Foreword
I am pleased to present AUKUS enablers? Assessing defence export control reforms in Australia and the United States by Dr William Greenwalt, senior non-resident fellow at the American Enterprise Institute, and Tom Corben, research fellow in the Foreign Policy and Defence Program at the United States Studies Centre. In short, this report provides a timely analysis of progress towards implementation on a complex set of issues critical to the success of AUKUS and the alliance more generally, yet of which a nuanced understanding and appreciation remains lacking outside of the expert community.
The defence export control issue is not a new one in the context of the US-Australia alliance. Yet it has rarely been more central to discussions over how to operationalise a growing defence industrial and technology agenda, including through the AUKUS partnership. In that respect, this report offers an important contribution to that discussion at a moment when unprecedented reforms in all three countries may see the realization of the sort of defence free-trade zone promised under the bilateral 2007 Defence Trade Cooperation Treaties and 2017 expansion of the US National Technonology and Industrial Base to include Australia and the United Kingdom. It also offers a valuable reference point for those looking forward, particularly as the three countries move to align and harmonise a broader set of legal, policy and regulatory instruments to realise the potential of AUKUS.
This report is the successor to the authors’ highly influential May 2023 report, Breaking the barriers: Reforming US export controls to realise the potential of AUKUS. That report exemplified the Centre’s three core missions: to offer quality analysis of the United States, generate insights for Australia, and to provide actionable policy solutions for the US-Australia alliance. Its record of impact speaks for itself. The leaders of all three nations were briefed on the contents of Breaking the barriers by their respective staffs ahead of important leadership meetings; it influenced animated debates in the United States Congress over the appropriate scale and scope of export control reform for AUKUS nations; and it informed the findings of the Congressionally-mandated Commission on the National Defense Strategy’s July 2024 report with respect to how Washington should approach defence industrial and technology cooperation with trusted allies and partners.
I am certain that this report will provide a similarly valuable contribution to a more informed discussion on AUKUS and the US-Australia alliance defence agenda writ large.
Dr Michael J. Green
Chief Executive Officer
United States Studies Centre
August 2024
Executive summary
- Over the past 12 to 18 months, lawmakers and officials in Australia, the United Kingdom, and the United States have made notable progress in harmonising their respective defence trade control regimes. Collectively, reforms proposed in all 3 countries would exempt between 70-80% of trilateral defence trade from licensing requirements, reducing certain compliance costs for industry and greasing the wheels of everyday defence industrial and technology cooperation between the AUKUS countries.
- Once implemented, these reforms will mark a significant step towards genuine defence industrial and technology federation between the 3 partners. Of particular note, adjustments to the United States International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) would see Australia and the United Kingdom effectively granted the same privileged status as Canada within the US defence industrial base. In that respect, AUKUS-driven reforms may succeed where previous efforts failed, realising a long-standing objective of creating a ‘defence free-trade zone’ between Australia and the United States.
- However, reform efforts could come to naught if further regulatory adjustments are not made and if lingering barriers to implementation endure. Indeed, stakeholders in all 3 countries worry that enduring structural challenges posed by the ITAR and the exclusion of many AUKUS-relevant technologies from the proposed US licensing exemption will stymie cooperation through AUKUS Pillar II and hamper alliance initiatives on precision-guided weapons. Left unaltered, present reforms could create an arrangement which omits many AUKUS-relevant technologies, including those originating in the commercial and dual-use markets, from the benefits of export control harmonisation.
- Importantly, AUKUS regulatory harmonisation efforts have been premised on the emulation of US defence trade controls by Australia and the United Kingdom, rather than the development of a trilateral AUKUS standard. This has not occurred for lack of debate. Though Australia and its allies on Capitol Hill argued that Canberra’s defence trade controls were already comparable to US regulations, proponents of greater comparability within Congress and the administration ultimately conditioned AUKUS defence trade exemptions on corresponding reforms in Australia and the United Kingdom. As a result, Australia has enacted reforms to its own defence trade controls which many stakeholders worry could replicate well-known challenges with the US ITAR system.
- Maximising the benefits of AUKUS defence trade harmonisation will require the 3 countries to address a range of legal, political, and technical challenges at the unilateral and trilateral level. These include: managing political risks associated with potential suspensions from the license-free environment; creating a mechanism for administering and developing genuinely trilateral industrial security standards; minimising the emulation of the ITAR’s structural disincentives to defence innovation in Australia’s own regulations; further reforms to the Excluded Technologies List (ETL), including addressing challenges posed by international arms control treaties; uplifting export control literacy and capacity across the Australian defence ecosystem writ large.
Recommendations
To address these challenges and prepare for further harmonisation work, Australia and the United States will need to consider actions at the unilateral and trilateral level. The impending certification of Australian and British comparability of export systems by the US State Department will mark a significant step forward, but more needs to be done to give expression to a limited AUKUS defence free-trade zone and provide a degree of compliance relief for authorised users of the AUKUS defence licensing exemptions.
To address these challenges and prepare for further harmonisation work, Australia and the United States will need to consider actions at the unilateral and trilateral level.
Unilateral requirements
- To ensure that its reform efforts deliver tangible benefits for the wider US-Australia defence industrial and technology agenda, the United States should clarify how its proposed licensing exemption will apply to: the manufacture and co-production of US-origin defence technologies in Australia; Foreign Military Sales (FMS) and Direct Commercial Sales (DCS) to Australia; and commercial products modified for military applications overseas subsequently included in AUKUS co-development projects.
- The United States and Australia will need to address real and potential sources of ‘taint’ residing in their respective regulatory definitions, particularly with respect to the terms ‘defense services’ and ‘technical data,’ to ensure that commercial and dual use entities are not dissuaded from participating in AUKUS projects.
- For Australia, this should focus on clarifying proposed ‘sunset’ clauses for licensing and reporting requirements, and clarifying how the government’s new defence trade control requirements will distinguish between Part 1 (Military) and Part 2 (Dual-Use) of Australia’s Defence Strategic Goods List (DSGL)
- For the United States, this should focus on differentiating the applicability of the ITAR to existing US technology, predominately allied-developed technology, or jointly developed emerging technology through the creation of new exemptions or cooperative programs for AUKUS Pillar II workstreams.
- To improve the export control literacy and capacity of a wider number of stakeholders across the Australian industrial ecosystem, the Australian government will likely be required to:
- Staff-up the Australian defence export control office and defence industry security program in anticipation of a surge in the number and complexity of requests for assistance.
- Consider increasing resourcing for programs designed to assist small and medium-sized enterprises in entering the defence market and managing compliance requirements, including by working closely with industry primes.
Trilateral requirements
- Better align review periods for the 3 countries’ respective defence trade controls in anticipation of further amendments in future.
- Establish an AUKUS industrial security consultation mechanism in anticipation of further regulatory harmonisation efforts, similar to that created to implement the expanded US National Technology and Industrial Base (NTIB).
- Establish a genuinely trilateral ‘authorised user’ verification mechanism with equitable processes for admission and recourse by all 3 countries.
- To revise the ETL, adopt a common national policy position that defines a ‘strong presumption of sharing’ for discrete technology categories related to AUKUS Pillar II found on the Missile Technology Control Regime (MTCR).
Introduction
As Australia, the United Kingdom and the United States approach the third anniversary of the AUKUS agreement, the framework that will guide their trilateral defence technology cooperation is becoming clearer.
Since mid-2023, governments and lawmakers in all 3 countries have pursued legislative reforms to harmonise defence trade control regulations between the AUKUS countries. In the United States, the FY24 National Defense Authorization Act (NDAA) provided notable — albeit conditional — licensing exemptions from the ITAR for Australia and the United Kingdom, with similar exemptions enacted by the Department of Commerce in May 2024.1 In Australia, the government introduced and passed the Defence Trade Controls Amendment Act 2024 and the Safeguarding Australia’s Military Secrets Act 2024, which amended Australian defence trade controls to more closely emulate specific elements of US regulations and provided London and Washington with reciprocal licensing exemptions.2 Likewise, the United Kingdom has taken steps to enable more streamlined defence trade with Australia and the United States through the creation of an AUKUS specific open general licence (OGL).3 These reforms, in the words of senior Australian government officials, are intended to realise “a [defence] free-trade zone between AUKUS countries” where commercial, industrial and research entities from all 3 nations are able to cooperate freely on advanced capabilities and emerging technologies.4
The potential
The potential benefits for this arrangement would be significant. If realized, these reforms would allow for the license-free trade and transfer of approximately 70% of Australia-US defence trade by volume (80% by value), reducing compliance burdens and streamlining processes for many forms of everyday defence industrial and technology engagement between the 3 countries, particularly between Australia and the United States.5 Importantly, the creation of such a zone has been a long-standing objective for successive Australian governments for the best part of 2 decades, an agenda which previous efforts such as the 2007 Defence Trade Cooperation Treaty and the 2017 expansion of the US National Technology and Industrial Base to include Australia and the United Kingdom ultimately failed to deliver.6 In that context, the creation of a trilateral defence trade licensing exemption is welcome progress towards the implementation of not only AUKUS, but a suite of other alliance initiatives including Australia’s Guided Weapons and Explosive Ordinance (GWEO) enterprise, the creation of a combined logistics, maintenance and sustainment capability for allied forces in Australia, and collaboration on a wide range of legacy capability programs administered through the US Foreign Military Salesprocess.7
However, notwithstanding these efforts, it is unclear whether these reform proposals alone will be sufficient to realise the potential of AUKUS. Deliberations over the appropriate scope and application of trilateral defence trade control harmonisation efforts are ongoing, and in isolation, are by no means a silver bullet to realising AUKUS in its most ambitious form.8 Even so, early indications are that the 3 countries are missing an opportunity to craft a shared defence export control framework devoid of the well-understood structural problems associated with the ITAR. To make matters worse, there is a significant risk that many AUKUS-related technologies could be excluded from the very framework intended to facilitate their wider sharing and co-development.9 Further work to refine the proposed licensing exemptions, minimise the number of excluded technologies, and address lingering barriers to implementation will be required to maximise the benefits of harmonisation efforts to date.
The barriers to success
This risk is due to several interrelated factors. Despite the efforts of Australian and British government and industry representatives as well as support from allies in the US Congress, in order to secure an unconditional national exemption from the ITAR, the AUKUS defence free-trade zone has become conditioned on an ambiguously defined standard of ‘comparability’ against American regulations, as determined by the Department of State. The requirements to meet this standard have in turn prompted reforms to Australia’s own defence trade regulations to more explicitly mirror forms and functions of US regulations. While most commercial industry stakeholders support the intent of these reforms — to create an AUKUS defence free-trade zone — they fear that these efforts will see Canberra emulate problematic elements of the ITAR and contribute to the creation of a more, rather than less complex and costly defence export control environment between the AUKUS countries.
By comparison, many of the ITAR’s primary structural flaws remain unresolved. While even limited US export control reforms are welcome, the proposed changes are not necessarily fit for the purpose or spirit of AUKUS Pillar II. In fact, these are in many ways similar to those that the US Department of Defense advocated for in the 1990s as part of the Clinton administration’s Defense Trade and Security Initiative to drive defence industrial integration with close allies like Australia, but which were never implemented.10 Today, while verified entities in Australia and the United Kingdom may be granted partial exemptions from the regime’s licensing requirements, those items ineligible for the exemption — captured under an Excluded Technologies List mirrored across all 3 countries — will remain subject to standard export control procedures. This includes the ITAR’s well-documented ‘taint’ effect, which has historically disincentivized US allies and commercial companies from engaging in technology sharing and co-development projects with the Pentagon.11 Concerningly, the ETL deliberately captures technologies central to Pillar I and Pillar II projects alike, omitting these articles and services from license-free trade for reasons of national competitiveness, international treaty obligations, and anxieties over industrial security threats posed by China, Russia, and other competitors. If implemented, these reforms would effectively create a defence free-trade zone that is AUKUS by country, but not by technology.
The objective of fostering a seamless trilateral defence innovation base, working hand in glove on new cutting-edge technologies, will not be fully realized by present reforms alone.
In short, the objective of fostering a seamless trilateral defence innovation base, working hand in glove on new cutting-edge technologies, will not be fully realized by present reforms alone. Though broadly appreciative of the 3 governments’ efforts to streamline defence trade and incentivise collaboration, many stakeholders across the AUKUS defence industrial ecosystems working on advanced technologies perceive negligible benefits for high-end technology sharing, co-innovation and co-development from present harmonisation efforts relative to the costs and risks that they would need to shoulder in return. Indeed, delivering truly disruptive capabilities and technologies through AUKUS Pillar II will require expanding the 3 countries’ partnerships with non-traditional commercial industrial players. Should that be the case, AUKUS Pillar II will struggle to comprehensively deliver on its potential as a progenitor of new, disruptive, and genuinely co-developed military innovations without further reforms,12 with the risk that the agreement could become focused more on sharing legacy military technologies than developing those of the future.
The way forward
Fortunately, all is not lost. All 3 governments regard their harmonisation efforts to date as a starting point, and continue to look for ways to take better advantage of their collective innovation cultures and industrial bases to give full expression to AUKUS defence technology cooperation. In order to do so, Australia and the United States in collaboration with the United Kingdom will need to address new and lingering challenges posed by their own respective defence trade control regimes; develop genuinely trilateral mechanisms for crafting and governing ‘AUKUS-grade’ industrial security requirements; adopt common policy positions on international treaties of specific relevance to AUKUS technology-sharing activities; and consider how to prepare, support, and work with their industrial and innovation bases in complying with higher regulatory standards now and going forward.
