International Traffic in Arms Regulations: Exemption for Defense Trade and Cooperation Among Australia, the United Kingdom, and the United States

International Traffic in Arms Regulations: Exemption for Defense Trade and Cooperation Among Australia, the United Kingdom, and the United States

Supplementary Information

On September 15, 2021, the leaders of Australia, the United Kingdom, and the United States announced an intention to deepen "diplomatic, security, and defense cooperation to meet the challenges of the twenty-first century" through the creation of AUKUS, an enhanced trilateral security partnership. Reflective of the goals of AUKUS, on December 22, 2023, President Biden signed the National Defense Authorization Act ("NDAA") for Fiscal Year 2024, Public Law 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, section 1344 of the NDAA for Fiscal Year 2024, 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. These proposed amendments stand to enhance security cooperation and collaboration with two of our closest allies.

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:

○ IV(a), (b), and (g): Manufacturing know-how and source code directly related to articles in these paragraphs are both excluded.

○ IV(c): Manufacturing know-how directly related to articles in this paragraph is not excluded, but directly related source code is excluded.

○ 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.

• 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.

Finally, the Department notes the changes to § 126.15 of this proposed rule may be implemented by a separate final rule, based on timing and statutory constraints.

Regulatory Analysis and Notices

Administrative Procedure Act

This rulemaking is exempt from the notice-and-comment rulemaking requirements of the Administrative Procedure Act (APA) pursuant to 5 U.S.C. 553(a)(1) as a military or foreign affairs function of the United States Government. Despite this exemption, the Department has elected to publish this proposed rule for public comment.

Regulatory Flexibility Act

Since this rule is exempt from the notice-and-comment provisions of 5 U.S.C. 553 as a military or foreign affairs function, the rule does not require analysis under the Regulatory Flexibility Act.

Unfunded Mandates Reform Act of 1995

This rulemaking does not involve a mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any year and it will not significantly or uniquely affect small governments. Therefore, no actions are deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

Executive Orders 12372 and 13132

This rulemaking will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this proposed amendment does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this rulemaking.

Executive Orders 12866, 14094 and 13563

Executive Order 12866, as amended by Executive Order 14094, and Executive Order 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributed impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Because the scope of this rule does not impose additional regulatory requirements or obligations, the Department believes costs associated with this rule will be minimal. Regarding the proposed exemption, Australia and the United Kingdom, as set forth in the Section 655 reports required annually by the Foreign Assistance Act of 1961, as amended, are ordinarily among the most commonly-licensed destinations for transfers subject to the ITAR. The Department expects that fewer license applications will be submitted as a result of this rule for authorized users that meet the criteria of the exemption, for eligible transfers of defense articles and defense services to and between Australia, the United Kingdom, and the United States. Consequently, this exemption will relieve licensing burdens for some exporters. Regarding the expedited licensing review process when an ITAR exemption is not available for use, the Department expects minimal costs associated with this provision for the public, with the benefit of license applications involving Australia, the United Kingdom, or Canada being subject to faster adjudication. The Department is seeking public comment on its assessment of the costs and benefits of this proposed rule. This rule has been designated as a significant regulatory action by the Office and Information and Regulatory Affairs under Executive Order 12866.

Executive Order 12988

The Department of State has reviewed this rulemaking in light of Executive Order 12988 to eliminate ambiguity, minimize litigation, establish clear legal standards, and reduce burden.

Executive Order 13175

The Department of State has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not preempt tribal law. Accordingly, Executive Order 13175 does not apply to this rulemaking.

Paperwork Reduction Act

This rulemaking does not impose or revise any information collections subject to 44 U.S.C. Chapter 35.

For the reasons set forth above, title 22, chapter I, subchapter M, part 126 is proposed to be amended as follows:

Part 126 General Policies and Provisions

(a) 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 as described in part 129 of this subchapter, between or among authorized users of this exemption, subject to the requirements and limitations in paragraph (b) of this section.

(b) The exemption described in paragraph (a) of this section is subject to the following requirements and limitations:

(1) The transfer must be to or within the physical territory of Australia, the United Kingdom, or the United States;

(2) The transferor and recipient must be:

(i) U.S. persons registered with the Directorate of Defense Trade Controls (DDTC) and not debarred under § 127.7 of this subchapter; or

(ii) Authorized users identified through the DDTC website;

(3) The defense article or defense service is not identified in Supplement No. 2 to part 126 of this subchapter as ineligible for transfer under this exemption;

(4) The transferor shall maintain records of each transfer available to the Directorate of Defense Trade Controls upon request, including a description of the defense article or defense service; the name and address of the recipient and the end-user, and other available contact information ( e.g., telephone number and electronic mail address); the name of the natural person responsible for the transaction; the stated end use of the defense article or defense service; the date of the transaction; and the method of transfer;

(5) The value of the transfer does not exceed the amounts described in § 123.15 of this subchapter and does not involve the manufacturing abroad of significant military equipment as described in § 124.11 of this subchapter;

(6) The transfer is subject to meeting the requirements of this subchapter, to include §§ 120.15(d) and 120.16 of this subchapter, parts 122 and 123 of this subchapter (except insofar as exemption from licensing requirements is herein authorized) and § 126.1 of this subchapter, and the requirement to obtain non-transfer and use assurances for all significant military equipment;

(7) Transferors must comply with the requirements of ITAR § 123.9(b) of this subchapter; and

(8) For U.S. authorized users, transfers of classified defense articles and defense services must meet the requirements in 32 CFR part 117, National Industrial Security Program Operating Manual (NISPOM) and, for Restricted Data, the Atomic Energy Act of 1954, as amended. Australian authorized users must meet the requirements in the Defence Security Principles Framework (DSPF) Principle 16 and Control 16.1, Defence Industry Security Program, and United Kingdom authorized users must meet the requirements in the Government Functional Standards GovS 007: Security.

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(c) Any application submitted for authorization of the export of defense articles or defense services to Australia, the United Kingdom, or Canada, describing an export that cannot be undertaken under an exemption provided in this subchapter, will be expeditiously processed by the Department of State. The prospective export must occur wholly within, or between the physical territories of Australia, the United Kingdom, Canada, or the United States, and between governments or corporate entities from such countries.

(d) Any license application in paragraph (c) of this section to export defense articles and defense services 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, any review shall be completed no later than 45 calendar days after the date of the application. The provisions of this paragraph do not apply to any applications which require congressional certification.

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(e) Notwithstanding any other provisions of this subchapter, no license is required for the transfer of classified defense articles to citizens of Australia or the United Kingdom who:

(1) Are dual nationals of another country;

(2) Are authorized users, or regular employees of an authorized user of the exemption in § 126.7;

(3) 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

(4) Are either:

(i) Within the physical territory of Australia, the United Kingdom, or the United States; or

(ii) A member of the armed forces of Australia, the United Kingdom, or the United States acting in their official capacity.

Supplement No. 2 to Part 126-Excluded Technology List

Supplement No. 2 lists the defense articles and defense services excluded from the scope of the exemption provided at § 126.7 of this subchapter. USML entries in column 1 represent the location of the excluded defense articles and defense services within the USML and does not indicate the entire USML entry in column 1 is excluded; only the portions of those entries that are further described in column 2 are excluded.