Defense Trade Advisory Group (DTAG) ITAR Definition of Manufacturing February 1, 2018

Working Group Members Nate Bolin, Drinker Biddle & Reath, LLP. Steve Casazza, General Atomics Ben Child, Livingston International Rob Lawson, GE Aviation Ari Novis, Pratt & Whitney (Co-chair) Brandt Pasco, Pasco & Associates, PLLC (Co-chair) Jeff Sammon, Raytheon, Space & Airborne Systems Sandy Tucker, Raytheon, Space & Airborne Systems

State Department Tasking Develop a definition of “manufacturing” for use in the ITAR. Considering the possibility of revisions of Cats I-III and removal of most commercial firearms and related activities from the ITAR, DDTC requests DTAG to review and provide feedback to accurately and effectively define “manufacturing” (and distinguish from other related activities like assembly, integration, installment, various services) for remaining defense articles and services.

Task AECA references but does not define "manufacture." E.g., Notification to Congress §2776 (d) Requirement to register §2778 (b)(1)(A)(i) ITAR does not define “manufacture.” EAR and Wassenaar do not define "manufacture" other than as a subset of “production.”

Background DDTC guidance for firearms manufacture 22 July 2016 Differentiates between “manufacturer” and “gunsmith” Applies the ‘ordinary, contemporary, common meaning’ of the terms Provides general and detailed policy guidance General guidance - "manufacture" INCLUDES: Cutting, drilling, and machining, capability improvement DOES NOT INCLUDE: Assembly and repairs Detailed Policy guidance is restricted to Cat I and III Specifically does not apply to items elsewhere on USML This task is specifically non-firearms related General policy guidance is still informative

Concept Define "manufacture" as a subset of the overall process of producing a defense article. Model: O-, I-, and Depot levels are aspects of 120.38 Maintenance Requires identifying those aspects that are not "manufacture" “Manufacture" materially changes the item and is not readily reversible. Casting, machining, forging, etc. Permanent attachment (e.g., welding, diffusion bonding, etc.) Does not include: Where there is no change to the item (e.g., test, inspection), or Reversible assembly (often an aspect of repair)

Proposed Definitions Identifies separate and distinct processes grouped under specific, over-arching definitions. Manufacture covers those activities that materially change the item but are not ‘mere’ assembly. Mirrors EAR definition of “production” and previous DDTC guidance. Differentiate manufacturing from assembly. Assembly has a broad scope, so it required two phases.

Proposed Definition Manufacturing consists of: Fabrication. Construction that results in a new and different article – e.g., casting, forging, bending, etc., and Permanent Assembly –joining of items that can only be disassembled by destruction of the joint or damage to the parts – e.g., welding, brazing, riveting. Does Not include: Semi-permanent Assembly –combination of items: Using hardware or fasteners (e.g., nuts, bolts, clips, etc.); and Disassembly can be performed without damage to the fabricated items. Testing, inspection, quality assurance. Or any other activity that does not change the function, form, or effectiveness of the defense article. Note that the detailed definitions are in the Backup charts. The intent is not to litigate the detailed wording, just to provide the flavor. Fabrication reflects the substantial transformation of an item. Mechanical, or semi-permanent assembly, was a natural to separate from ‘manufacturing’ because many of those same operations are identical with repair, which requires disassembly and re-assembly. Permanent assembly falls under ‘manufacturing’ because welding a ship together just didn’t seem to fit into ‘mere’ assembly. Questions about ‘riveting’ will allow a quick discussion of needed to draw the line somewhere, and is just one of several ‘close calls’ that need to be discussed with DDTC.

Single Definition Manufacturing consists of fabrication or permanent assembly where the result is a defense article. Fabrication results in a new and different item with distinctive form, function or performance capabilities distinct from the items(s) or material(s) prior to fabrication. Permanent assembly joins parts, components, and/or assemblies such that disassembled requires destruction of the joint or damage to the fabricated items. Manufacturing does not include (a) semi-permanent assembly, where the use of hardware or fasteners (e.g., nuts and bolts) allows disassembly without damage to the fabricated items, (b) the soldering of electrical components, or (c) testing, inspection, and quality assurance, or other activities that do not change the function, form, or effectiveness of the defense article.