Where AUKUS currently stands
The AUKUS partnership is designed to deliver along 2 key lines of effort. The first, Pillar I, is intended to deliver a conventionally armed, nuclear-powered submarine (SSN) capability for the Royal Australian Navy by 2040 over three stages: the development of the necessary domestic infrastructure and workforce in Australia to support an SSN capability, including more frequent rotations of US and British submarines through Australian facilities; the sale of up to 5 Virginia-class SSNs to Australia beginning in the 2030s, including Australian capital injections into the US industrial base; and the co-development and co-construction of up to 8 AUKUS-Class SSNs by Australia and the United Kingdom beginning in the 2030s, including Australian capital injections into the British industrial base.13 The second, Pillar II, is intended to jointly develop and field advanced military capabilities in the following categories: advanced cyber capabilities, artificial intelligence and autonomy, quantum technologies, undersea, hypersonic and counter-hypersonic, electronic warfare, innovation and information-sharing. Though not formally an AUKUS line of effort, there are parallel efforts underway to enhance cooperation under what the authors have previously called Pillar III: forms of industrial cooperation and technology transfer focused on legacy systems developed over the last 70 years, including those previously and presently being transferred to Australia and the United Kingdom through Foreign Military Sales and Direct Commercial Sales transactions.14
Though submarines have occupied the lion’s share of government, industry and public attention since September 2021, it is widely held that advanced capability development under Pillar II will be just as essential to the success of AUKUS. Encouragingly, notwithstanding enduring legal and regulatory hurdles, the 3 countries have made important progress in building out their advanced capability agenda within the realm of the possible, focusing on enhancing the interoperability and interchangeability of existing advanced capabilities and advancing simultaneous innovation agendas.15 This has included conducting a range of autonomy and artificial intelligence (AI) capability demonstrations; developing a maritime experimentation and exercise agenda; and conducting parallel national innovation challenges to showcase and test each country’s cutting edge capabilities in different Pillar II technology areas.16 Importantly, the 3 countries are close to operationalising their first trilateral capability, having developed a common AI algorithm for processing high volumes of sensitive data collected by each country’s high-end maritime and aerial surveillance capabilities for deployment in the near future.17
Though not officially an AUKUS endeavour, Australia and the United States have also placed a high premium on enhancing cooperation on proven legacy systems and shared industrial base requirements. These “Pillar III” efforts have included a range of AUKUS-adjacent supply chain diversification and co-production initiatives designed to enhance the alliance’s overall combined force posture and readiness.18 For example, Canberra and Washington have sought to kick-start Australia’s Guided Weapons and Explosive Ordinance enterprise through the transfer of US technical data to enable greater production of 155mm ammunition in Australia as well as laying the foundations for guided multiple rocket launcher (GMLR) munitions production in future years to support joint regional and global resourcing requirements.19 They have also sought to enhance Australia’s capacity to conduct in-theatre maintenance, repair and overhaul work on common US-origin systems like the MH-60R helicopter and P-8 maritime surveillance aircraft,20 in the interests of supporting a new Combined Logistics Sustainment and Maintenance Enterprise.21
Needless to say, sustained success through each of these Pillars will depend not only on sufficient resource allocation or political will. For AUKUS to truly succeed with require addressing long-standing structural and regulatory challenges to defence industrial integration and technology collaboration between the 3 countries. As the authors established previously, foremost among these challenges have been those posed by an outdated system of defence export controls in the United States.22 Notwithstanding recent signs of progress, many of those challenges remain today.
Restating the export control problem
The challenges arising from US defence export controls are among the most significant barrier to the success of AUKUS. This is due in large part to the absence of fundamental reform and overhaul to these systems since their design in the era of the Cold War. In an ideal setting, defence export controls would be responsive to the maturity and origin of different capabilities and technologies: that is, whether something has already been developed and is in production; whether that something can be modified and improved, and who performs that work; whether something new is being innovated or developed; and finally, whether the expertise behind these things resides in the traditional or commercial industrial base, or in specific countries. In reality however, current control measures are broadly “inefficient, indiscriminate, and immaterial in their application.”23 These practical application issues have comingled with less tangible conceptual challenges relating to how governments have conceptualised control over defence technology and innovation, including a “superpower mindset” that is “rooted in a bygone era of strategic and technological dominance.”24
Of chief concern here have been the International Traffic in Arms Regulations, a complex array of export controls and regulations designed to protect US technology advantages during the Cold War. As the authors outlined in May 2023, the ITAR’s ‘eight deadly sins’ (see Table 1) have by design, slowed multinational defence technology cooperation programs and obstructed efforts to incorporate trusted allies in the US Technology and Industrial Base.25 In fact, AUKUS represents at least the third major attempt since the turn of the millennium to drive lasting changes to these regulations. However, previous efforts through the US-Australia and US-UK Defence Trade Cooperation Treaties (DTCT) and the addition of both partners to the US NTIB in 2017 both failed to move the needle on defence industrial cooperation in a substantial fashion.26 Even within the United States, the ITAR has long disincentivised the participation of the commercial industrial base, increasingly regarded as the source of many of the most important technologies that the militaries of the US and its allies will need for future defence projects. It was for these reasons that the authors contended in May 2023 that: “US export control regimes must be refashioned if AUKUS is to be realised to its full potential ... A failure to meaningfully and urgently address all of these issues will heighten the risk that AUKUS will meet the same disappointing fate as historical efforts to drive this [defence technology] agenda.”27
Table 1. The eight deadly sins of the US International Traffics in Arms Regulations (ITAR)
The export control reform debate, May 2023 to present
For the last 18 months, the tussle within the United States and between the AUKUS countries over the conditions under which an ITAR exemption could be granted to Australia and the United Kingdom were the subject of fierce contestation. Evidently, much has changed since that time. Importantly, these discussions have expanded from a matter of unilateral reform in the United States to address wider issues of defence trade control harmonisation between the 3 countries. Examining how these debates played out is essential to understanding the scope, intent and controversy of present reform efforts within and between the 3 countries.
Broadly speaking, perspectives on the appropriate scope and scale of US defence trade control reform, and the regulatory comparability standard against which Australia and the United Kingdom should be judged, could be roughly divided into 2 main camps. On the one hand, there were those who viewed Australian and British defence trade control regimes as sufficiently comparable to US regulations to warrant immediate, broad-based ITAR exemptions. To these figures, “comparability” was a question of the functionality of Australian and British regulatory systems regardless of the extent to which these mirrored US equivalents. Conversely, there were those who held that Canberra and London should pursue targeted reforms to their own defence trade controls in order to better align with US regulatory regulations in exchange for more narrow exemptions.28 This group adopted a more literal interpretation of “comparability,” premised on exactitude in design and effect. Though certainly not a clean partisan division, the most vocal support for immediate ITAR relief for Australia and the United Kingdom came from prominent Republicans in Congress, while leading Democrats tended to support the more conditional exemption proposed by the administration and the State Department.29
Though certainly not a clean partisan division, the most vocal support for immediate ITAR relief for Australia and the United Kingdom came from prominent Republicans in Congress, while leading Democrats tended to support the more conditional exemption proposed by the administration and the State Department.
Developments over the last 12 months suggest that proponents of exactitude as a measure of greater comparability and a narrow exemption have won the reform debate. In the early stages of deliberation of the FY24 National Defense Authorization Act, leading Republicans in both chambers of Congress argued that Australia and the United Kingdom were already sufficiently comparable to warrant a blanket ITAR exemption. Prominent Republicans on the House Foreign Affairs Committee (HFAC) argued that Australia already had “sufficient safeguards in place,” pointing to a contradiction between Washington’s willingness to share sensitive information and technology with Canberra through Five Eyes and standard defence licensing programs, and its reluctance to more seamlessly share defence technologies through AUKUS.30 Counterparts on the Senate Foreign Relations Committee (SFRC) added that Washington’s requests of its allies to emulate US regulations constituted “extraterritorial overreach,” noting the absence of a clear and measurable standard of comparability against which these demands were being made.31 Importantly, these figures also underscored the clear benefits of such an exemption for Washington in improved access to allies’ own capabilities and technologies, particularly in areas where these countries were out-innovating US competitors.32
These sentiments were reflected in a raft of legislative proposals in both chambers in mid-2023. In the House, Republicans offered up the KOALA Act and BRITS Act, both of which would grant Australia and the United Kingdom near-blanket and largely unconditional exemptions from the ITAR’s licensing requirements akin to those enjoyed by Canada, arguing that both allies already had sufficiently comparable defence export control systems.33 Their Senate counterparts introduced the TORPEDO Act, noting that Australia and the United Kingdom already possessed “legal, regulatory, and technology control regimes that are sufficiently comparable to those of the United States.”34 These figures warned that the absence of decisive action on ITAR reform was preventing Washington from “achieving national security objectives at the speed of relevance,” reflecting a policy imbalance between US arms control and technology sharing objectives.35 Importantly, they also pointed out that threats of industrial espionage were not unique to US allies, with SFRC ranking member Senator James Risch (Republican) musing in a September 2023 hearing that “it’s a little ironic that we are beating the drum about higher, different regulatory changes when in fact we’re the ones who have actually been the victim of Chinese thefts and espionage … I’m not aware of any publicly-reported instances of the same thing happening to the Australians or the Brits.”36
By contrast, Biden administration officials and senior congressional Democrats argued that secure AUKUS defence trade would not be possible without reforms to Australian and UK regulations. To that end, legislative proposals submitted to Congress by the State Department effectively doubled down on a requirement for greater regulatory comparability as a precondition for streamlined AUKUS defence trade.37 In a hearing before the HFAC in May 2023, Assistant Secretary of State in the Bureau of Political and Military Affairs Jessica Lewis confirmed that while the Biden administration was making “novel use of existing authorities” and pursuing legislative reform to expedite AUKUS defence trade, it was also seeking “commitments from our AUKUS partners on shared standards for the protection of defense information and materials consistent with the steps the United States takes to protect such information and materials.”38
Importantly, proponents of this position explicitly equated the idea of trilateral AUKUS standards with the emulation of US models. In subsequent hearings on Capitol Hill, Secretary Lewis drew direct connections between the concept of AUKUS-grade defence trade controls and requirements for greater allied comparability, equating “a joint responsibility to safeguard these critical defense and security technologies” with the need “to ensure that the export control frameworks within each of the three nations are consistent with those implemented by the United States.”39 These recommendations were widely supported by congressional Democrats. For instance, they were reflected in subsequent amendments to the FY24 NDAA tabled by leading Democrats on the SFRC,40 which explicitly linked efforts to “streamline United States export control” with “necessary and reciprocal security safeguards … at least comparable to those of the United States” in Australia and the United Kingdom,41 conditioning streamlined AUKUS defence trade on certification by US authorities.
In prosecuting the case for a conditional and more limited exemption, US lawmakers and government officials pointed to several concerns. Firstly, they highlighted alleged risks of technology leakage from these allies to China, reflecting long-standing anxieties across the US system about the capacity of even America’s closest allies to protect sensitive US military technologies.42 For instance, HFAC ranking member Gregory Meeks (Democrat) observed that Beijing was focussing “significant personnel and resources on surveilling, stealing, capturing or otherwise gaining an advantage over the United States and our allies” by “targeting […] Australian [and British] defense industry insiders and experts.”43 He pointed to comments by the Director of the Australian Signals Intelligence Organisation Mike Burgess that Australia had been subjected to a heightened degree of industrial espionage since AUKUS had been announced.44 Meanwhile, then SFRC Chairman Robert Menendez (Democrat) noted that in the absence of reliably comparable defence trade control regulations in Australia and the United Kingdom, there was “a greater risk that US military technology that is exported pursuant to Pillar II activities could be compromised by US adversaries.”45
Secondly, advocates of a limited exemption highlighted contemporary legal complications posed by the absence of regulatory comparability. The main example cited was the apparent absence of a legal mechanism to facilitate the extradition from Australia of a former US Marine pilot accused of training People’s Liberation Army Air Force pilots in China in the early 2010s.46 This they contended, exemplified how an unconditional exemption would prevent the United States from fully exercising its defence trade regulations to protect “our own vital, tax-payer funded, military technology.”47 Finally, these figures cited concerns that export control reform for AUKUS might be used “as a Trojan horse” for commercial gain or industrial interests, creating pathways for nefarious actors to game US export controls for their own benefit and for business to exert undue influence over one of Washington’s primary regulatory tools of technological statecraft in pursuit of corporate gains.48
While stakeholders across the US system agreed that reforms to US defence export controls were essential to the success of AUKUS, the majority view among key constituents was that doing so would only be possible were Australia and the United Kingdom to better emulate these same regulations.
Ultimately, while stakeholders across the US system agreed that reforms to US defence export controls were essential to the success of AUKUS, the majority view among key constituents was that doing so would only be possible were Australia and the United Kingdom to better emulate these same regulations. In short, Canberra and London were left with little choice but to accept a more explicit standard of comparability as adjudicated by the State Department and the US Executive Branch as the threshold for any AUKUS-oriented export control exemption. Thus, as a product of the regular congressional horse-trading on the annual US defence bill,49 the less conditional and more wide-ranging exemptions proposed in the KOALA and BRITS Acts were omitted from the Fiscal Year 2024 National Defence Authorization Act in favour of a more exacting comparability standard.50
Among its many AUKUS enabling provisions,51 the FY24 NDAA contained several acute directives with respect to export controls. It directed the president to certify defence trade control exemptions for Australia and the United Kingdom only after a determination that these countries had “implemented a system of export controls comparable to those of the United States” along with “a comparable exemption from [Australian and UK] export controls for the United States.”52 In exchange, the FY24 NDAA provided the president with the authority to “exempt from the licensing or other approval requirements of this section exports and transfers (including reexports, transfers, temporary imports, and brokering activities) of defense articles and defense services between the United States and that country or among the United States, the United Kingdom, and Australia.”53 It also directed the secretaries of State and Defense to expedite Australian and British requests for military capability and technology transfers “relative to all other letters of request other than from Taiwan and Ukraine,” to “create an anticipatory release policy” for AUKUS-related technologies ineligible for ITAR exemptions through US Foreign Military Sales and Direct Commercial Sales mechanisms.54
These measures would go some way to addressing long-standing Australian dissatisfaction with the scope and application of US defence trade controls. However, at the time of writing, a certification of comparability has yet to be made and these measures are yet to take effect. Indeed, the State Department published a proposed rule to implement the provisions of the FY2024 NDAA only after the first certification window for Australian and British comparability had lapsed without successful verification on 19 April 2024.55 The State Department insisted that it fully expected to certify comparability “over the course of the next 120 days,”56 while congressional Democrats played down the significance of a delayed certification as comparatively inconsequential in the context of longer-term cooperation on “futuristic-type technologies” under Pillar II.57 However, this delay was met with strong criticism from congressional Republicans. Senator Risch criticised the Biden administration for its “failure to characterize risk properly,” arguing that “the real and enduring risk” of industrial espionage by China and Russia targeting all 3 AUKUS countries — including the United States — was not a sufficient reason to “further delay the implementation of AUKUS.”58 Chairman of the HFAC Michael McCaul (Republican) noted that, in contrast to the Commerce Department’s swift efforts to minimise export control barriers to AUKUS collaboration posed by the Export Administration Regulations, the State Department was continuing to “delay the necessary decision” to make similar amendments to the ITAR against an ambiguous standard of comparability.59
What’s in a word? Exploring “comparability”
What does the term “comparable” actually mean in this context, and why is there such a debate around this term?
