Introduction

On April 11, 2013, the US State Department, Directorate of Trade Controls (DDTC), issued a final rule amending the International Traffic in Arms Regulations (ITAR) to implement the Defense Trade Cooperation Treaty between the United States and Australia (Treaty).  The US Senate gave its advice and consent to the Treaty (along with the US-UK Defense Trade Cooperation Treaty) in September 2010. Congress also amended the Arms Export Control Act (AECA) (22 U.S.C. 2751 et seq.) to reflect its provisions via the Defense Trade Cooperation Treaties Implementation Act of 2010 (P.L. 111-266, Oct. 8, 2010).  DDTC published a proposed rule for public comment regarding both treaties (see our November 2011 advisory).  With this final rule, DDTC clarifies and amends the provisions in response to public comments it received.

The new exemption for US-Australia defense trade eliminates certain export licensing requirements for exports within the “Approved Communities” of companies and government agencies in the United States and Australia, for projects where the respective governments are the end users.  The exemption, however, does not cover all defense articles, and eligible exporters must comply with several requirements to avail themselves of the license exemption.

The new rule became effective on May 16, 2013, the date the Treaty entered into force.  The new rule is similar, but not identical, to the final rule implementing the Defense Trade Cooperation treaty between the United States and the United Kingdom, which came into force on April 13, 2012 (see our March 2012 advisory).  The new rule also amends Supplement No.1 to Part 126, to identify those US defense articles that are ineligible for license-free export to Australia.

Conditions and Requirements for the US-Australia Treaty Exemption

The State Department’s final rule, implemented at § 126.16 of the ITAR, provides for the following:

Community Members/Authorized Parties

The only authorized exporters, transferors, and recipients who can export or receive eligible defense articles under the new exemption are members of the US and Australian Communities.  Community members are determined differently for Australia and the US.

  • Australian Community: Australian governmental and non-governmental entities and affiliates are determined according to the Treaty’s Implementing Arrangement.  Australian Community members must be identified as such on DDTC’s website at the time of the transaction.
  • US Community: Members of the US Community consist of the following, including their personnel when acting in their official capacities and possessing appropriate clearances and need-to-know:
    • US Government departments and agencies; and
    • US persons and entities registered with DDTC and eligible to obtain export licenses, so long as none of a company's officers or directors are ineligible to participate in export transactions.

Exporter Eligibility

The final rule includes a definition of “export” specifically for this treaty exemption.  The rule provides that an export means “the initial movement” of defense articles or services from the US Community to the Australian Community.  To be eligible to export, or to participate as an intermediate consignee in an export transaction, interested parties must meet all of the following conditions:

  • US exporters must be registered with DDTC and be eligible to export. Eligibility requires that the exporter and all senior officers, directors and other parties to the export be authorized to obtain an export license from any US Government agency, including DDTC and the Bureau of Industry and Security of the US Department of Commerce.
  • US exporters must have been licensed by DDTC to export (under the general definition of the term at 22 C.F.R. 120.17) the identical type of defense article to any foreign person.
  • Intermediate consignees must be eligible under the AECA and other provisions of US law to handle or receive a defense article or service without restriction.
    • For unclassified exports, US intermediate consignees must be: DDTC-registered exporters; licensed customs brokers subject to certain conditions; or freight forwarders or other parties designated on the US Department of Defense Civil Reserve Air Fleet list. Australia intermediate consignees must be: members of the Australia Community; or freight forwarders or other parties designated on DDTC’s Authorized Australian Intermediate Consignees list.
    • All classified exports, which must first be authorized by the Department of Defense, must also comply with the National Industrial Security Program Operating Manual.

Authorized End Uses

License-free exports pursuant to the Treaty may only be made for one of the following four end uses:

  • US and Australian combined military or counterterrorism operations;
  • US and Australian cooperative security and defense research, development, production and support programs;
  • Projects for Australian Government end use, as mutually agreed between the US and Australia; and
  • Projects for US Government end use.

Projects, programs, and operations that are eligible for the exemption and that can be publicly identified will be posted on DDTC’s website; those that cannot be publicly identified will be confirmed in written correspondence by DDTC.  Eligible US Government end use programs will be explicitly identified as eligible under the Treaty in contracts and solicitations.

Ineligible Defense Articles and Services

The final rule excludes certain defense articles from license-free treatment.  An amended Supplement No. 1 to Part 126 contains a list of defense articles ineligible for export to Australia under the exemption, including, inter alia, items that are:

  • Classified defense articles and services, unless exported pursuant to US Department of Defense request, contract or directive;
  • Listed on the Missile Technology Control Regime Annex;
  • Specific to reduced observables or counter low observables;
  • Specific to sensor fusion except that required for display or identification;
  • Specific to submarine combat control systems; 
  • Specific to gas turbine engine hot section components and digital engine controls; and
  • Various types of software source code.

Generally, any defense article that is excluded from the exemption but embedded in a larger system that is eligible for the exemption continues to require DDTC authorization.

Transfers, Retransfers, and Reexports 

The exemption also authorizes transfers within and between the US and Australian Communities, subject to specified conditions.  Under the new rule, a “transfer” refers to the movement of a previously-exported defense article or service by one Australian Community member to another, or from a member of the US Community to a member of the Australian Community.

Transition to Treatment under the Treaty Exemption 

The new rule allows previously exported defense articles that meet the applicable requirements of § 126.16 to transition to the exemption.  To that effect, the US exporter must submit a written request to DDTC, while the Australian recipient must submit a written request to the Australian government.

Non-Applicability to the Foreign Military Sales Program 

The new rule specifically states that it does not apply to exports made pursuant to the Foreign Military Sales (FMS) program.  Once in the possession of the Australian government, however, FMS defense articles may be treated as if exported under the Treaty, and must be marked and handled in accordance with its terms and that of its Implementing Arrangement, as well as the new rule.

Marking and Recordkeeping Requirements

The new rule specifies marking and identification requirements for defense articles and services exported pursuant to the exemption.  Exporters must mark and identify the defense articles and services prior to movement.  

As with other ITAR exports, all records relating to exports under the exemption must be maintained for at least five years.  The rule specifies codes for Electronic Export Information (EEI) filings.