1 February 1998

Source: http://www.access.gpo.gov/nara/cfr/index.html

------------------------------------------------------------

[Code of Federal Regulations]
[Title 22, Volume 1, Parts 1 to 299]
[Revised as of April 1, 1997]
From the U.S. Government Printing Office via GPO Access
[CITE: 22CFR124]

[Page 365-375]
 
                       TITLE 22--FOREIGN RELATIONS
 
                     CHAPTER I--DEPARTMENT OF STATE
 
PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE SERVICES

Sec.
124.1  Manufacturing license agreements and technical assistance 
          agreements.
124.2  Exemptions for training and military service.
124.3  Exports of technical data in furtherance of an agreement.
124.4  Deposit of signed agreements with the Office of Defense Trade 
          Controls.
124.5  Proposed agreements that are not concluded.
124.6  Termination of manufacturing license agreements and technical 
          assistance agreements.
124.7  Information required in all manufacturing license agreements and 
          technical assistance agreements.
124.8  Clauses required both in manufacturing license agreements and 
          technical assistance agreements.
124.9  Additional clauses required only in manufacturing license 
          agreements.
124.10  Nontransfer and use assurances.
124.11  Certification to Congress for agreements.
124.12  Required information in letters of transmittal.
124.13  Procurement by United States persons in foreign countries 
          (offshore procurement).
124.14  Exports to warehouses or distribution points outside the United 
          States.
124.15  Arrangements for U.S. encryption (Category XIII(b)(1)) 
          distribution by manufacturers.

    Authority: Sec. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22 
U.S.C. 2752, 2778, 2797); E.O. 11958, 42 FR 4311; 3 CFR 1977 Comp. p. 
79; 22 U.S.C. 2658.

    Source: 58 FR 39305, July 22, 1993, unless otherwise noted.

[[Page 366]]

Sec. 124.1  Manufacturing license agreements and technical assistance 
          agreements.

    (a) The approval of the Office of Defense Trade Controls must be 
obtained before the defense services described in Sec. 120.9(a) of this 
subchapter may be furnished. In order to obtain such approval, the U.S. 
person must submit a proposed agreement to the Office of Defense Trade 
Controls. Such agreements are generally characterized as either 
Manufacturing license agreements, technical assistance agreements, 
distribution agreements or off-shore procurement agreements, and may not 
enter into force without the prior written approval of the Office of 
Defense Trade Controls. Once approved, the defense services described in 
the agreements may generally be provided without further licensing in 
accordance with Secs. 124.3 and 125.4(b)(2) of this subchapter. The 
requirements of this section apply whether or not technical data is to 
be disclosed or used in the performance of the defense services 
described in Sec. 120.9(a) of this subchapter (e.g., all the information 
relied upon by the U.S. person in performing the defense service is in 
the public domain or is otherwise exempt from the licensing requirements 
of this subchapter pursuant to Sec. 125.4 of this subchapter). This 
requirement also applies to the training of any foreign military forces, 
regular and irregular, in the use of defense articles. Technical 
assistance agreements must be submitted in such cases. In exceptional 
cases, The Office of Defense Trade Controls, upon written request, will 
consider approving the provision of defense services described in 
Sec. 120.9(a) of this subchapter by granting a license under part 125 of 
this subchapter. Also, see Sec. 126.8 of this subchapter for the 
requirements for prior approval of proposals relating to significant 
military equipment.
    (b) Classified Articles. Copies of approved agreements involving the 
release of classified defense articles will be forwarded by the Office 
of Defense Trade Controls to the Defense Investigative Service of the 
Department of Defense.
    (c) Amendments. Changes to the scope of approved agreements, 
including modifications, upgrades, or extensions must be submitted for 
approval. The amendments may not enter into force until approved by the 
Office of Defense Trade Controls.
    (d) Minor Amendments. Amendments which only alter delivery or 
performance schedules, or other minor administrative amendments which do 
not affect in any manner the duration of the agreement or the clauses or 
information which must be included in such agreements because of the 
requirements of this part, do not have to be submitted for approval. One 
copy of all such minor amendments must be submitted to the Office of 
Defense Trade Controls within thirty days after they are concluded.

Sec. 124.2  Exemptions for training and military service.