The FY24 NDAA directs the president to assess Australian and British comparability against specific subsections of Section 38 of the 1976 Arms Export Control Act (AECA),60 which governs any future consideration of a Canada-like exemption to ITAR for other countries. These subsections include the following:
(j)(2)(A)(i): “conditions on the handling of all United States- origin defense items exported to the foreign country, including prior written United States Government approval for any reexports to third countries.”
(j)(2)(A)(ii): “end-use and retransfer control commitments, including securing binding end-use and retransfer control commitments from all end-users, including such documentation as is needed in order to ensure compliance and enforcement, with respect to such United States-origin defense items.”
(j)(2)(A)(iii): “establishment of a procedure comparable to a ‘‘watchlist’’ (if such a watchlist does not exist) and full cooperation with United States Government law enforcement agencies to allow for sharing of export and import documentation and background information on foreign businesses and individuals employed by or otherwise connected to those businesses.”
(j)(2)(A)(iv): “establishment of a list of controlled defense items to ensure coverage of those items to be exported under the exemption.”
(j)(2)(B)(ii): “appropriate controls on unclassified information relating to defense items exported to foreign nationals.”
(j)(2)(B)(v): “violations of export control laws, and penalties for such violations.”61
What is less clear from these subsections are the precise forms that allies’ regulatory mechanisms would need to assume in order to satisfy State Department or Executive Branch requirements — and perceptions — for comparability. Though the legislative text above would suggest some flexibility in how partners seeking export control exemptions choose to give expression to those effects in their own regulations, conversations with some US and Australian officials suggest that demands for these requirements are in fact more concrete and more literal than might be expected.62 This is a key reason why, for instance, State Department officials were unsatisfied with Australian and British arguments over the last year that their own defence trade controls accounted for so-called “deemed exports” even if they did not mirror the form of US regulations. Deemed exports essentially cover the transfer of information, items, or services captured by defence trade controls from an authorised user to an unauthorised foreign national within Australia’s sovereign borders.63 In the department’s view, this loophole could enable the transfer of defence data, information or services by authorised Australians to foreign nationals within Australian borders without penalty, including the transfer of database or server access information which could be used remotely from overseas, facilitating longer-term access to a wider range of defence-relevant products.64 Even if it is the executive who ultimately signs off on an ally’s comparability, the power historically available to and exercised by the State Department in interpreting the parameters of that criteria means that it essentially functions as the final arbiter of sufficient comparability in practice, form and application.65
This approach has now been applied to AUKUS. Though unfortunate, this development is not surprising given the history behind the concept of comparability as detailed in the AECA. Indeed, vague standards of comparability have long been considered ‘poison pills’ to achieving exemptions for allies from the ITAR ever since the term was enshrined in law in the early 2000s.66 This occurred in the aftermath of several instances of US missile technology transfers from Canada to Iran and China in the late 1990s, which resulted in the temporary suspension of Canada’s long-standing export control exemptions.67 These events prompted Congress, in the Security Assistance Act of 2000 (P.L. 106-280), to attempt to close the door on any future Canada-like exceptions from US defence trade controls for other allies. When the Canadian ITAR exemption was codified in Title 22 Section 2778 (j) of the AECA — only after it had agreed to further emulate aspects of US defence trade control regulations in exchange — a requirement was put in place to obtain a binding bilateral agreement (linked to a standard of comparability in export control systems) before the president could exempt any other nation from licensing requirements, regardless of their relationship with the United States.68 Before such an agreement could be made, the State Department would need to certify the export control system of the partner nation in question against an informal standard of comparability.
In reality, there is more room to broadly define comparability than contemporary approaches would suggest. Though Congress effectively delegated the authority to define “comparability” to the State Department at the turn of the millennium, there remained some disagreement over whether a future administration could use its discretion either to redefine the term or to use its inherent flexibility to suit pressing needs. In the same manner as the State Department has interpreted these provisions to denote a stringent standard of comparability, then-Chairman of the Senate Armed Services Committee, John Warner, did not object to the inclusion of imprecise language in the Act at the time precisely because it was ambiguously defined.69 By this reading, the definition of “comparable” could be reinterpreted in a more flexible manner to accommodate pressing political or strategic requirements in future. Though the State Department and key congressional powerbrokers have not strayed from more rigid interpretations of the term over the last 25 years, there remains the possibility that a future administration or Congress could adopt a more open interpretation of the term to expedite defence trade cooperation with allies like Australia. It was for this reason that leading US trade controls expert Kevin Wolf argued plainly in April 2024 that: “To have a comparable system, Australia and the UK do not need to have the same rules as the US.”70
Unfortunately, such a flexible interpretation of comparability has yet to be applied in practice — even in the case of AUKUS. As a result, current efforts to harmonise defence trade controls between the AUKUS countries have pivoted on prevailing notions of comparability. In practice, the United States has asked Australia and the United Kingdom to undertake legislative reforms and to guarantee reciprocal license exemptions, in exchange for limited license exemptions from the ITAR and the EAR as well as expedited licensing timelines for items ineligible for an exemption. It is to these various proposals that this report now turns.
From reform to harmonisation: Defence trade control reform proposals in Australia and the United States
Since March 2024, Australia, the United Kingdom and the United States have each put forward a number of coordinated regulatory reform proposals in the interests of harmonising their respective regimes to create an AUKUS defence free-trade zone.71 Beyond streamlining basic defence trade, the 3 governments have pitched these efforts as being “designed to harness and maximize the innovative power residing in our defense industrial bases,”72 in the interests of accelerating cooperation through Pillar II. To do so, US and Australian proposals — if actioned as written — would have the effect of removing licensing requirements for around a third of Australia’s annual outbound defence exports to its AUKUS partners,73 as well as for over two thirds of defence imports and four fifths of dual-use imports from the United States. According to the Australian Government, the effects of these combined proposals would include the following benefits:
“Remove the requirement for approximately 900 export permits, valued at $5 billion (AUD) per year, which would otherwise be required under current export controls from Australia to the US and UK.
Remove the requirement for approximately 200 permits, valued at over $129 million (AUD) per year, required for defence exports from the UK to Australia.
Enable licence-free trade for over 70 per cent of defence exports subject to International Traffic in Arms Regulations from the United States to Australia.
Enable licence-free trade for over 80 per cent of defence trade subject to Export Administration Regulations from the United States to Australia.”74
At face value, these reforms mark a considerable effort to harmonise export control regulations between the AUKUS countries, and would mark considerable progress towards the creation of a shared defence industrial and technology enterprise. Even if time consuming, such regulatory alignment is absolutely necessary for AUKUS Pillar II to function as intended in the long-term and is, in some ways, a direct deliverable or output of AUKUS itself.75 Indeed, Australian Deputy Prime Minister and Minister for Defence Richard Marles recently framed regulatory harmonisation as a key measure of success for AUKUS Pillar II.76 The proposals and changes made in Australia and the United States, both in isolation and in combination, will have major ramifications across the wider spectrum of defence trade and co-development, both bilaterally and through AUKUS. Importantly, these effects — positive, middling and negative — are yet to be fully understood, let alone fully implemented. The arrangements that would be created between AUKUS countries as a result of these proposals and the effects these reforms could have in practice, could pose significant challenges for Australia and for AUKUS if not well-understood and addressed as early as possible.
Proposals in the United States: the EAR and the ITAR
In the United States, reforms have been proposed or actioned to 2 major export control regulations: the EAR administered by the Department of Commerce, and the ITAR administered by the State Department.
Export Administration Regulations, Department of Commerce
In mid-April 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) published an interim final rule amending the Commerce Control List governing dual-use articles, services and technologies.77 These amendments effectively facilitate license-free exports and reexports of approximately 80% of “commerce-controlled military items, missile technology-related items, and hot section engine-related items,” along with a selection of satellite-related items, from the United States to Australia and the United Kingdom.78 The BIS contended that these changes would reduce industry and allies’ compliance burdens to the tune of “1,800 total licenses valued at over $7.5 billion per year,” while freeing up the department’s human resources to focus on “high-risk exports to countries of concern.”79 Crucially, the department’s official statements upon the release of the final rule noted the comparability of present Australian and UK regulations, including recent efforts to amend these in the interests of trilateral harmonisation imperatives.80 Indeed, as an interim final rule, these regulatory adjustments went into effect immediately.
These are significant and positive changes. Indeed, these reforms marked the first substantial change to US export control regulations with an explicit intent to facilitate greater collaboration through Pillar II, including freeing up a range of dual-use technologies “controlled under the EAR for missile technology reasons consistent with the MTCR [Missile Technology Control Regime — more below].”81 In effect, these reforms granted Australia and the United Kingdom close to the same degree of exemption privileges enjoyed by Canada for a wide range of dual-use items and services,82 with the second-order benefit of harmonising BIS exemptions enjoyed by the 4 members of the US NTIB.83 Leading experts have praised these reforms for their simplicity, removing “entire categories of license requirements” rather than establishing new, conditional, and targeted license exceptions as with the US Open General License pilot program of 2022, or emulating any of the complex implementation regulations of the 2007 Defence Trade Cooperation Treaty between Australia and the United States.84 As such, these reforms may have succeeded where previous efforts failed, fully realising the intent of the department’s 2011 Strategic Trade Authorization License Exemption to “achieve collective security objectives similar to those of AUKUS” by removing restrictions on countless items previously withheld even from the closest of allies.85
International Traffic in Arms Regulations, Department of State
Shortly thereafter, in May 2024 the State Department’s Directorate of Defense Trade Controls (DDTC) released its own proposed rule on reforms to the ITAR. The Directorate framed its proposals as “reflective of our nations’ collective commitment to implement shared security standards on protecting defense technology and sensitive military know-how.”86 The proposed measures focus on 4 main lines of effort:
- The creation of licensing exemptions for authorised users of the AUKUS exemption: “an exemption to the requirement to obtain a license or other approval from the Department’s Directorate of Defense Trade Controls (DDTC) prior to any export, reexport, retransfer, or temporary import of defense articles; the performance of defense services; or engagement in brokering activities between or among authorized users within Australia, the United Kingdom, and the United States.”
- The creation of an exempted technologies list: “add a list of defense articles and defense services excluded from eligibility for transfer under the proposed new exemption,” also known at the Exempted Technologies List, based on the 3 countries’ statutory requirements, international nonproliferation and arms control obligations, and national policy decisions.
- An expansion of authorities to share certain classified defence articles or services with authorised users holding SECRET level security clearances: “add to the scope of the exemption for intra-company, intra-organization, and intra-governmental transfers to allow for the transfer of classified defense articles to certain dual nationals who are authorized users or regular employees of an authorized user within the United Kingdom and Australia.”
- Creating legally mandated license processing timelines for Australian and British license applications for articles and services on the ETL (including through Foreign Military Sales and Direct Commercial Sales avenues): “revise the section on expediting license review applications by referencing new processes for Australia, the United Kingdom, and Canada.”87
The DDTC’s proposed ITAR amendment differed from the BIS final rule in two important ways. Firstly, unlike the interim final rule published by the BIS, this proposed rule did not take immediate effect. Rather, it was intended to provide a means to solicit expert and industry feedback on the proposed measures. Procedurally, after the window for public comment on the proposed rule had closed on May 31 2024, the directorate could: choose to abandon the rule-making process and dispense with the proposal all together; propose a new rule and solicit a new round of public comment; make changes to the existing rule and issue an interim final rule or a final rule; or make no changes and issue a final rule.88 Secondly, the proposed rule also differed from the BIS final rule in its implicit views of the state of Australian and British comparability. That is, the proposed ITAR rule framed its provisions as coming into effect only after the State Department had certified that “Australia and the United Kingdom have implemented systems of export controls that are comparable to those of the United States in several specified areas.”89 This contrasted with the view of the Department of Commerce which, in issuing a final rule with immediate effect, explicitly recognised Australian and British export control systems as sufficiently comparable to US equivalents.
Harmonisation over reform
However welcome, these harmonisation proposals should not be mistaken for fundamental reform to the ITAR, nor for the creation of a blanket ‘ITAR-free’ defence trade environment between the AUKUS countries. Fundamentally, the State Department’s proposed rule does not address many of the main underlying structural issues with the ITAR,90 including the so-called ‘taint.’ Rather, it proposes significant but incomplete country-based licensing exemptions for authorised Australian and British end-users from existing regulations, while providing both countries with a degree of positive discrimination in the form of codified license processing timelines. Granted, the proposed exemptions to the ITAR and reforms to the EAR would offset several of these structural factors for Australia: adding a degree of positive discrimination in favour of AUKUS countries; partially addressing problems (at least for the original requirement for a licence) associated with a universal definition of what constitutes a defence article with the creation of an exempted technologies list; the acceleration of license application processing for government-to-government, government-to-industry and industry-to-industry for articles not eligible for the exemption; and a degree of beneficial reciprocity in defence trade controls between the 3 countries. Yet while such amendments are welcome in the context of everyday and more mundane forms of defence trade, articles or services not covered by the exemption — those found on the Excluded Technologies List “will remain subject to the ITAR’s more problematic aspects” without further reforms to US regulations or the ETL itself (more below).91 Left unaddressed, these factors will prove to be particularly problematic for advancing cooperation under AUKUS Pillar II.
However welcome, these harmonisation proposals should not be mistaken for fundamental reform to the ITAR, nor for the creation of a blanket ‘ITAR-free’ defence trade environment between the AUKUS countries.
Proposals in Australia: Amendments to the Defence Trade Controls Act 2012
At the same time that the ITAR debate was unfolding in the United States, the Australian Government was quietly initiating a review of its own defence trade controls, in consultation with domestic industry and university stakeholders.92 These reforms took the form of two coordinated pieces of legislation: the Defence Trade Controls Amendment (DTCA) Act 2024 and the Safeguarding Australia’s Military Secrets (SAMS) Act 2024,93 both formally proposed in November 2023 and passed through the Australian Parliament in April 2024.
