Tom Corben
EXECUTIVE SUMMARYAUKUS represents a generational opportunity for Australia, the United Kingdom, and the United States to deepen cooperation on defence industrial integration and technology development. Yet, within the US system, antiquated legal and regulatory settings and a mindset that discounts the value of allied inputs into collective strategies threaten the realisation of the AUKUS agenda to its fullest potential.
Notwithstanding the landmark decision to share nuclear propulsion technology with Australia, there is growing concern among stakeholders in all three AUKUS countries that the indiscriminate and extraterritorial application of US International Trade in Arms Regulations (ITAR) will complicate Australia’s Optimal Submarine Pathway under Pillar I, disincentivise collaboration on the next-generation of advanced military capabilities under Pillar II, and continue to slow-roll cooperation on existing technology transfer and capability-building initiatives (a category which we call Pillar III).
These are not new problems. What is unprecedented are the stakes involved. Policymakers in Canberra and Washington have tried several times before to address barriers to industrial integration and technology sharing, including through the Defense Cooperation Treaty of 2012 and Australia’s addition to the National Technology and Industrial Base in 2017. In that respect, AUKUS represents a third bite at the apple of US export control reform for trusted allies. Another failure to act would carry significant consequences for the three countries’ shared defence technology advantages vis-à-vis China and, therefore, their ability to deter regional conflict in the near-, mid-, and long-term alike.
For AUKUS to fully deliver on its promise, significant reforms to US export controls are required to make these more material in their application, positively discriminatory in favour of AUKUS countries, and more streamlined in their functional processes. Furthermore, reformed regulations will need to be operationalised among the broader trusted defence industrial community that AUKUS is intended to represent. Such efforts will be essential to facilitate cooperation at the speed of strategic relevance.
These reform efforts will require action at both the US executive and congressional levels.
- At the executive level, the White House should issue an executive order to streamline export controls processes and procedures among the AUKUS nations addressing existing specified US technologies, predominately allied-produced technologies, and classes of emerging technology slated for co-development under AUKUS.
- To cement these powers, the US Congress should consider legislation that clarifies executive branch discretion to streamline export controls processes and procedures among the AUKUS nations addressing these same categories, enabling broad-based cooperation and work on new innovative technologies developed jointly, or by, the AUKUS allies.
INTRODUCTION
In September 2021, the leaders of Australia, the United Kingdom, and the United States announced the AUKUS enhanced trilateral security partnership. Building on the three countries’ history of “diplomatic, security, and defense cooperation in the Indo-Pacific region,” this arrangement endeavoured to deliver along two key lines of effort: delivering a conventionally-armed, nuclear-powered submarine capability for the Royal Australian Navy (Pillar I) and developing and fielding “joint advanced military capabilities” in four categories: advanced cyber capabilities, artificial intelligence and autonomy, quantum technologies, and additional undersea capabilities (Pillar II)1 — a list expanded to include hypersonic and counter-hypersonic capabilities, electronic warfare, innovation and information-sharing in April 2022.2 The announcement brought with it the creation of a complex architecture of senior officials groups, two joint steering groups, and 17 working groups to work through the challenges to, and opportunities for, cooperation across Pillars I and II.3 This initial work culminated in the much-anticipated Optimal Submarine Pathway in March 2023, the result of the 18-month trilateral study to outline Australia’s route to its nuclear submarine capability.4
Though commonly misrepresented as a new “alliance,” this trilateral partnership is in fact more narrowly focused on developing and delivering a range of new military capabilities to three trusted partners, with an eye to shoring up a favourable balance of power in the Indo-Pacific and reinforcing or reclaiming shared advantage over the People’s Republic of China in key areas of military technology. To be sure, the foundational logic of AUKUS has rarely been more strategically prescient. The United States no longer has sufficient military and industrial scale, nor the absolute technological dominance, to unilaterally underwrite regional security and stability alone, and will need to augment its capacity by expanding and integrating the capabilities and niche advantages brought to bear by its network of capable allies. This is as true for submarine construction and swelling guided weapons stockpiles as it is for developing the next generation of advanced military capabilities. Indeed, many US allies are now capable of being more than passengers of US technological dominance: they are increasingly important sources of innovation and cutting-edge technology in their own right, making their contributions to collective military-technology initiatives more valuable than ever. In that sense, realising the full potential of AUKUS will not be possible without major changes to the way that the three countries cooperate on defence industrial and technology issues. As the Biden administration’s own 2022 National Defense Strategy makes clear: “Business as usual… is not acceptable.”5
MANY US ALLIES ARE NOW CAPABLE OF BEING MORE THAN PASSENGERS OF US TECHNOLOGICAL DOMINANCE: THEY ARE INCREASINGLY IMPORTANT SOURCES OF INNOVATION AND CUTTING-EDGE TECHNOLOGY IN THEIR OWN RIGHT.
The obstacles to making good on these pronouncements are significant. Foremost among them, however, are US defence export control regimes, particularly the International Traffic in Arms Regulations (ITAR). Designed in and for an era of US technology and strategic dominance, these regulations have increasingly figured as roadblocks to defence industrial and technology integration programs with the United States’ closest allies, including Australia and the United Kingdom. In fact, AUKUS represents at least the third bite at the export control reform apple, after the 2009 US-Australia and US-UK Defence Trade Cooperation Treaties (DTCT) and the addition of both countries to the US National Technology and Industrial Base (NTIB) in 2015 each failed to drive home these objectives.6 More recent internal efforts within the US system, including the Export Control Reform Act of 2018 and the 2022 Open General License (OGL) pilot program, have similarly failed to advance this agenda.7
Nothing in this report is intended to suggest that export controls are not important or no longer required, nor that they did not have historical merit at the time of their making. Yet, it is clear that they are no longer fit to meet the strategic imperatives of the 21st century. Former US ambassadors to Australia have called the ITAR “the most significant obstacle” to modernising the alliance for the strategic challenges posed by China.8 Yet even with these and other expressions of high-level US support, as well as persistent engagement by successive Australian governments,9 there remain significant risks that the political impetus marshalled behind the AUKUS partnership will fail to advance lasting export control reform for trusted US allies and, therefore, will fail to live up to its full potential.
Based on this history, and our extensive interviews with subject matter experts, industry figures, and government officials from across the AUKUS countries, it is clear that US export control regimes must be refashioned if AUKUS is to be realised to its full potential.10 Driving swift and decisive reform efforts to facilitate more seamless industrial integration and technology collaboration is especially important while AUKUS remains in its infancy. As quiet work begins on Pillar I, and as traditional sources of resistance return to the driver’s seat of alliance defence industrial and technology cooperation, there is a distinct risk that any progress towards setting the optimal legal and regulatory conditions for AUKUS, particularly Pillar II, to function as intended will falter. Indeed, Australian and British stakeholders are increasingly concerned that, without significant changes to the ITAR, the timely delivery of the Optimal Submarine Pathway under Pillar I and fostering of genuinely trilateral collaboration on advanced capabilities under Pillar II will be unattainable objectives.11 This is to say nothing of the enduring challenges posed to existing technology transfer and capability-building initiatives that complicate even the most basic of maintenance and sustainment requirements (something to which we refer in this report as Pillar III). A failure to meaningfully and urgently address all of these issues will heighten the risk that AUKUS will meet the same disappointing fate as historical efforts to drive this agenda.
IT IS CLEAR THAT US EXPORT CONTROL REGIMES MUST BE REFASHIONED IF AUKUS IS TO BE REALISED TO ITS FULL POTENTIAL.
The extent to which these systems can be remade will determine whether the United States and its closest allies can meet urgent and longer-term strategic and military-technological imperatives. However, notwithstanding agreement about the need for reform broadly defined at the political and public diplomacy level, much of the decision-making and implementation responsibility has been delegated to the US State Department’s Directorate of Defense Trade Controls, the Pentagon’s Defense Technology and Security Administration and to staff members on the Senate Foreign Relations Committee and House Foreign Affairs Committee. These constituents all have their own equities, objectives, and interpretations of what AUKUS is designed to achieve and, by extension, the scope and nature of reform requirements. In that context, Cabinet-level-and-above focus within the US administration and at the senior member level in the US Congress will be required to cut through the Gordian knot of bureaucratic and legal inertia related to US export controls. Such action will need to be delivered through both an executive order and congressional action to provide mutually reinforcing authorities and top-level cover for practitioners of US export controls to work at the speed and scope of relevance for the success of AUKUS. These actions are essential to achieving the nature and scale of US export control reforms required to make AUKUS a reality. Without them, the chances of failure are uncomfortably high.
THE COMPELLING CASE FOR AUKUS
What was almost radical to say as recent as five years ago is now almost a cliché: that the compelling case for greater cooperation within and between the AUKUS nations is driven by the rising military-technological sophistication of China and other revisionist authoritarian regimes. Others before us have put forward a compelling geopolitical and strategic case regarding the requirements for the United States and its capable allies in the Indo-Pacific to pursue collective approaches to regional strategic challenges, including the development of new military technologies.12 It is unnecessary here to repeat those arguments, but for the purposes of this report, the primary underlying issue is the collective shortfall between the United States and its capable Indo-Pacific allies in the military capabilities required to deter Chinese adventurism and potential military action in the near- to medium-term future. In short, rapid advances in the quantity and quality of China’s anti-access, area-denial and, increasingly, power projection capabilities necessitate the development of new asymmetric, disruptive defence capabilities by the countries pursuing this collective strategy of deterrence. These are central to the Biden administration’s vision for modernising its key Indo-Pacific alliances. The 2022 National Defense Strategy, for example, states that the United States will “foster advantage through advanced technology cooperation” with regional allies in the Indo-Pacific, while the 2022 National Security Strategy pledges to “remove barriers to deeper collaboration” with these same countries on “joint capability development and production to safeguard our shared military-technological edge.”13 Similar commitments can be found in recent Australian and British strategic documents.14
A surrogate Large Displacement Unmanned Undersea Vehicle (LDUUV), a precursor to the US Navy’s Snakehead UUV program, is tested at the Naval Undersea Warfare Center Keyport in December 2015. The Program was effectively cancelled in 2023.
