Final US ITAR Rule on Dual and Third Country Nationals Raises New Challenges

by John Boscariol
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Today, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) published in the Federal Register

the final rule containing its long-awaited amendments to the International Traffic in Arms Regulations (ITAR) governing

the access of dual and third-country nationals to ITAR-controlled defence articles, including technical data – see

[http://www.gpo.gov/fdsys/pkg/FR-2011-05-16/pdf/2011-11697.pdf]. These, together with ongoing changes to Canada’s

Controlled Goods Program (CGP) generally covering similar goods and technology, are anticipated to have a significant

effect on Canadian companies in the aerospace, defence and satellite sectors, and in particular on their security,

compliance and screening processes.

Up to now, Canadian firms have faced numerous difficulties with ITAR rules that prohibit employees of certain

nationalities or born in certain proscribed countries from accessing US-controlled defence goods and technology in

Canada. In order to comply with these restrictions, Canadian companies have had to risk violating provincial and federal

anti-discrimination laws, as well as exposure to human rights complaints, when denying employees access to projects

involving ITAR-controlled items because of their nationality or country of birth. Companies in affected sectors have had

to address, defend and settle costly, and in some cases very public, anti-discrimination claims arising from ITAR

compliance.

DDTC officials have stated that the final rule is intended to move away from nationality-based screening and avoid the

human rights conflicts that have plagued trade partners in Canada and other countries.

These proposed changes were first released on a preliminary basis for comment by DDTC in August of 2010. Our legal

update discussing the preliminary rule can be found at Proposed US Defence Control Changes Aim to Resolve

Conflicts with Canadian Human Rights Law. The final rule retains the essence of what was initially proposed, with

some minor changes to the text and some other more significant revisions referred to below.

ITAR Defence Articles May Now be Transferred to 3rd Country or Dual National Employees

Under new ITAR section 126.18, DDTC approval will not be required for the transfer of defence articles, including

technical data, to a foreign business entity, foreign government entity, or international organization that is an approved

end-user or consignee for those items, “including the transfer to dual nationals or third-country nationals who are bona

fide regular employees, directly employed by the foreign consignee or end-user.” This exemption will apply provided the

transfer takes place completely within the territories where the end-user is located or where the consignee operates,

and must be within the scope of an approved export licence, other export authorization, or licence exemption.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© John Boscariol, McCarthy Tetrault LLP | Attorney Advertising

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