Broadly speaking, the DTCA Act had two related aims. Firstly, it intended to implement a range of measures required to bring Australia’s defence trade controls into closer alignment with those of the United States per the requirements of the FY24 NDAA. Indeed, throughout the entire legislative reform process, the Australian government consistently cited the objective of creating “an export control regime that is comparable to the one the United States administers” as a first order priority,94 citing the imperative of accessing regulatory carveouts on offer in legislative changes proposed by the US Departments of Commerce and State, respectively. To access these benefits, the Australian Government proposed the addition of 3 new offences to the Defence Trade Controls Act 2012:
- A deemed exports offence: the “supply of Defence and Strategic Goods List (DSGL) technology to a non‑exempt foreign person within Australia;”
- A resupply offence: the “supply of goods and technology on Part 1 (Munitions) and Part 2 (Dual Use) ‘Sensitive’ and ‘Very Sensitive’ Lists of the DSGL, that was previously exported or supplied from Australia;”
- A services offence for military goods and technologies: the “provision of DSGL services related to Part 1 of the DSGL to foreign nationals outside of Australia.”95
Broadly speaking, these amendments were intended to address gaps in Australian defence trade which had previously enabled transfers of controlled goods and technologies to and between foreign entities in and outside of Australia. In that sense, they sought to address major concerns held by US proponents of comparability regarding the issue of deemed exports — essentially, the provision of foreign-origin defence goods or services to third-party foreign nationals, whether in Australia or in another country.96 Importantly, the DTCA Act and the SAMS Act both sought to address the concerns expressed by State Department officials in congressional hearings regarding the provision of training to foreign nationals, creating overlapping jurisdictions for both authorising and prosecuting the provision of assistance “in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarisation, destruction, processing, or use” of military items (Part 1) on Australia’s Defence and Strategic Goods List.97
Relatedly, the DTCA Act 2024 also included reciprocal national exemptions for select defence trade and technology transfers between Australia and the United States and United Kingdom in the interests of establishing a licence-free environment between the AUKUS countries. By matching US and UK proposals to provide similar exemptions, Australia would contribute to the development of a license-free defence trade zone between the AUKUS countries which would ideally foster greater trilateral innovation and collaboration and streamline defence trade. As one seasoned industry observer adroitly summarised: “By adding tangible goods to the DTCA, restricting domestic access to such technology, and expanding the extraterritoriality of the legislation, the amendments align Australia’s export controls more closely with the export controls of key allies, particularly the United States and the United Kingdom.”98 These changes, industry stakeholders hoped, would make it easier for Australian industry to do business with the United States both inside and outside of the AUKUS context by reducing or eliminating licensing timeliness and eliminating the effects of the ITAR taint for items eligible for the AUKUS licensing exemption.99
Did Australia emulate the ITAR?
While broadly supportive of the principle of defence trade control harmonisation amongst AUKUS partners, Australian industry and technology stakeholders have expressed mixed views about the costs and benefits of comparability with US regulations. Many of these concerns have revolved around questions of the extent to which Australia may have emulated the ITAR. On the one hand, some Australian defence trade advocates framed greater degree of comparability as the cost of “get[ting] inside the tent” of the US defence industrial base and giving fuller expression to AUKUS, suggesting that there was little choice other than “to play by Washington’s rules.”100 On the other hand, many Australian analysts and industry stakeholders questioned whether it was in Australia’s best interests to pursue what many saw as “a wholesale adoption of the American model” of defence trade controls.101 Several leading Australian small and medium-sized enterprises (SMEs), including many already working with the Australian Government, expressed wariness that adopting “the totality of the [US defence trade control] system that everybody in the world says doesn’t work” could stifle Australian defence industry and innovation.102
These concerns are not new, nor are they uniform. Though many Australian industry stakeholders have long-regarded compliance and even comparability with US defence trade controls as the cost of doing business with Washington, they have been equally wary of the possibility that Australia would be asked to adopt elements of the ITAR in order to progress AUKUS Pillars I and II or other adjacent initiatives like the Guided Weapons and Explosive Ordinance enterprise, and the potential complications that this could create for Australian industry as a result.103 Indeed, given Australia’s own painful experiences with US defence trade controls in operational and industrial settings alike, Australian policy analysts and practitioners have long held that the adoption of ITAR and the EAR as the gold standard for AUKUS defence trade controls might not necessarily be the optimal solution. In that context, fears amongst industry and academia that Australia may seek to broadly emulate the ITAR, while not entirely accurate, are unsurprising given their negative experiences dealing with those regulations.
Par for the course
In reality, the use of US defence trade controls as the standard against which to craft Australia’s own regulations is not a novel concept, nor the subject of dispute between the country’s major political parties. The creation of Australia’s Defence Trade Controls Act in 2011-2012 was designed primarily to give effect to the bilateral 2007 Australia-United States Defence Trade Cooperation Treaty, a mechanism intended to streamline defence trade in much the same way as present reform efforts have been packaged but which never lived up to its full potential.104 The Act also sought to update Australian export control measures left untouched since the 1990s to “to align them with international best practice.”105 This legislation created Part 1 and Part 2 of the DSGL, the 2 category export lists of which essentially mirror the ITAR and the EAR,106 and expanded the definition of a defence article to encompass intangible and digital defence goods and services. Much as with present reforms, the Australian Government at the time framed the costs that defence-facing businesses would have to bear as a result of heightened, stricter compliance requirements as a worthy price to pay for “easier access to US defence articles, technology and tenders.”107
In that sense, charges that these latest reforms are ground-breaking for their emulation of US defence trade controls are inaccurate. Rather, for many these revisions are simply the latest step in a long-standing defence industrial integration agenda between the 2 countries, of which AUKUS is now a part.108 Furthermore, government efforts to solicit and incorporate stakeholder feedback into the final DTCA Act legislation have gone some way to moderating some of the initial concerns expressed by different elements of the Australian defence ecosystem.109
This does not mean however, that these reforms are no longer unproblematic for Australian industry or academia. Even after minor reviews to the Australian Government’s legislation, stakeholders across the Australian ecosystem remain concerned about several specific elements of the new defence trade control regulations. These anxieties are not helped by a middling standard of export control literacy across the Australian business landscape more broadly, a phenomenon which has produced both over- and under-estimations among commercial, dual-use and defence companies alike regarding the effects that Australia’s defence trade regulations may have on their operations.110 Though each stakeholder group has exhibited its own nuanced perspectives on the problems with these amendments, in the view of the authors there are 2 major issues of significant concern for Australia with respect to AUKUS and defence innovation.
The risks of an Australian ‘taint’
Firstly, stakeholders are deeply concerned that Australia may have created its own version of the ITAR taint. Whether or not this is the case remains a point of open debate between academia, government and industry. The source of this concern emanates from the creation of an extraterritorial reach for DSGL Part 1 entries and for certain goods and services marked as “sensitive and very sensitive” on DSGL Part 2 “akin to those controlled by the ITAR’s USML [United States Munitions List].”111 This resembles the extraterritorial reach of the ITAR which, as the authors explained previously, “ensures that recipient countries need to go back to the original provider of a defence item — in this case, the State Department — and ask for permission to re-export to another end-user.”112 Historically, the result has been that companies or countries seeking to avoid the taint have actively sought to “exclude US content and design input” from their goods and services for fear of regulatory capture.113
Without further clarification through the forthcoming regulatory implementation guidelines, adopting extraterritoriality in Australian defence trade regulations could heighten the risk of creating its own taint. This would mean that partners in other countries, including foreign-based firms leading in their respective technology fields, could become warier of engaging with Australian companies or government departments engaging in defence or sensitive dual-use technology projects for fear of triggering export contamination, in much the same way as they are already cognisant of similar risks in working with the United States.114 Australian stakeholders warned of these risks in their submissions to the Senate Foreign Affairs, Defence and Trade Legislation Committee review of the DTCA Act, arguing that the adoption of measures which emulated US extraterritoriality provisions could seriously complicate Australia’s best efforts to enhance cooperation with non-AUKUS countries,115 and “prevent Australia from being at the cutting edge of numerous areas of critical technologies.”116 These figures expressed concerns that the amendments could channel Australian industrial, research and technology entities into working with AUKUS at the expense of other international partnerships, musing that “there is no advantage anymore to having a product or service that is not ITAR-tainted.”117
Importantly, an “Australian taint” could also complicate cooperation with the United States and the United Kingdom on capabilities involving goods and services listed on the Excluded Technologies List, providing an unexpected — and likely unwelcome — degree of reciprocity in America’s experience with its allies’ own export control regimes. While to date there have been no equivalent ‘taint’ constraints on the use and transfer of allied technologies to or by the United States, changes in Australian export rules could potentially produce an Australian taint when Australian technology or knowledge is attached to or included in future US systems. In a twist of irony, this could end up giving Australia control over underlying US componentry or technology. Based on the authors’ discussions with AUKUS stakeholders, this is a situation that the United States does not seem to yet recognise as a distinct possibility.118
In response, Australian government officials have attempted to placate concerns amongst industry and academia that the government may be replicating the taint. Senior Defence figures have explained that the Australian Government intends to “sunset the reach of Australian export controls so that it is targeted to the life of the technology” rather than existing in perpetuity, and that this will only apply to “what has to be controlled for security reasons” rather than the entire spectrum of conceivable defence services or articles.119 Government figures have also indicated that this sunset period will be a matter of “months, not decades,”120 with the explicit intention of avoiding the emulation of the perpetual ITAR taint and its side-effects on business compliance costs and engagement incentives. Anecdotally, it seems that different sunset periods will apply for different classes of technology depending on their relative sensitivity and whether they reside on Part 1 or Part 2 of the DSGL,121 though official clarification remains forthcoming.
Australian industry figures have expressed uncertainty around the potential effects that a ‘reverse taint’ could have on AUKUS collaboration, particularly with the United States and on capabilities involving technologies contained in the ETL.
Notwithstanding these reassurances, several pressing questions remain unanswered. Firstly, it is unclear how an Australian taint might interface with that of the US ITAR, especially in instances where Australian licensing requirements for jointly developed capabilities are ‘sunsetted’ while US requirements are not. For instance, in capabilities jointly designed and developed through AUKUS Pillar II, Australian and US technologies and intellectual property would likely be so intertwined that multiple licenses may be required from multiple authorities for the transfer, repair or employment of these capabilities, with the added risk that the ITAR taint — which does not have a sunset clause — would subsume that capability once the effects of Australia’s own provisions had concluded. In fact, there would seem to be a high risk that advanced Australian technologies not covered by the licensing exemption or featured in capabilities including non-exempted US items could ultimately be captured by American defence trade controls, perpetuating the same arduous compliance processes and considerable costs to entry for commercial SMEs seeking to work in the defence space.122 In addition, industry stakeholders have also questioned the practical utility of a sunset provision. While they appreciate the need to remove the risks and effects of perpetual licensing requirements for the sake of incentivising and facilitating industry participation, they have also tended to view the relatively short timeframes expected to be attached to different DSGL items as “a little pointless.”123 Australian industry figures have also expressed uncertainty around the potential effects that a ‘reverse taint’ could have on AUKUS collaboration, particularly with the United States and on capabilities involving technologies contained in the ETL.124
Cohabitation of dual-use and military goods
Australian stakeholders have also expressed concerns about the potential implications of expanding defence trade controls to a wider range of dual-use items. Generally speaking, these figures have worried that Australia could risk adopting measures that would either emulate, or even exceed, the structural disincentives to commercial sector participation in defence projects present in current US regulatory practice. This is due in part to the potential complications that could be posed by the addition of a broad set of dual-use items and services to an expanded List B of the Australian DGSL, goods and services that would otherwise fall under the jurisdiction of the US EAR — a comparatively flexible regime compared to that of the ITAR — and the cohabitation of military and dual-use items under the same regulatory suite.125 In March 2024, the Technology Council of Australia (TCA) voiced its concerns that co-locating military and dual-use technologies within the same trade control regime structure could stifle, rather than facilitate cooperation on emerging and dual-use technologies, encouraging the government to “similarly apply exemptions to dual-use goods that would ensure our regulations and offences are no more onerous than what applies in the US.”126 As other observers noted, proposed amendments to Australia’s defence trade controls made “insufficient allowance for fundamental differences between military and dual-use technologies” in a manner that “risk[ed] failing to learn from the US experience.”127
The key issue with cohabitated defence and dual-use trade controls relates to incentives. If a provider of commercial technology that could be applied for defence purposes — say, in advanced AI or quantum computing — believes that their underlying intellectual property and product could be tainted by participation in a defence program, this provider would likely do all it could to avoid participating in such a defence solution. In that setting, these companies would choose to work explicitly on commercial applications to avoid the taint, reduce their regulatory obligations, and maximise their revenues in the commercial marketplace. Such incentives would lead to AUKUS adversaries having access to commercial technology faster than the defence establishment would. This has long been the impact of ITAR in the US, and is something about which several Australian stakeholders interviewed for this report remain deeply concerned about, only now in both an Australian and American context.
It still remains somewhat unclear how Australia’s cohabited trade controls will function in practice, or whether they can avoid replicating those same disincentives. Defence officials have insisted that although military and dual-use lists are cohabited under the DSGL, the Department will nevertheless adopt distinct approaches to administering defence trade controls as they apply to these respective categories.128 Yet it remains an open question as to whether cohabiting defence and dual-use trade controls will prevent commercial and dual-use companies from adopting workarounds to Australia’s new regulations that facilitate their engagement in defence projects without the risk of losing their intellectual property or curtailing export opportunities. In the US context, it is a reasonably common practice for companies to deliberately seek to have their dual-use capabilities captured by the EAR administered by the Department of Commerce, rather than the far more onerous ITAR administered by the State Department.129 As it stands however, many dual-use and commercial companies worry that a similar approach will not be possible in Australia’s new defence trade context.130 As a partial solution to that issue, some stakeholders recommended in their Senate submissions that Section 10B (deemed exports) apply only to DSGL Part 1 technologies, rather than to specific items on DSGL Part 2.131
The net effect of current export control proposals: Integration over innovation
Taken together, defence trade control reform proposals in Australia and the United States mark a positive step forward in laying the groundwork required for AUKUS to deliver on its promise. Yet much work remains to be done to ensure that this AUKUS defence free-trade zone ultimately delivers at the higher ends of defence technology cooperation. If implemented as they are with no further adjustment, current reform proposals would likely produce an arrangement that is simultaneously ‘bigger’ and ‘smaller’ than AUKUS: ‘bigger’ in its benefits for defence industrial integration outside of the specific remits of AUKUS Pillars I and II, but ‘smaller’ than AUKUS when it comes to the technologies that would not be eligible for license-free trade.