US Navy
Driving such a collective approach to solving defence innovation challenges should be the primary focus of AUKUS. This need exists because the defence capabilities and the industrial bases of the United States and its allies have been allowed to deteriorate since the end of the Cold War. Across the three AUKUS countries, defence innovation has stagnated while technological progress is now driven across a globalised commercial industrial base. While US policy settings disincentivised and slowed advances in defence innovation over the last three decades as procurement and innovation lagged behind other countries, a global proliferation of legacy defence technologies married with advances in commercial technology allowed China and others to steal a march on the United States’ historical military-technology advantages. Indeed, it is not only Beijing that has caught up: US allies, once largely recipients of US military technologies, are increasingly capable of developing these sorts of capabilities on their own. In other words, these countries and their innovative companies are becoming more than just passengers of US military-technological dominance. AUKUS is the latest model intended to give expression to that reality.15
The US approach to defence innovation
Ultimately, the United States faces a dual innovation problem. If it is unable to reform both its internal management practices and its externally-facing technology-sharing and cooperation models, it will continue to limit the possibilities for cooperation with the commercial industrial base and with allies alike.
In that respect, it is vitally important to briefly reflect on the history of US defence innovation.16 Many of the systems that still serve as the basis for US military deterrence and superiority were initially developed with an innovation model and set of management practices that emphasised time to operational capability. Established at the height of the Second World War and carried through to the early phases of the Cold War, this early model was centred on the concepts of user experimentation, rapid operational prototyping, and investment in competing technological bets, all structured to deliver new capability in the hands of the warfighter in less than five years.17 Beginning in the 1960s, however, this model began to shift towards a linear, predictive, compliance-based budgeting and acquisition system designed to manage disruptive innovation in conformance with arms control prerogatives of the late Cold War. The complementary US technology transfer process was established under the Arms Export Control Act of 1975 (AECA), both to protect US technological systems created under these linear, predictive, command and control processes, and to serve as a tool to manage arms race dynamics between US adversaries and allies alike in Asia and Europe.18
The resultant overarching management system of budget, acquisition, and technology control, in which process and compliance are the most valued objectives, is a model on which the US bureaucracy subsequently doubled down. Today, budget inflexibility and long lead times to allocate resources, predictive and lumbering requirements processes, and defence contracting procedures that enforce compliance with bureaucratic rules are at the root cause of the Pentagon’s declining competitiveness and innovation failures. Worse, they disincentivise participation by non-traditional industry players that are at the cutting edge of innovation: not only do unique non-market rules add to complexity and time, but they also drive up costs.19 Combined with the unique security requirements of ITAR and classification regimes, the United States inadvertently constructed a proverbial “Great Wall” to its own version of civil-military integration across the US industrial base as well as deeper defence cooperation with industrially and technologically capable allies.
Chairman of the Joint Chiefs of Staff General Mark Milley and Secretary of Defense Lloyd Austin testify before the House Armed Services Committee on Capitol Hill in Washington, DC, April 2023
Department of Defense
Three sources of competition: China, commerce and comrades
Externally, the erosion of the United States’ military technological advantage emanates from three key sources of innovation: rising adversaries, the commercial market, and US allies. First, China has been able, over time, to replicate many of the defence-unique aspects of US military power, through either dedicated national research programs or through stealing, replicating or reverse-engineering US technology. As a result, though the United States maintains leads in some vital technology sectors such as microchips, China has or is close to achieving technological parity in other key areas. In fact, the United States is already at significant risk of falling behind in emerging technology areas. For example, reports in October 2022 revealed that a wide range of Chinese People’s Liberation Army (PLA) military research organisations had, through various means, acquired troves of US software products with dual-use applications to fill critical gaps in the PLA’s own weapons programs, many produced by companies whose research had been funded by millions of Pentagon dollars.20 Contract solicitation and award documents showed that these technologies made their way into the hands of the Chinese Academy of Aerospace Aerodynamics (CAAA) through resales and front company activity. CAAA was instrumental in the design of China’s 2021 hypersonic missile test, the one framed by the Chairman of the United States Joint Chiefs of Staff, General Mark Milley, as a “Sputnik moment.”21 Coupled with these emerging technological advantages, China’s industrial production superiority is now leading to a quantity overmatch in the deployment of advanced missiles, surface ships, and submarines,22 posing distinct threats to US military resilience across the Indo-Pacific.23
COUPLED WITH THESE EMERGING TECHNOLOGICAL ADVANTAGES, CHINA’S INDUSTRIAL PRODUCTION SUPERIORITY IS NOW LEADING TO A QUANTITY OVERMATCH IN THE DEPLOYMENT OF ADVANCED MISSILES, SURFACE SHIPS, AND SUBMARINES, POSING DISTINCT THREATS TO US MILITARY RESILIENCE ACROSS THE INDO-PACIFIC.
Secondly, technological advances in the commercial market have outstripped the pace of innovation within the US military for decades. Few examples better illustrate the US military’s loss of technological dominance than its relationship with Silicon Valley and non-traditional sources of innovation. The SpaceX Falcon 9 Project and, more recently, the application of StarLink in the battlespace in Ukraine — notwithstanding recent controversies — are the most compelling examples of what the commercial market can do at a fraction of the cost of the legacy defence innovation system.24 It is also no coincidence that, with the effective cancellation of the Pentagon’s ‘Snakehead’ submarine-launched large displacement unmanned underwater vehicle (UUV) in April 2023 after 14 years and US$200 million in development, the US Congress has directed the Department of Defense to instead consider purchasing commercially-developed unmanned underwater systems for rapid deployment “as early as fiscal year 2024” to plug glaring capability gaps.25
The Pentagon has for some time recognised that it trails the commercial market in several of the technologies first identified in the 2018 National Defense Strategy (NDS) as key to the future of defence capability development and US national security. Indeed, noting fields like hypersonics and artificial intelligence, the 2018 NDS stated that advantages held by state and non-state actors in these areas threatened to erode the “conventional overmatch to which our Nation has grown accustomed.”26 The story has changed little today: in February 2022, the Biden administration’s Defense Chief Technology Officer Heidi Shyu observed that “technological advantage is not stagnant and the Department cannot rely on today’s [sources of] technology to ensure military technological dominance tomorrow.”27 It is no surprise, therefore, that many of these same dual-use and defence-specific technologies occupy pride of place in AUKUS Pillar II. Yet, short of changes to business as usual, the ability of all three countries to leverage commercial inputs for these projects will remain hamstrung by outdated regulatory practices.
Blast off from Woomera for the HIFiRE4 Hypersonic test in June 2017, a product of joint Australian-US research into hypersonic weapons
Department of Defence
Finally, the third area where the United States has ceded its technological advantage is to its allies. Much as with China, many US allies have also taken advantage of the globalisation and proliferation of dual-use technologies, experimenting with civil-military integration and new ways of doing business precisely because they have had fewer resources to spend on defence than the United States. South Korea is perhaps the greatest example of this, having crafted successive national research and development (R&D) strategies that envisioned the country assuming the position of a global technology powerhouse. It deliberately invested significant percentages of national GDP in defence-unique R&D programs in which the United States had either stopped investing or had persisted with Cold War-era mechanisms for advancing these programs.28 Over time, these investments have helped the South Korean defence industry emerge as both a complement and competitor to US companies in areas of traditional American strength.29 In fact, US reservations over defence technology-sharing played an important part in driving South Korean advances in key capabilities, including the Active Electronically Scanned Array (AESA) radars that South Korean companies are now selling to Poland — a fellow US ally and customer of US armaments.30 Importantly, Korean firms are willing and able to offer generous technology transfer provisions to enhance their customers’ ability to build, maintain, and reexport these capabilities from their own countries.31
ITAR REFORM MUST BE LINKED TO AN ACCEPTANCE ON BEHALF OF THE UNITED STATES THAT THE STRATEGIC ERA IN WHICH THESE MECHANISMS WERE DESIGNED IS WELL AND TRULY OVER.
Seoul is by no means an exception. Other allies including Australia and the United Kingdom have developed expertise in specialised areas of emerging defence-unique technologies. It is no coincidence, for example, that Washington has sought to collaborate with Canberra, London and Tokyo on hypersonic and counter-hypersonic capabilities, quantum computing, and unmanned systems.32 Yet, many of these countries are increasingly reluctant to share their advantages with the United States due to current export control settings, technology transfer processes, and intellectual property rules that discount allied preferences.33 In the Australian context, there are signs of this dynamic unfolding with companies withholding technological advantages or establishing ITAR-free versions of capabilities including radars, autonomous drones, space technologies, and innovative software to bypass US controls (see pages 25-32).
The above trends carry serious implications for the implementation of AUKUS. Most notably, ITAR reform must be linked to an acceptance on behalf of the United States that the strategic era in which these mechanisms were designed is well and truly over. Furthermore, US technological advantages will continue to erode without making ‘time to innovation’ the driving principle for defence technology development, including through collaborative processes with allies. Thirdly, any discussion around the adoption of information security standards and the like across the AUKUS countries cannot simply proceed from the premise that Australia and the United Kingdom must uncritically emulate US standards. Indeed, Australia and the United Kingdom have often been encouraged to adopt many of the same innovation frameworks and processes in their own acquisition, budgeting, and security regimes applied in the US context. This means that both countries risk facing similar issues in defence innovation if they do not learn from US mistakes — or, worse, if they seek to emulate US regulatory systems.34 This includes regarding the ITAR and other compliance regimes in their present forms simply as “the cost of doing business” with the United States.
SO, WHAT EXACTLY IS THE ITAR PROBLEM?
In short, US export control processes are too inefficient, indiscriminate, and immaterial in their application for AUKUS to meet its potential. The ITAR is unsuited to the contemporary strategic imperative of building or preserving US — let alone collective — military technological advantages over capable adversaries like China. Broadly speaking, the ITAR suffers from two classes of problems: practical issues relating to inefficiencies in the current suite of export control frameworks and processes; and more intangible, conceptual issues including the desire for control over innovation, as well as what others have referred to as a “superpower mindset” rooted in a bygone era of strategic and technological dominance, one that continues to colour US perceptions of the value and worth of allied inputs into collective efforts.35 From a more specific position of assessing broad Australian equities, problems with the ITAR include the speed at which licence approvals or waivers are processed through the US system; the disincentives for Australian companies or governments to work with the US Department of Defense on niche advanced technologies for fear of losing control over their intellectual property; and the financial and human capital costs of both complying with or unintentionally breaching the ITAR regime.
