US Department of State issues Final Rule implementing AUKUS exemptions under the ITAR

The Final Rule updates the August 2024 Interim Final Rule (“IFR”), which codified the exemption for defense trade and cooperation among the physical territories of Australia, the UK, and the United States ( the “AUKUS Physical Territory exemption”). This exemption authorizes the export, reexport, retransfer, or temporary import of defense articles, the furnishing of defense services, and brokering activities within the physical territories of the AUKUS countries among US persons registered with the Department’s Directorate of Defense Trade Controls (“DDTC”), US government departments, and “Authorized Users” identified by a list maintained by DDTC.

In addition to implementing updates to the AUKUS Physical Territory exemption, including through clarifications in response to public comments to the IFR, the Final Rule also adds a new and separate exemption for reexports, retransfers, or temporary imports of defense articles to support the armed forces of Australia, the UK, or the United States (the “AUKUS Armed Forces exemption”).

1. The AUKUS Physical Territory exemption (22 C.F.R. §§ 126.7(a)-(b))

Pursuant to the AUKUS Physical Territory exemption, no license is required for the export, reexport, retransfer, or temporary import of defense articles, furnishing of defense services, or engaging in brokering activities to or within the physical territory of Australia, the UK, or US, provided that the transferor, recipient, and/or broker are:

• US persons registered with DDTC pursuant to parts 122 or 129 of the ITAR and eligible under § 120.16 (i.e., have not been convicted of violating certain US criminal statutes or subject to a policy of denial, suspension, or revocation by the US Department of State);
• US government departments or agencies, UK national-level government departments or agencies, or Australian federal government departments or agencies; or
• Authorized Users identified through DDTC’s website (and if the Authorized User engages in brokering activities, registered as a broker with DDTC). The Authorized User List, accessible via DDTC’s Defense Export Control and Compliance System, currently includes over 700 entities from Australia and the UK.¹

In addition, the other conditions required for use of the AUKUS Physical Territory exemption are:

• the defense article or defense service are not identified on the Excluded Technology List (“ETL”) at Supplement No. 2 to Part 126,
• the value of the transfer cannot exceed the amounts subject to Congressional certification requirements in § 123.15;
• the transfer cannot involve the manufacturing abroad of significant military equipment as described in § 124.11; and
• the transferor must comply with the requirements in § 123.9(b) (e.g., the transferor must inform the end-user and all consignees that the defense articles are subject to US export laws and regulations).

The AUKUS exemptions do not remove any other US statutory and regulatory requirements, such as requirements under 32 Part 117, National Industry Security Program Operating Manual (NISPOM) related to transfers of classified defense articles and defense services. In addition, UK or Australian Authorized Users must meet the applicable requirements under those countries’ laws and regulations, such as the UK Government Functional Standards GovS 007: Security and the Australian Protective Security Policy Framework.

In response to public comments on eligibility, the Department stated that it will publish a Frequently Asked Question (“FAQ”) response on DDTC’s website to clarify that US subsidiaries and affiliates of US person DDTC registrants listed in Block 8 of the US person’s registration statement (DS-2032) are (a) eligible to self-certify to use the AUKUS exemptions and (b) meet the registration requirement of a “US person registered with DDTC.”

The inclusion of UK national-level government department or agency or Australian federal government department or agency as eligible transferors, recipients, or brokers of defense articles or defense services subject to the AUKUS physical territory exemption is also a response to comments received on the IFR. Several comments sought clarity on the eligibility of UK and Australian government departments for the AUKUS exemptions. In response, the final rule adds text at 22 C.F.R. § 126.7(b)(2)(ii) confirming that a “United Kingdom national-level government department or agency, or Australian federal government department or agency” are eligible as AUKUS exemption transferors, recipients, or brokers and do not have to be separately approved by their respective governments and listed by DDTC as Authorized Users.

2. The AUKUS Armed Forces exemption (22 C.F.R. §§ 126.7(c)-(d))

The newly added AUKUS Armed Forces exemption authorizes reexports, retransfers, or temporary imports into the United States in support of the armed forces of Australia, the UK, or the United States among parties eligible for the AUKUS Physical Territory exemption, including:

• US persons registered with DDTC,
• US, UK national-level, and Australian federal government departments or agencies, or
• “Authorized Users” identified on the DDTC website.