On the positive side, the 3 countries would create what former senior administrators of US export controls have called “a presumption of sharing” in their respective defence trade regulatory regimes, with the gains most obvious at the lower- to middle-end of defence industrial and technology collaboration.132 More specifically, these reforms would serve to enhance many forms of defence industrial and technology cooperation that officially sit outside of the AUKUS partnership, yet which have distinct relevance to the realisation of the larger AUKUS agenda (something which we have previously referred to as ‘Pillar III’). In that sense, these reforms would, as officials have claimed, help to realise something which is bigger than AUKUS alone.133
These reforms would, as officials have claimed, help to realise something which is bigger than AUKUS alone.
The benefits for the US-Australia alliance in such an arrangement would be significant. The creation of a partial license-free defence trade environment between the United States and Australia — described by one senior Australian defence official as “the Holy Grail of defence reform for about 20 years”134 — would go a long way to enhancing efforts to co-produce, maintain, overhaul, repair and sustain legacy alliance military capabilities in Australia. Such cooperation is an essential element of ongoing efforts to modernise US-Australia force posture initiatives for a new strategic era.135 The creation of such a license-free defence trade environment would do much to ease licensing compliance burdens for the Australian Government and industry community, removing frequently long procedural delays for acquiring or servicing US-origin defence items, often as mundane as screws and bolts,136 and fast-tracking less glamorous but entirely essential forms of defence cooperation between the countries which until now had been subject to often lengthy processing delays. Indeed, as the authors noted previously, US defence trade controls had constrained the ability of Australia and the United States to “build, operate and maintain adequate numbers of existing weapons systems and platforms, let alone to develop new ones in a genuinely collaborative way.”137 In theory, these changes could free up additional resources for other AUKUS related initiatives, with industry channelling compliance savings into staffing or research and development, and government re-tasking export control compliance staff against other pressing bureaucratic priorities.
However, compared with an evident boon for everyday defence trade and a wider industrial integration agenda, the benefits of these export control reforms for high-technology access and cooperation through AUKUS Pillar I and Pillar II are far less apparent.138 Though framed as enablers of co-development and co-innovation, the prevailing consensus amongst industry in Australia and the United States is that the proposed reforms would not produce any significant benefits for facilitating greater collaboration on emerging technologies.139 In that instance, it is less clear whether these regulatory reforms will allow AUKUS to function as a major tool in defence innovation competition with China and Russia. Without further reforms or regulatory adjustments in both countries, enduring restrictions imposed by US trade controls and potential new challenges in Australian regulations with respect to sharing and co-developing higher-end technologies would likely continue to hamper collaboration through AUKUS and the US-Australia alliance alike. In practice, this would greatly restrict the art of the possible under AUKUS Pillar II, limit the development of Australia’s Guided Weapons and Explosive Ordinance Enterprise, and hamper adjacent capability development initiatives such as the Ghost Bat unmanned aerial vehicle program.140 Were that to be the case, the 3 countries would end up with an arrangement that is, in effect, ‘smaller than AUKUS’ — that is, AUKUS by country, but not by technology.
Key observations for AUKUS: Specific issues for consideration
There are a range of political and procedural issues arising from trilateral defence trade control harmonisation efforts that will greatly influence the prospects for success under AUKUS Pillar I and II in the coming years. These include: the political risks for Australia arising from US comparability requirements; the relative power of different actors in the creation and administration of the trusted community of authorised users for the AUKUS trade controls exemption; a prevailing view in Washington that AUKUS is primarily a mechanism for the one-way transfer of American technology; the intentional or unintentional effects of emulating certain aspects of the ITAR in Australian defence trade control law; the downstream costs for industry, especially small and medium-sized enterprises, associated with securing authorised user status; the potential stifling effect of the ETL on AUKUS Pillar II projects; and the difficulty and complexity of ongoing efforts to narrow the ETL, specifically in relation to challenges posed by the Missile Technology Control Regime (MTCR).
1. Heightened political risks of failure
Firstly, history suggests that a heightened premium on comparability with US defence trade controls may introduce a new degree of political risk and the potential for tangible costs for Australia in the event of a major industrial security breach. As discussed, whereas previous reforms in Australia sought to better align Australian export controls against US standards without requirements for State Department certification, recent efforts more explicitly tie the proper functioning of a defence free-trade zone between the 2 countries to US assessments of sufficient comparability. That the functioning of the so-called AUKUS exemption is explicitly contingent on Australian and British comparability against US standards means that ultimately, Washington is the formal and final gatekeeper of an AUKUS defence free-trade zone. This means that Australian and UK access to the AUKUS license-free environment will remain dependent on a certification of comparability against a US standard as adjudicated by the DDTC. This brings with it an attendant political risk that Congress or the State Department could suspend or revoke such access in the event of a major instance of technology leakage.
These risks are not simply hypothetical. Indeed, Canada’s experience in 1999 is instructive. Originally granted sweeping exemptions from US defence export controls in 1941, Canada was officially incorporated into the US National Technology and Industrial Base in 1993. However, following investigations into at least 3 diversions of missile-related technologies to China, in April 1999 the State Department unilaterally revoked Canada’s exemption under 126.5 of the AECA, citing concerns over increased risks of the diversion of defence articles to criminals or terrorist entities.141 Canada’s privileges were only partially restored in 2001 after it agreed to further harmonise its export control architecture — including amendments to its list of controlled goods and services — with that of the United States.142 These events contributed significantly to the creation of the obdurate, intangible political and cultural barriers across the US system that have obstructed Australian and other nations’ efforts to facilitate closer defence industrial integration with the United States since the mid-2000s.143
Legal comparability alone would not insulate Australia against the risk of suspension in the event of a high-profile breach of defence export controls.
It is not inconceivable that Australia could encounter significant political risks to access to the AUKUS free-trade zone in the future were Washington to adopt a similar response as with Canada. Granted, the strategic context in which AUKUS-related reforms — and any prospective future attempts to unwind them — are occurring is a far cry from the post-Cold War days of relative US military and technological dominance in which Canada’s exemption was suspended. Furthermore, the degree of comparability between the Australian and US systems today is also greater than that between Canada and the United States in the 1990s. In fact, for some experienced Canadian figures, Australia’s recent revisions to the DSGL; efforts to create a trusted industrial community; and the emulation of deemed exports and extraterritoriality provisions in Australia’s Defence Trade Control Amendment Act go much further than the reforms required of Ottawa in the early 2000s.144 Yet legal comparability alone would not insulate Australia against the risk of suspension in the event of a high-profile breach of defence export controls. Indeed, the FY24 NDAA contains a dedicated suspension clause which among other reasons, authorises the president to suspend the ITAR exemption if a “a substantial change in circumstance” means such action is deemed “necessary to protect the vital national security or foreign policy interests of the United States.”145
In that respect, the adoption of US defence export control frameworks as the legal pivot point for bilateral and trilateral defence industry and technology cooperation has formalised an additional degree of political leverage for Washington over Canberra. However remote, the reality is that both the DDTC and the US Congress could temper or outright suspend Australia’s access privileges to the AUKUS exemption in the event of a Canada-like controversy in the coming years were they to deem it necessary. Though a seemingly remote prospect given the political and financial capital already invested in AUKUS-related reform efforts, these risks should not be dismissed out of hand considering: the concerns frequently aired by State Department officials and senior lawmakers regarding Australia’s vulnerability to foreign industrial espionage throughout the last 24 months; the heavy lift required by Australian stakeholders when it comes to managing multiple new compliance requirements, improving regulatory literacy, and the likely downstream costs of defence trade control harmonisation in adjacent areas like cybersecurity (see more below); and a prevailing view across Washington that AUKUS is primarily a vehicle for the transfer of US technology to Australia and the United Kingdom, with little consideration for the advantages that these 2 allies have to offer in return (see more below).146
2. The authorised user enrolment process: Gatekeeping the
trusted community
Beyond the question of political risk, there is also an open question as to the locus of decision-making power when it comes to adjudicating which entities are eligible for the AUKUS exemption. Entry 126.7 B-2 of the State Department’s proposed rule suggests that the Directorate for Defense Trade Controls will hold considerable power to make final determinations as to which entities will be considered authorised users, with no clear equivalent authority for Australia or the United Kingdom.147 It states that prospective community members from Australia and the United Kingdom will be approved through “an authorized user enrollment process, in coordination with DDTC,” with a complete list of authorised users made available for community access through the DDTC website.148 The rule also says that “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.”149 This process for achieving authorised user status for the AUKUS exemption would appear to many rather similar to the processes associated with the ITAR’s existing exemption for entities involved in Canada’s Controlled Goods Program.150
At the time of writing, the process for authorising trusted users is still under construction. AUKUS country officials have recently told Australian industry and academia that the exact functionality of the mechanism for authorising user enrolment and approval is still being worked out between the 3 governments, with no clear timeline for when this will be finalised.151 At face value however, the user authorisation concept described in the proposed rule appears quite similar to the conditions of the 2007 DTCT enabling legislation in Australia, which directed the minister of defence to flag prospective Australian members of the trusted community with the US Government before certification, and for the secretary of state to make the final determination on their eligibility.152 Though initial membership to these national communities requires individual entities to undergo an initial user enrolment process administered by relevant Australian or British authorities, according to the AECA, final confirmation legally requires certification from the secretary of state approval and the relevant authority in Australia or the United Kingdom.153 With respect to AUKUS, this means that decisions regarding membership to the trusted community will effectively be made on a bilateral, rather than trilateral, basis (though without an apparent bilateral mechanism between Australia and the United Kingdom), with ultimate authority residing in Washington.
Ensuring that there is something close to parity in the adjudication of authorised entrants to the AUKUS tent will be critical if this mechanism is to reflect the trilateral spirit of AUKUS.
The creation of a trusted community mechanism for the AUKUS defence free-trade zone is, of course, a necessary step. Indeed, an approach where the AUKUS countries individually adjudicate community members is arguably unsustainable if a truly federated defence industrial and technology base is to be achieved.154 Ensuring that there is something close to parity in the adjudication of authorised entrants to the AUKUS tent will be critical if this mechanism is to reflect the trilateral spirit of AUKUS. It will be equally essential to ensuring that the AUKUS defence free-trade zone does not fall afoul of historical and well-known cultural and process issues associated with the DDTC, issues which ostensibly remain despite the Biden administration’s best efforts to address them.155
As such, it is an open question whether the State Department should be invested with ultimate gatekeeping authorities for an AUKUS-wide trusted community. At face value, the ‘sovereignty optics’ of this proposed arrangement — whereby the DDTC will ultimately decide who is recognised as a member of the ‘trusted community’ from all 3 countries,156 and the apparent absence of a mutually determined criteria or mechanism for Australian or UK recourse for State Department decisions made regarding the authorised user community — are somewhat troubling, and suggest that ultimate decision-making authority in this equation firmly favours the United States. Indeed, it would appear that Australia and the United Kingdom will not have the same effective ‘veto’ authority over proposed authorised users from the United States in a reciprocal fashion, nor is it currently clear whether the reasons for prospective rejections of Australian or British companies’ applications to the DDTC will be shared with their respective governments.157 American industry stakeholders have expressed concern that such a lop-sided arrangement could be “counterproductive” for bilateral or trilateral defence industrial and technology cooperation,158 and have requested clarification regarding processes for adding or removing entities from the authorised user community and how this may effect active collaborative projects.159 The underlying principle of stringent verification of potential AUKUS exemption users is sound, but the absence of a trilateral decision-making or review mechanism between the 3 partners on this issue is particularly troubling given the number of high-profile and serious incidences of technology leakage or theft from US entities in recent years, including several with explicit relevance to Pillar II projects.160
3. The Excluded Technologies List: An impediment to AUKUS Pillar II
Based on available evidence and initial conversations with Australian and American industry and government stakeholders, there remain several questions about the extent to which these reforms will facilitate more seamless collaboration on the kinds of advanced capabilities and sensitive technologies one could expect to feature as part of AUKUS Pillar II, GWEO, or other advanced capability projects. The main issue here relates to the ETL.161 Comprising the 30% of intra-AUKUS defence trade not captured by the proposed licensing exemptions, the contents of the ETL are informed by a combination of the 3 countries’ commitments to international non-proliferation regimes (20-25%), as well as national-level policy decisions not to make these technologies more freely available to AUKUS partners for legal or political reasons (5-10%).162 The scope and contents of this list have primarily been rationalised on the basis of needing to protect the AUKUS countries’ shared capability advantages from the growing threat of industrial espionage,163 and the requisite need to maintain tight control over potentially sensitive technologies. However, government and industry stakeholders alike widely consider these sorts of defence articles and services to be essential to many of the sorts of advanced capability projects imaginable under AUKUS Pillar II workstreams.164 As a procedural point, this list would reside in US defence trade control regulations and correspond to the United States Munitions List, with Australia and the United Kingdom mirroring the list in their own application of AUKUS defence trade controls.165
Senior US officials have stressed that ETL technologies are by no means off-limits to authorised users in AUKUS countries, and are eligible for transfer with an appropriate license application via the DDTC on a new expedited timeline.166 Yet in its current format, the ETL would essentially function as an exemption from the AUKUS licensing exemption. This would effectively silo most AUKUS-relevant technologies off from the very regulatory enhancements intended to realise the arrangement’s potential. In practice, this would leave these technologies subject to standard defence export control regulations and procedures in all 3 countries, including the ITAR.167 This would seem to mean that even if 90% of components in a capability developed under AUKUS Pillar II or an adjacent capability program featuring US input would be eligible for AUKUS export control exemptions, the remaining 10% would be captured by US trade controls, ‘tainting’ the rest of that capability.