During the Cold War, many US allies were regarded as incapable of preventing the leakage of technology to the Soviet Union or keeping a lid on nuclear, chemical and other high-risk conventional weapons proliferation, and were in some cases regarded as risks to the strategic balance in different regions of the world themselves.36 Today, however, the ITAR has not accommodated technology trends among US allies. Indeed, these countries now bring advanced technology, knowledge, and engineering capabilities to the table in greater mass than in previous eras. They have also greatly improved their own capacity to implement effective technology and information control measures. Yet US export controls remain indiscriminate, essentially treating ally, partner, friend, neutral, or foe as equivalent categories, with the effect that these regulations often disincentivise close allies from cooperating on cutting-edge technologies, limiting US access to innovative sources of technology outside of its own borders. This means that, under present guidelines, Australia is effectively regarded as being on equal legal terms as a country like Serbia.
THE ITAR IS UNSUITED TO THE CONTEMPORARY STRATEGIC IMPERATIVE OF BUILDING OR PRESERVING US — LET ALONE COLLECTIVE — MILITARY TECHNOLOGICAL ADVANTAGES OVER CAPABLE ADVERSARIES LIKE CHINA.
In that context, the ITAR now poses its own unique threat to US national security. The stasis of export control regimes over recent decades has seen them become a considerable barrier to bringing the best engineering and scientific talent to work on defence matters from outside the United States. Firms control the engineering talent, knowledge, manufacturing skills, and intellectual property (IP) needed for modern defence innovation programs to push the boundaries of the possible. However, these entities often see the ITAR process as an expropriation of their IP and often decide to turn that IP and engineering talent to other uses in the commercial sector. It is no coincidence that an entire industry of export control lawyers makes their living advising US commercial companies about how best to protect their IP and avoid the ITAR. The advice to these companies is often not to enter the defence research and development process in the first place, and to focus on their commercial prospects to avoid entanglement in the ITAR. US allies increasingly exhibit that same agency, although this is usually cloaked in the discourse of sovereignty and sovereign control rather than commercial gain. When a company within an allied country develops a new piece of technology, they and the host government generally believe that they should have the right to control that technology. Yet under current regimes, working with the United States at any level on that technology effectively guarantees the loss of control of that IP to the US State Department through the ITAR process.
The eight deadly sins
There are at least eight specific facets of ITAR that need to be addressed for AUKUS to succeed: an outdated mindset; universality and non-materiality; extraterritoriality; anti-discrimination; transactional process-compliance; knowledge taint; non-reciprocity; and unwarranted predictability.
1. Outdated mindset
An outdated mindset enables the other seven facets of ITAR that are instrumental in generating the underlying disincentives for allies and commercial entities to cooperate with the United States on defence technologies. Just as an outdated superpower mindset long complicated efforts to make hard strategic choices regarding the reprioritisation of US global commitments to properly resource its Asia strategy,37 so too does this mindset affect the way that US allies are treated by US policy frameworks and regarded by the practitioners of those frameworks. This often impedes hard policy reforms that must be made to frameworks at the heart of Washington’s dominance of yesteryear, including ITAR and adjacent export control regimes.38 This “mindset” sustains an instinct for unilateral restraint and the manipulation of export control levers to achieve arms control objectives with other countries, regardless of their relationship with the United States. That instinct also begets a culture of “not sharing or making exceptions” to export control and technology-sharing regimes, even for the most trusted of allies.39
The result is that allies or the commercial market often feel that they are looked upon by some constituencies in the United States as inferior sources of innovation, and those advantages which they do have cannot reach their full potential without submitting to US Government processes.40 Similarly, the current export control architecture reflects a Cold War view that adversaries also fall short of US levels of technological sophistication in their own right, relying on technology theft or forced transfer of US intellectual property to catch up or get ahead. Proponents of this worldview, therefore, tend to regard deviations from the standard historical application of US export law, regulation, or practice as threats to US national security. This mindset no longer matches up with strategic reality. If export control regimes are not adaptable to new circumstances, they become counterproductive. This is exactly the case with the ITAR.
2. Universality and non-materiality
Universality is the application of export controls that leads to a failure to distinguish between what is truly important from what is not. This generally derives from how the US executive branch has used its discretion to interpret the legal definition of what constitutes a defence article. The definitions contained in the 1976 Arms Export Control Act (AECA) — the underlying basis for the ITAR — mean that a ‘defence article’ can be considered as an item or tangible good, a service, or technical data, none of which are clearly defined by this law or elsewhere.41 Therefore, the regulatory interpretation is up to the executive branch, giving it broad discretion in defining these terms and thus the scope of applicability of the ITAR and export controls in general. Historically, the State Department has applied this definitional construct as broadly as possible, effectively incentivising industry to think of a defence article as anything and everything that might touch a defence item. There is no level of materiality and no tiered system or hierarchy of classification for different types of defence items: everything, therefore, must be treated the same and with equal vigour. Industry stakeholders have provided ready examples of, for instance, a commercial valve or painted bracket being treated equivalent to a guidance system for a missile.42 This has meant that firms submit to voluntary disclosures of ITAR violations for often incredibly mundane reasons. Yet the sheer volume of these disclosures has often resulted in calls for more oversight and stricter control regimes, rather than reforms to these provisions.43
OBVIOUSLY, CERTAIN COMPONENTS ARE MORE IMPORTANT OR SECRET THAN OTHERS, BUT PUTTING THE SAME FOCUS, ATTENTION AND LEGAL HEFT ON A BOLT THAT IS SUBJECT TO ITAR BECAUSE IT HAS A MILITARY SERIAL NUMBER ON IT, BUT IS THE SAME BOLT USED IN THE COMMERCIAL MARKET, AS ON SPECIALISED ARMOUR AND PROTECTIVE SYSTEMS ON AN ABRAMS TANK IS, IN A WORD, NONSENSICAL.
Classification, differentiation, and categorisation are necessary to put bounds on applicability, to limit the costs of controls to those items and knowledge that are most important, and to facilitate cooperation with trusted partners to the benefit of both US and collective allied advantages. These are not inherent features of the current ITAR system. As a result, firms faced with the prospects of fines, criminal prosecution, and reputational damage over even non-material breaches of the ITAR have rightly become incredibly risk-averse when it comes to dealing with the US Government. This risk aversion is now one of the biggest barriers to future defence innovation, including through AUKUS. Obviously, certain components are more important or secret than others, but putting the same focus, attention and legal heft on a bolt that is subject to ITAR because it has a military serial number on it, but is the same bolt used in the commercial market, as on specialised armour and protective systems on an Abrams tank is, in a word, nonsensical.44 As such, ITAR reforms should seek to introduce materiality criteria for trusted allies, be it a distinction between unclassified and classified technology and information, commercial derivative technologies, the relative importance of the technology or information, or to establish a criterion of de minimis US content of a technology or information relative to allied inputs.
3. Extraterritoriality
The third ITAR problem relates to universal extraterritoriality. Extraterritoriality implies that the initial exporter has the right to approve or deny any re-export or transfer of that item within a recipient country or outside of that country. Unlike most other countries’ export systems, the ITAR is not based on one-time approvals for the export of a defence system before entrusting compliance enforcement to the systems and the discretion of the original receiving party. Rather, extraterritoriality ensures that recipient countries need to go back to the original provider of a defence item — in this case, the State Department — and ask for permission to re-export to another end-user. These requirements are legally divorced from exceptional circumstances of concepts of urgency. Such dynamics were most recently on display with regard to re-export requests made to Germany by Poland and other European states for Leopard 2 battle tanks that these countries wished to transfer to Ukraine.45 Though at first glance a seemingly reasonable criterion, extraterritoriality in the US context is problematic given the broad definition of a defence article discussed above. End-items and large physical components predominately made in the United States are one thing, but the trigger of a single non-material item from the supply chain or transfer of knowledge can doom a piece of technology to need everlasting State Department approvals. To avoid the effects of this extreme extraterritoriality that could trigger the ITAR, allies and their firms must actively exclude US content and design input for both commercial and foreign derivatives of the goods and services that they offer.46
US Attorney General Merrick Garland, FBI Director Christopher Wray and Deputy Attorney General Lisa Monaco announce that the Department of Justice has charged 13 people for alleged efforts to unlawfully exert influence in the United States for the benefit of the government of China, Washington DC, 24 October 2022
Getty Images
The application of reciprocal extraterritoriality against the United States by other countries has rarely happened.47 But, with the United States losing outright dominance in key technological domains, and given the equities of close allies in seeing US export control systems reformed, the chances of such reciprocity becoming a new normal in future cannot be ruled out.48 A retroactive application of such controls would create havoc in the US industrial base comparable to China’s present experience with US semiconductor controls.49 This is something that the US Government has not planned for but would be especially problematic if other countries expanded their own concepts of extraterritoriality and definitions of defence articles from end-items to knowledge and other non-material or commercially derivative content present in US systems.
4. Non-discrimination
In short, the ITAR does not discriminate between friend and foe.50 There is no basis to ‘positively’ discriminate on whether a country is an alliance partner, a security partner, or an adversary, or whether the United States accrues significant strategic or technological benefits from engaging with that country. Though even-handed in principle, this means that exports to sophisticated top-tier allies like the United Kingdom and Australia are effectively treated in the same way as exports bound for countries in those other categories.51 Non-discrimination is particularly problematic considering the high volume of ITAR requests that allies submit in the interests of strengthening their already close military relationships with the United States.52 Decades of foreign military sales and co-development projects have ensured that many aspects of America’s defence relationships with its closest allies, including critical components of their force structures, are effectively ITAR-bound. Concerningly, this has led to limitations on allied training and operations, including for Australian and Japanese air force maintenance and sustainment requirements.53
5. Transactional process compliance
Non-discrimination produces a one-size-fits-all transactional process. Though the State Department insists that Australian and UK requests “move faster through our systems than for any other countries,” limited bureaucratic resources, the absence of discrimination in favour of close allies, and the lack of a formal mechanism to ensure that this is legally enforced remain structural checks on enduring reform.54 Coupled with stagnant staffing numbers and rising workloads for Directorate of Defense Trade Controls (DDTC) staffers as ITAR sweeps up more and more transactions and close allies apply for increasing numbers of waivers, ITAR approvals become mired in a step-by-step process divorced from time and strategic imperatives. The rigid, transactional processing of every application as if it is of identical importance or materiality leaves industry unsure of how applications will be adjudicated and what new caveats may be placed on these requests, even if they are “repeat scripts.”55
THOUGH THE STATE DEPARTMENT INSISTS THAT AUSTRALIAN AND UK REQUESTS “MOVE FASTER THROUGH OUR SYSTEMS THAN FOR ANY OTHER COUNTRIES,” LIMITED BUREAUCRATIC RESOURCES, THE ABSENCE OF DISCRIMINATION IN FAVOUR OF CLOSE ALLIES, AND THE LACK OF A FORMAL MECHANISM TO ENSURE THAT THIS IS LEGALLY ENFORCED REMAIN STRUCTURAL CHECKS ON ENDURING REFORM.
