Posternak Blankstein & Lund LLP is now Arent Fox. Read the press release

The New 126.4 ITAR Exemption for Transfers by or for USG: Six Things You Need to Know

After years and years of waiting, it popped out of the hat like a Bunny just in time for Easter. The new 22 CFR 126.4 ITAR license exemption for transfers of defense articles and defense services by or for the US Government (USG) went into effect on April 19, 2019.

There is a lot in the revised 22 CFR 126.4 exemption for exporters to cheer about, but there are also a few new boxes to check. We have reprinted the New and Improved 126.4 below, followed by the Old and Tortured 126.4 so you can look for yourself. Be forewarned:  any attempt to use a redline program to compare the two will be painful.

*Scroll to the bottom to download the new and old 126.4 regulations

Let’s take an old-fashioned read of the BEFORE and AFTER and identify the key differences. For those of you who are contractors and just want to understand how to use the thing you can skip down and just read (3) and (4).

  1. Yes! You no longer have to explain to your company what a Government Bill of Lading Is/Was. The requirement in the old 126.4(a) that “all aspects of a transaction (export, carriage, and delivery abroad) are affected {sic} by a United States Government agency or when the export is covered by a United States Government Bill of Lading” is gone. The many of us who have spent hours googling to find a Government Bill of Lading to show others what it looks like are ecstatic. (A few are sad because they can no longer look so sage and knowledgeable.)
  2. Don’t try to use 126.4(a) unless you are actually a US Government agency or department. The new exemption is carved into two parts – 126.4(a) covers transfers by a US Government department or agency. So companies and anyone who is not the USG – don’t try to use 126.4(a). The section does allow USG contractors to use it but only for official use by a USG department or agency; and ONLY in three circumstances:
    • Within a USG-controlled facility;
    • When an employee of the USG is empowered and responsible to ensure that the defense article is not diverted and is only used within the scope of the contractual relationship; or
    • When use of the exemption is authorized by the Deputy Assistant Secretary of State for DDTC at the request of a department or agency of USG.

    In other words, 126.4(a) is of limited use to most USG contracts.

  3. So can you use 126.4(a)(1) as a USG contractor? Yes if you are very careful, but why bother because.…There is a new 126.4(b) that actually works for USG contractors provided you get it in writing! Section 126.4(b) authorizes USG contractors to export, reexport, retransfer, or temporary import a defense article or perform a defense service:
    • To a department or agency of USG at its request; or
    • To an entity other than USG at the written direction of a USG department or agency or pursuant to an international agreement or arrangement.
  4. What is the catch? There is no requirement that the USG effect the export (note proper use of the verb effect) or that you get a Government Billing of Lading. Or that it’s an emergency and you tried to get a license but couldn’t (under old 126.4(c)).

    So the new 126.4(b) is excellent news – but there are some very important boxes to check before you can use the exemption:

    ☑ If it’s not going to USG, you need it in writing and don’t think just anyone at the agency can sign that writing.  DDTC says ominously in its preamble “Each department or agency will determine for itself who is authorized to issue such written directions.” That means that contractors will still be getting written directions and executing them before realizing the wrong person gave the direction. As such, this is an important box to check before using the 126.4(b) exemption to export.

    ☑ If it’s not going to the USG, it also needs to be for one of the activities set forth in (a)(1)-(4).1 Luckily these are very broad, but you will need to check this box before using the exemption.

    ☑ You have to file your Electronic Export Information (EEI) referencing the exemption unless the export is going by a US diplomatic pouch or in a US Government aircraft, vehicle, or vessel.

    ☑ No 126.1 proscribed countries (such as Afghanistan, Iraq, China, etc.). However, in true ITAR fashion, there is an exception to that requirement (see below).

    ☑ Also, if you change the end-use or end-user of a defense article (once exported under the 126.4 exemption) to any party or use not authorized by the exemption, you will need to get a license or other approval from DDTC. What this means is you still need to keep track of those night vision goggles (NVGs) and personal protective equipment (PPE) that have been exported using this exemption:  they cannot simply disappear or be transferred in-country without proper authorization.

    • So DDTC, you said no 126.1 proscribed countries BUT…There are three 126.4 exemptions that CAN go to 126.1 countries but only when it is truly to the USG or exported BY the USG for cooperative projects and programs. The new regulation amended section 126.1 to read as follows:

      The exemptions provided in this subchapter, except § 123.17 of this subchapter and §§ 126.4(a)(1) or (3) and (b)(1) and 126.6, or when the recipient is a US Government department or agency, do not apply with respect to defense articles or defense services originating in or for export to any proscribed countries, areas, or persons.

      So if the recipient is the US Government in (for example) Iraq or Afghanistan (126.4(a)(1) and (b)(1)), or it is to carry out a cooperative project, program, or other activity in furtherance of an agreement or arrangement AND the US Government is the one doing the export, then you can use the exemption for a 126.1 proscribed country.

      Dollars to donuts someone will get these mixed up and will export to the Afghan forces at the direction of the US Government under the 126.4(b)(2) exemption, and then be required to “immediately” disclose to the US Government because Afhanistan is still a 126.1 proscribed country.

    • For those of you who care about words actually making sense, the new exemption makes more sense – it covers “the export, reexport, retransfer, or temporary import of a defense article or the performance of a defense service” made by or for the US Government, not just the “temporary import, or temporary export, of any defense article, including technical data or the performance of a defense service.” We all know that exports of technical data are permanent not temporary. The new regulation is correctly worded.

    Is 126.4 better? Yes, this is a huge and long awaited improvement. But when it comes to those who export to 126.1 countries on behalf of the US Government and you are delivering to someone who is NOT the US Government, you will still need to get a license or other approval in most cases. And outside the 126.1 countries, make sure you get written direction from the right person in the USG agency and check all boxes. Good luck!!!

    [1] (a)(1)-(4) activities are as follows: 
    (1) For official use by a department or agency of the US Government ….
    (2) For carrying out a cooperative project, program, or other activity in furtherance of an agreement or arrangement that provides for the export, reexport, retransfer, or temporary import of the defense article, or the performance of activities that constitute the defense service, and is one of the following:

    (i) A binding international agreement to which the United States or any agency thereof is a party; or
    (ii) An arrangement with international partners authorized by Title 10 or 22 of the United States Code or pertinent National Defense Authorization Act provisions.

      (3) For carrying out any foreign assistance or sales program authorized by law and subject to control by the President by other means.
      (4) For any other security cooperation programs and activities of the Department of Defense authorized by law and subject to control by the President by other means.

      New & Improved 126.4

      Click the Link to Compare the Old and New Regulations

      Download Here


      Continue Reading