Overview
On May 8, 2024, BIS published a correction to the interim final rule, further removing license requirements for certain items under ECCN 0x5zz.
Previously, the interim final rule stated that all 0x5zz ECCNs referenced in footnote 9 to the Commerce Country Chart in supplement no. 1 to part 738 that were previously controlled for NS1 or RS1 reasons for control would continue to require a license for export to Australia and the UK based on the license requirements specified in that footnote. However, the correction clarifies that only portions of the referenced 0x5zz ECCNs will continue to require a license.
On April 19, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule under the U.S. Export Administration Regulations (EAR) that significantly streamlines export controls on certain defense-related technology products to Australia and the United Kingdom (UK). Aimed at enhancing technological innovation among the three countries in furtherance of the Australia, United Kingdom, United States (AUKUS) Trilateral Security Partnership, the interim final rule removes license requirements, expands the availability of license exceptions, and reduces the scope of end-use and end-user-based license requirements for exports, reexports, and transfers (in-country) to or within Australia and the UK.
In a statement, BIS said that it “anticipates these changes will reduce licensing burdens for trade with Australia and the UK by over 1,800 total licenses valued at over $7.5 billion per year.” BIS also states that the cumulative effect of these export control revisions under the EAR will be to treat Australia and the UK as destinations equivalent to Canada. BIS is soliciting public comments on the impacts of these changes to ensure that the export control revisions implemented advance AUKUS objectives, as well as potential additional revisions to the EAR that would further enhance defense industrial base cooperation and technology innovation with Australia and the UK. Interested parties should consider submitting comments to BIS by the June 3, 2024, deadline.
Notwithstanding this important regulatory development, export control revisions under AUKUS related to the U.S. International Traffic in Arms Regulations (ITAR) administered by the U.S. Department of State, Directorate of Defense Trade Controls (DDTC), have not yet been promulgated. Until that action occurs, industry will not be able to assess the full extent of U.S. export control revisions and continued licensing requirements that will be implemented under AUKUS.
The “Two Pillars” of AUKUS
Australia, the UK, and the United States announced the AUKUS partnership on September 15, 2021, in which the countries resolved to “deepen diplomatic, security, and defense cooperation in the Indo-Pacific region, including by working with partners, to meet the challenges of the twenty-first century.”
AUKUS is organized around two “pillars.” Pillar I focuses on submarine cooperation under which Australia will acquire up to five Virginia-class nuclear submarines from the United States and will jointly develop a new AUKUS-class submarine with the UK using U.S. submarine technologies. Pillar II focuses on bolstering trilateral cooperation on emerging technological areas, namely:
- Undersea capabilities;
- Quantum technologies;
- Artificial intelligence and autonomy;
- Advanced cyber;
- Hypersonic and counter-hypersonic capabilities;
- Electronic warfare;
- Innovation; and
- Information sharing.
The interim final rule removes license requirements on exports related to many, if not all, of the above AUKUS Pillar II cooperation categories.
Interim Final Rule: Six Key Changes
Under the interim final rule, Australia and the UK will be afforded “nearly the same” licensing treatment under the EAR as Canada. This rule makes six primary export control policy changes as well as several minor conforming changes to further align the treatment of Australia, Canada, and the UK under the EAR.
The first three changes involve the removal of list-based license requirements for exports, reexports, and transfers (in-country) to Australia and the UK. Specifically, BIS will remove license requirements for exports to Australia and the UK for the following control reasons: national security column 1 (“NS1), regional stability column 1 (RS1) (pursuant to 15 CFR § 742.6(a)(9), a license is still required for all destinations—including Australia, Canada, and the UK, for spacecraft and related items classified under Export Control Classification Number (ECCN) 9A515.a.1, .a.2., .a.3., .a.4., .g, and ECCN 9E515), and missile technology column 1 (MT1). Australia and the UK are not currently subject to NS2 or RS2 controls, so the two countries are now, like Canada, exempt from any NS or RS controls, notwithstanding the RS1 license requirement for spacecraft and related items.