    (a) Technical assistance agreements are not required for the 
provision of training in the basic operation and maintenance of defense 
articles lawfully exported or authorized for export to the same 
recipient. This does not include training in intermediate and depot 
level maintenance.
    (b) Services performed as a member of the regular military forces of 
a foreign nation by U.S. persons who have been drafted into such forces 
are not deemed to be defense services for purposes of Sec. 120.9 of this 
subchapter.

Sec. 124.3  Exports of technical data in furtherance of an agreement.

    (a) Unclassified technical data. District Directors of Customs or 
postal authorities shall permit the export without a license of 
unclassified technical data if the export is in furtherance of a 
manufacturing license or technical assistance agreement which has been 
approved in writing by the Office of Defense Trade Controls and the 
technical data being exported does not exceed the scope or limitations 
of the relevant agreement. The U.S. party to the agreement must certify 
on the Shippers Export Declaration that the export does not exceed the 
scope of the agreement and any limitations imposed pursuant to this 
part. The approval of the Office of Defense Trade Controls must be 
obtained for the export of any unclassified technical data

[[Page 367]]

which may exceed the terms of the agreement.
    (b) Classified technical data. The export of classified information 
in furtherance of an approved manufacturing license or technical 
assistance agreement which provides for the transmittal of classified 
information does not require further approval from the Office of Defense 
Trade Controls when:
    (1) The United States party certifies to the Department of Defense 
transmittal authority that the classified information does not exceed 
the technical or product limitations in the agreement; and
    (2) The U.S. party complies with the requirements of the Department 
of Defense Industrial Security Manual concerning the transmission of 
classified information and any other requirements of cognizant U.S. 
departments or agencies.

Sec. 124.4  Deposit of signed agreements with the Office of Defense 
          Trade Controls.

    The United States party to a manufacturing license or a technical 
assistance agreement must file one copy of the concluded agreement with 
the Office of Defense Trade Controls not later than 30 days after it 
enters into force.

Sec. 124.5  Proposed agreements that are not concluded.

    The United States party to any proposed manufacturing license 
agreement or technical assistance agreement must inform the Office of 
Defense Trade Controls if a decision is made not to conclude the 
agreement. The information must be provided within 60 days of the date 
of the decision. These requirements apply only if the approval of the 
Office of Defense Trade Controls was obtained for the agreement to be 
concluded (with or without any provisos).

Sec. 124.6  Termination of manufacturing license agreements and 
          technical assistance agreements.

    The U. S. party to a manufacturing license or a technical assistance 
agreement must inform the Office of Defense Trade Controls in writing of 
the impending termination of the agreement not less than 30 days prior 
to the expiration date of such agreement.

Sec. 124.7  Information required in all manufacturing license agreements 
          and technical assistance agreements.

    The following information must be included in all proposed 
manufacturing license agreements and technical assistance agreements. 
The information should be provided in terms which are as precise as 
possible. If the applicant believes that a clause or that required 
information is not relevant or necessary, the applicant may request the 
omission of the clause or information. The transmittal letter 
accompanying the agreement must state the reasons for any proposed 
variation in the clauses or required information.
    (1) The agreement must describe the defense article to be 
manufactured and all defense articles to be exported, including any test 
and support equipment or advanced materials. They should be described by 
military nomenclature, contract number, National Stock Number, nameplate 
data, or other specific information. Supporting technical data or 
brochures should be submitted in seven copies. Only defense articles 
listed in the agreement will be eligible for export under the exemption 
in Sec. 123.16(b)(1) of this subchapter.
    (2) The agreement must specifically describe the assistance and 
technical data, including the design and manufacturing know-how 
involved, to be furnished and any manufacturing rights to be granted;
    (3) The agreement must specify its duration; and
    (4) The agreement must specifically identify the countries or areas 
in which manufacturing, production, processing, sale or other form of 
transfer is to be licensed.

Sec. 124.8  Clauses required both in manufacturing license agreements 
          and technical assistance agreements.

