May 1, 2024, saw two major developments under the Australia, United Kingdom, and United States (“AUKUS”) Trilateral Security Partnership.

First, the U.S. Department of State (the “Department”) issued a notice of proposed rulemaking (“NPRM”) that would amend the International Traffic in Arms Regulations (“ITAR”) to create an exemption for certain exports, reexports, retransfers, or temporary imports of defense articles or defense services, or certain brokering activities between or among authorized users within Australia, the United Kingdom, and the United States.

Second, the UK Department for Business and Trade (“DBT”) issued Notice to Exporters 2024/09: update on AUKUS, which was accompanied by publication of a draft Open General Licence to permit the export, transfer, and supply or delivery, of dual-use goods, military goods or technology to, between, and among the AUKUS partners (“Draft AUKUS OGL”).

These developments signal clearly to industry that the AUKUS partners are committed to fostering greater cooperation across defense and critical technologies through reforms of their export controls and licensing regimes. Interested parties may wish to consider submitting comments on one or both proposals. The deadline for comments on the proposed United States ITAR rule is May 31, 2024. The deadline for comments on the UK Draft AUKUS OGL is July 1, 2024. Importantly, the NPRM for the ITAR does not yet have the force and effect of law until a final or interim final rule is promulgated. Similarly, the Draft AUKUS OGL cannot currently be relied upon and will not come into effect until a final version is issued.

United States: ITAR Exemptions

The Department’s proposed exemption would be available for all defense articles or defense services, except for those contained within a limited excluded list. The proposed rule would also introduce a provision to allow for certain transfers of classified defense articles to certain dual nationals (subject to certain requirements described below) and would codify an expedited license review process for Australia, the UK, and Canada.

Covered and Non-Covered Items

The proposed new exemption, designed to implement the provisions of new section 38(l) of the Arms Export Control Act (“AECA”), is intend to cover approximately 70 percent of defense articles and services subject to ITAR licensing that involve Australia and the UK, provided certain conditions are met. Notably, eligible members from Australia and the UK must undergo a DDTC-administered authorized user enrollment process, and those members will be listed in a publicly-accessible online database administered the DDTC. Members located in the United States must be registered with DDTC and not debarred under 22 C.F.R. § 127.7. 

In Supplement No. 2 to Part 126 of the ITAR, the proposed rule specifies that certain items are excluded from the proposed exemption, either because they are (1) exempted from eligibility by statute, including AECA section 38(j)(1)(C)(ii), or (2) specifically exempted by either the UK, Australia, or the United States, per AECA section 38(l)(4)(A). In other words, excluded items will continue to require ITAR approvals as direct commercial sales or foreign commercial sales, even when the NPRM is promulgated. Notable excluded items include:

  • USML categories I through XV, and XX: Items controlled under the Missile Technology Control Regime (“MTCR”), as annotated on the United States Munitions List (“USML”) by an “MT” designation (including related source code and manufacturing know-how);
  • USML categories XI(d) and XII(f): Classified manufacturing know-how directly related to: articles described in USML Categories XI(a)(3) or (4), or XII(d); or parts, components, accessories, or attachments that are only used in those articles;
  • USML Categories III(a)(9) and (e); IV(a)(5) and (6), (b)(2), (c), (g), (h), and (i); VI(f)(6) and (g); VIII(h)(6) and (i); XI(c) and (d); XII(a), (d), (e), and (f); and XX(c) and (d): Cluster munitions and articles specially designed for cluster munitions; and directly related technical data and defense services;
  • USML Categories XI(a) through (d); and XIII(b) and (l): Classified countermeasures and counter-countermeasures described in USML Category XI(a) and specially designed parts, components, accessories, and attachments therefor, other than underwater acoustic decoy countermeasures; classified articles described in USML Category XI(b) or XIII(b); articles specially designed for commodities or software described in USML Category XIII(b); classified articles described in USML Category XI(c) directly related to cryptographic systems; and articles directly related to naval acoustic spectrum control and awareness described in USML Category XI(a)(1)(i) and (ii) and (c) and directly related technical data and defense services; and
  • USML Categories XII(d)(3) and (f): Classified articles described in USML Category XII(d)(3) and directly related technical data and defense services; and source code and classified technical data and defense services directly related to night vision commodities described in USML Category XII(c)(1) or (2), or (e), beyond basic operations, maintenance, and training information.

Minor Tweaks, Major Benefits for Certain Businesses

The proposed rule also adds a provision to the exemption in ITAR § 126.18 to allow certain Australia/UK dual nationals to receive classified defense articles without a separate DDTC license (e.g., DSP-85), provided the person meets the following requirement. The person must:

  • be an authorized user of the exemption in § 126.7 or a regular employee of an authorized user in § 126.7;
  • hold a security clearance approved by Australia, the UK, or the United States that is equivalent to or above the U.S. “SECRET” level; and
  • be located within the physical territory of Australia, the UK, or the United States (or be a member of the armed forces thereof acting in their official capacity).

