On September 29, 2010, some three years after being submitted for approval by the President, the US Senate gave its advice and consent to two major bilateral defense trade cooperation treaties with the United Kingdom and Australia. The treaties, which are similar in most respects, will eliminate certain license requirements under the US International Traffic in Arms Regulations (“ITAR”) for export transactions among members of “Approved Communities” of companies and government agencies in the United States, United Kingdom, and Australia. The treaties also will ease certain existing UK and Australian export licensing requirements for exports of defense articles to the United States. The treaties will apply to selected projects, yet to be identified, in which the US, UK or Australian governments are the end users.
The US-UK and US-Australia treaties will be incorporated into US domestic law pursuant to a new statute, Title I of the Security Cooperation Act of 2010, S. 3847, which passed contemporaneously with the treaties’ approval. The statute makes necessary conforming amendments to the US Arms Export Control Act, which is the primary statute in the United States governing the export of military goods, software, and technology. The President’s ratification of the treaties and signing of the legislation is expected shortly, and will be followed by relevant revisions to the ITAR. Implementing regulatory action is expected soon in the UK and Australia as well.
For eligible participants, defense articles and projects the treaties are expected to substantially simplify defense trade and cooperation while enhancing military interoperability between the US and two of its most important allies. The treaties will apply only to some – and probably a minority – of the overall bilateral military trade between the United States and the UK or Australia, but it nevertheless will represent a significant easing of military export controls. Companies engaged in military trade between the United States and the UK or Australia should evaluate the treaties, and consider whether they would benefit by registering with their relevant government authority for eligibility to export, or to receive exports, under the treaties.
Shortly following the measures in the United States, on October 6 the UK Government issued a new Open General Export License (“OGEL”), providing a broad authorization to UK exporters to export certain military-controlled items to the United States and a variety of other destinations. This license covers most of the military items that would be authorized for license-free bilateral trade under the US-UK treaty, but may be supplemented by further OGELs as the treaty is further implemented.
II. Principal Features of the UK and Australia Treaties
The treaties incorporate by reference sets of implementing arrangements executed by the United States and the UK / Australia. The treaties and these accompanying agreements further define the scope of projects, the types of eligible defense articles and the parties qualified to benefit from related license-free trade.
A. Projects Eligible for License-Free Treatment
The treaties establish four general categories of projects that will no longer require case-by-case licensing. Specific projects under these categories remain to be identified in listings to be developed and published by the US Department of Defense (“US DoD”), the UK Ministry of Defence (“UK MoD”), and the Australian Department of Defence (“ADoD”).
- Agreed Australian or UK Government end user projects.
Notably, not every project in which the UK or Australian governments are end users will be eligible for license-free trade under the treaties -- details concerning individual eligible projects will be published following further government consultations.
- US Government projects.
Both treaties allow certain license-free trade if the US Government is the end user. To qualify for license-free treatment, the US Government must issue a solicitation or contract; the solicitation or contract must be available to entities within the UK or Australia and must specifically state that parties specifically authorized by the governments for eligibility under the treaties may participate; and the solicitations/contracts must provide that only eligible defense articles may be exported under the contract (subject to certain exceptions).
- Specified combined military and counterterrorism operations and specified cooperative security and defense programs. Again, details concerning specific eligible projects in these categories remain to be published.
B. “Approved Communities” of Exporters and Recipients
The treaties and their implementing arrangements provide for the establishment of “Approved Communities” of government and private companies who can receive or export defense articles under the eligible projects noted above. In the United States the Approved Community will consist of US Government departments and agencies, along with eligible personnel (see Personnel Access below). It also includes nongovernmental entities that are registered under the ITAR and eligible to export defense articles under US law, including eligible employees.
Under the UK treaty implementing arrangements, the UK Approved Community will include agencies of the UK Government to be specified by the UK MoD, as well as private parties who successfully apply to the UK MoD for eligibility to receive or export items covered under the treaty. For private parties, a variety of factors will be relevant in evaluating whether the party can be included in the Approved Community, including: (1) whether the party in question is a “List X” site (List X sites are locations approved by the UK authorities to maintain UK Government protectively marked – i.e. classified – information); (2) whether the party is under foreign ownership, control or influence; (3) whether the party has been convicted or is under indictment for US or UK export controls laws; (4) US export licensing history; and (5) other potential national security risks. Applications for inclusion in the Approved Community will be subject to review and approval both by the UK and US governments.
