In a series of Frequently Asked Questions (“FAQs”) released on March 31, 2020, the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”) issued new clarifying guidance for companies with ongoing business based on expired Technical Assistance Agreements (“TAAs”) or Manufacturing License Agreements (“MLAs”) under the International Traffic in Arms Regulations (“ITAR”).  Companies in the defense sector should take note of these FAQs, which highlight important limitations on the use of expired TAAs and MLAs.

TAAs and MLAs authorize U.S. persons to export (and non-U.S. persons to exchange outside the United States) ITAR-controlled technical data and “defense services.”  An MLA can also authorize the provision of manufacturing rights or know-how.  MLAs and TAAs typically have a 10 year duration, and questions often arise about what activity can and cannot continue if an agreement expires without obtaining a new or rebaselined agreement.  The non-U.S. parties to the agreement at that point may have developed or produced information or products derived from ITAR-controlled technical data and U.S.-origin manufacturing rights or know-how, and the underlying commercial relationships or agreements may be ongoing after the ITAR authorization has expired.  For example, the non-U.S. parties may have continuing sales contracts or opportunities, or obligations such as repairs and maintenance.  So, which types of activity under the ITAR can continue without a renewed MLA or TAA in place, and which types of activity require additional authorization?  DDTC has provided some useful answers in these new FAQs.

1) Continued use and exchange of technical data among non-U.S. parties and continued manufacturing by non-U.S. parties

In two new FAQs, DDTC explains that, once an applicable MLA or TAA expires, the non-U.S. parties can continue to use and exchange the ITAR-controlled information and know-how they had received, but any further technical assistance or ITAR-controlled technical data from the U.S. parties would require renewed authorization from DDTC.  That said, there are means short of obtaining a renewed MLA or TAA that may satisfy the authorization requirement for continued support from the U.S. parties to an expired agreement in some circumstances, such as seeking a DSP-5 license for “limited” defense services or using a regulatory exemption.  For example, Section 125.4(b)(4) of the ITAR authorizes a U.S. party to provide copies of certain types of previously-authorized technical data to the same recipients.  Another exemption, under Section 125.4(b)(5), applies to “basic” operations, maintenance, and training information relating to a defense article that has already been lawfully exported or authorized for export to the same recipient.  Certification and recordkeeping requirements apply, and there are some instances in which these exemptions cannot be used.

The new FAQs from DDTC on this topic are as follows:

Question #1: After the expiration of a Technical Assistance Agreement (TAA), may foreign parties continue to use and exchange technical data previously authorized for export among the same foreign signatories, sub-licensees and end-users?

Answer #1: Yes, the ongoing use and exchange of technical data received via a TAA among previously authorized recipients for the same authorized end-use is generally permitted even after the agreement has terminated or expired. Any provisos or retransfer conditions that applied to the technical data authorized under the TAA will continue to apply. However, if the activity requires the furnishing of a defense service by a U.S. person, then separate DDTC authorization would be required.

Question #2: After the expiration of a Manufacturing License Agreement (MLA) may foreign parties continue to use and exchange technical data previously authorized for export among the same foreign signatories, sub-licensees and end-users?

Answer #2: The continued use and exchange of the technical data previously authorized for export among the same foreign signatories, sub-licensees and end-users is generally permitted even after the agreement has terminated or expired. However, the foreign parties may not continue to use the technical data to manufacture absent separate authority. The foreign parties must seek approval from DDTC via a General Correspondence request to continue manufacturing using ITAR-controlled technical data after the expiration of an MLA. If the continued manufacturing activity requires the furnishing of a defense service by a U.S. person, then separate DDTC authorization would be required.

In addition to the limitation on U.S. person participation after expiration of an MLA or TAA, these FAQs also advise non-U.S. parties that they would need to seek authorization from DDTC (via a “General Correspondence” request) if they wish to continue manufacturing ITAR-controlled defense articles outside the United States pursuant to an expired MLA.  DDTC does not specify such a limitation under an expired TAA.  (Manufacturing under an MLA imposes additional limitations and obligations that do not apply under a TAA, such as a requirement to submit annual sales reports to DDTC.)

Companies should also carefully heed the language DDTC used in both of these FAQs, specifying that this ITAR-controlled activity can only continue “among the same foreign signatories, sub-licensees and end-users” and “for the same authorized end-use.”  Thus, the scope of the expired MLA or TAA (along with any provisos, conditions or other limitations in the agreement) continues to limit which parties can participate in the ITAR-controlled activity after the agreement’s expiration and what these parties can do.  Any new parties (e.g., customers or end-users, foreign intermediate consignees, sublicensees, or new foreign locations for these parties) or new activities (e.g., using the previously-provided technical data or know-how to manufacture a new type of defense article) may require additional authorization from DDTC.

Some grey areas remain, such as whether continued manufacturing would require continued “use” of the ITAR-controlled technical data in a particular case, beyond the continued use of the technical data that DDTC says in these FAQs remains lawful for other purposes (e.g., design, development, and engineering activity).   In all circumstances, companies covered by these requirements should carefully review whether their activity is authorized under the ITAR, and ensure they are meeting recordkeeping and reporting obligations.

2) Continued sales and distribution by non-U.S. parties

The FAQs also discuss ongoing sales and distribution of ITAR-controlled defense articles after the expiration of an applicable MLA or TAA.  Here, the FAQs put a finer point on the issue discussed above — that the scope limitations in an expired agreement continue to apply after expiration.  Among other things, parties not authorized under the expired agreement cannot become involved after expiration.  But the FAQs do clarify that defense articles manufactured under an MLA or TAA that has since expired “may be transferred among the same foreign signatories and sub-licensees and for the same end users and end uses that were previously authorized under the TAA or MLA.”

The new FAQs from DDTC on this topic are as follows:

Question #1: Can a defense article that is produced or manufactured during the life of an agreement (TAA or MLA) using technical data or defense services received via the agreement be transferred to a foreign person who was not a party to the agreement after the expiration of that agreement without further DDTC authorization?

Answer #1: No, the transfer of defense articles that were manufactured during the life of a TAA or an MLA may only be transferred without further DDTC authorization among the same foreign signatories and sub-licensees and for the same end users and end uses that were previously authorized under the TAA or MLA. See ITAR § 124.8(a)(5) for more information. (NOTE: Foreign-origin defense articles not produced pursuant to an agreement are not subject to the transfer restrictions of § 124.8(a)(5) described above.)

Question #2: Can a defense article that is produced or manufactured during the life of an agreement (TAA or MLA) using technical data or defense services received via the agreement be transferred to a foreign person who was a party to the agreement after the expiration of that agreement without further DDTC authorization?

Answer #2: Yes, the transfer of defense articles that were manufactured during the life of a TAA or an MLA may be transferred among the same foreign signatories and sub-licensees and for the same end users and end uses that were previously authorized under the TAA or MLA. (NOTE: Foreign-origin defense articles produced with U.S. involvement but not pursuant to an agreement are not subject to the transfer restrictions of § 124.8(a)(5) described above.)

As the discussion above shows, use of TAAs or MLAs under the ITAR can be complicated, and therefore companies should seek experienced counsel in this area. If you have questions about ITAR compliance, please contact any of Steptoe’s team of experienced professionals who can advise and help navigate this complex area of U.S. regulation.