The State Department’s Directorate of Defense Trade Controls (“DDTC”) released today a final rule making it easier to transfer technical data under a technical assistance agreement (“TAA”) to third-country nationals, i.e., nationals of countries other than the country specifically authorized under a TAA. Under current procedures, if a U.S. company enters into a TAA permitting the transfer of technical data on a defense article to a company in France, that technical data can’t be transferred to anyone other than a French national unless the approved TAA provides for such transfer and the non-French national signs a nondisclosure agreement.

Under the new rules, technical data can be transferred to a third-country national without specific authorization and a nondisclosure agreement if four conditions are met. First, the third-country national must be a national “exclusively” of a NATO country, a European Union country, Australia, Japan, New Zealand, or Switzerland. Second, the third-country national’s employer must have either signed the TAA or a nondisclosure agreement. Third, the transfer must take place within the United States or the countries listed in the first condition. Finally, the transmittal letter for the TAA must explicitly state that permission is requested to make transfers to third-country nationals under these new provisions.

In its discussion of the new rules, DDTC restates its controversial position that a person may be a third-country national not only because of dual citizenship but also because of country of birth:

In addition to citizenship, DDTC considers country of birth a factor in determining nationality.

How the DDTC applies these factors is not clear from this statement. In theory, a French citizen born of French parents temporarily in Iran might be deemed Iranian. Or an individual born in Iran of Iranian parents that became a French citizen might still be considered an Iranian even if that individual has not retained dual citizenship.

Admittedly application of the rule in the first example is more controversial than in the second example. Still even the second example involves a double standard that rankles our allies. If an Iranian is made a permanent resident in the United States, he or she is treated the same as a U.S. citizen for deemed export purposes, whereas an Iranian naturalized by France is still treated as an Iranian.

Representative Brad Sherman (D-CA) recently introduced, with one other Democrat and two Republicans, a bill to “improve the performance of the defense trade controls functions of the Department of State.” The proposed legislation is a clear response to mounting exporter frustration over increasing delays by the Directorate of Defense Trade Controls (“DDTC”) in processing licenses and other export-related requests.

The centerpiece of the proposed legislation is the imposition of mandatory average processing times. For transactions not subject to Congressional notification requirements, for example, licenses to NATO members, Australia, Japan, New Zealand, and Israel must be processed, on average, within 20 days; 30 days for exports to major non-NATO allies; and 60 days to everyone else. Commodity jurisdiction requests would be required to be acted upon by DDCTwithin 60 days on average.

DDTC’s average processing times for Technical Assistance Agreements (“TAAs”) would need to be 120 days. It’s not clear why the proposed legislation would permit a significant delay in processing TAAs when license requests are put on such a short string. Further, the time limit doesn’t cover approving amendments to TAAs, even though the most significant delays currently being experienced are with respect to such amendments.

The proposed legislation would also significantly change the current provisions of the International Traffic in Arms Regulations (“ITAR”) relating to exports of spare parts. Under the proposed changes, a DDTC license would not be required for exports of spare and replacement parts to NATO members, Australia, New Zealand and Japan in specified circumstances, including that the parts and components are one-for-one replacements for parts and components for an item previously exported pursuant to a DDTC license. Under section 123.16(b)(2) of the ITAR, components or spare parts can be exported without a license in support of a defense article previously authorized for export as long as the value is under $500, the parts are going to the end user and not a distributor, and no more than 24 shipments are made per year to the end user. If this proposal is adopted, spare parts can be exported even if their value exceeds $500 and more than 24 shipments are made per year.