For Australia, members of the Approved Community likewise consist of certain specified government authorities, and private entities may apply for inclusion. (Requests for inclusion by private entities are subject to similar criteria as in the case of the UK treaty, and are subject to prior US Government approval.)
C. Eligible and Ineligible Defense Articles
Not all US-origin US Military List defense articles are eligible for license free treatment under the treaties. The implementing arrangements to both treaties include a list of defense articles that are excluded from the scope of the treaty, including among other items the following categories of products (and related technical data), some of which are traded extensively between the United States and the UK and Australia:
- classified defense articles (except to the extent authorized by a written US DoD request)
- defense articles not controlled on the UK or Australian munitions lists
- articles listed in the annexes to the Missile Technology Control Regime, including complete rocket or unmanned aerial vehicle systems
- advanced sensor fusion technologies
- nuclear and directed energy weapon technologies
- certain naval systems, including nuclear propulsion, submersibles and torpedoes
- defense articles focused on reduced observable characteristics
- gas turbine hot section components
- military communications security technology
- countermeasures equipment
- radiation-hardened microcircuits
- satellites, payloads, and components thereof, and
- Global Positioning System (GPS) security systems
The above items, along with others on the exemption list, will continue to require export licenses (unless other exemptions may be available) through the same process as currently set forth in the ITAR, the UK Export Control Order 2008, and Australian export control legislation.
It also should be noted that the treaties apply only to military-controlled items. Exports for military end use of products controlled, for example, under the US Export Administration Regulations or the EU Dual Use Regulation (as implemented under the UK Export Control Order), fall outside the scope of the US-UK treaty. Moreover, consistent with existing US export controls law, US-origin defense articles incorporated into another item manufactured in the UK or Australia that will then be exported to a third country will continue to require an individual US export license.
D. Personnel Access
Under the UK implementing arrangements, only members of the UK military and individuals with both a “Security Check” level clearance and a need to know may access exported defense articles.
The Australian treaty and implementing arrangements do not distinguish between members of the Australian military and civilians. All personnel eligible to receive defense articles must maintain at least a “Restricted” level clearance and be located within the Territory of Australia. Individuals must also undergo an additional background check for indications of “significant ties” to third countries. Where concern exists over such ties to countries proscribed under Section 126.1 of the ITAR (which includes China), individuals must undergo additional screening for a “Secret” level security clearance under Australian law.
Notably, dual nationals with Australian citizenship are eligible for inclusion in the Australian Approved Community. Third country foreign nationals may only access defense articles with the prior authorization of the US and Australian governments unless otherwise agreed (e.g. a Canadian employee of an Australian company would be eligible to receive defense articles under the treaty if so authorized and located within Australia).
E. Foreign Military Sales
The treaties do not materially alter the US Foreign Military Sales ("FMS") Program, but may ease retransfers of FMS items within an Approved Community. Defense articles purchased by Australia or the UK through the US FMS and transferred pursuant to Letters of Offer and Acceptance ("LOA") or their equivalents, will be treated as if they were exported pursuant to the treaties following delivery if they fall within their scope. Articles exempt from the treaties’ scope must be separately identified in the relevant LOA or equivalent.
F. Re-Transfers and Re-Exports
The treaties’ implementing arrangements provide a set of requirements and procedures for re-transferring or re-exporting defense articles to third countries or unauthorized end users within the UK or Australia who are outside the relevant Approved Community. The requirements differ slightly between the UK and Australian implementing arrangements, reflecting each country’s domestic laws. In both cases additional approval by both party governments is generally required unless the export is to a third country while directly in support of either party’s military operations, which may include training missions.
G. Australian and UK Exports and Transfers
Both Australia and the UK agree to allow members of their respective Approved Communities to export or transfer eligible defense articles to the United States Approved Community under blanket authorizations. These general licenses remain to be implemented by the UK and Australian export controls authorities. In the UK, the authorization will likely take a form similar to the OGEL system currently administered by the UK Department for Business Innovation & Skills’ Export Control Organisation (see Section III below). The Australia Implementing Arrangements specify additional requirements that Australia agreed to impose on members of its Approved Community, including declaring eligible items with the Customs Service, marking the items appropriately, maintaining records, obtaining confirmation and identifying data from prospective recipients that they are members of the US Approved Community. Australian defense articles must be tracked and controlled when in the United States, even if incorporated into other defense items.