    The following statements must be included both in manufacturing 
license agreements and in technical assistance agreements:
    (1) ``This agreement shall not enter into force, and shall not be 
amended or

[[Page 368]]

extended, without the prior written approval of the Department of State 
of the U.S. Government.''
    (2) ``This agreement is subject to all United States laws and 
regulations relating to exports and to all administrative acts of the 
U.S. Government pursuant to such laws and regulations.''
    (3) ``The parties to this agreement agree that the obligations 
contained in this agreement shall not affect the performance of any 
obligations created by prior contracts or subcontracts which the parties 
may have individually or collectively with the U.S. Government.''
    (4) ``No liability will be incurred by or attributed to the U.S. 
Government in connection with any possible infringement of privately 
owned patent or proprietary rights, either domestic or foreign, by 
reason of the U.S. Government's approval of this agreement.''
    (5) ``The technical data or defense service exported from the United 
States in furtherance of this agreement and any defense article which 
may be produced or manufactured from such technical data or defense 
service may not be transferred to a person in a third country or to a 
national of a third country except as specifically authorized in this 
agreement unless the prior written approval of the Department of State 
has been obtained.''
    (6) ``All provisions in this agreement which refer to the United 
States Government and the Department of State will remain binding on the 
parties after the termination of the agreement.''

Sec. 124.9  Additional clauses required only in manufacturing license 
          agreements.

    (a) Clauses for all manufacturing license agreements. The following 
clauses must be included only in manufacturing license agreements:
    (1) ``No export, sale, transfer, or other disposition of the 
licensed article is authorized to any country outside the territory 
wherein manufacture or sale is herein licensed without the prior written 
approval of the U.S. Government unless otherwise exempted by the U.S. 
Government. Sales or other transfers of the licensed article shall be 
limited to governments of countries wherein manufacture or sale is 
hereby licensed and to private entities seeking to procure the licensed 
article pursuant to a contract with any such government unless the prior 
written approval of the U.S. Government is obtained.''
    (2) ``It is agreed that sales by licensee or its sub-licensees under 
contracts made through the U.S. Government will not include either 
charges for patent rights in which the U.S. Government holds a royalty-
free license, or charges for data which the U.S. Government has a right 
to use and disclose to others, which are in the public domain, or which 
the U.S. Government has acquired or is entitled to acquire without 
restrictions upon their use and disclosure to others.''
    (3) ``If the U.S. Government is obligated or becomes obligated to 
pay to the licensor royalties, fees, or other charges for the use of 
technical data or patents which are involved in the manufacture, use, or 
sale of any licensed article, any royalties, fees or other charges in 
connection with purchases of such licensed article from licensee or its 
sub-licensees with funds derived through the U.S. Government may not 
exceed the total amount the U.S. Government would have been obligated to 
pay the licensor directly.''
    (4) ``If the U.S. Government has made financial or other 
contributions to the design and development of any licensed article, any 
charges for technical assistance or know-how relating to the item in 
connection with purchases of such articles from licensee or sub-
licensees with funds derived through the U.S. Government must be 
proportionately reduced to reflect the U.S. Government contributions, 
and subject to the provisions of paragraphs (a) (2) and (3) of this 
section, no other royalties, or fees or other charges may be assessed 
against U.S. Government funded purchases of such articles. However, 
charges may be made for reasonable reproduction, handling, mailing, or 
similar administrative costs incident to the furnishing of such data.''
    (5) ``The parties to this agreement agree that an annual report of 
sales or other transfers pursuant to this agreement of the licensed 
articles, by quantity, type, U.S. dollar value, and purchaser or 
recipient, shall be provided

[[Page 369]]

by (applicant or licensee) to the Department of State.'' This clause 
must specify which party is obligated to provide the annual report. Such 
reports may be submitted either directly by the licensee or indirectly 
through the licensor, and may cover calendar or fiscal years. Reports 
shall be deemed proprietary information by the Department of State and 
will not be disclosed to unauthorized persons. See Sec. 126.10(b) of 
this subchapter.
    (6) (Licensee) agrees to incorporate the following statement as an 
integral provision of a contract, invoice or other appropriate document 
whenever the licensed articles are sold or otherwise transferred:

    These commodities are authorized for export by the U.S. Government 
only to (country of ultimate destination or approved sales territory). 
They may not be resold, diverted, transferred, transshipped, or 
otherwise be disposed of in any other country, either in their original 
form or after being incorporated through an intermediate process into 
other end-items, without the prior written approval of the U.S. 
Department of State.