It is for that reason that many industry stakeholders in Australia and the United States largely view the ETL as less than AUKUS enabling.168 As one entity warned the Senate Foreign Affairs, Defence and Trade Legislation Committee in its submission in March, an ETL that is too extensive and too encompassing of AUKUS technologies “defeats the purpose of an export licence-free environment among and between AUKUS partners.”169 Since then, several Australian businesses working on Pillar II-related technologies have told the authors that the scope of the ETL means that it will be ‘business as usual’ with respect to overheads and procedures for licensing, transferring and — crucially — protecting their products from export control taint.170 One defence trade control compliance professional remarked to the authors that: “If ITAR taint applies, this [exemption framework] is next to useless” for trade and cooperation in Pillar II technologies.171 As the US Defense Innovation Board warned in its April 2024 report, this chilling effect on AUKUS Pillar II would be disproportionately felt by “less resourced, non-traditional defense and dual-use technology start-ups,” with many innovative companies on tight budgets forced to comply “with the full range of ITAR commitments” if they wanted to do business with Defense.172
In that instance, the absence of fundamental reform to the ITAR’s more problematic aspects would perpetuate long-standing disincentives to wider industrial collaboration in the very categories identified as AUKUS priorities. This would prevent genuine and seamless co-design and co-development from becoming viable pathways under AUKUS Pillar II.173 It could also prevent AUKUS from moving at the speed of strategic relevance. Indeed, the scope of the ETL and its interface with the ITAR taint is especially problematic if one considers that a key animating logic behind Pillar II cooperation is the need to catch-up to adversaries, not just to maintain existing capability advantages. Though they continue to enjoy some advantages in certain Pillar II categories such as undersea warfare, the 3 countries are in fact losing ground or already lagging adversaries in several other Pillar II capability workstreams such as hypersonics.174 The bottom line is that leaving relevant AUKUS technologies susceptible to the drag effects and disincentives of US (and, potentially, Australian) defence trade controls will not aid the 3 countries’ efforts either to stay ahead or to catch up to their main competitors.
All the same, it is important to keep the ETL issue in perspective. Government officials have presented the ETL as a ‘starting point’ and fully expect further revisions to the list in the future.175 Nor would it be fair to cast a complete defence trade controls solution alone as a silver bullet to streamline cooperation under Pillar II: reforms to other elements of the AUKUS defence technology lifecycle — intellectual property arrangements, financing, and procurement coordination, for example — will be equally essential for enabling genuine co-development and co-design under the AUKUS banner. Yet the bottom line remains that in its current form, the ETL is so broad as to make the AUKUS licensing exemption inapplicable to the very advanced capability or technology projects that it is supposed to facilitate. This will do little to incentivise cutting-edge technology companies, particularly those in the commercial and dual-use sectors, from working with the Departments of Defence in Australia or the United States.
4. Nonproliferation and the Missile Technology Control Regime
Concerns over the optics of international non-proliferation may complicate efforts to revise the ETL. Specifically, the competing imperatives of enforcing responsible technology controls on the one hand, and the selective proliferation of advanced military technologies among a trusted community of nations on the other, could hamper efforts to make further revisions to the ETL. The tension between these objectives has already been evident in discussions around AUKUS Pillar I and the 3 countries’ adherence to the Non-Proliferation Treaty (NPT), an issue which has received substantial international attention — particularly from China — since September 2021.176
When it comes to Pillar II, the AUKUS partners have rationalised the contents of the ETL against the 3 countries’ commitments to 4 major international arms control and non-proliferation arrangements: the Wassenaar Agreement, the Australia Group, the Nuclear Suppliers Group, and the Missile Technology Control Regime. Of these regimes, the MTCR has been identified by industry, lawmakers and senior government officials as a considerable impediment to the sharing of more advanced and sensitive technologies in support of AUKUS Pillar II, GWEO, or adjacent initiatives in space and unmanned capabilities development.177 Transfers of completed MTCR-captured articles between the AUKUS countries can and do already happen, and US officials have stressed that the presence of these technologies on the ETL does not mean they are not available to members of the AUKUS trusted community.178
However, there remain concerns that the MTCR will complicate co-production or co-development, even between government and industry within individual AUKUS countries. These concerns were broadly reflected in American industry submissions during the public comment period for the State Department’s proposed rule.179 Meanwhile, industry figures have testified before the HFAC that delivering capabilities through AUKUS Pillar II streams and new unmanned systems development initiatives between Australia, Japan and the United States will likely require “clarification and potentially revision of the United States’ position on co-production and co-development of MTCR-controlled technologies.”180 Similar sentiments have been expressed to the authors by senior officials in all 3 AUKUS countries.181 Australia and the United Kingdom would likewise, likely need to revise their own national policy positions on the MTCR in a reciprocal fashion, a requirement already flagged by prominent lawmakers on Capitol Hill.182
5. A ‘superpower mindset’ for AUKUS innovation
Lingering barriers to co-innovation through AUKUS are not simply functional. In the United States, the scope of proposed reforms and the demands made of Australia and the United Kingdom betray a lingering ‘superpower mindset’ when it comes to assessing the capacity of allies to both generate and to protect capability and technology advantages.183 This concept is not simply a rhetorical cudgel wielded by Australian policy thinkers. Indeed, the Pentagon’s own Defense Innovation Board noted in its recent report on Optimising Innovation Cooperation with Allies and Partners that “a fundamentally flawed mindset” continues to hinder technology collaboration even within the trusted bounds of the AUKUS partnership.184
In the United States, the scope of proposed reforms and the demands made of Australia and the United Kingdom betray a lingering ‘superpower mindset’ when it comes to assessing the capacity of allies to both generate and to protect capability and technology advantages.
The nature of the proposed reforms, the events of recent history, and the views of their proponents discussed above all suggest that the capabilities and technologies on offer from Australia and the United Kingdom remain deeply underappreciated or misunderstood across the US system. Nor do the State Department’s proposed reforms adequately account for the growing importance of emerging non-traditional commercial companies who are on the precipice of disrupting the traditional defense industrial base, acting as a dampener for future collaborative defence innovation. Rather, the State Department’s proposed ITAR rule and its policy of enforcing exact comparability on Canberra and London appears to remain rooted in an outdated view that defence technology only flows one way — from the United States, through its monopolistic and over-consolidated defense industrial base, to its allies.
The extent to which US policymakers regard Australia and the United Kingdom as having real contributions to make to a collective technological enterprise — or appreciate these countries’ concerns over the state of America’s own defence industrial security — remains somewhat unclear. Statements made by senior Biden administration officials before different congressional committees in the last 18 months have stressed the utility of AUKUS as a mechanism for sharing the US capabilities or technologies that Australia and the United Kingdom “need,” as well as the importance of ensuring that these same allies can adequately protect American technology.185 With few exceptions, these hearings have included no references from officials or lawmakers to the distinct defence technology advantages offered by America’s AUKUS partners, nor the considerable and well-recorded industrial espionage problems afflicting the US defence industrial base.186 Nor have concerns over “back-door access to US military technology and secrets via relaxed US export controls to allies such as Australia” been consistently supported by illustrative examples of major breaches in Australia or the United Kingdom.187 For that matter, US defence trade regulations and sanctions regimes have neither deterred not prevented what top US defence and intelligence officials as well as leading think tanks, have identified as China’s extraordinary efforts to “steal intellectual property, gain critical infrastructure footholds and disrupt supply chains” in the United States.188
The underappreciation of allied contributions to a collective defence technology enterprise is both a cultural and information issue. Importantly however, a bias towards US military technology solutions over all other alternatives is not exclusively confined to Washington. Indeed, Australian lawmakers and industry professionals have observed that both the Australian Defence Force and Defence Department alike have historically demonstrated a preference for American military capability and technology by default, even when Australian companies have been able to deliver capabilities of equal or greater effect. Crucially, this has included niche capability advantages in AUKUS-relevant technology categories, including in electronic warfare and undersea warfare.189 A byproduct of these preferences has been to incentivise Australian companies to relocate their business to the United States to scale and market their products to the US Department of Defense, after which these capabilities have often found their way back to Australian defence authorities via US FMS or DCS.190 Cultural preferences have not been helped by a lack of visibility over what exactly Australia has to offer in the way of advanced capabilities, both in Canberra and Washington. Anecdotal evidence suggests that US and Australian officials and operators alike have been surprised by the volume and sophistication of Australian technologies displayed through initial AUKUS capability demonstrations and innovation challenges, even when other prominent stakeholders have suggested that Australia has long possessed these underappreciated capability advantages.191
These cultural and information-sharing factors are problematic if co-design and co-innovation remain objectives on the horizon for AUKUS Pillar II.192 Encouragingly, the growing number of AUKUS innovation challenges and capability demonstrations have served to highlight the clear comparative advantages that Australia has to offer to trilateral capability development efforts, with the government’s new Advanced Strategic Capabilities Accelerator (ASCA) playing an important role in spotlighting Australian capabilities and technologies for Canberra and Washington alike.193 Going forward, ensuring that Australian defence innovations are both recognised and utilised in joint capability endeavours will be essential if AUKUS-related defence trade reforms are to deliver more than a one-way super highway for US foreign military sales to Australia and the United Kingdom.
6. Co-production and exportability
Read as they are, restrictions on the overseas manufacture of US defence articles or technologies shared via the AUKUS exemption could limit prospects for co-production. It is unclear from the State Department’s interim rule as to what extent proposed changes would enable co-production using existing US technology. Section 126.7 (5) in the proposed ITAR rule includes a clause that a transfer of US technology may only be made if it “does not involve the manufacturing abroad of significant military equipment,”194 consistent with standing requirements to seek congressional certification for “the manufacturing abroad of any item of significant military equipment that is entered into with any country regardless of dollar value.”195 While it is unclear exactly how this element would function in practice, or whether other authorities such as those under Title III of the Defense Production Act (to which Australia was added last year) could be used to bypass them,196 this condition taken as it is could conceivably obstruct co-production initiatives.
Limitations on the use of US articles and services in creating manufacturing capacity in Australia would have implications both within and beyond AUKUS. Specifically, US stakeholders fear that ETL restrictions on data sharing could “limit […] the growth of non-US companies’ ability to support integration and contribute to the shared industrial base necessary to leverage AUKUS” or the development of a guided weapons production enterprise in Australia.197 Some industry stakeholders have noted that restrictions on information and technology sharing with respect to certain nuclear submarine technologies could “lessen the Australian defense industrial base’s ability to support” AUKUS projects, with restrictions on “manufacturing know-how and technical assistance” potentially obstructing the development of an Australian maintenance and sustainment capacity for its future SSN fleet.198 Others noted that these restrictions could also implicate federated munitions production in Australia, the business case for which could depend to some degree on exports to non-AUKUS partners given that Australian requirements alone may not be sufficient to justify new investments at scale, and with lingering doubts over the appetite of the US Government to buy munitions produced overseas.199 Other industrial entities have noted that the ETL’s lack of distinction between highly sensitive and mundane defence articles and services could complicate or outright prevent even low-level projects or activities “that could otherwise bolster the industrial base of AUKUS members as intended.”200
There is also a risk that the ITAR taint will continue to pose a problem for non-ETL items when it comes to leveraging global supply chains or exporting capabilities inclusive of US technologies beyond the AUKUS nations. Companies well-versed in managing global supply chains for high-end defence capability development programs have observed that current proposals would complicate the development and sustainment of new and existing capability programs which leverage global supply chains and innovation talent beyond the bounds of the 3 AUKUS countries.201 In addition, lingering issues regarding exportability and third-party transfers may disincentivise industry from working within the AUKUS community framework, particularly with respect to emerging technologies,202 if they foresee only limited market appeal for their respective capabilities. While all 3 countries naturally reserve the right to control their defence technologies, foregoing extraterritorial rights for some legacy technologies may be necessary to facilitate certain AUKUS or alliance projects, particularly those focussed on legacy systems, or to meet the wider strategic objectives of the AUKUS partners when it comes to the potential reexport of AUKUS end-products among trusted allies or partners.
7. ‘License free,’ not ‘ITAR free’ — compliance requirements and literacy
Crucially, AUKUS industrial and technology stakeholders should be careful not to mistake the ‘license-free’ tagline for an ‘ITAR free’ business environment. Worryingly, this has become a common misperception among industry and academia not well-versed in the nuances of defence trade. In reality, many of the compliance requirements associated with US defence trade regulations will remain, even if licensing approvals are no longer required for many transfers.
In fact, seasoned industry figures have already noted that proposed amendments could actually increase the range and potentially the costs of compliance measures that Australian defence and dual-use technology companies will have to observe, often regardless of whether or not they are seeking to work with the AUKUS countries’ defence organisations or not.203 For instance, recordkeeping requirements for all ITAR-related (and, now DSGL-related) transactions will remain essential regardless of whether a defence article or service is eligible for a licensing exemption, while a broader range of companies and their products will now be required to comply with a more complex array of defence export control regimes. Defence trade experts have also noted that amendments to the DTCA will require a larger number of domestic companies, locally based foreign companies, and research entities engaged in activities beyond the bounds of “fundamental research” to increase their human resourcing “for their compliance, quality and risk functions.”204 Several companies noted these same costs in their submissions to the Australian Senate Standing Committees on Foreign Affairs Defence and Trade, identifying the likelihood of additional requirements for “training, certification of personnel and upgrades to IT systems,” as well as end-use monitoring and enforcement of Australia’s extraterritorial and deemed exports control requirements.205
Any increase in industry compliance obligations is likely to disproportionately impact on small and medium-sized enterprises. While prime companies already accustomed to working with the Department of Defence are likely better prepared for these adjustments, smaller and less-resourced operators supplying what is now an even more extensive list of DSGL goods to the government or prime contractors within Australia will now also be required to comply with a wider range of more complex defence export control obligations than before.206 This will create new human resourcing and legal challenges,207 particularly for smaller companies whose staff may currently handle export control compliance without necessarily being subject matter specialists.208 Furthermore, modifications to Australian regulations will mean that companies will also be required to comply with additional defence trade control reporting and record-keeping processes, not just those associated with US regimes.
Improving defence trade control literacy across the Australian industrial and academic ecosystem will be crucial to ensuring that these entities do not come to regard export control compliance as too difficult or costly, and as a result demur on collaboration through AUKUS.
These developments go to a broader issue of defence trade control literacy across the Australian industrial and technology landscape. Anecdotally, this can be reduced to a misperception of ‘license-free’ defence trade opportunities between AUKUS countries as equating to ‘ITAR-free.’209 This can be correlated with limited defence trade control literacy on the part of many Australian defence and dual-use companies. It is for that reason that several Australian defence industry representatives interviewed for this report expressed concern that the period immediately following the activation of new US and Australian defence trade regulations could see a major uptick in unintentional violations of the ITAR and Australian defence trade controls, or lead to companies’ products or services becoming tainted by US or Australian trade controls for a lack of understanding of how these rules function in practice. Even though many of these instances may not involve the leakage or improper sharing of particularly sensitive data, for reasons explored above they would nevertheless bring with them a degree of political and financial risk, both for the offending entities themselves and for their respective national governments, particularly Australia and the United Kingdom with respect to the State Department.210 Improving defence trade control literacy across the Australian industrial and academic ecosystem will be crucial to ensuring that these entities do not come to regard export control compliance as too difficult or costly, and as a result demur on collaboration through AUKUS. It will also be important to ensure that a company’s product, rather than their in-house export control expertise, is their true source of competitive advantage in the AUKUS context.211
8. Downstream requirements: Future candidates for harmonisation
Defence export control harmonisation is likely to be but an initial step in a broader AUKUS regulatory environment-building process. As the defence industrial and technology bases of Australia, the United Kingdom and the United States become more integrated, so too will the requirements for the 3 governments and their industry partners to address other elements of prospective trilateral technology safeguards and co-development frameworks.212 In the coming years, industry and technology companies seeking to work within the AUKUS community are likely to encounter a range of downstream compliance costs associated with greater regulatory harmonisation beyond the bounds of defence trade controls. As such, while the benefits of being inside the AUKUS ‘tent’ may increase for authorised members of the trusted community, the price of entry to that community is also likely to rise across the board.