By sheer volume, allies like the United Kingdom and Australia are disproportionately affected by these processes. The need to constantly obtain large numbers of licences to develop or sustain force structure requirements add up to months, if not years, of waiting time for decisions to be made even if most are mere formalities.56 To be sure, US Government interlocutors often insist that the ITAR does not prevent Australia and the United Kingdom from ultimately getting what they ask for.57 However, it is also the case that when these decisions are handed down by the State Department, they are too slow, often unsuitable for the article in question, or undermine the ability to cooperate through bidding on US contracts or engaging in cooperative R&D projects.58 This is problematic when time is of the essence both for operational purposes and when ‘time to innovation’ is critical to maintaining a technological lead over China and, by extension, a favourable strategic balance.
Yet this lack of agility is, to some extent, a choice to prioritise process and compliance over urgent strategic requirements. As it stands, there are no structural incentives for those who administer export controls to move Australian and British requests quickly through the system. By contrast, there are considerable disincentives to do so, including career progression ramifications, financial penalties or, at worst, jail time.59 This means that mid-level administrators have little personal or structural incentive to move quickly, even in the midst of pressing strategic circumstances. To illustrate, one US contractor frustrated with the inability of the US Government to process a licence for materials required in Ukraine over the requirement to include a serial number was met with the refrain: “I don’t care about the urgency; I have a process to comply with.”60
6. Export contamination
Perhaps the most problematic attribute of the ITAR is so-called export contamination, also known as the ITAR ‘taint.’ Essentially, these terms refer to “the use of controlled US knowledge at the research-and-development stage that applies to a product or service forever,”61 even if that product is predominantly ally-developed. This US input then ‘sticks’ to defence goods and services developed in collaboration with allies or partners, complicating their re-export by these collaborators even when these articles are predominantly allied-made. The result is that, under present interpretations and applications of export control law, anything that might subsequently result from this collaboration is ‘tainted’ by US design input, preventing all future uses, retransfers or even internal movement within a country’s own industrial base or supply chain network without permission from the State Department. This is particularly consequential given the absence of any materiality criteria in the definition of a defence article in US law, and the universal application of that definition.
The taint stems both from the universal definition of a defence article and the extraterritorial application of that definition. The practical source of the taint is in the broad ITAR definition of a service and technical data linked to ITAR 124.8 (5), which states that “any defense article which may be produced or manufactured from such technical data or defense service may not be transferred to a foreign person.”62 Under these parameters, and considering the immaterial definition of a defence article, even a discussion with a foreign national — by phone, by email, or in a meeting of engineers having coffee — risks divulging information that could be defined as a defence service or a transfer of technical data.63 As US export controls have evolved, the system has moved from controlling tangible end-items of military equipment, to components, to technology, to any service done to that equipment, and finally to any knowledge about the item, technology, or service. The conceptual source of the taint stems from the view that whenever a US engineer contributes design input into a defence article, however minimal or insignificant, they have performed a defence service that should forever give the US control of the underlying technology.64 65
The impact of the taint can be witnessed when allies or commercial companies refuse to provide their best technology to the United States, or when these companies refuse to modify their products to fit US customer requests for fear of ITAR taint through design input.66 This is usually not an overt act but part of a ‘bid-no-bid’ decision by firms. This trend is often overlooked by policymakers and implementers. However, our consultations suggested that this is a growing trend among firms in those technology areas of greatest importance to the AUKUS countries, including unmanned systems, advanced radar and surveillance technology, and others, as companies demur on participation in the US defence market to avoid the ITAR taint.67 Indeed, the thousands of ITAR licences now required — each with specific provisions for how to implement the transfer of US goods, services, or knowledge — and the numbers of employees, information systems, compliance checks, legal opinions, and other processes required to handle these compliance requirements generate significant direct costs for companies and foreign governments. Though larger defence industry companies often consider these requirements “the cost of doing business” with the United States, small and medium-sized companies who lack the in-house expertise or financial capital to manage these compliance requirements are disincentivised from working with the US defence ecosystem.68 This is particularly problematic for junior alliance partners like Australia, given that it is often through such entities that its niche national technological advantages are developed.69
7. Non-reciprocity
Ironically, US export control compliance and security requirements for other countries are much higher than the standards historically imposed on itself. Indeed, US trust in its allies’ industrial base to control and protect technologies has historically been low, with recent reporting and conversations in support of this report suggesting that these views persist across important corners of the US system.70 Though such concerns are natural, these perspectives often lack any degree of self-reflection on the security of the United States’ own information and technology protections systems.71 These vulnerabilities were recently highlighted by Federal Bureau of Investigation Director Christopher Wray, who noted that the Bureau was pursuing more than 2,000 ongoing industrial espionage cases centring on the Chinese Government, while also referring to the scale of Chinese cyberattacks conducted for this purpose as approaching an “existential crisis.”72 Lax or absent controls across the US supply chain have provided opportunities for China, Russia, and other countries to acquire cutting-edge technologies through nefarious means. Recent reports of US technologies being applied in Chinese hypersonic weapons programs or of advanced submarine technology being offered secretly to Brazil are cases in point.73 Cyber-hygiene efforts such as the Cyber Security Maturity Model Certification (CMCC) are a positive step74 but may have come too late, and risk lapsing into box-checking compliance exercises that can complicate technology cooperation with trusted partners.
This lack of reciprocity complicates long-standing efforts to develop a trusted industrial base. Indeed, stakeholders in the Australian and British defence industrial ecosystems have expressed dismay with the apparent imbalance of scrutiny placed upon their own protections systems versus those of the United States.75 For them, debates over the trustworthiness of allies and the integrity of their legal, regulatory, and technical protections for military data and technology in the context of AUKUS are a “red herring” without equal self-reflection on the part of Washington.76 The reality of the wider situation is that the United States and its closest allies all face problems with tackling foreign industrial espionage, and should jointly work for solutions to mitigate that threat.77 This is slowly becoming a part of conversations around AUKUS Pillar II, but these discussions remain in their infancy and the exact requirements of building shared protections remain largely undefined.78 This is to say nothing of the challenges that would be posed to the entire US defence and commercial industrial base were allied countries to practice reciprocity regarding the traces of their knowledge and components contained in US weapon systems.79
8. Unwarranted predictability
Finally, an innate desire for predictability over the course of defence innovation begins from the premise that technology flow is linear and omnidirectional and that this can be centrally planned and managed to control technological disruption. This is most readily seen in the Technical Assistance Agreement (TAA) process where the United States attempts, in a linear command and control fashion, to manage future innovation. The requirements for predictability on the industrial side — specifically, the written prior approval requirement for TAAs to know exactly what companies will be working on, and when, in precise detail — confine the prospects and possibilities for innovation to within the parameters set by the Pentagon. The reality, however, is that innovation and invention are rarely linear, much less predictable. Unknown unknowns are a hallmark of discovery: innovation efforts are often trying to address something that has never been done before or, in the defence context, to move beyond legacy technologies and develop new capabilities that will solve pressing military problems. But, once discussions take place under a TAA by the process of ITAR Section 124.8(5), the US Government perpetually owns everything that the US knowledge in question touches through the ITAR taint. This is more than enough to disincentivise innovative companies in and outside of the United States from working with the Pentagon, even if TAA requests were to become more open to discovery.
WE’VE SEEN THIS MOVIE BEFORE: PAST EXPORT CONTROL REFORM EFFORTS
Many of the problems with the US export control system have been known to Australia and the United Kingdom for decades. While there have been multiple attempts to reform these processes or establish ITAR carve-outs — by establishing new bilateral treaties, by adding countries to the US NTIB, through congressional legislative efforts or pilot exemption programs — each of these efforts have failed because of a combination of the factors afflicting US export controls described above. Unless the lessons from these past failures are not internalised, much less recognised, there is a distinct danger that AUKUS will meet the same fate.
The Canada precedent
There are two legacy discriminatory exemptions for allies, both dating back long before the 1976 Arms Export Control Act. The first is the exemption from the original export control framework granted to Canada in 1941, intended to reflect the closeness and integration of the US and Canadian defence and commercial industrial bases during the Second World War.80 The second, much more limited, example is a result of the 1958 bilateral agreement between the United States and the United Kingdom addressing nuclear submarine technology-sharing (for more, see section “A shaky foundation”).81 Despite these precedents, these exemptions have not been replicated elsewhere to date with the exception of the initial submarine propulsion technology-sharing agreement between the three AUKUS countries in November 2021. In fact, in the case of Canada, these exemptions have been extensively rolled back in response to scandals and perceptions of national security threats posed by allied mismanagement of sensitive information or technology.
Defense Secretary James Mattis shakes hands with Senator John McCain, Chairman of the Senate Committee on Armed Services, before a hearing on the Fiscal Year 2018 National Defense Authorization Budget Request, Washington DC, June 2017
Department of Defense
The history of Canada’s ITAR exemption has had a particular impact on subsequent prospects for allied defence industrial integration initiatives. In the 1990s, the Clinton administration attempted to reform the Cold War export control process under the Defense Trade and Security Initiative (DTSI).82 The DTSI recommended using program licences under existing executive branch discretionary authority to streamline requirements for multiple individual licences, with the intention of easing compliance burdens on US bureaucracy and allies alike. At around the same time, there emerged a debate in Congress on reauthorising the Export Administration Act (EAA), the statute covering dual-use exports, as well as on the need to address the growing problem of personal computers exceeding the level of control for computational capabilities.83 However, these efforts gained little traction as the implications of the Clinton administration’s decision to transfer sensitive missile technology to China in 1998 undermined congressional support for such reform efforts.84 The political winds in favour of export control reform thus changed. In fact, this period saw a significant tightening of US export control laws in reaction to the findings of the Cox Select Committee on US National Security and Military/Commercial Concerns with the People’s Republic of China in 1999, which identified cases of transfer of deemed export knowledge to China that had aided in the development of Beijing’s inter-continental ballistic missile program.85 This effectively derailed the administration’s efforts to reform both the DTSI and the EAA.86
In addition, this period also saw a re-evaluation of how Canada was treated under the ITAR which resulted in even harsher restrictions.87 Building on the precedent set by the 1941 Hyde Park Declaration and Defense Production Act, Canada was officially incorporated into the US NTIB in 1993 following on from the consolidation of the US defence industry after the end of the Cold War.88 This included the granting of broad (though incomplete) exemptions from the ITAR based on Canada’s effective replication of US defence export control institutions, including setting up entire government departments and organisations to manage compliance requirements (the Controlled Goods Program and Canadian Commercial Corporation).89 However, in the late 1990s, the State Department launched 19 criminal investigations into at least three diversions of controlled items to China, Iran and Pakistan under the Canadian exemption. On the positive side, these controversies led to State Department efforts to improve the clarity of the relevant regulations and training programs for those administering and complying with them, as well as changes to Canadian export control law to reflect everything covered on the US munitions list.90
However, this saga also generated negative consequences for future defence industrial integration initiatives. Indeed, in the Security Assistance Act of 2000 (P.L. 106-280), Congress effectively slammed the door shut on any future Canada-like exceptions. While the Canadian ITAR exemption was codified in Title 22 Section 2778 (j) of the AECA,91 a requirement was put in place to obtain a binding bilateral agreement before the president could exempt any other nation from licensing requirements, regardless of their relationship with the United States. As such, while the watershed events of missile technology transfer to China in the late 1990s led to export control tightening,92 this created tremendous bureaucracy and operational issues due to the ITAR’s inability to discriminate between China and trusted allies, as well as the burden of compliance generated for US and allied governments and companies alike.