    (b) Special clause for agreements relating to significant military 
equipment. With respect to an agreement for the production of 
significant military equipment, the following additional provisions must 
be included in the agreement:
    (1) ``A completed nontransfer and use certificate (DSP-83) must be 
executed by the foreign end-user and submitted to the Department of 
State of the United States before any transfer may take place.''
    (2) ``The prior written approval of the U.S. Government must be 
obtained before entering into a commitment for the transfer of the 
licensed article by sale or otherwise to any person or government 
outside of the approved sales territory.''

Sec. 124.10  Nontransfer and use assurances.

    (a) Types of agreements requiring assurances. With respect to any 
manufacturing license agreement or technical assistance agreement which 
relates to significant military equipment or classified defense 
articles, including classified technical data, a Nontransfer and Use 
Certificate (Form DSP-83) (see Sec. 123.10 of this subchapter) signed by 
the applicant and the foreign party must be submitted to the Office of 
Defense Trade Controls. With respect to all agreements involving 
classified articles, including classified technical data, an authorized 
representative of the foreign government must sign the DSP-83 (or 
provide the same assurances in the form of a diplomatic note), unless 
the Office of Defense Trade Controls has granted an exception to this 
requirement. The Office of Defense Trade controls may require that a 
DSP-83 be provided in conjunction with an agreement that does not relate 
to significant military equipment or classified defense articles. The 
Office of Defense Trade Controls may also require with respect to any 
agreement that an appropriate authority of the foreign party's 
government also sign the DSP-83 (or provide the same assurances in the 
form of a diplomatic note).
    (b) Timing of submission of assurances. Submission of a Form DSP-83 
and/or diplomatic note must occur as follows:
    (1) Agreements which have been signed by all parties before being 
submitted to the Office of Defense Trade Controls may only be submitted 
along with any required DSP-83 and/or diplomatic note.
    (2) If an agreement has not been signed by all parties before being 
submitted, the required DSP-83 and/or diplomatic note must be submitted 
along with the signed agreement.

    Note: In no case may a transfer occur before a required DSP-83 and/
or diplomatic note has been submitted to the Office of Defense Trade 
Controls.

[59 FR 29951, June 10, 1994]

Sec. 124.11  Certification to Congress for agreements.

    Regardless of dollar value, a Technical Assistance Agreement or a 
Manufacturing License Agreement for or in a country not a member of NATO 
that involves the manufacture abroad of any item of significant military 
equipment (as defined in Sec. 120.7 of this subchapter) shall be 
certified to Congress by the Department as required by 22 U.S.C. 
2776(d). Additionally, any technical assistance agreement or 
manufacturing license agreement providing

[[Page 370]]

for the export of major defense equipment, as defined in Sec. 120.8, 
sold under a contract in the amount of $14 million or more, or of 
defense articles or defense services sold under a contract in the amount 
of $50 million or more, shall be certified to Congress by the Department 
as required by 22 U.S.C. 2776(c)(1). The Office of Defense Trade 
Controls will not approve agreements requiring Congressional 
notification until 30 calendar days have elapsed since receipt by the 
Congress of the required certification without the Congress having 
enacted a joint resolution prohibiting the agreement.

Sec. 124.12  Required information in letters of transmittal.

