DDTC Proposes ITAR Changes for Australia and the United Kingdom

Key Points

• DDTC published on May 1, 2024 a proposed rule that would amend the ITAR to create:
  • An exemption from licensing requirements for ITAR-controlled defense trade by and among Australia, the U.K., and the U.S., but with eight limitations.
  • An expedited licensing process for defense articles and defense services between and among Australia, the U.K., the U.S., and Canada when a license would still be required.
  • An expansion of the exemption for transfers of classified information for dual nationals who are also Australian and U.K. citizens and who meet specific conditions.
• One of the eight limitations on the proposed AUKUS exemption is that it would not apply to a list of excluded defense articles and defense services.
• DDTC is accepting comments on the proposed rule until May 31, 2024.
• The publication of a final rule (i.e., the implementation of actual changes to the ITAR) can only occur if the U.S. government first certifies that Australia and the U.K. have implemented (i) a system of relevant export controls comparable to the United States and (ii) similar exemptions for the United States, which is still pending. This is a statutory requirement under a new provision in the Arms Export Control Act (AECA).

On May 1, 2024, the State Department’s Directorate of Defense Trade Controls (DDTC) published a proposed rule to amend the International Traffic in Arms Regulations (ITAR) to reduce export authorization requirements for defense articles, defense services and brokering activities when sent or provided to authorized users in Australia and the United Kingdom (U.K.). This is the second action the U.S. government has taken to implement Pillar II of the AUKUS Trilateral Security Partnership. The Commerce Department’s Bureau of Industry and Security (BIS) published an interim final rule on April 19, 2024, that removed almost all controls over trade in items subject to the Export Administration Regulation (EAR) with Australia and the U.K.

Summary of AUKUS and the Context for the Proposed Rule

AUKUS is part of a wider United States government effort to coordinate and strengthen the defense relationship between and among Australia and the U.K. to support defense and technological ties in the Indo-Pacific through lessening regulatory burdens for the transfer of defense articles and other sensitive technologies subject to the EAR. Pillar I focuses on trilateral submarine cooperation. Pillar II has a broader scope than Pillar I because it focuses on partner collaboration efforts on advanced capabilities related, among things, to underseas capabilities, quantum technologies, artificial intelligence, advanced cyber, hypersonic and counter-hypersonic capabilities, electronic warfare, innovation and information sharing.

The U.S., Australia and the U.K. created AUKUS to respond to China’s broader military aspirations in the Indo-Pacific region and to respond to President Xi’s stated desire to re-unify Taiwan with the mainland. The scope of the proposed rule is evidence of the extremely close relationship among the three countries and the U.S. government’s confidence that the recently updated export control systems of Australia and the U.K. will prevent the diversion of the newly decontrolled items to destinations, end uses, and end users of concern. For commentary on how such rules could be effective, see “Ten Informal Rules for AUKUS Success.”

Summary the Proposed Rule

DDTC has proposed the following three changes to the ITAR to reduce export authorization requirements for the export, reexport, retransfer, or temporary import of defense articles, the performance of defense services, or engagement in brokering activities (hereafter, “export activities”) among or between Australia, the U.K. and the U.S.:

(1) Creating a new exemption (in § 126.7) for export activities between or among Australia, the U.K., and the U.S., but with eight limitations.

(2) Revising § 126.15 to contain timeframes for expedited processing of licenses for export activities not eligible for the proposed exemption or any other exemption.

(3) Revising the scope of § 126.18 to allow for intra-company, intra-organization and intra-governmental transfers of classified defense articles to certain dual nationals of Australia or the U.K.

It is also noteworthy that this new exemption overcomes the option to use the two Open General Licenses that DDTC published on July 20, 2022, under its pilot program.

Proposed Change 1: The AUKUS Exemption and its Eight Limitations

The proposed exemption would remove authorization requirements for export activities between or among designated authorized users within Australia, the U.K. and the U.S., subject to the following requirements and limitations (in addition those that apply to all activities involving ITAR-controlled articles and services):

• The exemption may only be used for export activities within the physical territories of Australia, the U.K. or the U.S.
• The parties must be either U.S. persons registered with DDTC and not debarred, or authorized users identified on the DDTC website. Relevant authorities in Australia and the U.K. will create a process to enroll authorized users, in coordination with DDTC.
• The transferor must maintain records of each transfer, including a description of the defense article or defense service; the name, address and contact information of the recipient and the end user; the name of the natural person responsible for the transaction; the end use of the defense article or defense service; the date of the transaction; and the method of transfer.
• The exemption may not be used for transfers that would require certification to Congress.
• The defense article or defense service to be transferred may not include those identified in the new Supplement. No. 2 to Part 126, informally referred to as the “Excluded Technologies List” (ETL). This list is quite dense and complicated. Thus, careful review of it is necessary to determine what the impact of it would be if implemented and what comments to make about it. For example, many entries contain “specially designed,” “directly related” and “classified” control parameters. Most control related items, technical data and defense services. To determine the scope of some entries, more than the usual fact gathering may be needed to determine whether an item is included or excluded.
• A highly condensed summary of the primary items on the ETL is the following:
  • All Missile Technology Control Regime (MTCR) defense articles
  • All anti-tamper articles not already installed
  • Source code for:
    • Grenade launchers, kinetic energy weapon systems, tracking fire control and damage assessment systems
    • Trace and shotgun projectiles
    • Rockets and related items
    • Military vessels and related items
    • Digital engine control systems.
  • Manufacturing know-how directly related to:
    • Kinetic energy weapon systems
    • Trace and shotgun projectiles
    • Rockets and related items
    • Personal protective equipment
    • Gas turbine engines.
  • Classified manufacturing know-how directly related to:
    • Radar systems
    • Electronic warfare systems
    • Guidance and navigation systems.
  • Stand-alone weapons and ammunition
  • Cluster munitions
  • Mines and hand grenades
  • Fixed launch sites and launcher mechanisms
  • MANPADS grip stocks
  • Explosives and related items
  • Naval nuclear propulsion items
  • The F-22 aircraft
  • Items for optical sights or viewers
  • Classified countermeasures and counter-countermeasures
  • Classified electronic systems, equipment or software
  • Military encryption Items
  • Classified electronics items directly related to cryptographic systems
  • Items directly related to naval acoustic spectrum control and awareness
  • Classified Global Navigation Satellite System (GNSS) anti-jam systems
  • Source code and classified technical data and defense services directly related to night vision-related items
  • Carbon/carbon billets and preforms
  • Chemical and biological weapons
  • Classified spacecraft
  • Nuclear weapons
  • Classified items specially designed for counter-space operations
  • Classified gas turbine engine-related items
  • Submarine electric motors
  • Manufacturing know-how directly related to submarines.

