Enabling Seamless Acquisition of
SSNs under AUKUS through
Alignment of US and Australian export controls

INTRODUCTION

Australia’s acquisition of conventionally armed, nuclear-powered submarines (‘SSNs’) from the US and the UK has both promulgated and revolutionised the Australia-UK-US trilateral security partnership, ‘AUKUS’. Despite the focus of AUKUS within the media centred on Pillar I (the acquisition and sustainment of SSNs), Pillar II activities (collaborative efforts in the development of advanced capabilities) have also propelled the alliance into new ventures never before undertaken or explored. As a result, it is not only the creation of collaborative programs which has occurred under the auspices of the AUKUS alliance, but also revolutionary, once-in-a-generation regulatory reforms which have sought to enable these advanced collaborative and information sharing endeavours.

Despite this, there remains extensive and complex regulatory barriers to the effective collaboration between AUKUS nations, particularly in regards to projects between US and Australian industry. This is due to multi-layered US defence export controls which overlay the vast majority of goods, technology and services provided as part of AUKUS Pillar I and II activities. It is evident through an analysis of the current export controls framework of both the US and Australia, that further reform and compliance regimes can be employed to mitigate the remaining regulatory barriers – enabling collaboration and information sharing under AUKUS to its fullest extent. A focus of this paper is on Australia-US collaborative efforts, the effectiveness of the management of export controls between the two nations, in addition to proposing recommendations to help further streamline the management of export control requirements as the inevitable acquisition of SSNs nears.

BACKGROUND

Australia’s export controls legislative framework

Australia regulates the export, supply, publication and brokering of controlled military and dual-use goods, software and technologies, and the provision of services, through four key pieces of legislation. Goods and technologies to which Australian export controls apply are listed in the Defence and Strategic Goods List 2024 (‘DSGL’). The key pieces of legislation include the:

• Defence Trade Controls Act 2012 (‘DTC Act’) and Defence Trade Controls Regulation 2013: Regulates the supply of controlled DSGL goods, software, technology and provision of services. Both legislative instruments provide for numerous exemptions and exceptions, including the most recent reforms which introduced the AUKUS licence-free environment (‘LFE’) (discussed further below) as well as the legislative criteria in determining whether or not the potential supply would prejudice Australia’s security, defence or international relations (i.e. whether or not a permit should be issued).

• Customs Act 1901 (‘Customs Act’) and Customs (Prohibited Exports) Regulations 1958 (‘Customs PE Regs’): Regulates the physical export of controlled DSGL goods, software and technology in addition to providing the Minister of Defence with the discretionary power to prohibit uncontrolled items which may be for a military end-use which would prejudice Australia’s security, defence or international relations.

• Weapons of Mass Destructions (Prevention of Proliferation) Act 1995: Provides the Minister of Defence with the power to prohibit the export of uncontrolled goods to a particular place, or the supply of (both controlled and uncontrolled) goods to a particular person, where the Minister has reason to believe or suspect that they would or might be used in a weapons of mass destruction (‘WMD’) program.

  
  

Defence Export Controls within Australia’s Department of Defence is Australia’s regulator of defence exports and administer the above legislative instruments, which contribute to Australia’s export controls legislative framework. They play a key role in regulating the export and supply of AUKUS related activities, particularly as it relates to the acquisition of SSNs.

US export controls legislative framework:

For the purposes of this paper, the relevant US export controls regulatory frameworks, which apply to the acquisition of SSNs, are the:

• International Traffic in Arms Regulations (‘ITAR’): Regulates the export of defense articles and services and is administered by the US Department of State.

• Export Administration Regulations (‘EAR’): Regulates the export and re-export of mainly dual-use commodities, software and technology which have both commercial and military applications and is administered through the US Department of Commerce’s Bureau of Industry and Security (‘BIS’).

LIMITATIONS

AUKUS reforms

The key to AUKUS’ success is the seamless transfer of information and technology between Australia and the US. In order to achieve success under AUKUS, legislative amendments were introduced at the domestic level by all three AUKUS nations in order to streamline collaborative efforts under their respective export controls laws.

