International Traffic in Arms Regulations: Registration Fees

<RULE> DEPARTMENT OF STATE <CFR>22 CFR Parts 122 and 129</CFR> <DEPDOC>[Public Notice: 12542]</DEPDOC> <RIN>RIN 1400-AF78</RIN> <SUBJECT>International Traffic in Arms Regulations: Registration Fees</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Department of State. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Department of State published a proposed rule on April 24, 2024, requesting comment on proposals to amend the International Traffic in Arms Regulations (ITAR) by increasing and specifying the fees required for registration with the Directorate of Defense Trade Controls (DDTC). The Department now responds to the public comments received in response to that proposed rule and issues this final rule. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective January 9, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Allison Smith, Director, Office of Defense Trade Controls Management, Department of State, telephone (202) 663-1282; email <E T="03">DDTCCustomerService@state.gov.</E> ATTN: Registration Fee Change. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Overview</HD> This final rule implements a change and increase in registration fees for certain persons required under 22 U.S.C. 2778(b) to register with the Department of State's Directorate of Defense Trade Controls (DDTC) and pay a registration fee. It also returns the amount of fees registrants must pay to the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120 through 130) and makes clarifying revisions to part 122 of the ITAR. This final rule follows a proposed rule (89 FR 31119), published on April 24, 2024, which included the proposed revisions to DDTC's registration fees and corresponding amendments to the ITAR. As noted in its proposed rule, for the first time in fifteen years, the Department proposed to revise and increase the registration fees (also referred to as “fees”) charged to those required to register with DDTC. This increase is necessary because DDTC operations are primarily funded by fees. Without a sufficient increase to meet operational costs that have significantly risen since 2008, DDTC would be faced with untenable budget deficits and would be forced to reduce its services. In accordance with section 38(b) of the Arms Export Control Act (AECA) (22 U.S.C. 2778(b)) and ITAR § 122.1 (22 CFR 122.1), every person who engages in the business of manufacturing, exporting, temporarily importing, or brokering any defense articles or defense services is required to register with DDTC, the agency charged with administering the relevant sections of the AECA. Section 38(b) of the AECA also requires that every person required to register pay a registration fee. As the ITAR implements section 38 of the AECA, and as its parts 122 and 129 (22 CFR parts 122 and 129) address registration, the Department proposed to revise those provisions to restate registration requirements without substantive change, to revise the Department's methodology for determining the fees paid by certain registrants, to increase registration fees, and to reinsert the actual amount of fees within the ITAR itself. The Department now provides responses to comments received on the proposed rule and amends the ITAR as of the effective date of this rule, with one correction from the proposed rule. <HD SOURCE="HD1">Summary of Changes From the Proposed Rule</HD> In this final rule, the Department makes the changes it previously proposed, with one minor change. Due to a typographical error, the Tier 3 fee multiplier for favorable determinations was misidentified in two places as $1,110 instead of the correct amount of $1,100. The Tier 3 fee multiplier was correctly introduced in the preamble as $1,100 (89 FR 31121), but a subsequent preamble reference to the Tier 3 fee multiplier was misidentified as $1,110 (89 FR 31122). In addition, the incorrect reference was carried forward to amendatory instruction 3 of the proposed rule and identified the Tier 3 fee multiplier at proposed § 122.3(a)(3) as $1,110 (89 FR 31124). This final rule adopts the correct Tier 3 fee multiplier of $1,100 at ITAR § 122.3(a)(3). <HD SOURCE="HD1">Response to Comments</HD> During the 45-day public comment period (April 24, 2024, through June 10, 2024) DDTC received 19 separate submissions from individuals, corporations, and industry associations in response to the notice of proposed rulemaking, some of which discussed more than one aspect of the proposed rule. All relevant comments addressed only ITAR § 122.3, which included proposed changes to the registration fees. The Department received no questions or comments on other changes in the proposed rule. Several commenters expressed a view that the proposed increase is an unjust burden on small business and may be a barrier to entry for new small business registrants. One commenter in particular claimed that the increase in registration fees would be especially