THOUGH PRUDENT STEPS AT THE TIME, IT DIDN’T TAKE LONG BEFORE MANY OF THESE TECHNOLOGIES HAD LONG SINCE PROLIFERATED TO US ADVERSARIES, LEAVING ONLY US ALLIES WITH THE PREPONDERANCE OF THE BURDEN OF COMPLIANCE.
Today, this legislation is the primary reason why other close allies have been treated in the same manner as lesser partners, or even adversaries, with regard to export controls: only the Canadian exemption and the bilateral UK nuclear agreement offer any enduring positive discrimination from the ITAR. The late 1990s and early 2000s saw the development of an enduring obsession with protecting Cold War technological advantages, as well as a new-found focus on legacy commercial derivative technologies. Though prudent steps at the time, it didn’t take long before many of these technologies had long since proliferated to US adversaries, leaving only US allies with the preponderance of the burden of compliance. This was only exacerbated by changing business practices, including the outsourcing of logistics and maintenance activities to the private sector, in this same time frame.93
The operational costs of ITAR
With the Canada example as a preamble, the practical costs posed by US export controls to Australia and the United Kingdom became more apparent in the 1990s and 2000s. During the George W. Bush administration, the impact of transactional process compliance on allies began to be felt in the Iraq and Afghanistan conflicts,94 with the involvement of close allies like Australia and the United Kingdom in these conflicts spotlighting the need to move export licences or technical data transfer requests faster for defence articles used by top-tier allies to aid the United States in its campaigns abroad.95 While most, if not all, licences to allies were eventually approved, they all created unnecessary time delays and operational challenges. For example, the Australian Defence Force was forced to turn to local industry to stand-up domestic production lines to meet precision-guided ground attack munitions requirements for air campaigns in Iraq and Syria, due to the lack of capacity within the US industrial base and export control restrictions on sharing the technical data that would have facilitated this much faster.96 By contrast, the defence industrial linkages created by Canada’s inclusion in the NTIB allowed it to provide surge capacity for the United States during these conflicts, producing armoured fighting vehicles and other capabilities for the US Army and Marine Corps when US facilities were at maximum capacity, with minimal issues.97 Furthermore, the United Kingdom and several other allies transferred counter-improvised explosive technology to the United States with no strings attached to aid in the initial US surge in Iraq and Afghanistan, only for this technology to be tainted by ITAR export contamination. This essentially prohibited any modified counter-IED technology from retransfer back to these same allies without a State Department licence, despite the fact that the majority of the intellectual property contained within these defence articles was of foreign origin.98
Australian Minister for Defence Richard Marles and Minister for Foreign Affairs Senator Penny Wong meet with US Secretary of State Antony Blinken and Secretary of Defense Lloyd Austin for the 32nd AUSMIN Consultations in Washington DC, December 2022
Department of Defence
The 2009 defence trade cooperation treaties
It was to overcome some of these challenges that the Bush administration unsuccessfully tried to persuade Congress to provide the United Kingdom and Australia with the same legal exception as Canada. In practice, this would have meant amending the law in 2378(j) of the AECA to include Australia and the United Kingdom within these parameters. With that exception, the executive branch would have had greater discretion on the application of export controls to these countries with greater favourable discrimination. However, scarred from the legacy of the China missile technology transfers and the exploitation of the Canadian ITAR exception by Iranian proxies in the 1990s, Congress did not act on this recommendation. Rather than securing a blanket exception, the Bush administration was instead forced into pursuing a binding bilateral pathway under 2278(j) of the AECA that resulted in the negotiation of separate defence trade cooperation treaties (DTCTs) with the United Kingdom and Australia, beginning in earnest in 2006 after efforts to advance these efforts in the House two years earlier failed.99 These treaties were intended to “afford greater cooperation and access [between the countries] than would be permissible under export control reform,” particularly with respect to the “treatment of medium and low-risk defense articles and services as licence-free exports to meet mutual defense requirements.”100 Though the treaties both progressed quickly to signature in 2007, neither was ratified by the US Senate until 2010, nor entered into force until 2012 and 2013, respectively,101 with delays between signing and entry into force due in part to congressional reservations over executive authorities to negotiate the terms of the treaties, and concerns over how the treaties would interface with existing laws and regulations.102
Nevertheless, the intention of the treaties was sound. Since most export control licences to the United Kingdom and Australia were for unclassified technologies, the treaties primarily attempted to reduce the need for these approvals. This amounted to a serious attempt to address the failures of the Canadian ITAR exception by establishing trusted or “approved communities” of companies within and between Australia and the United States and the United Kingdom and the United States, respectively, managed unilaterally by these countries, and between which low- to medium-risk defence items could be transferred with relative freedom and confidence.103 This was consistent with the idea that because the United States was transferring highly classified information under the Five-Eyes intelligence arrangement to these countries, they could therefore be trusted with exceptions for unclassified industrial base information and technology. Most significantly, it was also expected that the treaty could be modified through its various implementing arrangements to allow for flexibility in scope and execution as geopolitical and technological developments warranted.
Yet more than 10 years after they entered into force, these treaties have largely failed to live up to their promise. As one participant in the treaty negotiations stated, the treaty “was intended to provide a comprehensive framework for exports and transfers, without a licence or other written authorization, of defense articles between our two countries. That ambition has not yet been realized. The Treaty implementing arrangements are insufficiently attractive for companies to use them.”104 More recent interviews produced even blunter appraisals, with one observer stating that the treaties “are completely useless.”105 Unsurprisingly, legal advisors have frequently advised their industry clients never to use the treaties because of their flawed carve-outs and significant limitations.106 This view is also shared across some sectors of Australian industry, who view the treaties as the least productive of the defence industrial integration mechanisms available in the US-Australia alliance context.107 In that context, the shift in language between AUSMIN 2021 and AUSMIN 2022 to emphasise the DTCT, rather than the NTIB, as the primary vessel for defence industrial integration and cooperation including efforts to “streamline and facilitate technology transfer and information sharing” marked a surprising turn to the past,108 particularly given enduring resistance within pockets of the US system to reforming these treaties for fears they would set unhelpful precedents for other countries to request similar exemptions.109
Australian Minister for Defence Stephen Smith and US Ambassador to Australia Jeffrey Bleich exchange notes to bring the Defence Trade Cooperation Treaty into effect, May 2013
Department of Defence
The presence of inbuilt flaws in the treaties owes largely to congressional intervention. During the treaty ratification process, Congress passed a law (the Security Cooperation Act of 2010, P.L. 111-266) that limited the flexibility available to any future administration to make the treaties work as intended; namely, allowing for licence-free cooperation and transfer of technologies between the United States and these allies.110 Rather than let the treaties stand as effective bilateral exceptions to the ITAR, Congress in effect narrowed the applicability of the treaties by identifying them not as bilateral agreements, but as separate exceptions in Sec. 2278, with a whole host of specific legislative restrictions in tow. It then put further heavy-handed process restrictions on future modifications to these agreements. Essentially, the implementing legislation froze the ability of any sitting administration to modify the implementing arrangements without Congress passing a new law. As one observer stated: “It was successive administrations’ views that implementing legislation was not required once the treaties were negotiated, but then…. Hill staff insisted that implementing legislation was required, thus limiting the intent of the treaties.”111 Industry entities in both Australia and the United Kingdom both testified to their respective parliaments to the same effect.112 When these industry firms indicated that it made no sense for them to participate in industrial and technological cooperation projects under the treaty rules, due to the lack of any flexibility in changing the implementing arrangements to incentivise such participation, the treaties basically became ineffectual. Worryingly, agents of these efforts remain in positions of influence across the US system today.
The National Technology and Industrial Base
After the treaty fiascos, the Russian annexation of Crimea in 2014 and China’s militarisation of disputed features in the South China Sea, the then-Chairman of the Armed Services Committee Senator John McCain began to look for ways to expand US-allied industrial and technology cooperation to meet these emerging threats. By necessity, this effort was intended to reinvigorate the export control reform debate. Senator McCain tried to do this by advocating for the expansion of the US NTIB by adding the United Kingdom and Australia to sit alongside Canada within an expanded definition of this construct, with the intention of using this forum to discuss future reforms to enable a more joint industrial base akin to a defence “free trade area.”113 Subsequently, in Section 881 of the 2017 National Defense Authorization Act, the United Kingdom and Australia were included in the NTIB.114 Here, Congress made it clear that the “seamless integration” of the industrial bases of the United States, Canada, Australia, and the United Kingdom was needed to address growing global threats posed by peer competitors, and that harmonisation of export control policies of the nations of the NTIB was a new and important goal.
