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The Department of State Published a Proposed Rule 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 (AUKUS)

By John Herzo, Senior Compliance Associate, FD Associates, Inc.

89 Fed. Reg. 35028

On April 19, 2024, FD Associates, Inc., advised its followers of the U.S. Department of Commerce, Bureau of Industry and Security’s (“BIS”) amendment to the Export Administration Regulations (“EAR”) to remove license requirements, expand the availability of license exceptions, and reduce the scope of end-use and end-user-based license requirements for exports, reexports, and transfers (in-country) to or within Australia and the United Kingdom (“UK”) to enhance technological innovation among the three countries and support the goals of the Governments of Australia, United Kingdom, United States (“AUKUS”).

The Department of State’s (“the Department”) proposed rule for exports by and between AUKUS member nations has been published. On May 1, 2024, the Department of State published a proposed rule in the Federal Register (89 Fed. Reg. 35028) that, if finalized, would 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. The 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 and would codify an expedited license review process for Australia, the United Kingdom, and Canada. Industry may submit comments regarding the proposed rule to the Department by May 31, 2024.

The Department has proposed to amend the International Traffic in Arms Regulations (ITAR) to support the goals of the AUKUS partnership, the enhanced trilateral security partnership among Australia, the United Kingdom, and the United States. This exemption is designed to foster defense trade and cooperation between and among the United States and two of its closest allies. It is reflective of the nations’ collective commitment to implement shared security standards on protecting defense technology and sensitive military know-how.

The proposed new exemption, designed to implement the provisions of new section 38(l) of the Armes Export Control Act (AECA), would be located in ITAR § 126.7 and would provide that no license or other approval is required for the export, reexport, retransfer, or temporary import of defense articles; the performance of defense services; or engagement in brokering activities between or among designated authorized users within Australia, the United Kingdom, and the United States provided certain requirements and limitations are met. These include a list of excluded defense articles and defense services not eligible for the exemption, which can be found in a proposed Supplement No. 2 to Part 126. The scope of excluded defense articles and defense services remain subject to revision and the Department welcomes comment on proposed Supplement No. 2 to Part 126.

 

A summary of the key details regarding the requirements and limitations of the proposed exemption are as follows:

  • In § 126.7(b)(1), the exemption may only be used for transfers to or within the physical territory of Australia, the United Kingdom, or the United States;
  • In § 126.7(b)(2), the pool of eligible members, known as authorized users, is created to facilitate secure defense trade and cooperation. Australia and the United Kingdom’s members will undergo an authorized user enrollment process, in coordination with DDTC, and those members will be listed through the DDTC website. Members located in the United States must be registered with DDTC and not debarred under ITAR § 127.7.
  • In § 126.7(b)(3), the defense articles and defense services listed in Supplement No. 2 to Part 126 are not eligible for this proposed exemption. These items are excluded from eligibility under the proposed exemption because (1) they are exempted from eligibility by statute, including AECA section 38(j)(1)(C)(ii), or (2) are specifically exempted by either the UK, Australia, or the United States, per AECA section 38(l)(4)(A). These items are, however, subject to the expedited licensing procedures listed in § 126.15 and may be reviewed and revised during the lifetime of the exemption.
  • In § 126.7(b)(4), transferors that use this proposed exemption must abide by this requirement for recordkeeping purposes, and such records must be made available to DDTC upon request.
  • In § 126.7(b)(5), the limitations provided exclude exemption use for transfers that would require certification to Congress pursuant to sections 36(c) and 36(d) of the AECA.
  • In § 126.7(b)(6) and (7), the Department is reiterating other ITAR provisions to underscore that the proposed exemption is subject to other requirements within the subchapter, and the named sections are not an exhaustive list.
  • In § 126.7(b)(8), the Department is establishing that classified defense articles and defense services are eligible for transfer under this exemption provided the authorized users in the United States, Australia, and the United Kingdom meet their respective industrial security requirements. For authorized users in the United States, this is the National Industrial Security Program Operating Manual (NISPOM) (32 CFR part 117) and, for Restricted Data, the Atomic Energy Act of 1954, as amended. For Australian authorized users, this is the Defence Security Principles Framework (DSPF) Principle 16 and Control 16.1, Defence Industry Security Program, and for United Kingdom authorized users this is the Government Functional Standards (GovS) 007: Security.
  • The Department is also proposing to add a provision to the exemption in ITAR § 126.18 to allow certain dual nationals of Australia and the United Kingdom to receive classified defense articles without a separate license from DDTC. These persons must be authorized users of the exemption in § 126.7 or regular employees of such authorized users in § 126.7, hold a security clearance approved by Australia, the United Kingdom, or the United States that is equivalent to the classification level of SECRET or above in the United States, and be located within the physical territory of Australia, the United Kingdom, or the United States or be a member of the armed forces of Australia, the United Kingdom, or the United States acting in their official capacity.
  • Lastly, the Department is proposing to revise § 126.15 per the provisions of section 1344 of the NDAA for Fiscal Year 2024. This revised text would note the review of license applications for exports of certain commercial, advanced-technology defense articles and defense services to or between the physical territories of Australia, the United Kingdom, or Canada, and are with government or corporate entities from such countries, shall be processed within certain timeframes. The subject export must not be eligible for transfer under an ITAR exemption. License requests related to a government-to-government agreement between Australia, the United Kingdom, 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.

Please contact your FD Associates consultant for guidance on transactions with Australia and the UK.