SUMMARY: The International Traffic in Arms Regulations (ITARs), controlled by the US State Department, are regulations and processes used to oversee the U.S. defense industry and contracting firms engaged in that sector. They were originally developed to regulate military products and services, but the gradual of evolution of certain products from military to commercial applications has resulted in ITARs addressing many of these items. The U.S. Munitions List (USML) contains a wide array of products, software, technical data, and services that whose presence on the list makes them subject to ITARs requirements. Even if a company does not manufacture a product that is listed on the USML, if it performs services related to such product, the services may be covered under the USML and the company may be subject to ITARs. The State Department considers whether a product was developed for military use in determining its placement on the USML. Recent trends show an increasing tendency of the State Department to place products, services, and especially software on the USML, and therefore within reach of the ITARs.
FURTHER DETAILS: ITARs are found in 22 CFR 120-130, serve as the US government’s policies and procedures for implementing the Arms Export Control Act, or AECA. The AECA, in conjunction with Executive Order 13637, addresses the export and temporary import of defense articles and services, in 22 U.S.C. 2278. The regulatory requirements for these firms include various registrations, restrictions on select software and technical data, restrictions on the performance of defense services for foreign parties, export licensing of defense materials, and thorough record-keeping requirements. Violations of the ITARs can result in criminal liability for the company, and even imprisonment for the company’s owners and employees.
Many items were originally developed for military purposes but have gradually evolved into mainstream commercial products in several industries, including electronics, navigation, computer security, maritime, aviation, etc. Today it is often very difficult to determine if a product is subject to ITARs, and this presents a challenge for business executives. However it is important to understand this distinction, especially for firms that provide products and services to government customers, to avoid costly legal violations.
At the core of the ITARs is a list of products called the U.S. Munitions List (USML). The USML contains twenty-one broad categories of products, ranging from firearms and military vehicles to computers and communication equipment. A thorough description of these categories and examples can be found at http://www.ecfr.gov/cgi-bin/text-idx?node=pt22.1.121
One of the broadest categories on the USML is Category XXI, a broad catch-all which includes: any other product, software, service or technical data with substantial military capability that was designed, developed, configured, adapted or modified for a military purposes. This opens up the USML to a broad, open-ended range of products and services. Category XXI is an important provision for government contracting firms since, when a firm develops a product or service for a U.S. military customer, this often results in the product, technical data, software or service being on the USML and the company being subject to ITARs.
The ITARs covers not just products, but software and technical data as well. If an item is listed on the USML, software required to run that item is typically also covered on the USML. Similarly, technical data related to the item is also usually listed on the USML. Technical data is defined to include information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of articles on the USML. If a company produces any of these items, it is subject to ITARs.
The ITARs also covers defense services. If an item is listed on the USML, services related to such items for foreign parties are also covered on the USML and subject to ITARs. In addition, providing military training to foreign defense forces as well as “military advice” to such parties are considered defense services subject to ITARs. The State Department has recently promulgated a proposed regulation that, if adopted, would amend certain aspects of the regulation of defense services, including expanding exceptions from ITARs requirements for certain types of services. However, the majority of the ITARs controls on defense services are expected to continue following the adoption of such regulation.
If a product, technology or software was developed originally using U.S. defense research funding, such as SBIR grants or other DOD research grants – State will often consider these to be military products and place the products and related technical data, software and services on the USML. Clearly, the ITARs reaches into many corners of the business world and covers a broad range of activities: the many categories of the USML, the “catch-all” under USML Category XXI, software and technical data related to these items and services related to these items. Every government contracting firm should check the USML to determine if its products or services are set forth on the USML and, hence, subject to ITARs.