However, these efforts also ran aground on the cultural resistance and practical barriers to ITAR reform. As with previous efforts, these attempted reforms were impeded by the fact that the Department of Defense and the Congressional Armed Services Committees of Congress could exercise little legislative power over defence export controls, which reside within the jurisdiction of the Department of State and the House Foreign Affairs and Senate Foreign Relations committees, respectively.115 Efforts that were undertaken by the Pentagon to advance this integration agenda, including the publication of a report on progressing the NTIB expansion and the establishment of four ‘pathfinder’ projects to assess the wider viability of these initiatives, were either minimal in their goals, incomplete in their application, or downgraded in subsequent years to focus on narrow changes that fell short of more systemic, long-lasting adjustments.116 At the time, congressional staff indicated that the US State Department adamantly opposed using the NTIB as a way to even discuss export control reforms, and thus no progress has been made in harmonising these and adjacent regimes across different NTIB countries.117
Air Force maintainers deployed on Operation Okra with the Strike Task Element conduct checks on an F/A-18F Super Hornet at a base in the Middle East Region, November 2022
Department of Defence
As a result, while some improvements were made in ITAR-adjacent areas including the alignment of foreign direct investment practices between the four NTIB countries,118 the effort to expand the NTIB has so far failed to achieve its more ambitious goals of facilitating genuine defence industrial and technological integration between the United States and its closest allies.119 To be sure, successive Australian governments have advocated strongly for “giving greater practical effect to Australia’s inclusion” in the US NTIB,120 including by reducing barriers to collaboration that disincentive small innovative businesses from contributing to alliance defence objectives.121 In addition, US lawmakers added New Zealand to the NTIB in the fiscal year 2022 National Defense Authorization Act, essentially aligning the NTIB’s membership with that of the Five Eyes intelligence-sharing group, with the goal of fostering “greater synergy and collaboration across a range of important national security and defense industrial base issues,” including through strengthening the NTIB.122 This legislation was also accompanied by directives for periodic Pentagon reviews into whether items like “solar components for satellites, naval vessel shafts and propulsion systems, carbon fiber, natural rubber, and other items” could be sourced from NTIB countries if unavailable in the United States.123 Importantly, New Zealand’s addition to the NTIB underscores the contradiction between the relatively seamless sharing of classified information between the Five Eyes, and the considerable bureaucratic resources and control mechanisms dedicated to controlling less sensitive unclassified information through the NTIB which now, effectively, represents an outgrowth of Five Eyes into the defence technology domain.124
Even so, it remains the case that these efforts have done little to move the needle on streamlining technology transfer and other export control processes in the manner required to facilitate defence industrial integration to the degree envisioned by the NTIB’s makers. Indeed, the absence of the NTIB from the language of the AUSMIN 2022 Joint Communique suggests that the progress achievable within the scope of the current legal parameters has either been reached, or that progress through other avenues like the DTCT or, perhaps, using the political impetus of AUKUS were seen as more favourable options. As such, the role of the NTIB in driving genuine trilateral cooperation on advanced capabilities and nuclear-powered submarines through AUKUS has become somewhat unclear.
Open general licences
Presumedly prompted to come up with an idea to favour export streamlining with the AUKUS allies, in mid-2022 the State Department proposed an open general licence (OGL) pilot program.125 The OGL pilot appears to have been based on the sensible idea of achieving agreed approaches on multilateral controls that serve as the basis for the Export Control Reform Act of 2018 (ECRA), as well as contained in the United Kingdom’s own open general licence concept.126 Rather than outline a framework for pre-approved cooperation and technology transfer on a case-by-case basis as in individual licences or at a program level with the concept of program licences, an OGL could cover a broad category of technology or, in the case of the State Department’s OGL pilot program, existing programs for transferred items.
The State Department’s OGL pilot program, intended to fast-track retransfer and re-export authorities for certain defence articles for countries covered under the NTIB, remedies some issues. In that respect, Australian industry considers these to be useful for some existing programs.127 However, the parameters for these authorities are highly constrained. From an Australian industry perspective, present OGL conditions greatly limit their value as enablers of defence industrial cooperation, and uptake amongst companies has been rather low as a result. As stipulated by the DDTC at the State Department, OGLs apply only to the “maintenance, repair, or storage” of unclassified defence articles that do not appear on the US Missile Technology Control Regime Annex or that are not identified as missile technologies on the United States Munitions List, such as unmanned systems and precision munitions — both AUKUS priorities under Pillar II.128 Furthermore, OGLs in their present form do not apply to any program designed to develop “new acquisitions or capabilities,” foreclosing their utility as drivers of co-development in the genuine sense of the term.129
FROM AN AUSTRALIAN INDUSTRY PERSPECTIVE, PRESENT OPEN GENERAL LICENCE CONDITIONS GREATLY LIMIT THEIR VALUE AS ENABLERS OF DEFENCE INDUSTRIAL COOPERATION, AND UPTAKE AMONGST COMPANIES HAS BEEN RATHER LOW AS A RESULT.
Unsurprisingly, many industry entities view the program as extremely limited in its utility and have refrained from using it, greatly limiting their value as enablers of defence-industrial cooperation.130 In that respect, the limited success of the OGL pilot so far points to a need to reinvigorate and modify the concept to make it work in a trilaterally acceptable way. While the program could demonstrate the ease at which already transferred or ITAR-tainted equipment could be transferred to Australia and the United Kingdom, in isolation this will not be enough to drive systemic, lasting change to US export control regimes. In any case, streamlining the transfer of existing US technology is theoretically doable under existing US export control regimes. This should be a politically easy objective to accomplish if, of course, the AUKUS members agree that this partnership is in fact designed to drive genuine defence industrial and technology integration between the three countries, rather than just accelerate existing processes (see pages 25-32).
Which way, AUKUS?
This brief yet demonstrative history of efforts to reform export controls for trusted allies situates AUKUS as the latest attempt to drive deeper defence industrial and technology cooperation between the United States and its closest allies. If cooperation continues to be defined by US laws which posit allies as junior partners with limited value-add to matters of defence industry and technology collaboration, then AUKUS in its most ambitious sense will fail. While the March 2023 decisions on the Optimal Submarine Pathway forward were announced with great fanfare, the accounts above should give one reason to be apprehensive about the prospects for its smooth implementation. This is to say nothing about the prospects for Pillar II which, despite great interest, has so far received comparatively little public scrutiny due to the relative absence of publicly available information.
Overcoming these historical barriers will require sustained action and political buy-in from the US executive branch, the departments of Defense and State, and the US Congress. Since the reflex to push back on reforms is deeply ingrained in the psyche of key US constituencies, it is highly likely that the president and the secretaries of State and Defense alike will need to make sustained and visible efforts to overrule these bastions of resistance and decisively break the barriers to defence industrial and technology collaboration in the most genuine, reciprocal and streamlined sense of the concept. Outside of the administration, congressional action will also be required to address key legislative barriers and reinforce executive authorities. But history also shows that there are no guarantees that Congress will act with the appropriate scope, speed, or sense of risk to address Australian concerns at the speed of strategic relevance. In any case, the bottom line is that AUKUS will suffer the same fate as the NTIB, the DTCTs, and other tilts at the reform windmill made in the last two decades unless serious, sustained action is taken to overcome nascent resistance to defence integration.
A SHAKY FOUNDATION: ITAR AND AUKUS PILLARS I, II AND III
Even at this early stage, the reality is that the ITAR and all its imperfections already implicate all forms of cooperation envisioned under AUKUS. As former US ambassadors to Australia have put it, AUKUS “cannot achieve its ambitious goals of sharing and codeveloping critical and emerging technologies, from nuclear submarines to hypersonic missiles and autonomous systems, without revising ITAR.”131 As discussed, these issues are not unfamiliar to senior policymakers in Canberra and Washington; in fact, they have been on the bilateral agenda for quite some time. However, the chosen mechanisms to advance this agenda have been less consistent, and substantial tangible progress has yet to be achieved. Through AUSMIN joint communiques, Australia has regularly received rhetorical commitments from US principals to advance defence industry and technology cooperation through the “practical implementation” of mechanisms like the Defence Trade Cooperation Treaty and the National Technology and Industrial Base. Commitments to streamline export control processes for Australia have been particularly prevalent in these statements since 2019, though with little evident practical progress to point to despite the creation of the Australia-United States Defence Trade Working Group in 2020 to “identify and help resolve defense trade issues of mutual concern, including on export controls.”132 It is in that context that Australia and the United States, along with the United Kingdom, must find a way to leverage AUKUS to make good on years of discursive commitments to deepen defence industrial integration and technology collaboration in ways that go beyond process acceleration.
WITHOUT SIGNIFICANT REFORM, AUKUS WRIT LARGE IS AT RISK OF FAILING TO MEET ITS FULL POTENTIAL.
There are essentially three pillars of AUKUS, two of which are formally part of the agreement — nuclear-powered attack submarines and advanced capabilities — and one more informal aspect that relates to existing legacy programs between the three countries which will almost certainly interface with AUKUS-developed capabilities. One can, therefore, think of AUKUS at its most ambitious as essentially having three topline goals: helping Australia develop and deploy nuclear-powered submarine and other underwater systems capabilities; creating new disruptive emerging capabilities to be fielded by the three countries, ideally within the next five years; and, as a by-product of these loftier goals, enhancing the availability and use of legacy systems and capabilities to include co-production of weapon systems, deployment and basing options, logistics, and operations. Reforming the ITAR stands as a make-or-break objective for each line of effort. In other words, without significant reform, AUKUS writ large is at risk of failing to meet its full potential.
Pillar I: Nuclear-powered submarines
The objectives of Pillar I are perhaps the easiest to interpret, although not necessarily the easiest to implement. Essentially, the Optimal Pathway announced in March 2023 proposes a three-stage pathway for Australia to achieve an independently operated nuclear-powered submarine capability, in the interests of improving its capacity to both contribute to alliance and other collective defence efforts in the Indo-Pacific and to make it a more capable defence power in its own right. Beginning with rotations of US and UK nuclear-powered submarines (SSNs) through Australian facilities in 2027, Australia will then receive several interim Virginia-class submarines in the early 2030s as a veritable bridging capability until the future SSN-AUKUS-class submarines, designed predominantly by the United Kingdom and featuring “cutting edge technology” from all three countries (though, at this stage, likely mostly US technology), will be developed and deployed starting in the late 2030s or early 2040s.133
In short, prospects for the delivery of Pillar I are relatively bright. Because of the decades-long timescales involved with Pillar I, and considering that many of these hurdles would have been encountered over the course of past US-UK cooperation, overcoming these barriers is a realistic and, in theory, comparatively straightforward objective compared to Pillar II. As senior Australian defence leaders have noted, the sheer scale of Pillar I means that it is, in some sense, “too big to fail.”134 In fact, several stakeholders interviewed for this report noted that the 65-year-old US-UK nuclear propulsion agreement appears to be working much better as a sharing mechanism than any ITAR regime despite the fact that it applies to much more sensitive, highly classified technology than most other transactions under those authorities.135 This should give Australia confidence that, at the very least, this aspect of the submarine program should proceed relatively smoothly.
