International Law Advisory - DDTC Increases ITAR Registration Fees

Today the United States Department of State, Directorate of Defense Trade Controls (“DDTC”) issued a final rule increasing registration fees for manufacturers, exporters, and brokers of defense articles under the International Traffic in Arms Regulations (“ITAR”).  See 73 Fed. Reg. 55439.  The rule also requires registrants to renew their registration yearly.  The rule is effective immediately.  The rule follows DDTC’s proposed rule published in the Federal Register on July 28, 2008.  See 73 Fed. Reg. 43653.

Under the new registration structure, which has long been anticipated by the exporting community, all manufacturers, exporters, and brokers registering with DDTC will fall into one of three tiers, depending on the frequency of their DDTC licensing activity:

1. Tier 1: New registrants and persons renewing a registration who are required to register by law and who have not submitted a license application in the 12-month period ending 90 days before the expiration of their current registration.  These registrants will be required to pay a flat yearly registration fee of $2,250, which is a 28 percent increase over the fee level of $1,750 previously applicable to all registrants.

2. Tier 2: Registrants who have submitted up to ten license applications in the 12-month period ending 90 days before the expiration of their current registration.  The fee for these registrants will be $2,750 per year – a 57 percent increase over the prior fee level.

3. Tier 3: Registrants who have submitted more than ten license applications in the 12-month period ending 90 days before the expiration of their current registration.  These registrants will be required to pay a base fee of $2,750 each year, plus an additional fee that equates to $250 per license application – beginning with the registrant’s 11^th application – for the 12 month period ending 90 days before the expiration of the current registration.  If the resulting amount is greater than 3 percent of the total value of the license applications DDTC has reviewed for that company in the applicable 12-month period, the fee will be reduced to three percent of the value of the applications or $2,750, whichever is greater.  Applying this rule as it is written to a hypothetical example, assume a U.S. exporter had filed 50 license applications (e.g., DSP-5s, DSP-73s, DSP-61s, and TAAs) in the 12 month period prior to the 90 day window for its registration to expire. The fee for renewing the registration would be the sum of $2,750 + $250 (50 license applications – 10), or $12,750.  If the aggregate value of the license applications for that period was less than $425,000 (e.g. $400,000), then the renewal fee would be limited to 3% of that aggregate license value, or $12,000.  As noted below, amendments can also count toward the level of licensing activity, regardless of whether the amendment relates to any change in the value of an existing license or agreement.  
   

Tax exempt organizations, including universities, may request that their fees be reduced to $2,250 at the time of registration.  Such organizations must provide proof of tax exempt status with their registration application.  Registrants are no longer permitted to register for more than one year at a time.

In determining the licensing activity of a registrant, only those license applications and amendments for which DDTC took final action and provided a response to the applicant will count toward a registrant’s licensing activity.  License applications “returned without action,” as well as license applications denied by DDTC will not count in determining a registrant’s level of licensing activity.  Moreover, activities under 22 C.F.R. parts 123 through 126 that do not require DDTC to respond to the applicant, such as submission of sales reports, prior notifications, submission of documents required by a proviso, and the submission of purchase orders in support of offshore procurement will not count toward a registrant’s licensing activity.  Finally, the submission by an applicant of commodity jurisdiction requests and disclosures will not be counted in determining the registration fee. DDTC will send a notice to all registrants at least 60 days prior to the date of the expiration of their registration informing them of the fee due at the time of renewal.

DDTC explained in the Federal Register notice setting forth the new rule that the purpose of the increased fees is to provide funding to respond to Presidential directives issued in January of this year that require DDTC to make the export licensing process more timely, predictable, and transparent.  The directives also require that DDTC eventually become at least 75 percent self financed.

Should you have any questions or require additional information, please feel free to contact Ed Krauland at 202.429.8083 or Meredith Rathbone at 202.429.6437.