Throughout 2024, the US and Australia (as well as the UK) passed legislative amendments to their domestic export controls frameworks in order to streamline exports, supplies and transfers of military and dual-use goods, software, technology and services. Without these reforms, there was the potential for collaborative efforts and programs under AUKUS to be delayed due to the bureaucratic processes involved in the domestic export controls systems of each nation. As such, these were described as “generational export reforms” designed to “boost AUKUS trade and collaboration” through the creation of a “licence-free environment” (‘LFE’). The LFE enables free and open permit-free trade for certain controlled military and dual-use items between and amongst AUKUS nations – removing the need to obtain a permit for each and every export, supply or transfer so long as certain requirements have been met. This has essentially cut the need for approximately 900 export permits, which would otherwise have been required for exports from Australia to the US and UK, increasing trade, whilst decreasing delays in collaboration. Despite this, there remains some key limitations, including:

• Excluded Technologies List: Numerous controls remain in place for the very sensitive military and dual-use goods, technologies and services relevant to AUKUS Pillar I (i.e. acquisition of SSNs by Australia). Given that many of the materials and services required to be transferred under AUKUS Pillar I activities are listed on respective countries excluded technologies lists, many transfers under Pillar I (in addition to Pillar II) are not eligible for the LFE. It therefore begs the question whether streamlining Australia’s export controls legislative framework with the US and UK actually achieved the desired outcome, to enable more seamless exports and supplies between and among the three nations in support of AUKUS, or had the opposite effect in introducing further regulation which did not already exist?

  Practically, many Pillar I goods, technology and services provided are listed on the ETL given the sensitive nature of such items and are therefore not eligible for permit free export or supply under the LFE. Another practical implication of this is that certain Australian entities face barriers when bidding on tenders to work in the US on naval infrastructure projects, due to the extended delays in still having to apply for and obtain permits to export or supply the controlled goods, software, technology or services. This can also occur vice versa, for US entities under ITAR or the EAR.

  Given these AUKUS reforms were introduced to alleviate the regulatory burden and enhance collaboration, there appears to be room for further reform to fully realise the collaborative nature under AUKUS and the necessary areas of improvement.

• Pre-notification requirements: The introduction of the LFE does not come without its qualifiers, particularly in the form of ‘pre-notification’ requirements. From the Australian-side, for exports or supplies under the LFE, Authorised Users must pre-notify prior to each export or supply. For instance, if an Australian exporter and Authorised User wanted to export an eligible item under the LFE, they would need to submit a pre-notification in the ‘My Australian Defence Exports’ portal prior to each shipment. This has the potential to be even more burdensome than obtaining a permit in some instances whereby an Australian exporter has thousands of shipments over several years. If they are opting to utilise the LFE (i.e. not obtain a permit) they would need to submit thousands of pre-notifications, whereas if they were to apply for and obtain only one multi-year permit for the shipment of the quantified goods, they wouldn’t have the administrative burden of having to pre-notify for each and every export. This is a particular sticking point for large, multi-year projects such as Pillar I activities whereby the administrative burden of using the LFE, which was designed to streamline AUKUS collaboration, may force exporters and suppliers to revert to the tried and tested method of braving the wait times of obtaining a Defence export controls permit.

Procurement dependant access requirements

The method of procurement of US defense articles and services determines the export control requirements, particularly in relation to restrictions on third party and dual-national access. The three types of procurement methods and their requirements include:

• Direct Commercial Sales (‘DCS’): For US defense articles and services procured under a DCS arrangement, the general provisions of the ITAR and EAR will apply. Of particular relevance to the acquisition of SSNs is the restrictions of dual-nationals and associated exemptions. Dual national employees (APS/ADF or ‘regular contract employees’) – including dual national employees of a proscribed country - will be able to access classified ITAR technologies provided they meet the specific requirements under the ITAR § 126.18.

• Foreign Military Sales (‘FMS’): For FMS cases, the Letter of Offer and Assistance (‘LOA’) sets out the terms of sale and use.