Los Angeles-class fast attack submarine USS Albuquerque and Collins-class submarine HMAS Rankin off Western Australia, March 2015
Department of Defence
However, while the architecture to facilitate the transfer of submarine nuclear propulsion technology to Australia should try to replicate this existing regime to the extent possible, implementing a similar arrangement may be more complicated. This is simply a matter of historical context: in 2023, there is not just one Admiral Rickover that needs to be convinced about the utility or urgent need to implement such an agreement. In 1956, the British were already on their way to solving the nuclear propulsion problem, and in the interests of time, the United States agreed that it was better to speed that process along.136 Australia, by comparison, is largely starting from scratch, with no nuclear propulsion development or operating experience at all, even if its strategic circumstances mean that time-to-delivery should be a key driving factor in designing these agreements.
In fact, there are clear ITAR-related risks and impediments to the timely implementation of Pillar I. This is especially true with regard to information and technology sharing beyond the very specific parameters of any final nuclear propulsion sharing framework, and certifying and authorising an Australian workforce to maintain, operate and repair the countless other sensitive technologies that are installed onboard Virginia-class and future AUKUS-class submarines. Indeed, the subsequent application of ITAR to other aspects of Britain’s nuclear-powered submarine program and the absence of meaningful reforms to US export controls over the preceding decades portend similar challenges for Australia. Even a long-standing agreement on nuclear propulsion has not prevented the stickiness of ITAR from impacting other aspects of the United Kingdom’s current submarine. For example, there have been notable delays to the maintenance of British submarines waiting for the State Department to modify export licences to address new contractors working on UK Navy piers.137
Australia will likely have to deal with these same issues, though these may manifest differently at the agreement’s various stages. Consider, for example, that Phase I of the Optimal Pathway includes plans for Australian engineers to maintain and sustain US nuclear-powered submarines from Australian facilities,138 noting the existing and ongoing challenges that the Australian Defence Force faces in maintaining and sustaining its other US-origin capabilities.139 Notwithstanding pre-existing US-Australia co-development projects in undersea warfare capabilities, such as the Mk48 torpedo, the lopsided nature of many of these projects when it comes to US versus Australian industry suggests that AUKUS Pillar I could surface similar inequalities if structural impediments are left unaddressed.140 Furthermore, technologies developed through Pillar II in areas like hypersonic weapons, artificial intelligence, and undersea capabilities — and the origin software systems required to use these from operator control stations — are almost certain to interface with Australia’s nuclear submarines.141 It is not hard to foresee complications here without significant ITAR reform. Though there is time to address these challenges before work on the AUKUS-class nuclear-powered submarine begins in earnest, failure to address these issues at an early stage could pose significant regulatory barriers to Australia-UK-US cooperation on these capabilities in future years.
Pillar II: Advanced capabilities
The nominal overarching goal of Pillar II is to enhance collaboration on advanced capabilities in the following technology areas: undersea capabilities, hypersonics and counter hypersonics, quantum, artificial intelligence and autonomy, cyber, and electronic warfare.142 Pending demonstrations of proof of concept, this cooperation could eventually be expanded as warranted into other critical emerging technology areas important to defence such as biotechnology, future wireless networks, microelectronics, space, advanced materials, advanced computing, human-machine interfaces, and directed energy, among others. Though it has occupied considerably lesser public attention than Pillar I, it has become a common refrain across expert communities in Australia and the United States that the success of cooperation under Pillar II will define the overall success of AUKUS writ large.143
THE SUCCESS OF COOPERATION UNDER PILLAR II WILL DEFINE THE OVERALL SUCCESS OF AUKUS WRIT LARGE.
As a general guiding principle, the AUKUS countries should be focused on producing disruptive innovative technologies and capabilities that can be operationally prototyped and put in the hands of the warfighter in less than five years. Indeed, the types of capabilities envisioned for development and deployment under this line of effort will be critical to meeting near-term conventional deterrence challenges in the Indo-Pacific. This is consistent with pronouncements by senior Australian defence officials and recent strategic documents regarding the urgent need to acquire, develop and deploy greater numbers of effective capabilities within the next five-to-seven years, well before Australia’s first nuclear submarines are due to come online.144 To deliver effective military capabilities in this period, all three countries will need to lean into time-centric approaches to defence innovation, including rapid experimentation and fielding, operational prototyping, and the use of equivalent acquisition authorities such as US Middle Tier Acquisition and Other Transaction Authorities in Australia and the United Kingdom.145 While each country may be individually capable of this type of innovation, it is best for the AUKUS partners to cooperate and share engineering, science and technology resources in these efforts to maximise time efficiencies, innovative possibilities and, ultimately, operational effects. Whether or not efforts to deliver these effects through AUKUS can meet this urgent strategic need will depend very much on whether ITAR can be “radically changed” to incentivise developers of such technologies to participate.146
Unlike Pillar I, however, it is far less clear whether the three AUKUS countries agree in the level of necessary detail over what Pillar II is ultimately supposed to achieve, or how it is supposed to deliver advanced capability outcomes that are the result of genuine trilateral collaboration. From a broadly Australian perspective, revamping export control and information-sharing regimes that begin from an assumption of ‘AUKUS by default, Not Releasable to Foreign Nationals (NOFORN) by exception’ will be critical to achieving fundamental changes to the way that the AUKUS countries collaborate on defence industrial and technology matters. Revitalising US export controls and “frustrating” information-sharing practices for a new era of strategic competition will be required to incentivise Australian small and medium enterprises — a considerable source of cutting-edge national defence innovation — to work with AUKUS country governments and their defence departments.147 Reforms to these processes are required to allow these entities to work on projects involving US design input without giving up their intellectual property rights to the State Department. Only then will AUKUS be able to produce capabilities that are genuinely trilateral in their development and control.
Conversely, it is unclear whether Australia’s position on the objectives of AUKUS Pillar II is shared across several key constituencies in the United States. Granted, senior US defence and national security council officials have noted that the kinds of technology cooperation and industrial integration envisioned under AUKUS are driving changes to “antiquated systems” of technology-sharing across the US system.148 However, many Australian stakeholders interpret pronouncements by other US constituents regarding the purpose of AUKUS to reflect the view that, for Washington, this partnership is primarily a means to ‘hoover up’ the best of its allies’ niche technologies rather than to foster genuine collaboration.149 For example, though public statements by State Department spokespersons indicate that the department does “not anticipate any challenges in implementing AUKUS due to US export control regulations,” they add that these mechanisms “exist to safeguard US technologies and maintain the US warfighter’s qualitative edge.”150 By contrast, there has been little elaboration on an expanded or more egalitarian role for allies to play under a genuinely collaborative and reciprocal AUKUS partnership envisioned and required under AUKUS, including the intellectual property protections that ought to be afforded to Australian and British inputs into this joint effort. The enduring absence of such protections, and the known disincentives that these pose for innovative Australian companies to work with the Pentagon, has led many stakeholders in Australia to ask the question: “Does the United States need its allies to innovate, or just to fight?”151
IT IS UNCLEAR WHETHER AUSTRALIA’S POSITION ON THE OBJECTIVES OF AUKUS PILLAR II IS SHARED ACROSS SEVERAL KEY CONSTITUENCIES IN THE UNITED STATES.
The unfortunate reality is that these perceptions and the impediments posed by ITAR are already impacting capabilities and technologies of distinct relevance to AUKUS Pillar II. In fact, Australian ITAR-free — and hence, AUKUS-free — versions of advanced solutions in autonomous systems, quantum computing, space-based surveillance, and advanced radars already exist today or are in rapid development. These include the Ghost Shark extra-large autonomous underwater vehicle developed by Anduril Australia, passive Low Earth Orbit (LEO) space radars developed by Silentium Defence, and several other capabilities produced by Australian companies.152 Even major Australian companies have sought to develop ITAR-free versions of advanced capabilities, such as Lockheed Martin’s project to develop Australia’s Joint Air Battle Management System as well as Boeing Australia’s Ghost Bat unmanned aerial vehicle (UAV), both conceivably with an eye to maximising Australian export opportunities outside of the United States.153 Worryingly, others still are outright withholding their technologies from US military services for reasons including ITAR and intellectual property control issues.154 Some constituencies within the Australian system have increasingly suggested that the government should leverage, or even outright withhold, niche technology advantages or other alliance-relevant assets, such as aspects of the Australia-US force posture initiatives, from the United States to bargain for changes to US export controls that would better accommodate the equities of these companies.155
Shielding these capabilities from US design input, even when this could greatly enhance the operational performance of these assets, is an unfortunate requirement produced by the current system of outdated export controls. For example, Anduril Australia’s concept of supplying US commercial technology to Australia that is subsequently militarised in an ITAR-free fashion is now effectively an alternative AUKUS Pillar II option to achieve near-term autonomous undersea capabilities.156 This project could be radically enhanced and improved under a joint cooperative program with the US Navy, while also providing needed capability to that service and potentially benefitting from US naval engineers’ design input. But none of this can happen without removing structural disincentives through ITAR reform. The inability of US engineers to talk to Australian engineers without the latter’s parent company ceding intellectual property control to the State Department effectively deters innovative Australian firms from seeking such collaboration.157
An MQ-28 Ghost Bat
Boeing
Where such Australian-developed capabilities may be shared, there are significant risks of ITAR incumbency. Take, for example, Boeing Australia’s reported transfer of the Ghost Bat UAV to the US Air Force, apparently to aid in the service’s development of its Collaborative Combat Aircraft program.158 Yet under current US law, any subsequent modifications made to this prototype by US engineers will see future Ghost Bat models become ITAR incumbents, requiring State Department licences for retransfer or re-export even if the foundational intellectual property remains Australian. This is something which could be extremely difficult given the highly classified nature of the US Air Force’s future fighter and manned-unmanned teaming programs, and considering that export control processes are already a significant frustration for this company.159 This approach is hardly conducive to genuine seamless collaboration on advanced capabilities but could come to characterise many an AUKUS Pillar II project led by Australian ingenuity without meaningful ITAR reform.
