U.S. State Department Publishes Defense Trade Controls Exemption for Australia and the United Kingdom

On September 1, 2024, a sweeping exemption relating to defense controls under the International Traffic in Arms Regulations (ITAR) for Australia and the United Kingdom (UK) took effect.¹ The long-awaited rule, issued by the Directorate of Defense Trade Controls of the U.S. Department of State (DDTC or agency), is the latest development aimed at fulfilling the objectives of the 2021 AUKUS Enhanced Trilateral Security Partnership (AUKUS) among the U.S., Australia, and the UK.

The new rule (DDTC Rule) (available here) revises the agency’s April 2024 proposed rule. Interested parties have an additional 90 days to comment, until November 18, 2024.

We provide below a brief background on the developments leading to implementation of the DDTC Rule and five key takeaways, including coordinated action by the U.S. Department of Commerce Bureau of Industry and Security (BIS) and perspectives from the UK.

Background

In September 2021, the U.S., Australia, and the UK signed an agreement establishing the AUKUS partnership to support the collective security and defense interests of the partner countries (AUKUS Partners). The AUKUS Partners agreed to collaborate on innovation and information and technology-sharing as well as integration of security and defense-related science, technology, industrial bases, and supply chains.²

In December 2023, the National Defense Authorization Act for Fiscal Year 2024 (2024 NDAA) amended the Arms Export Control Act to implement the AUKUS objectives.³ Specifically, the 2024 NDAA required the President to immediately exempt exports and transfers of defense articles and defense services between and among the AUKUS Partners following a determination that Australia and the UK have implemented export control systems comparable to the United States’. The 2024 NDAA also called for an expedited licensing process for exports of certain commercial, advanced-technology defense articles and defense services to Australia and the UK as well as Canada.

BIS, which administers controls on commercial and dual-use technologies, and DDTC, which administers controls on defense technologies, have now implemented new exemptions for Australia and the UK in furtherance of the 2024 NDAA mandate.

• In April 2024, BIS published an interim final rule amending the Export Administration Regulations (EAR) to facilitate license-free defense trade with Australia and the UK (BIS Rule).⁴
• In May 2024, DDTC proposed ITAR amendments in preparation to immediately implement an exemption for Australia and the UK.⁵ On August 15, 2024, the State Department certified to Congress that Australia and the UK have implemented comparable export control systems to that of the U.S., paving the way for the final DDTC rule published last week.⁶

Australia and the UK have likewise implemented exemptions for AUKUS Partners. On August 16, 2024, the UK Secretary of State published the AUKUS Nations Open General Licence (AUKUS OGL) to reciprocate the new U.S. and Australia exemptions for trade in certain dual-use items and military goods to, between, and among the AUKUS Partners.⁷ The AUKUS OGL entered into force on September 1, 2024.

Key Takeaways

1. The BIS Rule and DDTC Rule together grant sweeping exemptions to streamline defense trade among AUKUS partners.

BIS Rule

As explained above, the BIS Rule issued in April 2024 amended the EAR to facilitate license-free defense trade with Australia and the UK. The BIS Rule removed certain license requirements, expanded license exceptions, and reduced the scope of end-use and end-user-based license requirements to allow for the license-free export or reexport of most items.⁸ BIS estimates that the revisions will result in a reduction of license requirements on over $7.5 billion in trade with Australia and the UK per year.⁹

BIS made other policy changes to further align exemptions for Australia and UK with Canada. As discussed further below, certain license requirements remain in place for exports to Australia and the UK.

DDTC Rule

Similarly, the DDTC Rule enables the license-free transfer of the “vast majority” of commercial defense trade for AUKUS Partners. The new ITAR exemption provides 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 engaging in brokering activities” between and among Australia, the UK, and the U.S., subject to certain requirements and limitations. These requirements include that such activity must take place in the authorized location and among authorized users, as follows:

• transfers must be to or within physical territories of Australia, the UK, or the U.S.
• the transferor or recipient must be (i) U.S. persons registered with DDTC and not debarred or prohibited from engaging in activities subject to ITAR; (ii) a U.S. government department or agency; or (iii) Australia or UK authorized users (subject to DDTC enrollment and, for non-U.S. person brokers, DDTC registration).