• Government-to-Government (‘G2G’): For cooperative programs, the overarching G2G instrument (e.g. MOU) provides rules about the management of US articles, technology and services provided under the program. Generally, there is a requirement to flow down the relevant obligations and commitments the foreign country has provided under the international arrangement, particularly in relation to the sharing of information with contractors, sub-contractors etc.

In light of the above, the types and extent of export controls for a US defense article or services will ultimately depend on the procurement method. The effect this has on Australia’s management of ITAR restrictions is that it increases the complexity of navigating and managing compliance with the varying US defense articles received, particularly on larger collaborative projects such as the acquisition of SSNs under AUKUS.

Recently however, changes to certain US ITAR provisions has meant that the Australian Department of Defence is no longer required to seek specific approval from the US for dual nationals to access certain ITAR controlled goods/tech (depending on the procurement method). Despite this, the majority of US defense articles and services received under AUKUS Pillar I are acquired under FMS or G2G, which brings with it various limitations. This is particularly the case for the sharing information and allowing third party and dual-nationals access whereby you need permission from the US each time or alternatively flow down the G2G requirements in order to bind contractors and third parties. This creates immense regulatory and compliance burdens for projects and is an area that would benefit from reform.

ITAR-taint

US export controls (i.e. ITAR and EAR provisions) also regulate foreign items containing US controlled-ITAR items based on the extent to which US defense or dual-use articles or technology are incorporated into a foreign good. This is commonly known as the ‘see-through rule’. There are strict requirements and thresholds which apply when incorporating US defense goods and technology into foreign articles, and the thresholds will depend on whether the goods or technology are controlled under ITAR or the EAR (e.g. de minimus rule). It is s a very real and practical limitation, which the relevant government agencies and defence industry will have to grapple with when undertaking many collaborative projects in relation to the acquisition of SSNs from the US. In addition, tainting Australia’s sovereign defence items with US controls, can lead to costly and time consuming compliance activities down the track.

United States Persons Abroad

The ITAR also imposes restrictions on United States Persons Abroad (‘USPAB’) providing defense services to their foreign employer outside of the US. In order to provide these services, a USPAB is required to obtain an authorisation. In the Australian defence context, this requirement applies to APS and embedded contract employees of the Australian Department of Defence subject to meeting the relevant legislative thresholds (i.e. ‘US person’ and ‘defense service’), noting that ADF members are exempt.

The relevant defense services authorised by a USPAB approval are defined in the ITAR and are assessed based on the nature of the role/work performed by the relevant US persons. The origin of the defense articles subject of the relevant services, including any technical data informing the services, does not affect the requirement to seek approval where the ITAR thresholds have been met. The requirement to obtain USPAB authorisation therefore creates an increasing strain on the already cumbersome export controls requirements, particularly under multi-national projects such as AUKUS Pillar I SSN work.

RECOMMENDATIONS

Legislative amendments

In order to overcome and ease some of the current export controls limitations described above, both the US and Australia could explore various legislative amendments to benefit AUKUS Pillar I activities. The areas for legislative reform may include:

• AUKUS reforms: From an Australian perspective, one recommendation may involve reviewing the gaps and effectiveness of the AUKUS reforms, particularly for the acquisition and activities required in relation to nuclear material and technology (i.e. those items on the ETL and AMSP lists). Despite this recommendation, the Government would need to undergo extensive policy consideration of its international legal obligations in relation to risk assessments for transfers, as well as fulfilment of regular reporting obligations (such as goods subject to the Arms Trade Treaty, Nuclear Non-Proliferation Treaty and Comprehensive Safeguards Agreement) and further considering the administrative process being proposed to allow persons to export or supply these highly sensitive items.

• USPAB Authorisations: The imposition of needing to obtain USPAB authorisations prior to allowing US persons to perform work for foreign employers, could be addressed through US legislative amendments. The US Department of State has previously considered exempting US persons employed by Australian entities to provide US defense services from the authorisation requirements (and therefore indirectly waive USPAB approvals). Despite this proposal not progressing, it may be useful to reconsider given the other significant reciprocal AUKUS exemptions provided under domestic legislation within the last two years.