    (a) An application for the approval of a manufacturing license or 
technical assistance agreement with a foreign person must be accompanied 
by an explanatory letter. The original letter and seven copies of the 
letter and eight copies of the proposed agreement shall be submitted to 
the Office of Defense Trade Controls. The explanatory letter shall 
contain:
    (1) A statement giving the applicant's Defense Trade Controls 
registration number.
    (2) A statement identifying the licensee and the scope of the 
agreement.
    (3) A statement identifying the U.S. Government contract under which 
the equipment or technical data was generated, improved, or developed 
and supplied to the U.S. Government, and whether the equipment or 
technical data was derived from any bid or other proposal to the U.S. 
Government.
    (4) A statement giving the military security classification of the 
equipment or technical data.
    (5) A statement identifying any patent application which discloses 
any of the subject matter of the equipment or technical data covered by 
an invention secrecy order issued by the U.S. Patent and Trademark 
Office.
    (6) A statement of the actual or estimated value of the agreement, 
including the estimated value of all defense articles to be exported in 
furtherance of the agreement or amendments thereto. If the value is 
$500,000 or more, an additional statement must be made regarding the 
payment of political contributions, fees or commissions, pursuant to 
part 130 of this subchapter.
    (7) A statement indicating whether any foreign military sales 
credits or loan guarantees are or will be involved in financing the 
agreement.
    (8) The agreement must describe any classified information involved 
and identify, from Department of Defense form DD254, the address and 
telephone number of the U.S. Government office that classified the 
information.
    (9) For agreements that may require the export of classified 
information, the Defense Investigative Service cognizant security 
offices that have responsibility for the facilities of the U.S. parties 
to the agreement shall be identified. The facility security clearance 
codes of the U.S. parties shall also be provided.
    (b) The following statements must be made in the letter of 
transmittal:
    (1) ``If the agreement is approved by the Department of State, such 
approval will not be construed by (the applicant) as passing on the 
legality of the agreement from the standpoint of antitrust laws or other 
applicable statutes, nor will (the applicant) construe the Department's 
approval as constituting either approval or disapproval of any of the 
business terms or conditions between the parties to the agreement.''
    (2) ``The (applicant) will not permit the proposed agreement to 
enter into force until it has been approved by the Department of 
State.''
    (3) ``The (applicant) will furnish the Department of State with one 
copy of the signed agreement (or amendment) within 30 days from the date 
that the agreement is concluded and will inform the Department of its 
termination not less than 30 days prior to expiration and provide 
information on the continuation of any foreign rights or the flow of 
technical data to the foreign party. If a decision is made not to 
conclude the proposed agreement, the applicant will so inform the 
Department within 60 days.''
    (4) ``If this agreement grants any rights to sub-license, it will be 
amended to require that all sub-licensing arrangements incorporate all 
the provisions of the basic agreement that refer

[[Page 371]]

to the U.S. Government and the Department of State (i.e., 22 CFR 124.9 
and 124.10).''

Sec. 124.13  Procurement by United States persons in foreign countries 
          (offshore procurement).


    Notwithstanding the other provisions in part 124 of this subchapter, 
the Office of Defense Trade Controls may authorize by means of a license 
(DSP-5) the export of unclassified technical data to foreign persons for 
offshore procurement of defense articles, provided that:
    (a) The contract or purchase order for offshore procurement limits 
delivery of the defense articles to be produced only to the person in 
the United States or to an agency of the U.S. Government; and
    (b) The technical data of U.S.-origin to be used in the foreign 
manufacture of defense articles does not exceed that required for bid 
purposes on a build-to-print basis (build-to-print means producing an 
end-item (i.e., system, subsystem or component) from technical drawings 
and specifications (which contain no process or know-how information) 
without the need for additional technical assistance). Release of 
supporting documentation (e.g., acceptance criteria, object code 
software for numerically controlled machines) is permissible. Build-to-
print does not include the release of any information which discloses 
design methodology, engineering analysis, detailed process information 
or manufacturing know-how); and
    (c) The contract or purchase order between the person in the United 
States and the foreign person:
    (1) Limits the use of the technical data to the manufacture of the 
defense articles required by the contract or purchase order only; and
    (2) Prohibits the disclosure of the data to any other person except 
subcontractors within the same country; and
    (3) Prohibits the acquisition of any rights in the data by any 
foreign person; and
    (4) Provides that any subcontracts between foreign persons in the 
approved country for manufacture of equipment for delivery pursuant to 
the contract or purchase order contain all the limitations of this 
paragraph (c); and
    (5) Requires the foreign person, including subcontractors, to 
destroy or return to the person in the United States all of the 
technical data exported pursuant to the contract or purchase order upon 
fulfillment of their terms; and
    (6) Requires delivery of the defense articles manufactured abroad 
only to the person in the United States or to an agency of the U.S. 
Government; and
    (d) The person in the United States provides the Office of Defense 
Trade Controls with a copy of each contract, purchase order or 
subcontract for offshore procurement at the time it is accepted. Each 
such contract, purchase order or subcontract must clearly identify the 
article to be produced and must identify the license number or exemption 
under which the technical data was exported; and
    (e) Licenses issued pursuant to this section must be renewed upon 
their expiration if offshore procurement is to extend beyond the period 
of validity of the license. If the technical data involved in an 
offshore procurement arrangement is otherwise exempt from the licensing 
requirements pursuant to Sec. 126.4 or Sec. 126.5 of this subchapter, 
the DSP-5 referred to in the first sentence of this section is not 
required. However, the exporter must comply with the other requirements 
of this section. The exemptions under Sec. 125.4 of this subchapter may 
not be used to establish offshore procurement arrangements.

