It seems like the Directorate of Defense Trade Controls (“DDTC”) has been working on the amendments to the brokering rules in Part 129 of the International Traffic in Arms Regulations since sometime during the Taft Administration. So when the latest iteration of these rules, oxymoronically labelled as the “Final Interim” Rule, appeared early this week I wearily clicked through to the Federal Register notice, fully prepared to revisit the horror that I had experienced some many times before. But, but, I soon realized that the lengthy gestation of the rules and the numerous rounds of public comment had borne fruit. Although not perfect, this new version fixes a number of the problems that plagued the previous versions.
I will over the next several days review various parts of the new rules, but I want to start with the best news. Cue music for a happy dance: DDTC has finally gotten the jurisdictional scope of the rules right. As many of you know far too painfully, DDTC had, starting with some improvident remarks made by at least one former staffer at the agency, argued that the brokering rules, even before any proposed amendment, covered foreign persons in foreign lands if a U.S. origin defense article was involved. The earlier versions of the proposed rules made this explicit, covering U.S. persons, all persons in the United States and
any foreign person located outside the United States involving a U.S.-origin defense article or defense service.
The Final Interim rule completely eliminates this last category and, at last, returns to the original intent of the Brokering Amendment to the Arms Export Control Act, the authority for the brokering rules in the first place. As DDTC says in its comments on the Final Interim rule:
In conformance with the statutory requirements for the brokering of defense articles and services, the Department has revised the proposed changes to these definitions to clarify their scope. In particular, the Department has clarified that foreign persons that are required to register as brokers are those that are in the United States and those foreign persons outside the United States that are owned/controlled by a U.S. person. And the Department has removed from the definition of ‘‘brokering activities’’ the activities of any foreign person located outside the United States acting on behalf of a U.S. person.
This is great news and eliminates an enormous headache for exporters that use foreign reps and agents to distribute their defense articles abroad.
The only downside is that this new language makes clear the foreign subsidiaries may have to register, something that had not been required by previous versions of the rule which covered activities “for others” and which some at DDTC had said informally did not cover companies under the same “corporate umbrella,” although some others at the agency have said informally that all foreign subsidiaries were covered if they were involved in the parent company’s sale of defense articles.