DDTC Publishes Proposed ITAR Amendments to Enhance AUKUS Defense Trade

On May 1, 2024, the Department of State’s Directorate of Defense Trade Controls (DDTC) published a proposed rule that, if implemented, would streamline defense trade between and among Australia, the United Kingdom (UK), and the United States in furtherance of the trilateral security partnership (the “AUKUS” partnership). DDTC issued the proposed rule pursuant to new authorities and requirements contained in Section 1343 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2024 which, in part, directs the Department of State to immediately implement an International Traffic in Arms Regulations (ITAR) exemption, subject to certain statutory limitations, for the UK and Australia if State determines and certifies that each has implemented (1) a system of export controls comparable to those of the United States and (2) a comparable exemption from its export controls for the United States. According to DDTC, the proposed rule “prepare[s] for a future exemption” and solicits public feedback “to shape a final rule following any positive certification.”

Key Takeaways

• AUKUS Exemption: DDTC proposes to amend the ITAR to add a new exemption in Part 126 to allow exports, reexports, retransfers, or temporary imports of defense articles; the furnishing of defense services; or engaging in brokering activities between and among previously approved parties (“authorized users”) in Australia, the UK, and the United States (“AUKUS Exemption”). The proposed rule includes a number of limitations, including a new Excluded Technology List identifying defense articles and services that would not be eligible for transfer under the new AUKUS exemption.
• Expanded Scope of ITAR § 128.18: DDTC proposes to expand the scope of an existing ITAR exemption for intra-company, intra-organization, and intra-governmental transfers to allow for the transfer of classified defense articles to certain dual nationals who are authorized users or regular employees of an authorized user within the UK and Australia.
• Expedited Review of License Applications: DDTC proposes to add a new process to expedite the review of license applications for exports of defense articles or defense services that would not be eligible for any ITAR exemption. DDTC is proposing this expedited license review process not only for license applications related to Australia and the UK, but also for Canada.
• Comment Period: DDTC will accept public comments on or before May 31, 2024.

Proposed Amendments to the ITAR

New AUKUS Exemption

The proposed rule would amend the currently reserved ITAR § 126.7 to create the AUKUS Exemption. The AUKUS Exemption would authorize exports, reexports, retransfers, or temporary imports of defense articles; the furnishing of defense services; or engaging in brokering activities between and among Australia, the UK, and the United States, subject to the following limitations:

1. The transfer must be to or within the physical territory of Australia, the UK, or the United States;
2. The transferor and recipient must be either (i) registered with DDTC and not debarred; or (ii) identified as an authorized user on the DDTC website;
   1. Significantly, the exemption as currently drafted will not rely on the Australia and UK Approved Communities established under the existing UK and Australia Treaties. Rather, DDTC explained that Australia and UK persons will undergo an authorized user enrollment process, in coordination with DDTC, and those members will be listed on the DDTC website.
3. The defense article or service cannot be described in the proposed Supplement No. 2, the new Excluded Technology List, which includes broad categories of items as discussed further below;
4. The transferor is required to maintain records of specific information (of note, these recordkeeping restrictions appear less burdensome than those under the existing UK and Australia Defense Treaties);
5. The value of the transfer cannot be more than the ITAR congressional notification limits;
6. The transfer does not involve the manufacturing abroad of significant military equipment (SME);
7. The transfer must meet the basic ITAR exemption use requirements such as being registered with DDTC, maintain records; and, but not limited to, the requirement to obtain non-transfer and use assurances for all SME;
8. Transferors must inform the end-user and all consignees that the defense articles are subject to U.S. export controls; and
9. Transfers of classified defense articles and defense services must meet relevant requirements set out by each respective government:
   1. U.S. authorized users – the transfer must meet the requirements in 32 CFR part 117, National Industrial Security Program Operating Manual and, for Restricted Data, the Atomic Energy Act of 1954, as amended.
   2. Australian authorized users – the transfer must meet the requirements in the Defence Security Principles Framework Principle 16 and Control 16.1, Defence Industry Security Program.
   3. UK authorized users – the transfer must meet the requirements in the Government Functional Standards GovS 007: Security.

Supplement No. 2 to Part 126 – Excluded Technology List

The proposed rule would create a new Supplement No. 2 to Part 126, listing the defense articles and services excluded from the scope of the AUKUS Exemption, which includes among others:

• All Missile Technology Control Regime designated articles and directly related technical data and defense services;
• Readily identifiable anti-tamper articles not already installed in the commodity they are intended to protect and directly related technical data and defense services;
• Cluster munitions and articles specially designed for cluster munitions; and
• The F-22 aircraft and articles specially designed for the F-22, other than those also used in aircraft other than the F-22 and directly related technical data and defense services.

Expanded Exemption for Australian and UK Citizens who are Dual Nationals

The proposed rule would amend ITAR § 126.18 by adding a provision to allow dual nationals of Australia or the UK and another country to receive classified defense articles without a separate license from DDTC if the following requirements are met:

• The dual nationals must be authorized users, or “regular employees” (as defined in ITAR § 120.64) of authorized users, of the AUKUS Exemption;
• 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.

Expedited Processing of License Applications for Transfers to Australia, the UK, or Canada

DDTC also proposes a new process to expedite the review of license applications for exports of defense articles or defense services that are not eligible for any ITAR exemption. The new expedited license review process would apply not only for license applications related to Australia and the UK, but also for Canada. To qualify for expedited processing:

• The prospective export must occur wholly within, or between the physical territories of Australia, the UK, Canada, or the United States, and between governments or corporate entities from such countries; and
• The value of the license must not trigger congressional notification requirements.

Under the expedited timelines, applications related to a government-to-government agreement would be adjudicated within 30 days, while other applications would be adjudicated within 45 calendar days.

What’s Next?

DDTC will accept public comments through May 31, 2024. It remains to be seen whether the UK will implement domestic export reforms (Australia has passed legislation), and whether the State Department will positively certify the UK and Australia, as previewed above.