This is particularly significant because “600 series” items included on BIS’s Commerce Control List, which may also be items on the Wassenaar Arrangement Munitions List, will no longer require a license under the EAR for export from the United States to Australia or the UK. Additionally, the interim final rule removes license requirements for Australia or UK-bound items controlled under the EAR for missile technology reasons consistent with the Missile Technology Control Regime (MTCR) Annex (see also 15 CFR § 744.3). Moreover, many 9×515 satellite-related items will no longer require a license to Australia or the UK (but industry should be aware that this change does not apply to spacecraft and related items requiring a license for reasons of RS described in the preceding paragraph).
The fourth change removes licensing requirements to Australia and the UK for items classified under ECCN 0A919, which are military commodities produced and located outside the United States that are not subject to the ITAR. Prior to this change, the special RS1 control required a license for reexports to all destinations except Canada for items classified under ECCN 0A919 except when such items are being reexported as part of a military deployment by a unit of the government of a country in Country Group A:1 or the United States.
The fifth change removes military end-use and end-user-based license requirements for exports, reexports, and transfers (in-country) of certain cameras, systems, or related components, which includes products covered under ECCN 6A003.a.3, 6A003.a.4, or 6A003.a.6 that will be or are intended to be used by a “military end-user.” Previously, only exports of such items to Canada were excepted from these requirements; the interim final rule expands the exception to Australia and the UK.
Finally, the sixth change involves a revision of BIS’ treatment of significant items (“SI”) controlled under ECCN 9E003.a.1-a.6, a.8, .h, .i, and .l. The interim final rule removes export and reexport license requirements to Australia and the UK for such “hot section” technology used in the development, production or overhaul of commercial aircraft engines, components, and systems.
Two Steps Forward, One Step Back on AUKUS
Although the interim final rule promises to streamline industry and government cooperation among the trilateral partners, full implementation of the goals of AUKUS may be dampened by the U.S. government’s inability to timely grant Australia and the UK a defense trade exemption by the initial deadline set out by the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2024.
Generally, the export of defense articles and defense services regulated by the U.S. Munitions List is controlled under the ITAR. The FY 2024 NDAA sought to provide key exemptions to ITAR controls for exports to Australia and the UK, requiring in Section 1343 that the President determine and certify to Congress whether Australia or the UK (as with its EAR exemptions noted above, Canada already has such an exemption under the ITAR) has implemented a system of export controls and exemptions comparable to those of the United States. This is particularly relevant for AUKUS, as potential exemptions would remove licensing requirements for most military goods and technology items under both AUKUS Pillars: (I) submarine components and (II) advanced technologies.
However, the Biden administration did not issue a positive certification for Australia or the UK within the statutory 120-day deadline, resulting in the continued applicability of controls on defense articles and services exports to both countries. Key stakeholders in Congress have criticized the Administration’s failure to certify as a hindrance to full implementation of the AUKUS partnership. Meanwhile, the UK has issued a statement signaling confidence that a positive certification will occur within the next 120-day “reset” under the FY 2024 NDAA, after the U.S. government “consult[s] with defence industry to ensure that implementation of the planned AUKUS exemptions realises their full potential.”
Therefore, industry involved in the export of defense articles and defense services to Australia and the UK should continue to monitor certification process developments until the next 120-day window closes in mid-August 2024 in order to assess the full scope of U.S. export control revisions under AUKUS.
Key Takeaways for Exporters
The interim final rule dramatically reduces the scope of BIS export controls for trade with Australia and the UK and may significantly lessen the licensing burden for exports, reexports, and retransfers of most controlled items of the EAR to the two countries, including most military items subject to the 600 series and under 9×515. Although the Biden administration did not certify Australia and the UK for certain ITAR exemptions pursuant to the FY 2024 NDAA, the countries have signaled optimism for certification in August of this year, which will further reduce barriers to trade in sensitive technologies between the AUKUS partners. Steptoe will continue to monitor this issue closely. For more information, please contact a member of Steptoe’s Export Controls team.