Example §122.1 Requires registration of entities engaged in manufacturing, exporting, temporarily importing, or furnishing of defense services. Assuming they otherwise don’t export, import, or provide a defense service: Build a Cat VII armored vehicle Sub-tier that bolts on a winch EMI Test facility Repair mechanic REGISTER YES NO

Implementation Example Insert as a note specific to §122.1 ‘Note to paragraphs (a) and (b): “Manufacturing” consists of fabrication or permanent assembly where the result is a defense article. Fabrication results in a new and different item ……’ (see Slide 9 text) Consequential change: 122.1(b) Exemptions (4) Persons who engage in the fabrication manufacture of articles solely for experimental or scientific purposes, including research and development.

Recommended Follow on Task ITAR uses “manufacture” together or interchangeably with “production” with different contexts and meanings. Using the same term to mean different things creates confusion. Review and Replace with defined terms to implement DDTC policy objectives. Use “manufacture” to reference specific defense article construction. Use “production” to reference aspects of end-to-end product creation. Working Group will provide recommendations and rationale for ITAR to DDTC in White Paper. This is not an inconsequential task, but the intent is to provide DDTC with a toolset to accurately reflect their policy intent. Clarity benefits both the regulator and the regulated. The Working Group has a document listing all the instances of "manufacture" and ‘production’ and variations thereof, and will suggest where changes are required to reflect what Industry believes reflects the intent and context. However, as with all policy issues, it is up to DDTC. There will be cases where several options are possible, and those will be reflected in the White Paper.

Defense Trade Advisory Group (DTAG) Definition of Manufacturing Questions?

Backup

Parking Lot Issues How do Integration and installation fit with “manufacturing”? Possible approach – aspects that meet the definition of “manufacturing” – e.g., installation via permanent assembly, is “manufacturing,” and those aspects that don’t – e.g., installation by bolting in, aren’t. Does calibration fall under “manufacturing”? Changes the item but is easily reversible Is a subcontractor performing a “manufacturing” process (e.g., welding) required to register?

Production of Unclassified Data 122.1(b)(2) Exempts from registration persons whose only activity is the production of unclassified technical data. Result of court case claiming prior restraint on free speech Production of Classified data requires registration. “Production” means development, authoring, creation. In this case, the ordinary, contemporary, and common meaning of production seems sufficient. Addresses question raised at last Plenary meeting

Detailed Definitions Fabrication. Any construction process, other than Mechanical or Permanent Assembly, that results in a new and different item, having a distinctive form, function, or performance capabilities from that originally possessed by the items(s) or material(s) before subject to the fabrication process. Changes to form include changes of mechanical properties, material composition, or geometry.

Detailed Definitions Permanent Assembly. The fitting or joining together of fabricated parts, components, and/or assemblies using permanent joining processes such that disassembly requires destruction of the joint or damage to the fabricated parts. Examples of permanent joining processes are welding, brazing, solid state joining, and riveting. Permanent Assembly does not include soldering of electrical components.

Detailed Definitions Mechanical Assembly is the semi-permanent combination of fabricated parts, components, and assemblies: Using hardware or fasteners (e.g., nuts, bolts, screws, clips, pins, wire); Without the use of processes in Permanent Assembly; and Such that disassembly can be performed without damage to the fabricated parts, components, or assemblies.

Detailed Definitions Manufacture, Manufacturing. To engage in any of the activities described in Fabrication and Permanent Assembly. Aspects of repair, overhaul, or refurbishment that involve fabrication (e.g., fabricating new parts, dimensional restoration of existing parts) or permanent assembly are considered manufacturing. Manufacturing does not include the creation or generation of technical data, firmware, or software, the furnishing of assistance in the design, development, engineering, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing (such as the application of a coating or heat or surface treatments ) , or the use of defense articles.

Detailed Definitions Manufacturer. A corporation, business association, partnership, society, trust, or any other entity,   organization or group that engages in manufacturing. Produce , Production. To apply any of  the distinct stages of product engineering, manufacturing, integration, inspection, calibration, test, and quality assurance to create a defense article  commodity. The production of technical data or software consists of creation and refinement (e.g., design, development, analysis, and/or verification).