Locations
The UK, US and Australia are looking to sweep away significant export controls that could significantly reduce bureaucratic burdens and risk for companies. We set out a summary of the proposed changes and look at what this means for businesses across these jurisdictions.
Context
AUKUS is a trilateral partnership between Australia, the UK and the US, established in 2021 to enhance security in the Indo-Pacific region. It has two main pillars:
- supporting Australia’s acquisition of conventionally armed, nuclear-powered submarines; and
- enhancing cooperation on advanced technologies with potential military capability including AI, quantum computing, cyber, undersea, hypersonic and electronic warfare.
In due course, the scope of these activities may be widened and new partners such as Japan brought on board.
To encourage enhanced collaboration and innovation between their industries, the partners are reforming their export controls with the aim of having revised regimes in place by the end of 2024, enabling billions of dollars in licence-free trade between them.
US export controls
For actors in the UK, the most significant steps are those currently in hand to remove and reduce US export licensing requirements on US-controlled goods and technology sent to the UK and transferred within the UK.
Export Administration Regulations (EAR)
On 19 April 2024, almost all controls on EAR items were lifted for the UK and Australia, including for many sensitive items (“600 series” military items and many 9x515 satellite-related items).
The reforms involved the removal of list-based, end-use and end-user licence requirements and the expansion of licence exception eligibility. In summary, the few controls that remain in place concern primarily:
- remote sensing satellites and spacecraft that provide space based logistics, assembly or servicing for other spacecraft, and related software and technology;
- encryption items, although reporting requirements for the use of Licence Exception ENC have been dropped and comments have been invited on whether to go further;
- firearms and ammunition;
- devices and technology for covert surveillance and law enforcement restraint;
- items potentially for use in WMD programmes (chemical, biological, and nuclear weapons and related missiles);
- transactions involving parties on the Entity List and other US-designated parties; and
- maritime nuclear propulsion (which appears likely to be exempted in due course).
UK and Australian airlines may now receive US-controlled spare parts in most locations worldwide (under a revision to Licence Exception AVS).
These changes are estimated to eliminate some 1,800 licence applications a year for goods worth about $7.5bn.
International Traffic in Armaments (ITAR)
The December 2023 National Defense Authorization Act has been followed-up by a public consultation on proposed revisions to the ITAR with three elements:[1]
- The exemption (under §126.7) of most defense articles and services traded between and among ‘Authorised Users’ in the three partner countries, with some limited exceptions set out in the ‘Excluded Technology List’ (currently about 30% of all defense items but this may be narrowed down over time). There are certain standard conditions including recordkeeping, proscribed countries, assurances for ‘significant military equipment’, re-export and re-transfer restrictions and security controls for classified items.
- Expedited licence processing (under §126.15) for items that are not exempted, with timelines of 30 days for applications related to government agreements and 45 days for all others.
- Other changes to support the exemption (under §126.18(e)): these allow for transfers of classified items to Australian and UK dual nationals who are regular employees of Authorised Users, hold an appropriate security clearance and are located in one of the three countries or are members of their armed forces.
The net effect of these changes, once fully in force, will be a radical easing of controls on exports of US military and dual-use goods and technology to the UK and on transfers of such items within the UK. But if such items are re-exported from the UK to a third country, UK firms will no longer be able to rely on export licences that have already been obtained by US suppliers; rather, UK firms will need to apply for such licences themselves.
Australian export controls
In March 2024, Australia adopted the Defence Trade Controls Amendment Act 2024, making substantial changes to its export controls regime that will commence in September 2024. Public consultations have been opened on Defence Trade Legislation Amendment Regulations. Broadly, these will align the Australian rules with those in the US and UK, and provide a similar set of exemptions for exports to both countries.
UK export controls
The steps being taken by the UK are less radical, since the UK already has in place Open General Licences (OGLs) that cover the export of most dual-use and military items to the US and Australia. To complement these, the UK proposes to introduce a new OGL[2] that will cover the equivalent range of dual-use and military goods and technology exempted by the US and Australia. This is open for public comments until 1 July with the aim of going live in August 2024.
The draft OGL contains a list of items that are not covered (and so would still require a standard individual licence), including certain items on which the UK has international obligations and items which the US, Australia or UK have asked to be excluded. To be able to use the OGL, UK exporters and their US and Australian recipients will need to be on the list of ‘Authorised Users’.
Issues to be clarified
There remain a number of key issues that have yet to be agreed between the partners and/or published, notably:
- the criteria for firms to be included in the ‘Authorised User’ list and the process to apply. Informal indications in the UK suggest that this may be similar to the UK MoD’s Pre-Qualification Questionnaire for companies wishing to bid for a contract. Industry is arguing that the less burdensome the process, the easier it will be to persuade small but often critical suppliers in defence supply chains to apply. Such suppliers may include non-traditional defence companies developing advanced new technologies;
- where the consolidated ‘Authorised User’ list will be made available, for firms wanting to check on the status of a prospective customer. There is concern that three separate lists in each country could be confusing and inefficient;
- what records must be kept and whether these will be open to auditing by the US authorities. This could reduce the benefit of easing the licensing rules if it results in burdensome record-keeping requirements; and
- what will be the process for a member of the “Authorised User Community” to share technology with a non-member firm in the UK.
Conclusion
The export reforms envisaged under the AUKUS are seen by many as a once-in-a-generation opportunity to sweep away much of the burdensome and complex bureaucracy of export controls that have long weighed on defence and high-tech firms trading between the three partner countries. The proposals now open for consultations have been widely welcomed by industry.
But there remain significant areas of uncertainty and risk, if the new rules fail to meet the ambitions of simplifying the processes not only for the benefit of the major defence prime contractors but, more importantly, for the many smaller high-tech companies, start-ups and research bodies whose enhanced collaboration is a key goal.
The governments claim to be alive to these risks and committed to seizing the opportunities that AUKUS is intended to create, particularly in the face of strategic competition from China and Russia. The next few months will be critical in determining whether they rise to the challenge.
If you would like to discuss any of the issues covered in this blog, please contact Partner Andrew Hood, Senior Associate Vansh Gupta, or Advisor Richard Tauwhare.
The contents of this article do not constitute legal advice and are provided for general information purposes only.