Broad-based permit

In line with recommendation 8 of the 2023 Independent Review of the DTC Act 2012 (‘2023 Review’), it would suggest that there is room for Australia’s regulator of defence exports to review and broaden the contents of its permits.

By way of background, the 2023 Review identified several areas for reform to strengthen Australia’s national security framework while enabling innovation and collaboration. Recommendation 8 specifically calls for simplification of the permit process to reduce the administrative burden and improve compliance. By contrast, the US export controls framework consists of existing broad-based style licenses, including under Technical Assistant Agreements (‘TAAs’), Manufacturing Licensing Agreements and Warehouse Distribution Agreements, which are agreements supporting commercial activities/DCS and sometimes a commercial export license. As an example, TAAs are government issued export authorisations under the US ITAR and whilst foreign governments may be listed as parties or sublicensees to a TAA, they are initiated by a US non-governmental entity who are the holders of that license. This is a model by which Australia may wish to replicate for establishing a similar broad-based style permit system which enables the export or supply of controlled DSGL goods, technology and services between and among persons listed on a permit.

The key purpose and intent which should underscore the development of a broad-based permit system within Australia, would be to enable the more efficient export and supply of controlled goods and technology, as well as the provision of controlled services. This is particularly the case for large ongoing projects – such as the acquisition of SSNs. Introducing broad-based permits would reduce the number of permits required, the time taken to apply for and obtain permits for each export or supply and enable a more seamless and effective compliance framework across AUKUS Pillar I activities.

Standardised compliance framework

Being strategic about the engagement of US persons/services, in addition to the procurement methods of US goods/technology, would assist in minimising administrative burden and compliance obligations across the Defence enterprise and industry. Having an agreed upon compliance framework for how Australia will manage the sharing of information under AUKUS, particularly with Pillar I and the acquisition of SSNs, is essential in being able to manage the risk of non-compliance with US export controls. This standardised compliance framework may seek to address:

• The preferred procurement methods: This would inform the applicable US export controls the goods, technology, information or services would attract (e.g. see above regarding DCS, FMS and G2G arrangements).

• Sharing arrangements: Consider what compliance documents (e.g. Confidentiality Deed Polls; contracts; sub-contracts) are required to enable the seamless sharing of information and how the procurement method may help streamline this (as discussed under ‘limitations’ above).

• Avoidance of ITAR taint: Consider what physical safeguards are in place to avoid inadvertently tainting Australian-made or sovereign goods and technologies, and additionally the regulatory imposition of US persons working for a foreign employer imposes USPAB authorisation requirements (see above discussion on USPABs for context).

• Dual-nationality considerations: Rather than identifying on a case-by-case/project-specific basis, collating and maintaining a register or standardised employment questionnaire for dual-nationality (and previous citizenships) in order to prevent the current issues around persons being prevented from working on ITAR controlled goods/tech for long periods of time, whilst waiting for US approvals and licenses.

CONCLUSION

This discussion has highlighted some key areas for reform and alignment that remain in order to fully enable collaborative projects under AUKUS Pillar I. SSNs, due to the inherent nuclear sensitivities, pose further regulatory burdens for Australia’s participation in AUKUS. From certain nuclear goods and technologies being excluded from the AUKUS LFE exemption to navigating multilayered compliance frameworks under ITAR and USPAB frameworks, the complex web of regulatory requirements is proving to be a mission unto itself in addition to the political and foreign policy considerations under AUKUS more generally. In light of this, there are some practical recommendations that Australia and the US could benefit from and improve collaboration between these two nations, including legislative amendments, introducing a broad-based permit system and further standardising the complex compliance obligations under the current regulatory framework. These suggested actions are likely to alleviate the regulatory pressure on both country’s systems in relation to AUKUS Pillar I activities, however they do require extensive policy analysis and formation to implement the potential benefits effectively. Moving forward, Australia and the US need to consider the existing regulatory implications of how the two country’s legislative frameworks work together to not impose extensive barriers and burdens whilst looking to enhance collective security and deterrence capabilities.