By Bruce Leeds, Senior Counsel, Braumiller Law Group
Canada has long enjoyed International Traffic in Arms Regulations (ITAR) license exemptions and minimal controls for items subject to the Export Administration Regulations (EAR). What about some of our other friends, such as Australia and United Kingdom? There are ITAR license exemptions for these countries in Parts 126.16 and 126.17 of the ITAR; however, these exemptions are only for specific parties and specific projects and most exports do not qualify. Under the EAR, exports to Australia and UK are given favorable treatment but many exports are still subject to a license requirement.
This is about to change! On April 17, 2024, the Bureau of Industry & Security published an Interim Final Rule in the Federal Register greatly relaxing the licensing rules for exports to Australia and UK. The notice solicited comments from the public and the comments are due by June 3. On May 1, 2024, the Directorate of Defense Trade Controls published a Proposed Rule in the Federal Register creating new license exemptions for Australia and UK that would appear in Part 126.7 of the ITAR. The notice also solicited comments from the public which were due on May 31.
Let’s take a look at the BIS Interim Final Rule first. This proposed rule will remove the reasons for control for National Security column 1 (NS1), Regional Stability column 1 (RS1), and Missile Technology column 1 (MT1) for Australia and UK. The NS2 and RS2 requirements for Australia and UK do not currently apply; thus, there will be no National Security or Regional Stability controls for these two countries.
As an example, semiconductor devices classified under ECCN 3A001 are controlled for NS1 and RS1. Going to the current Country Chart in Supplement 1 to Part 738 of the EAR there is currently an X in the NS1 and RS1 columns for Australia and UK. This means a license would currently be required to export the semiconductor devices to Australia and UK. Assuming the proposed change is adopted and there are no other reasons for control that could apply, no license would be required to export the semiconductor devices to Australia or UK.
Also under the proposed rule, “600-series” items would not require a license for export to Australia or UK. For example, unless some other reason for control applied, parts of military aircraft classified under ECCN 9A610 could be exported to Australia or UK without a license.
The proposed rule also makes other changes to controls which may affect exports to Australia or UK. Carefully read the Interim Final Rule for the details.
Any exceptions to the rule? Yes – firearms and related items classified in Category 0 of the Commerce Control List will still require a license for export to Australia and UK. Check the Federal Register Notice for the specific ECCNs.
Next let’s review the proposed changes to the ITAR. According to the Federal Register notice when enacted “no license or other approval is required for the export, reexport, retransfer, or temporary import of defense articles; the performance of defense services; or engagement in brokering activities between or among designated authorized users within Australia, the United Kingdom.” The exemption would appear in Part 126.7 of the ITAR – a part currently noted as “reserved.”
A key term used in describing eligibility for this exemption is “authorized user.” Per the Federal Register notice, “the pool of eligible members, known as authorized users, is created to facilitate secure defense trade and cooperation. Australia and the United Kingdom’s members will undergo an authorized user enrollment process, in coordination with DDTC, and those members will be listed through the DDTC website. Members located in the United States must be registered with DDTC and not debarred under ITAR § 127.7.” Thus, US parties must be registered with DDTC to be authorized users. To become an authorized user in Australia or UK, the party would need to be nominated by the government of that country then be posted on the DDTC website (pmddtc.state.gov).
For example, Acme Aerospace in the US wants to export defense articles to Kangaroo Industries and Koala Aerospace in Australia. Acme is registered with DDTC and has paid its annual fee. Kangaroo Industries was nominated by the Australian government and is listed at the DDTC website. Koala Aerospace is not listed as an authorized user. Acme Aerospace could use the exemption to export to Kangaroo Industries but would need an approved license to export to Koala Aerospace.
Not everything on the US Munitions List will qualify for the exemption. Proposed Supplement 2 to Part 126 of the ITAR will contain a list of defense articles and services not eligible for the exemption. US companies wanting to export these defense articles or services would need to apply for a license. However, the applications would qualify for expedited license approval procedures. The Federal Register Notice notes that if a USML category is listed in Supplement 2 only a portion of the category may be excluded from eligibility – other provisions in the category may still qualify for the exemption.
When these exemptions become effective, they must be declared on the Electronic Export Information (EEI) form in AES at the time of export. Failure to do so could be treated as a violation.
Now – before going out and declaring the 126.7 ITAR exemption or exporting EAR controlled articles without a license be aware that license rules for Australia and UK are proposed at this time. They must go through the comment period and be published as Final Rules before they become effective. When they do become effective, remember that:
- The new regulations will apply to trade between US, Australia, and UK only; if another country is involved the liberalized licensing or exemptions will not apply and licenses may be required.
- Not all exports to Australia and UK will qualify – there are many exceptions. Make sure the export meets all the requirements to use these exemptions.
- Have documented procedures for exports to Australia and UK under the revised regulations so that after you have been promoted to vice-president your successor will know what qualifies.