This wider regulatory harmonisation agenda, however necessary, will likely produce a wider suite of new compliance requirements for industry and academic partners seeking to do business with the AUKUS countries’ defence establishments in a number of other areas. This could pose challenges for Australian small- to medium-sized companies already struggling with the costs of compliance, or which have already decided not to work with the Defence Department at all.213 As some informed observers stated recently, many Australian companies relevant to future AUKUS Pillar II projects “have neither the knowledge nor the resources necessary to achieve and maintain compliance” with current proposed reforms in Australia,214 let alone those arising from present or future AUKUS harmonisation efforts.
Progress to date on AUKUS defence trade controls harmonisation, particularly to conflation of US regulations with trilateral requirements, raises questions over the standards against which further regulatory harmonisation efforts will be adjudicated. The fundamental end-goal of AUKUS regulatory harmonisation should be, to the maximum extent possible, the creation or adoption of the most effective toolset for the task at hand. While there is no need to reinvent the wheel in instances where successful technology security mechanisms and policy frameworks already exist, the adoption of US defence trade controls as the AUKUS ‘platinum standard’ — largely at Washington’s insistence — and the problems with that approach explored in this report should offer some evidence that simply adopting US practices may not always be the best solution for meeting the shared objectives of AUKUS, especially under Pillar II.215
Considering the manner in which fears of industrial espionage have animated AUKUS defence trade reform debates, cybersecurity and other industrial security standards are likely to be focal points for AUKUS regulatory harmonisation in future.
Considering the manner in which fears of industrial espionage have animated AUKUS defence trade reform debates, cybersecurity and other industrial security standards are likely to be focal points for AUKUS regulatory harmonisation in future. In fact, efforts to achieve the seamless integration goal of the US NTIB construct through industrial security harmonisation has been a topic of discussion since the addition of Australia and the United Kingdom in 2017.216 While an uplift in national industrial cybersecurity standards is already a major objective for all 3 AUKUS countries, it is highly likely to become a focus for trilateral engagement in the near future given the pre-existing linkages between cybersecurity and US export control compliance,217 and requirements for secure information-sharing amongst trusted entities on AUKUS projects. Indeed, as the Independent Review of Australia’s defence trade controls noted in its December 2023 report: “despite the apparent lack of serious, deliberate breaches of the DTC Act to date, the lure of potential gain from exploiting any weaknesses in controls likely will increase as AUKUS collaboration deepens.”218 Encouragingly, the 3 partners are already engaging on this issue set through the AUKUS cyber working group, engaging on the development of cyber resilience and protective measures for Pillar I and Pillar II projects.219 Outside of AUKUS, Canberra and London, along with many other US allies, have also engaged Washington on being party to discussions on the development of its Cybersecurity Maturity Model Compliance (CMMC) standard,220 a model adopted to create a single government-accredited standard to better screen companies’ cyber hygiene self-assessments. Importantly, this standard would apply to sensitive classified and unclassified information.
Based on the defence trade controls example, and given that CMMC compliance will be an essential prerequisite for companies to work with the Pentagon, there is a distinct possibility that CMMC-level cyber compliance could become the official AUKUS requirement. Considering the experiences of US SMEs to date, the adoption of such a model would likely entail further “manpower, infrastructure and other compliance costs” for similar entities across Australian industry.221 However necessary such protections might be, the 2024 US National Defense Industrial Strategy nevertheless acknowledged that more stringent cybersecurity requirements could further “disincentivize the types of small or sub-tier suppliers that help to diversify and make the industrial base more resilient from doing business with the DoD.”222 Indeed, the Pentagon has estimated that CMMC 2.0 adoption would produce an annual compliance cost of over $4 billion to the US defence industrial base alone to protect vast amounts of often unclassified information, the value of control of which has been questioned by informed US experts.223
Those challenges are also present in Australia, and could well be amplified further. In fact, a wider defence industrial security uplift could be made heavier by the fact that nearly 90% of Australian SMEs are presently non-compliant with the Australian government’s own Defence Industry Security Program (DISP) basic cybersecurity standards.224 Industry experts are already warning that the present comparability gap between CMMC standards and those of DISP could prevent Australian companies from bidding on Pentagon contracts if they have not met CMMC standards by the October 2025 deadline.225 While some experts have argued that “Australia’s DISP must align better with the US’s National Industrial Security Program (NISP)” in order to manage these changes, they have also argued that “AUKUS represents a genuine opportunity to re-imagine and re-engineer a truly integrated and collaborative system that works for all actors.”226 Irrespective of the standard against which AUKUS industrial security requirements are set, national innovators and suppliers seeking to participate in AUKUS Pillar I and Pillar II projects will undoubtedly be required to meet the requirements of the higher tiers of this common standard. Further afield, other industrial security issues such as the treatment of facility and personnel security clearances and the mitigation of foreign control and influence are areas where harmonisation efforts may also generate new compliance requirements.
Conclusions and recommendations
Overall, it is clear that the AUKUS countries will need to pursue further regulatory reform to facilitate the more expansive and seamless forms of trilateral co-innovation and co-development envisioned by the 3 governments. Fundamentally, this is because the changes proposed in export control regimes in all 3 countries, on available evidence, may not be enough to incentivise the most innovative commercial companies in the United States, United Kingdom and Australia to participate in Pillar II programs. This could have real ramifications for the 3 countries’ efforts to shore-up deterrence in the Indo-Pacific in the near-term. Whereas the success of Pillar I will be measured in decades and is relatively on track, it will not decisively impact on the regional balance of power equation for at least another decade, placing a higher premium on progress on advanced capability development under AUKUS Pillar II, including through leveraging technologies beyond the scope of government-regulated innovation environments. However, without further revisions to the AUKUS defence free-trade zone, progress on new forms of trilateral co-imagination, co-innovation, co-design or co-development through AUKUS Pillar II will be slower than required.
Fortunately, efforts to harmonise AUKUS defence trade controls remain a work in progress, and few of the aforementioned issues are fundamentally irreversible or irreconcilable. There is still time to address many of the issues identified in this report, whether before or after the reforms proposed in Australia and the United States officially take effect. Encouragingly, the 3 governments are aware that further work is required. Indeed, as the scope of ITAR reform is the subject of a proposed rule still under consideration, the contents of US reform proposals can still be modified, and government officials from all 3 countries have suggested that they will continue to work closely on fine-tuning the AUKUS defence free-trade environment.227
However, further adjustments will not necessarily be simple. Many of these changes will likely require tough choices, political and functional trade-offs, and an even greater degree of political leadership than has been demonstrated to date. These will be essential if AUKUS is to succeed in a timely fashion. The stakes are even higher if, as senior US officials have suggested, AUKUS Pillar II is in part intended to be a pilot for new forms for minilateral defence technology cooperation between Washington and its allies, based on the pooling of shared resources and integration of industrial bases to address the scale that potential adversaries like China have in population, scientific and engineering talent, and manufacturing prowess.228
1. Comparability certification: Locking in the Canadian exemption for Australia and the United Kingdom
On 15 August 2024 (as this report was going into publication), the State Department submitted to Congress a certification of Australian and British comparability with US export control regimes. While the devil remains in the details as to the true scope, scale and applicability of exemption, it nevertheless marks welcome progress and is to be commended. Though current defence trade control harmonisation efforts in isolation will not be sufficient to realise the potential of AUKUS, officials from all 3 countries also recognise that they cannot afford to wait for perfect regulatory alignment before moving ahead with practical cooperation within the realm of the possible.229 Indeed, while several major US defence companies have suggested that they would prefer a ‘one and done’ approach to defence trade harmonisation, there has been a degree of impatience building among Australian businesses to get moving on AUKUS-related projects.230 Government officials from all 3 countries have repeatedly stressed that current proposals are intended as a ‘starting point,’ and that further adjustments will be possible once new baseline conditions are established.231
For reasons explored in this report, questions remain as to the reasoning behind the State Department’s decision not to certify comparability at an earlier date. Ultimately, however, doing so should trigger a limited ITAR exemption for Australia and the United Kingdom, providing a degree of compliance relief for authorised users in a manner very similar to the Canadian exemption. While further work will be required to free AUKUS-related technologies from the negative effects of US defence trade controls, actioning the exemption as currently written would nevertheless constitute a 70% solution for AUKUS’s constituent bilateral defence industrial and trade relationships, with some trilateral pay-offs through AUKUS. This would go a long way to bringing defence industrial cooperation up to speed with existing mechanisms intended to do much the same thing, including the bilateral Defence Trade Cooperation Treaties and the expanded US NTIB.
2. Align defence trade control review periods to streamline future reforms
Relatedly, Australia, the United Kingdom and the United States should also better align the review periods for their respective defence trade control amendments to expedite any future reviews. For example, the FY24 NDAA includes a provision that would allow Congress to mandate further adjustments to US defence export controls and/or State Department and Pentagon regulatory structures to further streamline AUKUS cooperation in the next NDAA cycle.232 However, the review period for Australian defence export controls is currently pegged at 3 years.233 To avoid unnecessary delays in updating AUKUS country defence trade controls in future, the 3 countries should ensure that their review timelines are sufficiently aligned. This could come sooner rather than later. For instance, the Committee Report accompanying the Senate Armed Services Committee’s FY25 NDAA proposal includes a direction for the incumbent administration to submit “an assessment of the effectiveness of the modifications to the International Traffic in Arms Regulations (ITAR) made in the National Defense Authorization Act for Fiscal Year 2024 for facilitating [AUKUS Pillar II] collaboration.”234
3. Addressing the taint: Moving beyond the Canadian ITAR exemption
The United States and seemingly Australia will also need to rigorously address the negative industrial incentives inherent in the concept of the ‘taint.’ Doing so would be in the best interests of fostering true reciprocity between AUKUS defence trade control regulations. Evidently, Australia and the United States will need to consider ways in which to waive, minimise, or outright eliminate the effects of their respective defence export control ‘taints’ in order to facilitate high-end defence technology cooperation. Solutions to addressing the ITAR taint proposed in the authors’ previous report would pivot on addressing the source of the ITAR taint that exist in US regulatory definitions of defense ‘services’ and ‘technical data’ for AUKUS countries, and thus moderating the extraordinary regulatory discretion hereto available to the US State Department.235
In the meantime, Washington will need to clarify how US defence trade control reforms will apply to specific forms of cooperation. Firstly, the State Department will need to clarify how its reforms will or will not apply to the manufacture and co-production of predominantly US-origin defence articles or technologies in Australia, particularly in the context of efforts to develop shared guided weapons and logistics capabilities in Australia. This will likely involve revisiting the ETL to distinguish between different articles or services captured under the broad categories on the current list. Secondly, it will need to clarify how the reforms will apply to Foreign Military Sales and Direct Commercial Sales programs with Australia, given the apparent exclusion of FMS from the bounds of the AUKUS exemption; the vast and enduring number of FMS sales to Australia; the imaginable co-mingling of FMS and non-FMS articles and services — particularly knowledge transfers — on the factory floors and in the meeting rooms of major Australian companies working on AUKUS and alliance projects;236 and ongoing efforts to reform and align the FMS process for AUKUS countries within the administration and within Congress.237 Lastly, the State Department will need to clarify how these reforms apply to commercial products modified for military applications which subsequently become bilateral or trilateral co-development projects. In that respect, the US Government could also propose regulations to specifically mitigate the taint in cases where the flow of technology and knowledge in any given capability predominantly originates in Australia or the United Kingdom — in other words, where US contributions are less than that of its allies.238
In addition, there is now a need to fix both the US and Australian taint to incentivise commercial participation in Pillar II. To make the US Commerce Department’s AUKUS exemptions for dual-use technologies effective, US lawmakers will need to address the ITAR taint in areas where these commercial products and technologies are modified for military use. The Commerce Department’s dual-use licensing exemption rule is a very positive step forward, yet if British or Australian entities were to work with US companies on a modified version of commercial technology, based on current rules this would likely trigger the ITAR and the taint. Thus, these entities would have to import this technology in its commercial variant, and then militarise it themselves to avoid the ITAR taint.
However, with recent changes in Australian regulation, there is now a risk that an Australian taint could hamper the ability of local companies to militarise modified commercial products and services from the United States. This could create a situation where Australian companies may be disincentivised from working with AUKUS defence authorities by both the ITAR and Australian export control regulation, due to the potential exposure and capture of their intellectual property to multiple regulatory systems with extraterritorial reach and perpetual licensing requirements. To address these concerns — real or imagined — the Australian Government should focus on clarifying proposed ‘sunset’ clauses for licensing and reporting requirements, and clarifying how the government’s new defence trade control regulations will functionally distinguish between Part 1 (Military) and Part 2 (Dual-Use) of the Defence Strategic Goods List. This will be essential to maximise Australia’s contributions to AUKUS joint projects, particularly under Pillar II.
