State Dept. Publishes AUKUS Rule Ahead of ‘License Free’ Defense Trade

A new rule issued by the State Department last week will finalize an exemption for defense trade between the U.S., Australia and the U.K., potentially removing export control barriers for a range of items that had previously faced strict license requirements under the International Traffic in Arms Regulations. Australia and the U.K. said the exemption and other AUKUS changes are expected to lift restrictions on billions of dollars worth of exports each year and eliminate hundreds of export licenses once the “license free” trade begins next month.

The State Department rule and separate announcements from the U.K. and Australia come about 17 months after the Biden administration unveiled detailed plans under the three nations’ AUKUS partnership to remove obstacles to trade in defense technology. Those plans included a timeline for sharing sensitive nuclear submarine technology with Australia and previewed efforts to reduce what industry has long said are burdensome defense export controls under the ITAR (see 2303130035 and 2305240061).

Australia said the new exemptions will lead to “licence-free trade” for more than 70% of ITAR-controlled defense exports from the U.S. to Australia and more than 80% of defense-related trade from the U.S. to Australia for items that are subject to the Commerce Department’s Export Administration Regulations (see 2404180035).

It also will eliminate about 900 permits that had been required for exports from Australia to the U.S. and the U.K. “valued at $5 billion per year.” About 200 export permits will be eliminated for exports from the U.K. to Australia “valued at over $129 million per year.”

The changes will help reduce business costs, “supporting industry, higher education and research sectors in all three nations,” Australia said. “This milestone delivers on key reforms that defence industry has been calling on for years.”

The U.K.’s defense ministry also said the changes will lead to “fewer licences for exports, re-transfers, and re-exports within and between the UK, US, and Australia,” reducing “compliance costs and delivery timelines.”

Along with a new ITAR exemption, which was summarized in a fact sheet released by the State Department, the interim final rule will add an expedited licensing process for certain exports, outline a list of defense articles and services that are excluded from the exemption, expand the scope of the exemption for certain intra-company, intra-organization and intra-governmental transfers, and other changes that build on a proposed rule released in April.

The agency is accepting public comments, which could lead to “continued refinement” of the rule, by Nov. 18. The rule takes effect Sept. 1, and the agency plans to publish a list of the new exemption's authorized users in the Defense Export Control and Compliance System on Aug. 30.

The agency rule includes a summary of the main changes the State Department made from the proposed version, including new language to clarify that the exemption may apply to defense items and services that were originally “exported via an agreement,” a new “excepted exemption” for the rule’s country-based prohibitions, and the removal of redundant information or addition of clarifying language.

The agency also made several changes and clarifications to its Excluded Technologies List, which are items that would require an ITAR license regardless of the new exemption. The list’s Missile Technology Control Regime exclusion no longer applies to certain unmanned aerial vehicle flight control systems and vehicle management systems described in U.S. Munitions List Category VIII, the State Department said. The agency also removed several other exclusions, including one “specific to source code,” classified manufacturing know-how for certain items described in USML Categories XI and XII, certain launchers for man-portable air defense systems and more.

The State Department said at least five commenters had asked the agency to remove, limit or clarify the ETL entry for source code, saying that code is necessary for “co-development and integration efforts.” The agency said it “accepts these comments and, after interagency consultation, deletes that entry from the ETL, as well as the entry that excluded source code pertaining to certain night vision commodities in USML Category XII.”

The rule will also add certain items to the ETL resulting from "consultations" between the State Department and the Pentagon. The talks led to the addition of “classified articles described in USML Category XI(a)(4)(i), certain classified articles specially designed for those articles, and classified, directly related technical data and defense services.” Those articles involve items that “relate to intelligence capabilities,” the State Department said, adding that the “technology for integrating or incorporating U.S. National Security Administration data used in these electronic support articles requires case-by-case review to assess the sensitivity and releasability of the specific technology.”

The agency said several commenters objected to ETL’s entry for items controlled by the multilateral Missile Technology Control Regime. They said this entry was “broader than required by law, with one recommending the Department use the language from the MTCR and” Arms Export Control Act instead.

“The Department declines to rely on the regulated community to interpret elements of the AECA and MTCR,” the agency said, although it noted it did make some changes and clarifications for missile technology related items. “The Department appreciates the intent of these comments and is reviewing other ways to facilitate collaboration on MTCR technologies among and between Australia, the United Kingdom, and the United States.”

The U.K. also announced new licenses and forms for its companies to use when trading in controlled defense technology with the U.S. and Australia. A new AUKUS-specific open general license will allow certain “authorized users” -- companies who have undergone an authorized user enrollment process in the U.K., in coordination with the State Department’s Directorate of Defense Trade Controls -- to ship certain dual-use or military goods, software or technology between Australia, the U.S. and the U.K. The 22-page license includes a list of items that are eligible, a list of permitted destinations, and outlines the conditions for using the license.

Two new U.K. guidance documents from the country’s Export Control Joint Unit outline how companies can apply to become an authorized user and register to use the license. The U.K. said it soon will launch a “phased approach” to membership. Companies who are already members of the U.S.-UK Defence Trade Co-Operation Treaty Approved Community or have “current List X/Facility Security Clearance” will be prioritized “immediately after the 1st September go-live date.”

The U.K. also revealed a new process that exporters must use before sending ITAR-controlled items to foreign people or companies outside the U.K., including before participating in certain export promotion activities with those items. An updated Form 680 security process will be the new “administrative vehicle” through which the country’s defense agency will review and approve releases of these ITAR-controlled items.

U.K. companies will need to apply using the form and provide the government “relevant references for the licence, agreement, or authorisation under which the ITAR material was received” from the U.S., and they will also have to outline how long the ITAR material will be “in their possession, which will help inform the requirement for an F680 assurance inspection” conducted by the U.K.’s defense ministry.

This F680 change isn’t expected to affect any existing approvals, and won’t affect any releases involving the EAR, the U.K. said. The new form took effect Aug. 16, “with an implementation period lasting until” Sept. 1.

The U.K. press release quoted Kevin Craven, CEO of ADS Group, a U.K.-based aerospace and defense trade association, who applauded the changes. “This is a potentially groundbreaking moment for the UK defence sector, widening our access to our closest allies and increasing opportunities for international trade,” he said.

Export Controls Australia Group, an organization for export control professionals, called the changes a “significant milestone” for Australian companies. “By bypassing the traditional licensing process through the US Department of State,” the group said, “the exemption is expected to provide a more streamlined and efficient flow of goods and technology, by reducing delays and enhancing operational efficiency for businesses engaged in defence exports.”

But the group also warned that the changes introduce “important administrative responsibilities and legal considerations.” It said exporters should understand the criminal penalties they may face under Australia’s Defence Trade Controls Act and should make sure they’re complying with registration and record-keeping requirements to comply with the ITAR exemption.

“It's crucial for all stakeholders to familiarise themselves with these requirements to ensure full legal compliance and avoid potential penalties.”

Aerospace Industries Association CEO Eric Fanning said the new State Department rule gives the three countries the “structure necessary to realize AUKUS’ success.” AIA had criticized the agency’s original proposed rule for being too restrictive (see 2406030056).

“Today represents a step forward, and while it’s only the first step in setting the rules of the road for AUKUS implementation,” Fanning said AIA "remains committed to working alongside the AUKUS nations to fully realize the potential of the partnership.”