difficult for manufacturers who do not export but are required by large corporations to be registered with DDTC to do business with them and advised the new registration fee would subject their company to paying 1 percent of their gross revenue to be able to sell products domestically for DoD end-use. As a threshold matter, the Department is aware that some private sector businesses elect to have their own separate requirement for businesses with which they contract to be registered with DDTC, even when those contracting businesses are not legally required to register with DDTC under ITAR § 122.1. Such varying requirements by some private sector businesses are outside of the scope of ITAR § 122.1. Pursuant to ITAR § 122.1, persons who are not engaged in the business of manufacturing, exporting, or temporarily importing defense articles are not required by ITAR § 122.1 to register with DDTC. With respect to the fee amount, the Department notes that registrants who do not export fall within Tier 1 and pay the base fee of $3,000. That base fee represents a 33.1 percent increase from the prior Tier 1 fee, which is approximately 12 percent less than the increase for Tier 2 and is slightly less than it would have been had the Department used the 40.1 percent inflation adjustment based on 2008 dollars, when the registration fees were last amended. The Department acknowledges and understands the commenters' concerns regarding small businesses. In response, the Department is instituting a planned one-year initiative for qualifying Tier 1 registrants, during which the Department will assess impact and consider extension. Tier 1 registrants may petition DDTC for consideration of a $500 discount (for a total registration fee of $2,500). To qualify, registrants must provide some form of proof that $3,000 was 1 percent or more of their total revenue for the last calendar year. “Total revenue” is the total amount of income and is not limited to sales of items controlled on the U.S. Munitions List (USML). Applicants must submit a complete request for special consideration to DDTC at least 30 calendar days prior to expiration of their current registration term. More information is available on the DDTC website, by searching “registration fee.” Moreover, as a result of the feedback received, the Department will review its registration fee structure more regularly to avoid large-percentage changes to registration fees. In addition, the Department continues to have a process for registrants where they may address registration fee concerns. Tier 2 and Tier 3 registrants whose registration fees are greater than $3,500 may petition DDTC for a pre-set alternate payment schedule. To be considered for an alternate payment schedule, registrants must provide some form of proof that their registration fee is greater than 1 percent of their total sales in the given year. Total sales include domestic and international sales and are not limited to sales of items described on the USML. Additionally, the Department continues to have discounts available for Tier 3 renewals. To ensure fairness to those registrants in Tier 3, if the registrant timely shows that their total registration fee is greater than 3 percent of the total value of favorable determinations on license applications or other requests for authorization during the 12-month period ending 90 days prior to expiration of the current registration, the registration fee may be reduced to 3 percent of the value of such authorizations, or $4,000, whichever is greater. The Department also has discounts for exporters and temporary importers of low-value authorizations who fall under Tier 3, as described on the DDTC website ( <E T="03">https://www.pmddtc.state.gov;</E> under Support > Review FAQs > DECCS—Registration > “Understanding the Renewal Fee Download File”). Registrants who are wholly exempt from income taxation pursuant to 26 U.S.C. 501(c)(3) also qualify for the Tier 1 registration fee of $3,000. One commenter agreed the proposal is fair for Tier 3 registrants to pay more than Tier 1 and Tier 2 registrants as they consume more services from DDTC, while expressing overall concern about the higher registration fees for all tiers. Multiple commenters stated that the Tier 1 and Tier 2 inflationary adjustments are difficult for small businesses, citing negative economic impacts for their companies and that the registration fee increase is more than the rate of inflation increase since 2008. The Department appreciates that any increase in registration fees may cause difficulties for businesses, particularly small businesses. However, the Department assessed that after fifteen years of inflation, increasing technological improvements, and improved services, that an increase in the amount of registration fees is necessary for the continued and modernized operations of DDTC. R ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 36k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━