Table 2. Authors’ May 2023 proposals for US Executive and Legislative branch options for ITAR reform. Source: United States Studies Centre
4. Staff-up the Australian defence export control office and defence industry security program in anticipation of spiking requirements
Regardless of one’s view on the appropriateness of the proposed Australian and US reforms, they will pose new capacity challenges for Australian government and industry entities alike. Contrary to expectations, the partial removal of ITAR licensing requirements and the retooling of Australian defence trade controls will likely increase, rather than decrease, administrative burdens for Australia’s defence trade control authorities within the Department of Defence alike. Australian industry stakeholders worry of the possibility of extended delays in license processing and responses to requests for assistance, “not unlike the lengthy processing times the DDTC is known for.”239 In addition, Australia’s Defence Export Controls (DEC) office has historically “been plagued by high attrition, arguably insufficient outreach and inexperience,” factors which would likely compound with an expected increase in licensing enquiries and requests from a wider range of Australian companies either seeking to do legitimate business or erring on the side of caution. Addressing these issues will require the hiring of a new cadre of experienced export control professionals in the Australian Government with “deep expertise in the technological and legal aspects of the defence industry and the adjacent dual-use space,”240 as well as incentives to maximise the retention of experienced export control professionals with the DEC and DISP. Enhancing the quantity and quality of public advice available to interested companies would likely contribute to a reduction in their overheads, given that these companies often have to resort to costly legal advice from the private sector in dealing with defence authorities ¬— a trend which actively and disproportionately disincentivises dual-use or commercial SMEs from engaging in defence projects in the first place.241
5. Procedural parity: Establish a genuinely trilateral ‘authorised user’ mechanism
To reflect the spirit of AUKUS, the 3 countries should seek to establish a genuinely trilateral mechanism for verifying authorised users of the AUKUS defence trade licensing exemption. Present arrangements whereby the 3 AUKUS countries largely adjudicate the members of their respective trusted defence industrial base communities themselves may not be fit for purpose,242 but simply tasking the US DDTC with this responsibility is not a sensible option, either. As currently worded, the AUKUS licensing exemption proposal would seem to give the State Department the final say on the make-up of this community, with little scope for Australia or the United Kingdom to provide their assessments of US candidates or to appeal the exclusion of their own national companies. It is essential to ensure that a secure and competitive environment for defence companies exists within the AUKUS context, but for this to be realised will require the development of mechanisms with trilateral authority and input. Only through these platforms will the 3 countries be able to determine mutually agreeable solutions that do not give one agency in one country disproportionate control.
To reflect the spirit of AUKUS, the three countries should seek to establish a genuinely trilateral mechanism for verifying authorised users of the AUKUS defence trade licensing exemption.
6. Increase resourcing for Australian government programs designed to assist SMEs with managing new compliance costs
Given the expected costs associated with defence trade reforms,243 and with the prospect of further regulatory harmonisation on the horizon, the Australian Government may need to consider further measures to support and incentivise SMEs and other innovative commercial companies to participate in AUKUS projects. While most large, defence-explicit companies may be willing to accept these costs as the price of doing business, additional measures may need to be considered to attract dual-use and commercial companies already reticent to do business with Australian and US defence authorities on the basis of compliance costs versus potential contract value. The Australian Government is “unlikely to compromise on relaxing requirements for defence industry entities to meet certain cyber security and other compliance requirements” given the nature of industrial espionage threats and the political capital invested in progress under AUKUS so far, yet a sector-wide uplift in industrial security standards without sufficient support or flexibility for smaller companies could run the risk of “eliminating current or prospective sources of innovation across Australia’s network of defence supply chains.”244
Australian industry is well aware that it needs to do its best to meet the government halfway on regulatory reform and compliance requirements.245 Nevertheless, striking an equilibrium for compliance between industry and government will be essential if Defence is to meet its stated goal of uplifting and enhancing the “scale and competitiveness” of Australian SMEs,246 both in the interests of building a more robust sovereign defence industrial base and enhancing Australia’s overall value proposition in the context of AUKUS. Encouragingly, the Australian Government’s Defence Industry Development Strategy released in February 2024 suggests that further assistance for industry is in the pipeline. For instance, the Australian Government currently administers a variety of grant programs through the Defence Industry Security Program to subsidise defence companies’ efforts to uplift their capacity to comply with various regulatory measures, including in “establishing and maintaining security accreditation” in export controls, cybersecurity, facilities development, and other areas.247 Officials have indicated that these programs will receive a boost in coming months, and have encouraged Australian companies interested in working through AUKUS to apply for assistance.248 However, anecdotal evidence from new or recent entrants into the defence marketplace suggests that these programs currently provide only a small percentage of industrial security requirements (as little as 10%).249 While there is no such thing as a free lunch when it comes to regulatory compliance, developing an equitable compliance cost-sharing model for companies identified as viable and valuable participants in Pillar II projects may be something that the Australian Government needs to consider in more detail.
7. Establish an AUKUS industrial security mechanism to identify and progress further regulatory harmonisation efforts on a trilateral basis
In anticipation of further regulatory harmonisation efforts, the 3 governments should consider establishing an AUKUS industrial security mechanism to consider a wider array of systemic regulations and reforms that will impact on cooperation between the 3 nations. The long-standing debate over defence trade control reform, though incomplete, has effectively become the first ‘cab off the rank’ in a series of further regulatory harmonisation efforts intended to “set the conditions for seamless collaboration on advanced military capabilities in the long term.”250 Beyond cybersecurity, Australian stakeholders have already identified a growing requirement for a “mutually recognisable [security] clearance process” for vetting AUKUS workforces across the 3 countries,251 as well as challenges associated with information-sharing, the protection of intellectual property rights, and differences in contracting and tender processes for prospective trilateral projects under AUKUS.252 Officials have informally situated current reforms in a wider defence ecosystemic context, and are acutely aware of impending or parallel requirements to harmonise other regulatory instruments and policy settings in the interests of advancing Pillar I and II alike.253
Formalising these discussions through a dedicated trilateral mechanism, with representation from all appropriate ministries and departments, would assist the 3 governments in understanding the unique interplay between different national and regulatory jurisdictions, as well as providing a forum for trilateral engagement with industries in all 3 countries to solicit views and recommendations. The 3 countries could emulate or repurpose prior efforts to address similar issues through mechanisms created to implement the expanded US NTIB.254 For example, as an initial first step towards building multilateral governance and regulatory arrangements, the 4 countries signed an NTIB statement of principles in 2019 with the intention of formalising regular officials’ meetings “to identify barriers to collaboration and facilitate changes to agreements (as appropriate) to further integrate the nations’ industrial bases.”255 This also included the creation of “pathfinder projects” for reforming controlled technology transfer arrangements, synching investment security practices, building cybersecurity capacity in SMEs, and the creation of an NTIB coordination mechanism.256 Notably, the latter 2 initiatives were abandoned in 2019 as part of a broader down-scoping of NTIB integration objectives, due at least in part to barriers posed by US defence export controls residing outside of the Pentagon’s remit.257 Based on US government documents, there has been no apparent effort to revive these pilots or to make wider use of the NTIB coordination mechanism.258
The mitigation of defence export control barriers could conceivably provide a new window for creating a similar mechanism under AUKUS, focussed on a wider suite of ecosystemic industrial and supply chain security requirements. This would provide a forum for the 3 governments to identify and explore further areas for harmonisation, agree on further adjustments to existing harmonisation efforts in areas like export controls and foreign investment screening procedure, and a means to solicit industry input from all 3 countries by all 3 governments at a time when Canberra, London and Washington are all seeking the views of their industries on the remaining barriers to engagement through AUKUS.259 Such a mechanism will likely be required to “reimagine and re-engineer a truly integrated and collaborative system” that is both true to the trilateral spirit of AUKUS and based on best practice. Several Australian policy thinkers have made the case that simply adopting US-style regulations or models as the ‘AUKUS standard’ in Australia and the United Kingdom, while a simple option, is not necessarily the best option.260 While there is no need to reinvent the wheel in cases where successful models are readily available, Australia’s experience with US defence trade controls to date — including the recent emulation of specific problematic aspects — should illustrate the perils of internalising this model for future regulatory harmonisation efforts. Creating a dedicated forum for the creation of genuinely trilateral regulations and protections for AUKUS would institutionalise that spirit and intent.
8. Establish a ‘presumption of sharing’ for discrete MTCR categories related to AUKUS Pillar II
The AUKUS countries will need to review the contents of the ETL if AUKUS Pillars I and II are to proceed at the speed of strategic relevance. At present, most relevant technologies are excluded from the AUKUS licensing exemption based largely on the 3 countries’ policy positions with respect to major international arms control treaties, particularly the Missile Technology Control Regime. While AUKUS officials have stressed that the presence of certain technologies on the ETL does not preclude their transfer to Australia or the United Kingdom,261 noting DDTC’s new expedited license processing obligations, cooperation on AUKUS Pillar II projects will remain constrained by defence export controls as long as these technologies remain on the MTCR. Therefore, in order to streamline cooperation on these technologies within the parameters set out in the AUKUS licensing exemption, the 3 countries will need to consider triangulating their policy positions with respect to MTCR interpretations, obligations and procedures.
Given that MTCR compliance is largely a matter of policy rather than statute, there are policy solutions available to the 3 countries. At present, all 3 countries adhere to a ‘strong presumption of denial’ when it comes to MTCR technologies, a position which some US lawmakers have begun efforts to dispose with. While removing a ‘strong presumption of denial’ somewhat address these issues, adopting an official position of a ‘strong presumption of sharing’ for discrete classes of technology among the AUKUS countries would more explicitly enshrine a positive intent to cooperate in national policy settings, and minimise grey area for interpretations to the contrary. In that respect, a trilateral policy statement or coordinated individual statements regarding discretionary reinterpretations for controlled trade in MTCR categories or technologies between AUKUS countries for Pillar II initiatives could be a helpful means to enable wider collaboration.262 Doing so could facilitate the removal of a greater number of technologies from the ETL, provided that none of the 3 countries adjust their national policy positions in light of these prospective changes to recapture items formerly covered by that country’s policy position vis-à-vis the MTCR.
The idea of revising the AUKUS countries’ policy positions on the MTCR is not an entirely novel concept. Indeed, restrictions of transfers or sales of MTCR-captured platforms and technologies are voluntarily observed by regime members, and as such are largely matters of policy, rather than a legal obligation. This means that there exists some flexibility in adjusting national policy settings to ease MTCR-related impediments to technology-sharing. In fact, there is recent precedent for members to reinterpret MTCR obligations using their national discretion. As part of a change to US unmanned aerial systems (UAS) export policy in June 2020, the Trump administration unilaterally reinterpreted restrictions on the proliferation of unmanned aerial vehicles with top speeds no greater than 800km per hour captured under the MTCR, reclassifying these as Category 2 items with softer control restrictions compared to tightly controlled items under Category 1.263 These changes were intended to facilitate sales or transfers of a greater range of UAS capabilities designed for intelligence, surveillance and reconnaissance missions to priority allies and partners, such as the sale of 31 MQ-9B maritime surveillance drones to India in 2024.264 This reinterpretation was framed by senior State Department officials at the time as necessary to reflect “technological realities” and to assist both the United States and its allies to meet their national security requirements.265
This precedent could offer lessons for a limited reinterpretation of the AUKUS countries’ MTCR obligations with respect to specific AUKUS Pillar II programs. One potential solution could be for the 3 AUKUS countries to adopt a coordinated policy position articulating a ‘presumption of acceptance’ for a subset of specific Pillar II-relevant technologies or related items otherwise captured by the MTCR, especially those under Category 2.266 Indeed, several American stakeholders interviewed for this report argued that the planned sale of Tomahawk cruise missiles to Australia and Japan — capabilities which fall squarely within the bounds of the MTCR — illustrated that both countries had already overcome the ‘strong presumption of denial’ currently associated with MTCR observance, and that the next step was to enshrine this presumption in stated government policy to expedite future cooperation.267 In addition, arms control experts have recently observed that a series of recent waiver decisions by individual MTCR member countries, as well as “unilateral reinterpretations of the regime’s scope”, suggest that “a broader shift by member states away from the presumption of denial” may already be underway.268
In that context, AUKUS policymakers could consider expanding this presumption of acceptance to a carefully identified subset of MTCR Category 2 technologies, setting a precedent for these technologies to be removed from the AUKUS ETL and therefore made more easily shareable within the authorised community. Encouragingly, members of the HFAC and SFRC are already examining ways in which to address these impediments through annual legislative vehicles like the NDAA.269 In June 2024 Chairman of the HFAC Michael McCaul and Representative William Huizenga introduced a bill that would alter standing US policy to no longer “apply a ‘strong presumption of denial’ to exports of materials considered Category 1 or 2 of the Missile Technology Control Regime to North Atlantic Treaty Organization allies or countries of the Five Eyes intelligence alliance, including the AUKUS partners”.270 Though prominent committee Democrats have opposed the bill, they have done so partially on the basis that modifications to US MTCR policy would be “best done jointly with our AUKUS partners, and in a thoughtful, coordinated manner,” rather than unilaterally and without “comparable” changes in Australian and UK defence trade legislation.271 Though the integrity of remaining international arms control agreements is an important consideration and a major concern for a number of stakeholder groups across the AUKUS countries, there may be a small window for the 3 countries to explore limited, coordinated reinterpretations of their MTCR obligations to enhance technology sharing for specific categories of items or services.
However, a decision to reinterpret Australian, UK and US policy positions on even a small selection of MTCR technologies for specific projects may not be politically easy. This is because the 3 countries would need to strike a delicate balance between arms control and non-proliferation objectives on the one hand, and the ‘selective proliferation’ of certain military systems at the heart of AUKUS Pillars I and II. Any decision to further reinterpret the ‘strong presumption of denial’ for transfers of other Category 1 technologies associated with cruise missiles, hypersonic weapons, or larger and more advanced unmanned systems would likely be an even harder political lift for the 3 countries, both domestically and internationally.272
Internationally, this is inextricably linked to the 3 countries’ stated commitment to the highest standards of non-proliferation, and enduring regional sensitivities over the perceptions of AUKUS as a proliferation risk stemming from the botched roll-out of AUKUS Pillar I in September 2021.273 From this perspective, the selective proliferation of discrete MTCR technologies among a trusted community, even one with an avowed high standard of defence export controls, could undercut efforts to date to address regional concerns about the proliferation risks of AUKUS Pillar I, and potentially would see those same concerns spread to Pillar II in a manner which they have yet to do. Domestically, author interviews and recent congressional committee hearings suggest that there is strong resistance to major MTCR reforms from the State Department, the White House and pockets of Congress, due in part to perceptions of the regime as being one of the few remaining arms control and strategic stability mechanisms encompassing missile technologies that both the United States and Russia are party to,274 as well as a reluctance to expend political capital in a polarised Congress on an issue which could easily become a point of public contention.275 Some analysts have also expressed concerns that the sale of Tomahawk cruise missiles to Australia in September 2021 risks undermining MTCR norms,276 technologies which while not AUKUS explicit are certainly AUKUS adjacent.