In addition to implementing the AUKUS exemption, the DDTC Rule creates an expedited licensing process for adjudicating license applications for the export of defense articles or defense services to Australia and the UK, as well as to Canada, when relevant exemptions do not apply. The expedited process provides that the State Department shall adjudicate applications for exports pursuant to government-to-government agreements within 30 days, to the extent practicable. All other applications shall be adjudicated within 45 days, except those requiring congressional certification.¹⁰

Finally, the DDTC Rule also expands the exemption for intracompany, intraorganization, and intragovernmental transfers to cover the reexport or retransfer of classified defense articles to certain dual nationals¹¹ who are authorized users within Australia or the UK and are located within the AUKUS Partners’ physical territory or are acting members of the armed forces of an AUKUS Partner.¹²

A fact sheet summarizing key elements of the rule is available here, and DDTC’s updated FAQs are available here.

2. The DDTC Rule makes key changes from the proposed rule but retains certain exclusions and limitations. 

While most defense articles on the U.S. Munitions List (USML) are now eligible for license-free transfer, DDTC identified numerous ineligible items on the Excluded Technology List (ETL).¹³ The list is quite broad and includes items in various categories throughout the USML as well as articles under the Missile Technology Control Regime, manufacturing know-how for certain items, cluster munitions and related items, and F-22 aircraft and related articles. DDTC’s main changes from the proposed rule include clarifying the regulatory language and removing certain items from the ETL in response to public comments.

For example, DDTC revised the exclusion for items related to unmanned aerial vehicle flight control systems and vehicle management systems. Nevertheless, early critics argue that the ETL remains sufficiently broad so as to undermine the key AUKUS objective of streamlining defense trade.¹⁴

Use of the new AUKUS exemption also remains subject to preexisting restrictions on the use of ITAR exemptions.¹⁵ Specifically, transfers may not exceed certain transaction value thresholds and may not involve the manufacturing of significant military equipment abroad. In addition, transfers must still abide by the requirement to provide a destination control statement to the end-user and all consignees.

3. The BIS Rule largely aligned U.S. export controls for Australia and the UK with controls for Canada, but the DDTC Rule provides broader exemptions compared with those applicable to Canada.

Blanket exemptions of the kind granted under the BIS Rule and DDTC Rule for Australia and the UK have been granted to only one other of the US’s closest allies — Canada.

As noted above, the BIS Rule largely afforded Australia and the UK the same treatment under U.S. export controls as Canada. One notable exception, however, is that the BIS Rule left in place license requirements for encryption-related items¹⁶ and certain crime-control related items for Australia and the UK even though Canada is exempt. In practice, License Exception ENC authorizes most exports of encryption-related items, but it is worth noting that BIS did not formally exempt Australia and the UK.

More recent developments continue this trend of aligning export controls for Australia, Canada, and the UK in some areas but not all. For example, on August 30, 2024, BIS sent for interagency review a final rule for the removal of license requirements under the EAR for certain spacecraft and related items for Australia, Canada, and the UK — suggesting further alignment for the three countries. However, on September 6, 2024, BIS published new controls related to quantum computing, semiconductor manufacturing, and other advanced technologies. The availability of new License Exception Implemented Export Controls depends on whether a country has implemented equivalent technical controls for newly added items and, therefore, varies among Australia, Canada, and the UK. The interim final rule imposing these new controls is available here.

In contrast to recent BIS developments, DDTC Rule generally grants broader ITAR exemptions for Australia and the UK than currently exist under the ITAR’s Canadian exemption in a few key respects:

• All defense articles vs. unclassified defense articles: As explained above, the AUKUS exemption applies to the export, reexport, retransfer, or temporary import of all defense articles, the performance of defense services, and brokering activities within the physical territories of the AUKUS Partners and among authorized users except with respect to items identified on the ETL.¹⁷ The Canada ITAR exemption for exports and temporary imports applies only to unclassified defense articles.¹⁸
• Brokering activities: The DDTC Rule includes brokering activities within the scope of the exemption. There is no corresponding exemption under the Canadian ITAR exemption.
• Reexports and retransfers: Pursuant to the AUKUS partnership, the DDTC Rule authorizes reexports and retransfers between and among Australia, the UK, and the U.S. without a license. The Canadian ITAR exemption does not allow the reexport or retransfer of items from Canada to another end use or end use in a third country without prior DDTC approval.¹⁹

4. DDTC solicits further comments on the DDTC Rule, particularly regarding scope.

The DDTC Rule took effect on September 1, 2024. Nevertheless, DDTC is soliciting further public comment through November 18, 2024, which may lead to further refinement of the rule.