H. Cooperation and Enforcement
The treaties and implementing arrangements also establish certain protocols on cooperation in the enforcement of export control laws. Cooperation measures include (among other features) broad information sharing commitments, end use/user verifications and inspections, and assistance with locating persons and articles. The parties further specify measures to support compliance with the treaty, including outreach to law enforcement and applicants, communication of violations and notification of material changes in UK or Australian Approved Community members. The parties agree also to coordinate and cooperate in their investigations and prosecutions.
Notably, under pre-existing UK export control laws export licensing requirements generally applied only to exports outside of the UK (subject to certain exceptions, including for WMD-related technology) – transfers within the UK were largely unrestricted. Products exported under the US-UK treaty, however, will be restricted for distribution even within the UK, and penalties will be available under UK law for failures to comply.
I. Transition Provisions
US Approved Community members who wish to transition from the requirements of a US Government export license to license-free exporting under the terms of the treaty may do so by notifying the Department of State, Directorate of Defense Trade Controls (“DDTC”), and relinquishing their existing licenses. Members of the UK or Australian Approved Community must obtain authorization from DDTC, either directly or through the original US exporter, under procedures to be established.
J. Miscellaneous Provisions
Finally, among other features, the implementing arrangements lay out elaborate marking and classification requirements for defense articles exported or transferred under the treaties, reflecting relevant national laws and provisions. The implementing arrangements also impose a variety of recordkeeping requirements on members of an Approved Community.
III. New UK Military OGEL
On October 6, the UK ECO issued a broad general license – or “OGEL,” in UK export controls parlance – authorizing the export of a wide range of military products to the United States and seventeen other countries. This new license, called the Open General Export License (Military Goods), will come into effect on October 15. The OGEL requires exporter registration and imposes certain ongoing recordkeeping requirements.
The new OGEL is not focused specifically on the US-UK treaty, but it effectively represents a substantial measure toward implementation of the treaty on the UK side, as the OGEL covers the majority of entries currently controlled under the UK Military List. Additional OGELs, focused more particularly on the US-UK treaty, may be expected from the UK Government in due course to the extent there are any treaty-eligible items that are not covered in existing OGELs.
IV. Concluding Observations
The US-UK and US-Australia treaties do not apply equally to parties in the United States as compared to the UK or Australia. While all US ITAR registrants will be eligible to export defense articles under the provisions of the treaties, only certain UK or Australian entities will be eligible to receive them, through an application process that is likely to be far more stringent than the standard ITAR registration. Moreover, the US effectively can revoke UK or Australian entities’ eligibility at its discretion, though it must follow certain notification provisions. Therefore, it will be important for those in the United States relying on the treaty to maintain up-to-date information on the Approved Community members. It will be equally important for private parties in the UK and Australia who successfully petition for inclusion in their Approved Communities to maintain compliance with the export restrictions, recordkeeping requirements, and other obligations associated with community membership.
The treaties likewise will not result in consistent export licensing burdens between the United States and the UK or Australia. A wider range of defense articles will likely continue to require a license from the United States, as compared to exports or similar products from the UK or Australia. Undoubtedly, ITAR licensing will remain a regular feature of business for many parties in the US, UK and Australia with significant volumes of trade in US-origin defense articles.
Nevertheless, the UK and Australian treaties should provide substantial benefits to organizations that decide to join an Approved Community. Export licensing under the ITAR can be very burdensome – with substantial paperwork requirements, delays, and uncertainties that affect a wide variety of exchanges and can hinder efficient cooperation. Under the treaties, Approved Community members in the UK and Australia may now gain earlier access to US technical data if an export license is not needed, decreasing the lead time necessary to explore business opportunities. By eliminating the need for retransfer authorization within an Approved Community for FMS sales, moreover, opportunities for out-sourcing of FMS equipment support may also improve.
Accordingly, although the treaties will not eliminate the need for all military export licensing between the United States and the UK or Australia, they represent a significant easing of those requirements for parties active in the projects and activities that will fall within the agreements’ scope (which will be further clarified in lists to be published by the US, UK and Australian authorities).
Finally, separate and apart from the treaties, the new UK Military OGEL represents a significant easing of military export controls for the UK. Companies with UK export operations should review the OGEL carefully, and consider how it might affect their current licensing arrangements.