Exceptions to Exemptions in Part 126: Considering UK, Australia and Canada

CTP’s renowned expert, Bruce Webb, pens a semi-regular blog on the nuances of commodity classification. Visit our archive for past entries by Bruce and other CTP experts.

I want to discuss recent experiences involving the ITAR exemptions for UK, Australia and Canada. Why these specific nations?  Because these country-specific ITAR exemptions are made possible through existing country-to-country agreements as well as treaties relating to defense trade. These arrangements allow for the export of specific defense articles and defense services which meet the strict requirements set forth for each but this is not a carte blanche to export freely. Each transaction must be reviewed to avoid misinterpretation.

Recently, while preparing an application for a Technical Assistance Agreement (TAA) to the UK, I was reminded of the exemptions in ITAR Articles 126.5 (applying to Canada), 126.16 (applying to Australia), and 126.17 (applying to the UK). However, since these exemptions are modified and limited by an extensive list of exclusions contained in Supplement No. 1 to Part 126, this list needs to be closely reviewed to ensure compliance.

In this particular case, for a technical data transfer for Naval Equipment, it was expected that the TAA export would be allowed under the requirements of the 126.17 exemption pursuant to the Defense Trade Cooperation Treaty between the United States and the United Kingdom. However, when delving deeper into the requirements, a different outcome emerged as an exception to the exemption defined by the Supplement. That sounds like double talk but, to ensure one is properly applying the regulatory requirements to all sets of circumstances, this supplement needs to be closely scrutinized. It is a chart listing specific exclusions for each of the three exemption countries and they do not/not apply to each country equally. Furthermore, the allowance for these exemptions in §126.5, §126.16, and §126.17 are modified by various Supplements to Part 126. For example, Supplement No. 1 states that “Defense articles and services specific to reduced observables or counter low observables in any part of the spectrum” are allowable under the UK exemption but not the Canadian or Australian exemptions. Yet the UK exclusion is limited by ‘Note 2’ within the supplement which further defines “any part of the spectrum” and may exclude a particular type of technology for reduced observables or counter low observables. From that example alone, it is evident that ITAR Part 126, as applied to exemptions for the UK, Australia and Canada, has many twists and turns in its application.

In the case mentioned above, the TAA at issue did not qualify for the UK exemption because of the limitations imposed by Supplement No. 1 to Part 126. It showed that reading ITAR requirements for exemptions for our closest allies must be done carefully with particular attention paid to the supplement and its notes in order to ensure compliance with both the exemptions and the exceptions to the exemptions!