For example, several commenters on a section of the proposed rule that has been included in the interim final rule, and is therefore in effect, raised concerns regarding the limited application of the new exemption to transfers to or within the physical territories of the AUKUS Partners. They argued that the limited scope undermines the rules’ effectiveness in supporting AUKUS Partners’ armed forces deployed outside of their physical territories and suggested expanding the scope to include transfers to AUKUS Partners’ armed forces and government employees; transfers to authorized users supporting such armed forces; transfers to international waters in support of certain AUKUS activities; and transfers by Australian, UK, or U.S. persons for end use by AUKUS Partners’ armed forces outside their physical territories.²⁰

DDTC said that the suggested expansion of the rule’s scope would be a significant change and that it issued the rule as an interim final rule, in part, to allow for further comment on this particular issue.²¹ Interested parties should therefore pay close attention to possible changes in the scope of the AUKUS exemption when DDTC issues a final rule.

5. On the UK side, reciprocal exemptions for AUKUS Partners broaden license-free trade in comparison to preexisting exemptions under existing Open General Export Licenses.

The UK’s AUKUS OGL authorizes the export of dual-use and military goods, software and technology, and trade in military goods to, between, and among Australia, the U.S., and the UK.

Dual-use items covered by the new AUKUS OGL are as listed in Annex I of the retained Council Regulation (EC) No 428/2009²², with similar exceptions as under the existing Retained General Export Authorisation (GEA) 001 (for Canada, Japan, Norway, New Zealand, and Switzerland) and the Open General Export Licence (OGEL) for export of dual-use items to EU Member States. These exceptions include, for example, certain nuclear materials, controlled pathogens, genetic elements and toxins, and certain rocket system items.

Military goods, software, and technology covered by the new AUKUS OGL are listed in Schedule 2 of the UK Export Control Order 2008²³ with a detailed list of exclusions reflecting international obligations (such as the Missile Technology Control Regime or cluster munitions) or certain items that AUKUS Partners requested to be excluded from the new exemptions.²⁴ The UK already maintains various OGELs for trade with close allies including not only Australia and the U.S. but also, for example, Canada, Japan, Norway, New Zealand, Switzerland, and EU member states. While the overall scope of the AUKUS OGL is generally broader than existing arrangements such as the OGEL for “military goods, software and technology,” some exclusions are more detailed than in that existing license. For example, given the broader scope of activities covered by the AUKUS OGL, various U.S. classified items are excluded from the new license.

A key difference between the existing UK general licensing regimes and the new AUKUS arrangement is the reciprocal ITAR exemption. UK exporters seeking to rely on the AUKUS OGL must first apply to be members of the newly formed Authorised User Community and ensure that the export or transfer, or supply and delivery under the license is made to consignees and recipients who are also authorized users.

¹ International Traffic in Arms Regulations: Exemption for Defense Trade and Cooperation Among Australia, the United Kingdom, and the United States, Dep’t of State, 89 Fed. Reg. 67270 (Aug. 20, 2024), available at https://www.federalregister.gov/documents/2024/08/20/2024-18043/international-traffic-in-arms-regulations-exemption-for-defense-trade-and-cooperation-among (hereinafter, DDTC Rule).

² Press Release, Commerce Significantly Streamlines Export Controls For Australia and the United Kingdom Advances Goals Of the AUKUS Enhanced Trilateral Security Partnership, Bureau of Industry and Security (Apr. 18, 2024), available at https://www.bis.gov/press-release/commerce-significantly-streamlines-export-controls-australia-and-united-kingdom.

³ Pub. L. No. 118-31 (2023), available at https://www.govinfo.gov/content/pkg/PLAW-118publ31/pdf/PLAW-118publ31.pdf.

