AUKUS: State Issues ITAR Rules

Following on the Commerce Department's modification of dual-use export controls for alliance partners [Link],  the US Departemnt of State proposes to amend the International Traffic in Arms Regulations (ITAR) to support the goals of the AUKUS partnership.

State proposes to amend the ITAR to include an exemption to the requirement to obtain a license or other approval from the Department’s Directorate of Defense Trade Controls (DDTC) prior to any

• export, reexport, retransfer, or temporary import of defense articles;
• the performance of defense services;
• or engagement in brokering activities between or among authorized users within Australia, the United Kingdom, and the United States.

The Department also proposes to

• add a list of defense articles and defense services excluded from eligibility for transfer under the proposed new exemption;
• add to the scope of the 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 United Kingdom and Australia; and
• revise the section on expediting license review applications by referencing new processes for Australia, the United Kingdom, and Canada.

On December 22, 2023, President Biden signed the National Defense Authorization Act (“NDAA”) for Fiscal Year 2024, Public Law No. 118-31, which, among other matters, established new authorities and requirements relating to defense trade between or among Australia, the United Kingdom, and the United States.

These new authorities and requirements are contained in section 1343 of the NDAA for Fiscal Year 2024, which created a new section 38(l) in the Arms Export Control Act (AECA) (22 U.S.C. 2778(l)).

Certain of these requirements include a determination and certification as to whether Australia and the United Kingdom have implemented systems of export controls that are comparable to those of the United States in several specified areas.

• If one or both partner nation’s systems are determined and certified to meet the listed standards related to export controls in the AECA, and
• if the partner nation has implemented a comparable exemption from its export controls for the United States,

the Department would immediately implement an ITAR exemption, subject to certain statutory limitations, for the partner nation(s) to which the positive certification applies.

A separate provision calls for regulatory action to establish an expedited decision-making process for license applications to export certain commercial, advanced-technology defense articles and defense services to Australia, the United Kingdom, and Canada.

The Department is proposing an ITAR amendment in the interest of preparing for a future exemption and obtaining public feedback to shape a final rule following any positive certification.

The proposed new exemption, designed to implement the provisions of new section 38(l) of the 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 new 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.

Further 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, per AECA section 38(l)(1)(C)(2).

• 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.

The UK and Australia authorized users may request that DDTC provide confirmation of the status of U.S. authorized users.

As these lists are subject to change, DDTC will confirm the eligibility of parties under this exemption prior to the transfer (e.g., export, temporary import, reexport, etc.) of defense articles or defense services.

• 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).

For those items excluded from eligibility to be transferred under this proposed exemption by the United States, the U.S. government assessed that the defense articles and defense services in the list require a license or other approval from DDTC due to their importance to the national security and foreign policy interests of the United States.

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.

The Department notes that Supplement No. 2 to Part 126 lists the USML entries in column 1 that represent the location of the excluded defense articles and defense services within the USML.

A USML category’s listing in column 1 does not indicate the entire USML category is excluded; only the portions of those entries that are further described in column 2 are excluded.

When reviewing the list of exclusions, careful review of all relevant entries is required. For example, when determining whether manufacturing know-how and source code described in USML Category IV(i) is excluded, entries such as exclusions for technical data designated as Missile Technology (MT) or directly related to anti-tamper articles may apply, and manufacturing know-how and source code are each addressed in separate exclusion entries:

o IV(a), (b), and (g): Manufacturing know-how and source code directly related to articles in these paragraphs are both excluded.
o IV(c): Manufacturing know-how directly related to articles in this paragraph is not excluded, but directly related source code is excluded.
o IV(d) and (h): Manufacturing know-how directly related to articles in these paragraphs is excluded, but directly related source code is not excluded.
• 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.

Dual Nationals Exemption

• 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. The proposed addition of § 126.18(e) is to facilitate the use of the exemption at § 126.7 and allow dual nationals of another country, and Australia or the United Kingdom, to transfer classified defense articles provided the listed criteria, as described in § 126.18(e), are met.
• 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. The Department notes that the existing language in § 126.15 paragraphs (a) and (b) are separate ITAR provisions implementing requirements that originated in the NDAA for Fiscal Year 2005.
The Department issues this proposed rulemaking noting that the AECA requires that an
exemption must be immediately implemented when the Department certifies that Australia and/or the United Kingdom meet the requirements of section 38(l)(1)(A). The exemption contemplated by this proposed rule is designed to execute this requirement. This proposed rule is being published in order to solicit public comment on the clarity and utility of such an exemption, and related proposed changes, including the list of excluded defense articles and defense services found at the proposed Supplement No. 2 to Part 126.