Sec. 124.14  Exports to warehouses or distribution points outside the 
          United States.

    (a) Agreements (e.g., contracts) between U.S. persons and foreign 
persons for the warehousing and distribution of defense articles must be 
approved by the Office of Defense Trade Controls before they enter into 
force. Such agreements will be limited to unclassified defense articles 
and must contain conditions for special distribution, end-use and 
reporting. Licenses for exports pursuant to such agreements must be 
obtained prior to exports of the defense articles unless an exemption 
under

[[Page 372]]

Sec. 123.16(b)(1) of this subchapter is applicable.
    (b) Required Information. Proposed warehousing and distribution 
agreements (and amendments thereto) shall be submitted to the Office of 
Defense Trade Controls for approval. The following information must be 
included in all such agreements:
    (1) A description of the defense articles involved including test 
and support equipment covered by the U.S. Munitions List. This shall 
include when applicable the military nomenclature, the Federal stock 
number, nameplate data, and any control numbers under which the defense 
articles were developed or procured by the U.S. Government. Only those 
defense articles specifically listed in the agreement will be eligible 
for export under the exemption in Sec. 123.16(b)(1) of this subchapter.
    (2) A detailed statement of the terms and conditions under which the 
defense articles will be exported and distributed;
    (3) The duration of the proposed agreement;
    (4) Specific identification of the country or countries that 
comprise the distribution territory. Distribution must be specifically 
limited to the governments of such countries or to private entities 
seeking to procure defense articles pursuant to a contract with a 
government within the distribution territory or to other eligible 
entities as specified by the Office of Defense Trade Controls. 
Consequently, any deviation from this condition must be fully explained 
and justified. A nontransfer and use certificate (DSP-83) will be 
required to the same extent required in licensing agreements under 
Sec. 124.9(b).
    (c) Required statements. The following statements must be included 
in all warehousing and distribution agreements:
    (1) ``This agreement shall not enter into force, and may not be 
amended or extended, without the prior written approval of the 
Department of State of U.S. Government.''
    (2) ``This agreement is subject to all United States laws and 
regulations related to exports and to all administrative acts of the 
United States Government pursuant to such laws and regulations.
    (3) ``The parties to this agreement agree that the obligations 
contained in this agreement shall not affect the performance of any 
obligations created by prior contracts or subcontracts which the parties 
may have individually or collectively with the U.S. Government.''
    (4) ``No liability will be incurred by or attributed to the U.S. 
Government in connection with any possible infringement of privately 
owned patent or proprietary rights, either domestic or foreign by reason 
of the U.S. Government's approval of this agreement.''
    (5) ``No export, sale, transfer, or other disposition of the defense 
articles covered by this agreement is authorized to any country outside 
the distribution territory without the prior written approval of the 
Office of Defense Trade Controls of the U.S. Department of State.''
    (6) ``The parties to this agreement agree that an annual report of 
sales or other transfers pursuant to this agreement of the licensed 
articles, by quantity, type, U.S. dollar value, and purchaser or 
recipient shall be provided by (applicant or licensee) to the Department 
of State.'' This clause must specify which party is obligated to provide 
the annual report. Such reports may be submitted either directly by the 
licensee or indirectly through the licensor, and may cover calendar or 
fiscal years. Reports shall be deemed proprietary information by the 
Department of State and will not be disclosed to unauthorized persons. 
(See Sec. 126.10(b) of this subchapter.)
    (7) (Licensee) agrees to incorporate the following statement as an 
integral provision of a contract, invoice or other appropriate document 
whenever the articles covered by this agreement are sold or otherwise 
transferred:

    These commodities are authorized for export by the U.S. Government 
only to (country of ultimate destination or approved sales territory). 
They may not be resold, diverted, transferred, transshipped, or 
otherwise be disposed of in any other country, either in their original 
form or after being incorporated through an intermediate process into 
other end-items, without the prior written approval of the U.S. 
Department of State.