The following additional requirements and limitations must also be satisfied to qualify for the AUKUS Armed Forces exemption:

• the defense article must be originally exported pursuant to a license or other approval;
• to the extent that any US person registered with DDTC, or a DDTC-listed Authorized User is a Party to the reexport, retransfer, or temporary import, such party must be under contract with the US, UK, or Australian armed forces and either directly embedded or operating alongside such armed forces;
• the purpose of the reexport retransfer or temporary import is for

1. the provision of on-site support to Australia, UK, or US armed forces, or
2. the return to Australia, the UK or US of defense articles used in such on-site support;

• The defense article or defense service are not identified on the ETL;
• the value of the transfer cannot exceed the amounts subject to Congressional certification requirements in § 123.15;
• the transfer cannot involve the manufacturing abroad of significant military equipment as described in § 124.11; and
• the transferor must comply with the requirements in § 123.9(b) (e.g., the transferor must inform the end-user and all consignees that the defense articles are subject to US export laws and regulations).

3. Exemptions regarding intracompany, intra-organization, and intragovernmental transfers to employees who are dual nationals or third-country nationals (22 C.F.R. § 126.18)

The August 2024 IFR codified the exemption at § 126.18(e) authorizing the retransfer or reexport of classified defense articles to UK or Australian citizens who:

• are dual nationals of another country;
• are authorized users or regular employees of an authorized user of the exemption in § 126.7;
• hold a security clearance approved by Australia, the UK, or the United States that is equivalent to the classification level of SECRET or above in the United States; and
• are either:
  • within the physical territory of Australia, the UK, or the United States; or
  • a member of the armed forces of Australia, the UK, or the United States acting in their official capacity.

4. Additional clarifications and revisions in response to public comments

The Final Rule also makes several additional clarifications and revisions in response to public comments on the IFR.

• Expedited license application processing: The Department confirmed that the expedited procedures added by the IFR at 22 C.F.R. § 126.15 apply to all UK and Australia parties, and not just to Authorized Users. For exports to Australia, the UK, or Canada of commercial advanced-technology defense articles and defense services not covered by an ITAR exemption, expedited license application decision-making was set forth under § 1344 of FY 2024 NDAA. Eligibility is limited to applications for exports (i.e., not reexports or retransfers) that are wholly within or between the physical territory of Australia, Canada, or the UK and the United States and with governments or corporate entities from such countries based on this statutory authority.

  The process, which is available for classified and unclassified items, directs processing within 30 days of submission for exports related to a government to government agreement, and 45 calendar days from the date of the application for all others, “to the extent practicable.”

• Excluded Technology List: The Final Rule does not expand or limit the defense articles and services listed on the ETL, but clarified that the Department will review the ETL annually for the first five years and periodically thereafter.
• Canada: Comments included requests to include Canada in the AUKUS exemptions, to incorporate the provisions found in the Canadian ITAR exemption at § 126.5 into the AUKUS exemptions, and to revise § 126.5 to mirror the AUKUS exemptions. The Department declined to implement these requests, noting the different statutory bases for the exemptions.
• Technologies Safeguard Agreements (“TSAs”) and AUKUS Exemptions: The Final Rule responds to a comment that the AUKUS exemptions will facilitate US and Australian collaboration on space activities but that there may be industry confusion between the AUKUS exemptions and the TSAs, which are bilateral government-to-government agreements designed to support compliance with nonproliferation commitments under the multilateral Missile Technology Control Regime. The Final Rule states that the TSAs are important pre-conditions to protect transfers of certain space launch vehicle assistance and technologies, but such transfers still must be authorized under the ITAR through individual authorizations or exemptions. The obligations and requirements in the TSAs stem from and complement ITAR requirements.
  • The TSA between the United States and the UK was signed on June 16, 2020 and entered into force shortly thereafter.
  • The TSA between the United States and Australia entered into force on July 23, 2024.

Authored by Andrea Fraser-Reid, Ashley Roberts, and Meghan Anand.