This article is provided free of charge by ECAG. For continued access to future content, including exclusive resources such as webinars and additional information, please visit our membership page for subscription details.
The Australian, United States and United Kingdom’s national AUKUS exemptions came online on the 1st of September. This significant step has been referred to by media outlets as an AUKUS licence-free exemption for defence exports and trade, which is technically correct, however, it requires additional considerations. Understandably, since this time, ECAG has had numerous organisations and individuals reach out to ask a variation of the following:
What does this apparent licence-free trade environment actually mean?
Is my organisation eligible to participate?
Is it beneficial to change internal processes to utilise it?
The answers to these questions will be individual to each organisation. Organisations should ensure these questions are given careful consideration at both the operational and strategic level. The below information explains what the national exemption is and poses some strategic considerations for organisations to consider.
What is it?
Let’s break it down.
On 15 August 2024, the US Government announced that it had certified Australia’s system of export controls, along with the United Kingdom’s export control regime, and considered the two systems comparable to US export control regulations.
This certification of comparability means a new ITAR exemption (ITAR §126.7) has come into effect. The exemption will authorise Australian and United Kingdom entities to freely export, re-export, and re-transfer defense articles, thereby reducing licensing requirements subject to specific restrictions noted below.
In kind, Australia and the UK have added similar language in their own export control legislation to allow for reciprocal defence trade in and between the three countries. For the purposes of this article, this is referred to collectively as the “national exemptions”.
There are two key exclusions from the national exemptions:
· Excluded Technologies List (ETL) – items in Supplement No. 2 to Part 126—Excluded Technology List may not be transferred under the §126.7 exemption and are subject to normal licensing requirements.
· Foreign Military Sales (FMS) – the ITAR §126.7 exemption does not apply to any items bought under the FMS program.
Additionally, in Australia’s case, also excluded is technology and hardware that has been identified as Australian Military Sales Program (AMSP) items. If your hardware or technology is listed as an AMSP item, you will not be eligible to use the exemption. Instead, simply apply for a regular export licence.
Along with these exclusions, there are extra considerations organisations must be mindful of:
· the exemption only applies to the exchange of information between members of AUKUS – Australia, the United States, and the United Kingdom.
· all transfers must occur within the physical territory of the US, UK, or Australia.
· organisations cannot re-transfer material received under the ITAR exemption to non-AUKUS country partners;
· organisations are not authorised to exchange technology with any company (Australian or other) that is not a member of the Authorised User community; and
· unless all entities in a project’s supply chain are eligible for license free trade within the Authorised User community, normal licensing requirements must be adhered to.
So, should your organisation participate in the Authorised Community?
We recommend some specific considerations. Your organisation’s response to these considerations will help with this decision-making.
Which countries do you mostly do business in (now and in the future)?
The national exemptions can only be used when dealing within and between the AUKUS countries. This doesn’t automatically mean that if you have a business model where the AUKUS countries are involved, however so is a fourth country, i.e. Japan, that you shouldn’t use the national exemptions. First, consider whether the parts of your business that import and export between Australia, the US and the UK could benefit. The answer to this question will come from considering the below following questions.
Are your customers, suppliers and consignees willing to sign up as part of the Authorised User Community?
All user touchpoints of your technology or articles need to be registered in their relevant AUKUS jurisdiction as Authorised Users. This will require these businesses to follow an administrative process to register with their export control regulator. For example, in Australia, organisations can opt in to be an Authorised User and register by filling out a form through the Defence Export Controls website. While it is not an automatic registration and the Government does check the credentials of applicant businesses, the intent is that all AUKUS country located businesses can register. In terms of timeline from registration to approval, this remains to be seen.
Is your hardware and technology eligible for the national exemptions?
As stated above, the national exemptions of each country include a list of technology and hardware that is not eligible for the exemption, which is called the Excluded Technology List (ETL). We recommend making a side-by-side comparison of your organisation's hardware and technology against the ETL to understand your eligibility and margin of potential benefit from the national exemptions.
Examples of articles and technology that are excluded include those on the MCTR, such as space launch vehicles, guided missiles, ballistic missiles, rockets, torpedoes, bombs, explosives, energetic materials, propellants, incendiary agents and related specially designed technology.
Additionally, in Australia, AMSP items are also excluded. To date, these include:
1. Ghost Shark Extra-Large Autonomous Undersea Vehicle (ML9)
2. MQ-28A Ghost Bat UAV (ML10)
3. E-7A Wedgetail AEW&C aircraft (ML10)
4. Active Electronically Scanned Array (ML5. 5)
5. Jindalee Operational Radar Network high-frequency over-the-horizon radar (ML5)
For some organisations, it will be a clear-cut case that the national exemption will be well worth the time and cost it may take to facilitate the new mechanism. For others, the national exemptions may apply to half or only some of their business operations, but not the other, and therefore the decision needs greater consideration. There is a business decision that needs to be made as to whether using the national exemptions for the eligible items plus using the regular permit process for the ineligible items has value or whether to simply use the regular permit process for all items is the best course of action.
Your organisation might also want to ask what is my organisation's future strategy? If it includes future market entry or expansion in the US and UK, with supply support in and between those countries, the exemption could support this by offering greater flexibility than traditional permits.
Additionally, your organisation could consider how important are flexibility and the ability to pursue ad-hoc business development? If the answer is that flexibility is important as well as the ability to pursue ad-hoc business, you should consider that the exemption use is premised on pre-notification only – there is no need to apply for a permit and wait the standard 15-30 days for permission to export. This could be particularly important for an organisation that knows it will scale up soon, or for startups looking at multiple markets with little certainty as to where they will end up.
Food for thought…
The fact is that most organisations, especially larger organisations will not always be able to use the national exemption. Some of their transactions with and between the United States and United Kingdom will still require them to go through the normal permit process because of technology ineligibility. In all cases, organisations should make a business decision based on the above considerations and anything else relevant to their operating model.
ECAG recommends careful consideration of the above questions as they relate to your organisation’s goals and needs. The answers to the questions should provide directions on whether the exemption will benefit your organisation, either now or in the future.
This article is provided free of charge by ECAG. For continued access to future content, including exclusive resources such as webinars and additional information, please visit our membership page for subscription details.
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