State Department Finalizes ITAR Registration Fee Increases

The U.S. Department of State's Directorate of Defense Trade Controls (DDTC) has finalized significant changes to the registration fees under International Traffic in Arms Regulations (ITAR). The Arms Export Control Act (AECA), the statutory authority for the ITAR, requires registration and a registration fee for certain persons who manufacture defense articles or export, temporarily import or broker defense articles and defense services. DDTC says that a fee increase is needed to account for inflation and the costs of new services it provides to the public. This latest change, which was published on Dec. 10, 2024, represents the first fee adjustment since 2008 and will take effect on Jan. 9, 2025.

New Registration Fees

The ITAR has a three-tier registration fee system that primarily focuses on how many favorable determinations a registrant receives. A favorable determination is a license approval or other written authorization from DDTC.

The final rule adopts the originally proposed fee structure:

• Tier 1 registrants will pay $3,000 per year (up from $2,250). This tier applies to new registrants, renewing registrants with no favorable determinations, brokers regardless of their favorable determinations for brokering and nonprofit Internal Revenue Code Section 501(c)(3) organizations.
• Tier 2 registrants will pay $4,000 (up from $2,750) and will now include only five favorable determinations (reduced from the previous 10).
• Tier 3 registrants will pay $4,000 (up from $2,750), with an $1,100 charge (up from $250) for each favorable determination beyond five (previously 10).

Though this marks only the sixth fee adjustment in more than 55 years, as reflected in the table below, these increases are significant. For example, Tier 3 registrants will now have a 440 percent increase per each favorable determination. The revised structure will nearly double DDTC's funding from $33.8 million to $67.2 million.

ITAR Registration Fee Increases: 1969 to 2025

* As a minimum registration fee under the newly established three-tier system

Registration Fee Relief

In response to industry concerns raised during the public comment period, DDTC has introduced several new accommodations not included in the proposed rule:

• For Tier 1 registrants, DDTC will implement a one-year trial program (that may be extended) allowing Tier 1 registrants to petition for a $500 discount if the registration fee exceeds 1 percent of their total revenue.
• For Tier 2 and Tier 3 registrants, if their registration fees are greater than $3,500, they may petition DDTC for a preset alternate payment schedule if their registration fee is greater than 1 percent of their total sales in the given year.
• For Tier 3 renewals, if the registrant shows that its registration fee is greater than 3 percent of the total value of favorable determinations, the registration fee may be reduced to 3 percent of the value of such authorizations or $4,000, whichever is greater.

DDTC is also keeping its existing discounts for Tier 3 registrations of low-value authorizations. The agency will also review the registration fee structure every two years to avoid similar future dramatic increases.

Notable Public Comment Responses

A total of 19 public comments were submitted in response to the proposed rule, and DDTC provided a few notable responses. For example, DDTC noted that a favorable determination includes amendment requests and requests for proviso reconsiderations but does not include applications that are returned without action or denied. DDTC also did not object to the industry practice where organizations require contractual parties to register, even if they do not intend to engage in ITAR activities. The agency could have rejected that practice by holding that it contravenes the purpose of registration, which is "a means to provide the U.S. Government with necessary information on who is involved in certain manufacturing and exporting activities."

Perhaps the most notable response by DDTC was its silence on a significant public comment arguing that Tier 2 and Tier 3 registration fees violate the ITAR's statutory authority under the AECA. Specifically, the comment argued that registration and licensing serve distinct functions and that the AECA does not permit charging fees for licenses, which is effectively what Tier 2 and Tier 3 registration fees do. Though DDTC could not apparently rebut the comment's arguments, it acknowledged that "under the [AECA], DDTC is authorized to charge for registration fees, not a fee per license."

Additional ITAR Revisions

The final rule also makes three other revisions to the ITAR, which received no public comments from the proposed rule. First, DDTC reverts to stating the registration fee amounts in the ITAR, which were removed in 2013 and replaced with referring the public to DDTC's website for that information. Second, ITAR Section 129.8 will now similarly specify the registration fees for stand-alone brokering registrations – that is, a party that is registered only as a broker and not also as a manufacturer or exporter. Third, DDTC made various nonsubstantive revisions within Part 122, which concerns the ITAR's registration requirements and process. These changes align with DDTC's ongoing efforts to reorganize and clarify the regulations.

Next Steps

Registered persons should evaluate the impact of these new fees on their business and customer relationships, as well as their eligibility for DDTC's registration fee discount programs. Registrants should also incorporate these increased fees into their budgets.

For more information on the implications of these rules or the process of submitting public comments, please contact the author or another member of Holland & Knight's International Trade Group.

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