AUKUS
AUKUS, the trilateral partnership between Australia, the UK and the US, was announced on 15 September 2021 with the aim of deepening diplomatic, security, and defence cooperation in the Indo-Pacific region. The three countries have recently reconfirmed their commitment to this increased cooperation in the face of the changing geopolitical landscape.
The initiative is built on two pillars:
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Pillar 1 is centred around the development of conventionally armed, nuclear-powered submarines (SSNs) for the Royal Australian Navy, leveraging the US and UK submarine programs.
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Pillar 2 involves developing a range of advanced capabilities to share technology and increase interoperability between the armed forces of the three nations, with the aim of fostering deeper integration of security and defense-related science, technology, industrial bases, and supply chains.
Given the defence-centred activities of AUKUS, having aligned export control regimes across the three jurisdictions is seen as crucial to the success of AUKUS. In recent (and coordinated) actions, on 1 May 2024 the Australian, British and American governments published proposed changes to the operational elements of their respective export control frameworks (against a backdrop of some overarching legislative changes, particularly in the US and Australia, also).
U.S. Export Controls to Implement AUKUS
The US Congress passed the 2024 National Defense Authorization Act (NDAA) on 15 December 2024. Included in the NDAA were the following AUKUS enabling provisions, among others:
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authorisations to transfer three Virginia class submarines to Australia (the AUKUS Submarine Transfer Authorization Act);
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an exemption under the US International Traffic in Arms Regulations ("ITAR") authorizing the export and transfer (including reexports, transfers, temporary imports, and brokering activities) of defense articles (generally, items enumerated on the US Munitions List (USML)) and defense services between the U.S. and the UK or Australia (or among all three) of defense articles and services subject to the ITAR, without the need for a specific licence or other authorization under the ITAR (the “ITAR Exemption”);
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expedited review of export licenses for exports of advanced technologies (both classified and unclassified) not authorized by the ITAR Exemption to Australia, the UK, and Canada, including timelines for review;
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requests for Australia and the UK in Foreign Military Sales (“FMS”) and Direct Commercial Sales (“DCS”) to receive expedited consideration;
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the addition of Australia and the UK to the meaning of "domestic source" within Title III of the US Defense Production Act (if US or Canadian companies cannot fully address national defense matters), to allow for future investment in the production and purchase of Australian and British critical materials and critical technologies.
The ITAR Exemption
On May 1, 2024, the U.S. Department of State’s Directorate of Defense Trade Controls ("DDTC") published a proposed rule related to he ITAR Exemption. The proposed ITAR Exemption authorizes export, reexport, retransfer, or temporary import of defense articles; the performance of defense articles; or engagement in brokering activities between and among authorized end users within Australia, the United Kingdom, and the United States subject to certain terms and conditions. Notably, only authorized end users will be able to make use of the ITAR exemption, for which they will be required to undergo an enrolment process in coordination with DDTC.
Additionally, on April 19, 2024, the US Department of Commerce’s Bureau of Industry and Security (BIS) issued an Interim Final Rule ("IFR") to support AUKUS that amends the Export Administration Regulations ("EAR"), which regulates "dual use" items (i.e., items that have civil and military applications) to remove licensing requirements for most items on the Commerce Control List ("CCL") for export, reexport, or transfer (in-country) to Australia or the UK.
To qualify for the ITAR Exemption, President Biden must determine (i) that the UK and Australia have export controls comparable to those of the U.S. and (ii) that the UK and Australia have implemented a reciprocal comparable exemption from their export controls for exports to the United States. You can read about the US actions in more detail in our article here.
Australian Export Control Measures to Implement AUKUS
The Australian export controls regime is where the most change is required in order to allow President Biden to give a decision of compatibility with the US regime under the NDAA.
In order to affect this change, the Australian government has recently passed the Defence Trade Controls Amendment Act 2024 (the “DTC Amendment Act”). The DTC amends the Defence Trade Controls Act 2012 (the “DTC Act”).
In summary, the main changes which the DTC Amendment Act brings with it are the creation of 3 new offences under the DTC Act:
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Section 15 of the DTC Amendment Act which creates a new Section 10A of the DTC Act – the transfer of technology listed on the Defence and Strategic Goods List (“DSGL”) to foreign persons within Australia without a permit from the government (this offence applies to the whole of the DSGL, including dual-use technology) (the “10A Offence”);
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Section 15 of the DTC Amendment Act which creates a new Section 10B of the DTC Act – the supply of certain DSGL goods and technology from one foreign country to another foreign country where the goods and technology were previously exported from Australia without a permit from the government (this offence only applies to Part 1 of the GSDL and the Sensitive List and Very Sensitive List of Dual-use Goods and Technologies in Part 2 of the GSDL) (the “10B Offence”); and
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Section 15 of the DTC Amendment Act which creates a new Section 10C of the DTC Act – the provision of services related to DSGL goods or technology to a foreign person (this offence is limited to the munitions list of the DSGL, i.e., Part 1 of the DSGL) (the “10C Offence”).