[[Page 373]]


    (8) ``All provisions in this agreement which refer to the United 
States Government and the Department of State will remain binding on the 
parties after the termination of the agreement.''
    (9) Additional clause. Unless the articles covered by the agreement 
are in fact intended to be distributed to private persons or entities 
(e.g., sporting firearms for commercial resale, cryptographic devices 
and software for financial and business applications), the following 
clause must be included in all warehousing and distribution agreements: 
``Sales or other transfers of the licensed article shall be limited to 
governments of the countries in the distribution territory and to 
private entities seeking to procure the licensed article pursuant to a 
contract with a government within the distribution territory, unless the 
prior written approval of the U.S. Department of State is obtained.''
    (d) Special clauses for agreements relating to significant military 
equipment. With respect to agreements for the warehousing and 
distribution of significant military equipment, the following additional 
provisions must be included in the agreement:
    (1) A completed nontransfer and use certificate (DSP-83) must be 
executed by the foreign end-user and submitted to the U.S. Department of 
State before any transfer may take place.
    (2) The prior written approval of the U.S. Department of State must 
be obtained before entering into a commitment for the transfer of the 
licensed article by sale or otherwise to any person or government 
outside the approved distribution territory.
    (e) Transmittal Letters. Requests for approval of warehousing and 
distribution agreements with foreign persons must be made by letter. The 
original letter and seven copies of the letter and seven copies of the 
proposed agreement shall be submitted to the Office of Defense Trade 
Controls. The letter shall contain:
    (1) A statement giving the applicant's Defense Trade Controls 
registration number.
    (2) A statement identifying the foreign party to the agreement.
    (3) A statement identifying the defense articles to be distributed 
under the agreement.
    (4) A statement identifying any U.S. Government contract under which 
the equipment may have been generated, improved, developed or supplied 
to the U.S. Government, and whether the equipment was derived from any 
bid or other proposal to the U.S. Government.
    (5) A statement that no classified defense articles or classified 
technical data are involved.
    (6) A statement identifying any patent application which discloses 
any of the subject matter of the equipment or related technical data 
covered by an invention secrecy order issued by the U.S. Patent and 
Trademark Office.
    (f) Required clauses. The following statements must be made in the 
letter of transmittal:
    (1) ``If the agreement is approved by the Department of State, such 
approval will not be construed by (applicant) as passing on the legality 
of the agreement from the standpoint of antitrust laws or other 
applicable statutes, nor will (the applicant) construe the Department's 
approval as constituting either approval or disapproval of any of the 
business terms or conditions between the parties to the agreement.''
    (2) ``The (applicant) will not permit the proposed agreement to 
enter into force until it has been approved by the Department of 
State.''
    (3) ``(Applicant) will furnish the Department of State with one copy 
of the signed agreement (or amendment thereto) within 30 days from the 
date that the agreement is concluded, and will inform the Department of 
its termination not less than 30 days prior to expiration. If a decision 
is made not to conclude the proposed agreement, (applicant) will so 
inform the Department within 60 days.''

Sec. 124.15  Arrangements for U.S. encryption (Category XIII(b)(1)) 
          distribution by manufacturers.

    (a) Arrangements for the export of unclassified defense articles 
identified in Category XIII(b)(1) must be approved by the Office of 
Defense Trade Controls

[[Page 374]]