⁴ Export Control Revisions for Australia, United Kingdom, United States (AUKUS) Enhanced Trilateral Security Partnership, Dep’t of Commerce, 89 Fed. Reg. 38837 (Apr. 19, 2024), available at https://www.govinfo.gov/content/pkg/FR-2024-05-08/pdf/2024-10079.pdf (hereinafter, BIS Rule); Export Control Revisions for Australia, United Kingdom, United States (AUKUS) Enhanced Trilateral Security Partnership; Correction, Dep’t of Commerce, 89 Fed. Reg. 38837 (May 8, 2024), available at https://www.federalregister.gov/documents/2024/05/08/2024-10079/export-control-revisions-for-australia-united-kingdom-united-states-aukus-enhanced-trilateral.

⁵ International Traffic in Arms Regulations: Exemption for Defense Trade and Cooperation Among Australia, the United Kingdom, and the United States, Dep’t of State, 89 Fed. Reg. 35028 (May 1, 2024), available at https://www.federalregister.gov/documents/2024/05/01/2024-08829/international-traffic-in-arms-regulations-exemption-for-defense-trade-and-cooperation-among.

⁶ Press Release, AUKUS Defense Trade Integration Determination, Department of State (Aug. 15, 2024), available at https://www.state.gov/aukus-defense-trade-integration-determination/.

⁷ See Department of Business and Trade Notice NTE 2024/18: update on AUKUS and publication of new open general licence, published August 16, 2024, available at https://www.gov.uk/government/publications/notice-to-exporters-202418-update-on-aukus-and-publication-of-new-open-general-licence/nte-202418-update-on-aukus-and-publication-of-new-open-general-licence.

⁸ Id.; Press Release, Commerce Significantly Streamlines Export Controls For Australia and the United Kingdom Advances Goals Of the AUKUS Enhanced Trilateral Security Partnership, Bureau of Industry and Security (Apr. 18, 2024), available at https://www.bis.gov/press-release/commerce-significantly-streamlines-export-controls-australia-and-united-kingdom (hereinafter BIS Press Release).

⁹ BIS Press Release at 1.

¹⁰ DDTC Rule at 67291.

¹¹ “Dual national” means a citizen of Australia or the United Kingdom and of another country. See DDTC Rule at 67271.

¹² DDTC Rule at 67291.

¹³ See Supplement No. 2 to 22 C.F.R. Part 126; DDTC Rule at 67291-92.

¹⁴ See, e.g., AUKUS ENABLERS? ASSESSING DEFENCE TRADE CONTROL REFORMS IN AUSTRALIA AND THE UNITED STATES, UNITED STATES CENTRE, UNIVERSITY OF SYDNEY (Aug. 21, 2024), available at https://www.ussc.edu.au/aukus-assessing-defence-trade-control-reforms-in-australia-and-the-united-states.

¹⁵ DDTC Rule at 67290.

¹⁶ See 15 C.F.R. § 742.15(a)(1).

¹⁷ See DDTC Rule at 67272 (noting that “reference to ‘defense articles’ should be read to apply to both unclassified and classified defense articles”). As explained above, authorized users include (i) U.S. persons registered with DDTC and not debarred under 22 C.F.R. § 127.7; (ii) a U.S. government department or agency; or (iii) Australia or UK authorized users (subject to identification in DDTC’s Defense Export Control and Compliance System and DDTC registration for non-U.S. person brokers). See 22 C.F.R. § 126.7.

¹⁸ See 22 C.F.R. § 126.5(a) (authorizing the “temporary import and return to Canada without a license of any unclassified defense articles that originate in Canada for temporary use in the United States and return to Canada”); id. § 126.5(b) (authorizing the “permanent and temporary export to Canada without a license of unclassified defense articles and defense services identified on the U.S. Munitions List”).

19 Id. § 126.5(d).

²⁰ DDTC Rule at 67273.

²¹ Id.

²² See Retained Council Regulation (EC) No 428/2009 of May 5, 2009, setting up a Community regime for the control of exports, transfer, brokering, and transit of dual-use items.

²³ Schedule 2 of the Export Control Order 2008, available at https://www.legislation.gov.uk/uksi/2008/3231/schedule/2.

²⁴ AUKUS Nations Open General Licence, available at https://assets.publishing.service.gov.uk/media/66bc8c8eb45d6a81cd314612/Open-General-Licence-AUKUS-Nations.pdf.