Currently, only limited offences in relation to the supply, publishing and brokering of certain DSGL goods and technology from Australia to a place outside of Australia exist, meaning this proposed amendment represents quite an expansion of the offences in relation to the DSGL. The penalties for committing an offence can include imprisonment for up to 10 years or a fine or both.
Obviously there needs to be key carve outs to these new offences. The other main impact of the DTC Amendment Act is to provide the ‘licence-free’ environment for the AUKUS countries. Whilst there are other limited exceptions, the key carve outs to these offences cover supplies to citizens or permanent residents of the UK and U.S., to entities incorporated under the laws of the UK and the U.S., or the UK and the U.S. governments.
The DTC Amendment Act also introduces a carve out to the existing offence of supplying DSGL technology from Australia to outside of Australia without a government permit. The carve out means that supplies to citizens or permanent residents of, and entities incorporated under the laws of, the UK and the US are not included in the offence, neither are supplies to the governments of the UK and US.
There are also exceptions in place for certain supplies relating to AUKUS-friendly countries, a list which is determined by the Minister of Defence (the “Foreign Country List”). This Foreign Country list currently includes Currently the Foreign Country List includes Austria, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland.
UK Export Controls Regime to Implement AUKUS
The UK appears to be, thus far, proposing minimal changes to its export control regime (especially in comparison to Australia) and is not currently proposing any legislative changes. Instead, as part of the 1 May coordinated announcements, the UK announced that it would introduce the necessary reciprocal arrangements through an AUKUS specific open general licence ("AUKUS OGL"), which can be read in draft form here.
The draft AUKUS OGL covers the equivalent range of goods and technology as in the ITAR exemption and the DTC Amendment Act/other Australian exemptions cover. Where goods or technology are not covered by the AUKUS OGL, individual licences would still need to be obtained for transfers to AUKUS countries (as well as non-AUKUS countries).
Looking Forward
The three governments jointly indicated, through a series of roadshows, that the main mechanism for operationalising the licence-free ecosystem will be through the use of ‘Authorised Users’ (or equivalent authorisation).
For instance, in the UK only ‘Authorised Users’ can rely on the AUKUS OGL. And in proposed changes to the Defence Trade Controls Regulation 2013 in Australia, companies will need to obtain an AUKUS Defence Export Control Client Registration Number, while in the US companies will need to be registered with DDTC to avail themselves of the proposed exemption under ITAR.
There are still a number of outstanding questions for firms looking to obtain this authorised user status:
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What is the criteria for being approved as an authorised user? In the UK, it has been suggested the process will be similar to the MoD Pre-Qualification Questionnaire used when companies bid for defence contracts, but concerns from SMEs who are often perform critical innovative roles in the defence industry have been voiced around the level of burdensomeness involved in being approved as an authorised user
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What level of review will each country have in approving authorised users in the other countries? And who will have access to view the lists in each country, for instance to check the status of a potential collaborator?
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What will the record keeping requirements and audit rights be? For instance will the US be able to audit the records of companies in the UK and Australia who are authorised users?
This licence-free environment will undoubtedly bring huge efficiencies and opportunities once it is properly embedded, however we note that there are some additional unknowns and potential challenges for companies to deal with in the early stages, including:
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Perhaps of particular importance within research and development areas within Australia, although exemptions for “fundamental research” have been introduced in the DTC Amendment ACT, will they be enough to cover all research activities carried out by researchers from non-AUKUS or Foreign Country List countries?
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How will licence applications be treated for going outside of the AUKUS ecosphere? Again this will be of particular importance in Australia, with its strong research and development ties to non-AUKUS and non-Foreign Country List countries
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Ensuring your company is clear on which goods/technology or services are NOT covered by any of the exemptions, so the appropriate licence is obtained even when transferring to AUKUS countries
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How to account for possible inadvertent data transfers to and from servers located in non-AUKUS friendly countries?
Next steps
The AUKUS export control ecosphere continues to develop, with some of these actions potentially going live in August. Hogan Lovells has set up a cross-pratice AUKUS subgroup comprising experts located in the UK, the US and Australia with experience in the export control and trade space, defence and government contracts to name but a few areas. Please contact any of the Hogan Lovells lawyers listed above with any questions or concerns regarding AUKUS and the developments in export controls.
Authored by Kate Poppitt, Ashley Roberts, Aline Doussin, Helka Kittila, Stephen Propst, Cassady Cohick, and Deborah Wei.