Similarly, the proposed rule seeks to expedite certain license application review processes by revising § 126.15 to require that applications concerning certain commercial, advanced-technology defense articles and defense services to or between the physical territories of Australia, the UK, or Canada within certain timeframes. Specifically, license requests related to a government-to-government agreement between Australia, the UK, or Canada and the United States must be approved, returned, or denied within 30 days of submission. For all other license applications subject to this section, any review shall be completed no later than 45 calendar days after the date of the application.

United Kingdom: Draft AUKUS OGL

Scope of the Draft AUKUS OGL

The purpose of the Draft AUKUS OGL is to permit the export, transfer, and supply or delivery, of dual-use goods, military goods or technology to, between, and among Australia, the United States, and United Kingdom. DBT’s announcement follows the interim final rule issued by  the U.S. Department of Commerce’s Bureau of Industry and Security on April 19, 2024, which is discussed in further detail in our previous blog post (here).   In furtherance of that purpose, the Draft AUKUS OGL covers a range of dual-use and military items, as follows:

  • England, Scotland, and Wales
    • Any item specified in Annex I of the Retained Dual-Use Regulation.  Entries specified by Annex IIg or entry 0C003 (i.e., deuterium, heavy water, and other compounds of deuterium, as well as certain mixtures and solutions containing deuterium with an isotopic ratio of deuterium to hydrogen exceeding 1:5000) of the Retained Dual-Use regulation are outside the scope of the Draft AUKUS OGL.
  • Northern Ireland
    • Any item specified in Annex I of the EU Dual-Use Regulation.  Entries specified by Section I of Annex II or entry 0C003 of the EU Dual-Use Regulation are outside the scope of the Draft AUKUS OGL. 
  • United Kingdom
    • All items specified in the UK Military List (i.e., Schedule 2 of the Export Control Order 2008, as amended), other than any goods, technology or software listed in the exclusion table included in Schedule 2 of the Draft AUKUS OGL.  The exclusion table covers certain items falling within control entries ML4 – ML11, ML14, ML16 – ML19, and ML21 – ML22.

The Draft AUKUS OGL would permit exports and transfers of in-scope items to Australia, the United States, and the United Kingdom.  The United Kingdom is included as a destination for goods, software, or technology that have been initially exported from the United Kingdom to a permitted destination that are then re-exported to the United Kingdom, including after being incorporated into other products.

The Draft AUKUS OGL also would permit exports and transfers of in-scope items to Australian, United Kingdom, or United States armed forces on a naval vessel in international waters, or deployed outside of an AUKUS member country, other than in Armenia, Azerbaijan, Belarus, Central African Republic, China, Democratic People’s Republic of Korea, Democratic Republic of the Congo, Hong Kong, Iran, Lebanon, Libya, Macao, Myanmar, Russia, South Sudan, Sudan, Venezuela, or Zimbabwe.

Permitted Destinations

Additionally, the Draft AUKUS OGL would permit supply or delivery, or any act calculated to promote the supply or delivery, of in-scope items between Australia and the United States and vice-versa.

Authorized Users, Consignees, and Recipients

The Draft AUKUS OGL would only be available for use by authorized users under the AUKUS partnership.  Similarly, the Draft AUKUS OGL would only apply to export, transfer, or supply and delivery to consignees and recipients that are themselves authorized users under the AUKUS partnership. 

An “authorized user” for these purposes is defined in the Draft AUKUS OGL as an eligible member that has undergone an authorized user enrolment process in the United Kingdom in coordination with Department’s Directorate of Defense Trade Controls, and that is included on the list of authorized users.

Licence Conditions

The Draft AUKUS OGL proposes imposing a range of conditions relating to classified material.

Before first use of the licence, users would also be required to register with DBT, identifying where records of exports or transfers undertaken pursuant to the Draft AUKUS OGL will be kept and may be inspected by DBT.

Commercial documents accompanying goods, software, or technology to be physically exported also would need to include a declaration (i) that they are being exported under the OGL (AUKUS Defence Partnership) or (ii) including a licence reference number in the form GBOGE 20##/####.  This documentation would need to be presented, on request, to officials of UK Border Force.

Finally, users would be required to comply timely with the Export Control Joint Unit’s (“ECJU”) regime for monitoring compliance with the terms of export licences, including completion of pre-visit questionnaires issued prior to audit visits by the ECJU, compliance with steps set out in any “failure to comply” warning letters that may be issued by the ECJU, as well as compliance with any suspension or withdrawal of authorization to rely on the Draft AUKUS OGL.

Record-Keeping

Users would be required to keep records of each export or transfer made under the Draft AUKUS OGL as required by Article 29 of the Export Control Order 2008.  These records would need to be kept for at least four years from the end of the calendar year in which the authorized act took place.  The records would need to be made available for inspection and duplication by any person authorized by the Secretary of State for Business and Trade.

Additionally, users would be required to keep records of any written letter of clearance given by the Ministry of Defence for the export or transfer of security classified goods, software, and technology.

Conclusion

Both proposals would significantly reduce the specific licensing burden imposed on authorized users in relation to trade between Australia, the UK, and the United States. They are a strong sign to industry that defense and technological cooperation between the AUKUS partners is a leading priority for policymakers across the trilateral partnership. Steptoe will continue to monitor this issue closely. For more information, please contact a member of Steptoe’s Export Controls team.