before they enter into force. Such arrangements will be limited to 
unclassified defense articles identified in Category XIII(b)(1) and must 
contain conditions for special distribution, end-use and reporting. 
Licenses for export pursuant to such arrangements must be obtained prior 
to export of the defense article unless an exemption under 
Sec. 123.16(b)(1) of this subchapter is applicable.
    (b) Required information. Proposed arrangements shall be submitted 
to the Office of Defense Trade Controls for review and approval. The 
following information must be included in all such proposed 
arrangements:
    (1) A description of the U.S. Munitions List articles involved. This 
shall include when applicable the Federal Stock Number, nameplate data, 
and any control numbers under which the articles were developed or 
procured by the U.S. Government;
    (2) A detailed statement of the terms and conditions under which the 
articles will be exported and distributed;
    (3) The duration of the proposed arrangement; and
    (4) Specific identification of the country or countries that 
comprise the distribution territory. A Nontransfer and Use Certificate 
(DSP-83) will be required in accordance with Sec. 123.10.
    (c) Required Statements. The following statements must be included 
in all arrangements:
    (1) This arrangement shall not enter into force, and shall not be 
amended or extended, without the prior written approval of the 
Department of State of the U.S. Government.
    (2) This arrangement is subject to all United States laws and 
regulations relating to exports and to all administrative acts of the 
U.S. Government pursuant to such laws and regulations.
    (3) The arrangement shall not affect the performance of any 
obligations created by prior contracts or subcontracts which the 
applicant may have individually or collectively with the U.S. 
Government.
    (4) No liability will be incurred by or attributed to the U.S. 
Government in connection with any possible infringement of privately 
owned patent or proprietary rights, either domestic or foreign, by 
reason of the U.S. Government's approval of this arrangement.
    (5) No export, sale, transfer, or other disposition of the U.S. 
Munitions List articles covered by this arrangement is authorized to any 
country outside the distribution territory without the prior written 
approval of the Office of Defense Trade Controls of the U.S. Department 
of State.
    (6) The applicant agrees that a semi-annual report of sales or other 
transfers pursuant to this arrangement of the licensed articles, by 
quantity, type, U.S. dollar value, and purchaser or recipient shall be 
provided by (applicant) to the Department of State. Such reports may 
cover calendar or fiscal years. Reporting shall continue until such time 
as all articles authorized under the arrangement or a permanent 
unclassified license (DSP-5) authorized in support of the arrangement 
have been reported. Reports shall be deemed proprietary information by 
the Department of State and will not be disclosed to unauthorized 
persons. (See Sec. 126.10(b) of this subchapter.)
    (7) The applicant agrees to notify (identify foreign end-user) of 
any end use or retransfer restrictions and (identify foreign end user) 
agrees to incorporate the following statement as an integral provision 
of a contract, invoice or other appropriate document when the articles 
covered by this arrangement are sold or otherwise transferred:
    ``These commodities are authorized for export by the U.S. Government 
only to (identify country of ultimate destination). They may not be 
resold, diverted, transferred, transshipped, or otherwise be disposed of 
in any other country, either in their original form or after being 
incorporated through an intermediate process into other end-items, 
without the prior written approval of the U.S. Department of State.''
    (8) All provisions in this arrangement which refer to the United 
States Government and the Department of State will remain binding on the 
applicant after the termination of the arrangement.
    (d) The license will be valid for four years and quantities and 
values should reflect those for this time period. No

[[Page 375]]

application will be accepted for any export for which Congressional 
notification is required.
    The application shall be filled out in accordance with the 
instructions; however, in this instance, foreign end-user, foreign 
consignee, and foreign intermediate consignees need not be identified. 
In each block state: ``The foreign person in this block will be reported 
in accordance with Sec. 124.15 of the ITAR.'' The provisions of 
Sec. 126.13(b) with regards to foreign consignee and foreign 
intermediate consignee need not be complied with at the time the 
application is transmitted but will be reported semi-annually.
    (e) Transmittal letter. Requests for approval of the arrangement 
must be made by letter. The original letter and seven copies of the 
proposed arrangement shall be submitted to the Office of Defense Trade 
Controls. The letter shall contain the following:
    (1) A statement giving the applicant's Defense Trade Controls 
registration number.
    (2) A statement identifying the country or countries to comprise the 
distribution territory.
    (3) A statement identifying the defense articles to be distributed 
under the arrangement.
    (4) A statement identifying any U.S. Government contract under which 
the equipment may have been generated, improved, developed or supplied 
to the U.S. Government, and whether the equipment was derived from any 
bid or other proposal to the U.S. Government.
    (5) A statement that no classified defense articles or classified 
technical data are involved.
    (6) A statement identifying any patent application which discloses 
any of the subject matter of the equipment or related technical data 
covered by an invention secrecy order issued by the U.S. Patent and 
Trademark Office.
    (7) A statement that the applicant will not permit any exports to 
take place until the arrangement and the export license have been 
approved by the Department of State.

[59 FR 45622, Sept. 2, 1994]