With respect to space launch vehicles and supporting MTCR controlled defense articles and items, the U.S. and Australia have separately signed a Technology Safeguards Agreement (TSA) that may allow the licensed export, reexport and retransfer of items covered by the TSA, if the requirements of the TSA are met.

Proposed Change 2: Revisions to the Expedited Licensing Process

The proposed rule would revise § 126.15 so that the review of license applications for exports of defense articles and defense services that (i) are not eligible for an ITAR exemption, (ii) are to or between the physical territories of Australia, the U.K. or Canada, and (iii) are with government or corporate entities from such countries, shall be processed—i.e., approved, denied or returned—within 30 days if related to government-to-government agreements, and within 45 days for all other situations.

Proposed Change 3: Revisions to the Classified Information Sharing Exemption

The proposed rule would also add a provision to § 126.18 to allow certain dual nationals of Australia and the United Kingdom to receive classified defense articles without a separate license from DDTC. Specifically, these persons must (i) be authorized users of the proposed exemption described above or regular employees of such authorized users, (ii) hold a security clearance approved by Australia, the U.K. or the U.S. that is equivalent to the classification level of SECRET or above in the United States, and (iii) be located within the physical territory of Australia, the U.K. or the U.S. or be a member of the armed forces of these countries, acting in their official capacity.

Requirements and Prohibitions that Would Not Change

• DDTC did not propose changing the “see-through” rule. Thus, any foreign-made item containing any ITAR-controlled components or software shipped under the exemption would still require a DDTC license to send to a country other than the U.K. or Australia. Also, Australia- and U.K.-made items containing ITAR-controlled content on the ETL would still require a license to ship to the other country.
• DDTC did not propose any changes to any of the required clauses in Technical Assistance or Manufacturing License Agreements. Thus, for example, any Australia- or U.K.-made defense article described on the ETL produced or manufactured from technical data or a defense service on the ETL would still require DDTC approval to transfer to a third country or to entities in Australia or the U.K. if not authorized by the agreement.
• DDTC did not propose any changes the existing Electronic Export Information (EEI) filing requirements for exports from the U.S.
• Because defense articles that would be exported to Australia or the U.K. under the exemption would still be subject to the ITAR, they will not be able to be shipped to third countries without a DDTC authorization.
  • This means that Australia and U.K. companies will effectively be in the regulatory compliance shoes of U.S. companies. That is, before the exemption, an Australia or a U.K. company could rely on the scope of the DDTC authorization to know to which third countries the defense article could be shipped. Now, for defense articles received under the exemption and for items subject to the EAR that are no longer controlled for export to Australia or the U.K., Australia and U.K. companies will need to determine their ITAR and EAR licensing and compliance obligations. This will require enhancements to internal control programs and improved understandings of the ITAR’s and the EAR’s reexport and deemed reexport controls.
  • DDTC did not describe in the rule how it wants Australian and U.K. companies to apply for reexport and deemed reexport authorizations.
• DDTC will still requires ITAR registration for those that manufacture or export defense articles, even under an exemption.
• The proposed rule will also require additional steps and time to pre-vet and enroll the authorized recipients in the U.K. and Australia before using the exemption. (The EAR changes did not require any vetting of recipients in the U.K. or Australia.)
• The State Department has not announced or proposed changes to any of the rules or procedures governing Foreign Military Sales.

Next Steps

DDTC is accepting comments until May 31, 2024 on the proposed amendments. DDTC has specifically asked for comments on the scope and content of the ETL. Comments clarifying what is or is not excluded and flagging any gaps or inconsistencies would likely be very helpful.

In a press release on April 19, 2024, the State Department stated that it expects to implement an AUKUS exemption within 120 days. However, as a part of the AUKUS agreement and statutory requirements, the administration must first certify to Congress that the U.K. and Australian controls are comparable to U.S. controls. It is unknown when the State Department will make such a certification.

There is speculation in the media about whether Japan or other countries will eventually join AUKUS. DDTC did not refer to such possibilities in the proposed rule.