Updated: April 25, 2023
By: Maarten Sengers and Scott Gearity
Continuing on the theme of International Traffic in Arms Regulations (ITAR) contradictions begun in last month’s newsletter, let us turn to another ITAR contradiction that has resulted in tremendous and endless confusion on how one should properly license U.S. Munitions List (USML) technical data exports. Most practitioners know that when you provide a “defense service” you need an agreement, most commonly a Technical Assistance Agreement (TAA) (ITAR 124.1), but if you export unclassified “technical data” without providing a defense service, you can proceed under a DSP-5 license application (125.2), a much easier, simpler, and generally faster mechanism. But the ITAR drafters thought that this concept was too straightforward, and these practical jokers decided to throw in a definitional curve ball to sow mass confusion: The ITAR states that providing technical data is a defense service. If providing technical data were by definition a defense service, wouldn’t you always need a TAA when you provided someone technical data?
Let’s explore the definitional illogic further. 120.32(a) defines a “defense service” to cover three areas: “the furnishing of assistance,” providing “military training” and “furnishing . . . any technical data.” So this key definition clearly states that if you provide a foreign person with technical data, you are providing a defense service. I guess in ITAR world, technical data is technical data when it sits on your desk, but if you provide it to a foreign person, it morphs into a defense service. And defense services can only be provided under an agreement.
Yet, as we all know, 125.2 clearly contemplates that you may furnish technical data, which we now know is a defense service, on a DSP-5. 125.1(b) adds another thought on the great TAA vs. DSP-5 debate by saying that you generally need an agreement if you furnish “technical assistance,” and not just technical data. The drafters happily leave you in the dark by keeping “technical assistance” undefined, even following the major revision of the definition-heavy Part 120 in 2022. For those of you left confused by all of this, you now have picked up on an Directorate of Defense Trade Controls (DDTC) secret — the ITAR language is so circular that you can always be accused of doing it wrong no matter what you do.
But in the face of this cloudy soup of nonsensical definitions, we must still proceed. Below are some suggestions on when to obtain a DSP-5 and when to obtain a TAA based on what we’ve seen DDTC actually license.
When to use a DSP-5:
1) One-off Documents: If you provide a one-off document containing technical data, such as technical data in a proposal, a test report, a blueprint, a maintenance manual, etc.
2) Pre-Contract Technical Data Exchange: Technical data exchange to pursue a program in a pre-contract stage (DDTC and practitioners sometimes calls these “marketing licenses” though there is no reference to such a thing in the ITAR). At a pre-award stage, it’s often difficult to persuade a foreign partner sign a TAA, so perhaps DDTC is more willing to allow what is arguably a defense service like marketing activity at this stage. Another situation would be when you need to send build-to-print drawings/specifications to one or more foreign parties to get price quotes for possible offshore procurement.
For larger or technically complex programs (we’ll follow the lead of the ITAR drafters and use nebulous words like “larger” and “technically complex” and leave them undefined), DDTC may still require a TAA at this stage.
3) Offshore Procurement (124.13): You need to send technical data limited to build-to-print drawings/specifications to an overseas party who is independently capable of building the defense article you are seeking to procure. The overseas party does not require your assistance with the manufacturing of the item—in fact, the foreign party does not need any technical data from you other than the build-to-print drawings/specifications and your follow-up clarifications on those items. In our experience, in many these situations often transition into the exporter having to provide additional technical data and defense services to the foreign supplier, which means that the situation should likely transition into a Manufacturing License Agreement (MLA) since the DSP-5 is no longer sufficient.
4) Foreign Person Employees: You have a foreign person employee who requires access to ITAR-controlled technical data. DDTC’s guidance points to a DSP-5 in this context. The DSP-5 is a simpler application but has a shorter validity period. The level of technical detail describing the scope and type of technical data the foreign person will receive is often the most difficult part of putting together any technical data application.
5) Whatever You Can Get Away With (WYCGAW): We’ve seen DDTC grant the most “defense service” like activities on a DSP-5, and if they are willing to grant such a license, take it and don’t ask questions. On the other hand, DDTC also has Returned Without Action (RWA’d) the most meritorious DSP-5’s for no apparent reason, so be prepared for the worst. If your compliance program is under scrutiny, you may have to err in favor of TAAs unless, of course, they RWA those and tell advise you to submit a DSP-5.
When to Obtain a TAA:
1) Ongoing Technical Exchange – Other than the above, whenever you will have on going technical interchange with a foreign person about anything subject to the ITAR. If you need to provide more than a one-off document in a program (see 1) above) and instead have on going technical meetings and/or discussions, you should consider the TAA.
2) Post-Contract Award Technical Exchange – If ongoing technical exchange is required after contract award (e.g. beyond the scope of a “marketing license” as indicated above), such as technical data exchange to develop the program further or to provide technical data and instruction exceeding a basic operations or maintenance level authorized by exemptions at 124.2(a) or 125.4(b)(5).
Remember, when you grant someone the right to license production of your ITAR defense article, you will usually need to obtain a MLA instead of a DSP-5 or a TAA.
The above guidelines are just that, and they are definitely not guaranteed to work. Until ITAR drafters clean up the technical data and defense service licensing language mess in the ITAR, it will always be a guessing game as to when to use an agreement vs. a DSP-5. My suggestion, which will surely be ignored, is to drop agreements altogether. Most if not all TAA activity
could easily be licensed under the DSP-5 mechanism (after all, DDTC’s friends across town at the Bureau of Industry and Security manage it). If DTC is still wedded to the TAA boilerplate language, they could include it as a proviso that the licensee must sign off on prior to export.
As with anything in ITAR compliance, we wish you good luck and a sympathetic licensing officer.
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