The Canadian contractor and subcontractor certify, in writing, 
to the U.S. exporter that the technical data and defense service being 
exported will be used only for an activity identified in paragraph 
(c)(2) of this section; and
    (4) A written arrangement between the U.S. exporter and the 
Canadian recipient (such as a consummated Non-Disclosure or other 
multi-party agreement, Technology Transfer Control Plan, contract or 
purchase order) must:
    (i) Limit delivery of the defense articles being produced directly 
to an identified manufacturer in the United States registered in 
accordance with part 122 of this subchapter; a Department or Agency of 
the United States Federal Government; a Canadian-registered person 
authorized in writing to manufacture defense articles by and for the 
Government of Canada; a Canadian Federal, Provincial, or Territorial 
Government; and
    (ii) Prohibit the disclosure of the technical data to any other 
contractor or subcontractor who is not a Canadian-registered person; 
and
    (iii) Provide that any subcontract contain all the limitations of 
this section; and
    (iv) Require that the Canadian contractor, including 
subcontractors, destroy or return to the U.S. exporter in the United 
States all of the technical data exported pursuant to the contract or 
purchase order upon fulfillment of the contract, unless for use by a 
Canadian or United States Government entity that requires in writing 
the technical data be maintained. The U.S. exporter must be provided 
written certification that the technical data is being retained or 
destroyed; and
    (v) Include a clause requiring that all documentation created from 
U.S. technical data contain the statement ``This document contains 
technical data, the use of which is restricted by the U.S. Arms Export 
Control Act. This data has been provided in accordance with, and 
subject to, the limitations specified in para.126.5 of the 
International Traffic In Arms Regulations (ITAR). By accepting this 
data, the consignee agrees to honor the requirements of the ITAR''; and
    (5) The U.S. exporter must provide the Office of Defense Trade 
Controls a semi-annual report of all their on-going activities 
authorized under this section. The report shall include the article(s) 
being produced; the end user(s) (i.e. name of U.S. or Canadian 
company); the end item into which the product is to be incorporated; 
the intended end use of the product (e.g., United States or Canadian 
Defense contract number and identification of program); the name and 
address of all the Canadian contractors and subcontractors; and
    (6) The defense services and technical data are limited to those in 
paragraphs (c)(6)(i), (ii), (iii) and (iv), and do not include 
paragraphs (c)(6)(v), (vi) and (vii) of this section:
    (i) Build-to-Print. Build-to-Print means that a foreign consignee 
can produce a defense article from engineering drawings without any 
technical assistance from a U.S. exporter. This transaction is based 
strictly on a ``hand-off'' approach because the foreign consignee is 
understood to have the inherent capability to produce the defense 
article and only lacks the necessary drawings. Supporting documentation 
such as acceptance criteria, and specifications, may be released on an 
as-required basis (i.e. ``must have'') such that the foreign consignee 
would not be able to produce an acceptable defense article without this 
additional supporting documentation. Documentation which is not 
absolutely necessary to permit manufacture of an acceptable defense 
article (i.e. ``nice to have'') is not considered within the boundaries 
of a ``Build-to Print'' data package; and/or
    (ii) Build/Design-to-Specification. ``Build/Design-to-
Specification'' means that a foreign consignee can design and produce a 
defense article from requirement specifications without any technical 
assistance from the U.S. exporter. This transaction is based

[[Page 10578]]

strictly on a ``hands-off'' approach since the foreign consignee is 
understood to have the inherent capability to both design and produce 
the defense article and only lacks the necessary requirement 
information; and/or
    (iii) Basic Research. ``Basic Research''--means a systemic study 
directed toward greater knowledge or understanding of the fundamental 
aspects of phenomena and observable facts without specific applications 
towards processes or products in mind. It does not include ``Applied 
Research'' (i.e. a systemic study to gain knowledge or understanding 
necessary to determine the means by which a recognized and specific 
need may be met. It is a systematic application of knowledge toward the 
production of useful materials, devices, and systems or methods, 
including design, development, and improvement of prototypes and new 
processes to meet specific requirements.); and
    (iv) Maintenance (i.e., inspection, testing, calibration or repair, 
including overhaul, reconditioning and one-to-one replacement of any 
defective items, parts or components, but excluding any modification, 
enhancement, upgrade or other form of alteration or improvement that 
changes the basic performance of the item); and does not include
    (v) Design Methodology, such as: The underlying engineering methods 
and design philosophy utilized (i.e., the ``why'' or information that 
explains the rationale for particular design decision, engineering 
feature, or performance requirement); engineering experience (e.g. 
lessons learned); and the rationale and associated databases (e.g. 
design allowables, factors of safety, component life predictions, 
failure analysis criteria) that establish the operational requirements 
(e.g., performance, mechanical, electrical, electronic, reliability and 
maintainability) of a defense article. (Final analytical results and 
the initial conditions and parameters may be provided.)
    (vi) Engineering Analysis, such as: Analytical methods and tools 
used to design or evaluate a defense article's performance against the 
operational requirements. Analytical methods and tools include the 
development and/or use of mockups, computer models and simulations, and 
test facilities. (Final analytical results and the initial conditions 
and parameters may be provided.)
    (vii) Manufacturing Know-how, such as: Information that provides 
detailed manufacturing processes and techniques needed to translate a 
detailed design into a qualified, finished defense article. 
(Information may be provided in a build-to-print package identified in 
paragraph (c)(6)(i) of this section that is necessary in order to 
produce an acceptable defense article.).
    (d) Reexports/retransfer. Rexport/re-transfer in Canada to another 
end user or end use or from Canada to another destination, except the 
United States, must in all instances have the prior approval of the 
Office of Defense Trade Controls. Unless otherwise exempt in this 
subchapter, the original exporter is responsible, upon request from a 
Canadian-registered person for obtaining or providing reexport/
retransfer approval. In any instance when the U.S. exporter is no 
longer available to the Canadian end user the request for reexport/
retransfer may be made directly to Department of State, Office of 
Defense Trade Controls. All requests must include the information in 
Sec. 123.9(c) of this subchapter. Reexport/retransfer approval is 
acquired by:
    (1) If the reexport/retransfer being requested could be made 
pursuant to this section (i.e., a retransfer within Canada to another 
eligible Canadian recipient under this section) if exported directly 
from the U.S., upon receipt by the U.S. company of a request by a 
Canadian end user, the original U.S. exporter is authorized to grant on 
behalf of the U.S. Government by confirming in writing to the Canadian 
requester that the reexport/retransfer is authorized subject to the 
conditions of this section; or
    (2) If the reexport/retransfer is to an end use or end user that, 
if directly exported from the U.S. requires a license, retransfer must 
be handled in accordance with Sec. 123.9 of this subchapter.

    Notes to Sec. 126.5:   
    1. In any instance when the exporter has knowledge that the 
defense article exempt from licensing is being exported for use 
other than by a qualified Canadian-registered person or for export 
to another foreign destination, other than the United States, in its 
original form or incorporated into another item, an export license 
must be obtained prior to the transfer to Canada.

    2. Additional exemptions exist in other sections of this subchapter 
that are applicable to Canada, for example Secs. 123.9, 125.4 and 124.2 
which allows for the performance of defense services related to 
training in basic operations and maintenance, without a license, for 
defense articles lawfully exported, including those identified in 
paragraphs (b)(1) through (20) of this section.

    Dated: January 24, 2001.
Colin L. Powell,
Secretary of State.
[FR Doc. 01-3877 Filed 2-15-01; 8:45 am]
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