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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]