The commercial derivative ITAR-free model is one that can be replicated by Silicon Valley firms within Australia and countries around the world, but a US parent is not always needed. In fact, Australian companies have already started to pick up on this pathway. For example, as the CEO of one Australian space company commented on his Australian-developed system, it is: “ITAR free as it’s been developed entirely in Australia. That means it can be directly exported to any country Australia approves, without first getting permission from the United States. If the system proves itself, that could lead to a substantial export market.”160 However, this solution can only be temporary if genuine trilateral co-innovation and co-development are to take place under the auspices of AUKUS Pillar II. Until a solution is found, commercial items and technologies with military applications will need to be transferred to Australia as is, with Australian engineers replicating the knowledge processes required to ‘remilitarise’ these commercial items for AUKUS Pillar II-like application. This is a duplicative and wasteful phenomenon but is currently the best of the bad options for US allies to obtain emerging military capabilities without sacrificing ownership of their intellectual property. The longer this endures, the greater the risk that needless interoperability challenges will arise between AUKUS partners’ systems in the future.
Pillar III: Co-production of legacy capabilities
While AUKUS Pillar II should focus on rapid, disruptive and collaborative innovation, the barriers to scaling up existing technology transfer arrangements that are critical to this endeavour are already immense. In fact, current US export control processes are already undermining the ability of the AUKUS nations to build, operate and maintain adequate numbers of existing weapons systems and platforms, let alone to develop new ones in a genuinely collaborative way. In its present form, ITAR currently “creates months of delays to service US-made helicopters, prevent the repair of US naval fighter aircraft, and even transfer bolts for US-made aircraft flown by the Australian military,”161 while approvals for some in-country maintenance programs for key US-origin capabilities have only recently been made possible.162
UNTIL A SOLUTION IS FOUND, COMMERCIAL ITEMS AND TECHNOLOGIES WITH MILITARY APPLICATIONS WILL NEED TO BE TRANSFERRED TO AUSTRALIA AS IS, WITH AUSTRALIAN ENGINEERS REPLICATING THE KNOWLEDGE PROCESSES REQUIRED TO ‘REMILITARISE’ THESE COMMERCIAL ITEMS FOR AUKUS PILLAR II-LIKE APPLICATION.
Technology transfer issues have previously prompted some AUKUS partners to consider pulling out of collaborative advanced capability projects in their early stages. For example, the United Kingdom reportedly considered withdrawing from the F-35 Joint Strike Fighter program in 2005 due to long approval times for State Department licences for relevant technologies including radars, software, and paint; instances of unit cost overruns of as much as 30 per cent resulting from these delays; restrictions on the development of after-market capabilities; and the addition of certain suppliers to shared supply chains.163 Though these issues were resolved with the signing of a new agreement intended to ensure the United Kingdom’s “operational sovereignty” under the multinational project,164 the F-35 case illustrates the breadth and depth of the problems that ITAR restrictions can and have posed for collaborative projects and shared supply chains in the past.
While not AUKUS-explicit in the ways that Pillar I and II are, the expansion of existing industrial base capabilities and the streamlining of how and where current weapon systems can be built, deployed and maintained, should be considered an indispensable component of getting AUKUS policy settings right — an effort which might informally be considered AUKUS Pillar III. Indeed, Australia and the United States are already addressing similar issue sets in AUKUS-adjacent alliance initiatives. This fact means that several Australian commentators and other constituents see AUKUS as a tool to either batter down ITAR barriers or to surgically establish carve-outs for Australian interests, depending on the objectives that Australia seeks to achieve.165 Regardless, it is in the US interest to have multiple sources of supply for critical capabilities of which it is chronically short,166 a line of argument that senior Australian defence officials have framed in terms of improving Australia’s capacity to “supplement and strengthen US industry and supply chains, not compete with them.”167 Prominent Australian experts have warned that reforms to US intellectual property rules and technology-sharing frameworks, including export controls, will be essential if Australia is to be empowered to play such a role in the Indo-Pacific.168
High Mobility Rocket Artillery Systems of the US Army and US Marine Corps launch rockets during a firepower demonstration at Shoalwater Bay Training Area during Talisman Sabre 2021
Department of Defence
Munitions figure as the most prominent example of where this cooperation, and associated reform, is required. Australia’s Guided Weapons and Explosive Ordinance (GWEO) enterprise established in 2020, which seeks to rapidly expand Australia’s domestic manufacturing capacity for niche components of priority precision-guided munitions, has for some time figured as a primary vessel for official Australian efforts to agitate on ITAR reform. This has only become more necessary in light of the significant shortcomings in the US defence industrial base, particularly its ability to replenish stockpiles of critical munitions, highlighted by the war in Ukraine. Defence ministers of successive governments have raised export controls and technology transfer restrictions as major impediments to defence industrial integration on precision-guided munitions production.169 However, though two US companies were belatedly selected to lead these efforts in Australia,170 glacial progress on advancing this agenda bodes ill for similarly-intended developments to meet the needs of the day.171 Some Australian industry entities already estimate that it would take many years to establish a US-origin munitions manufacturing capability in Australia, even if efforts started tomorrow.172 Additionally, many niche Australian technological advantages already provide essential inputs into the US launch systems for many of the precision munitions that Australia seeks to purchase.173 By contrast, European munitions manufacturers have recently secured agreements with the Australian Government to locally manufacture precision anti-ship munitions, including through technology transfer programs,174 and estimate that local production lines could be set up in much shorter time frames than those above.175
COLLABORATION ON MUNITIONS IS A MICROCOSM FOR COLLABORATION ON OTHER LEGACY CAPABILITIES AND, WITHOUT ITAR REFORM, A MODEL FOR COMPLICATION AS WELL.
Efforts to pursue distributed production models across allied countries for other such systems, including launchers for munitions like HIMARS, will require releasing US technology to Australian firms on a rolling basis to stand up secondary sources of in-country supply. Under current laws, however, transfers for such items on the US Munitions List are extremely difficult, if not impossible, to attain. Even if they were, the need to obtain multiple serial licences and approvals for these lines of effort on a rolling basis will, without reforms, prevent the establishment of a more agile process that supports timely and streamlined decision-making. This will only add to the multi-year lead time required for any significant industrial base ramp up that includes a role for allied countries other than the United States that could produce US-origin or ITAR-tainted defence articles. Needless to say, collaboration on munitions is a microcosm for collaboration on other legacy capabilities and, without ITAR reform, a model for complication as well.
To speed these processes along will require the use of existing but seldom-used export control streamlining authorities. Changes in the law could be considered to spur this process on to make it less clunky and more seamless, but the time to wait for such enabling legislation is more time lost to a growing threat. In addition to co-production options, there are likely other areas that offer new and improved supply chain and base operations support for existing US capabilities already transferred to AUKUS countries. These will need to operate in a more ITAR-free or streamlined fashion if the United States wants to maximise the ability of its allies to contribute to providing effective deterrence or to join the fight if deterrence fails.
THE WAY FORWARD: SOLUTIONS TO MAKE AUKUS A REALITY
The following recommendations are offered in an effort to further the ability of the AUKUS nations to work together and to avoid the negative outcomes of past reform efforts. Though the barriers to realising AUKUS are not exclusively American in origin — including reforms that Australia and the United Kingdom will have to pursue to their own regulatory mechanisms — those that relate to export controls currently reside squarely in the US system. A unique set of cultural, practical, and strategic factors that led to US technological dominance and triumph in the Cold War continues to colour US thinking about the role of allies in defence innovation and technology collaboration. Given previous efforts to address these barriers, it is difficult not to consider AUKUS as perhaps one last major opportunity to align senior political support behind meaningful changes to the US export control system. Failure to do so will have serious consequences for the future of US and allied defence innovation and technology collaboration and, by extension, for their shared strategic interests in shoring up deterrence and maintaining a favourable balance of power in the Indo-Pacific. In other words, this moment is bigger than AUKUS alone.
GIVEN PREVIOUS EFFORTS TO ADDRESS THESE BARRIERS, IT IS DIFFICULT NOT TO CONSIDER AUKUS AS PERHAPS ONE LAST MAJOR OPPORTUNITY TO ALIGN SENIOR POLITICAL SUPPORT BEHIND MEANINGFUL CHANGES TO THE US EXPORT CONTROL SYSTEM.
In our discussions with experts, government officials, and industry, there has been no shortage of ideas offered on how to make AUKUS a workable construct. Though, naturally, each of these constituencies made these suggestions based on their own equities, almost all of these ideas revolved in some manner around reform of the US export control system. The consensus gleaned from these engagements was that, from the standpoint of advancing AUKUS in its most ambitious form, US export control systems need to be more discriminatory in favour of Australia and the United Kingdom, streamlined, agile, and less transactional in their decision-making for AUKUS countries if this partnership is to be truly successful. Most importantly, these reforms will need to address the ITAR taint in a way that incentivises industry participation from across the innovation ecosystems of all three countries in the cooperative development and production of systems and new capabilities. Such efforts are critical for operationalising industrial and technology innovation among a mutually-trusted industrial community that AUKUS is intended to represent.
To get after fundamental structural changes to alliance-based industrial integration and technology collaboration, there are three significant variables that need to be considered. The first is the procedural approach to reform (i.e., whether it should emanate from the US executive or legislative branch, or some combination of both). The second is the application of export controls that distinguish between legacy and emerging technology, and the source of that technology (i.e., whether it is of US or allied origin). The third is a need to consider the level of industry participation and buy-in. Indeed, while the Defense Trade Cooperation Treaties were theoretically sound in establishing the concept of a trusted industrial base, they floundered on the details of industry participation, incentives, and buy-in on the specifics of regime implementation. Past reform efforts have floundered on not paying enough attention to these variables. AUKUS should not make the same mistake.
Procedural approaches to reform
There are two broad-based approaches that could be taken to achieve export control reform: action via the US executive branch fiat, or by an act of Congress. Both approaches have their pros, cons, and limitations, and there is no consensus among stakeholders as to which approach would deliver the most effective and enduring dividends.176 Some of those interviewed argued the case for an executive order that addresses most, if not all, of the ITAR issues for AUKUS.177 The clear advantage of this option is the speed of its implementation, the political signal this would send to bastions of resistance across the US system, and the political cover that this would provide to US supporters of ITAR reform for Australia to advance this agenda. Yet as history shows, the executive branch is bound by constraints enshrined in law, and executive action could risk being perceived as overreach by key constituents in Congress, risking wider congressional support for the complete realisation of the AUKUS project. Others argued that more targeted rule-making among key export agencies, driven by internal pressure and direction applied by the administration, could achieve similar objectives to those of an executive order, though in our opinion these will only address matters of process acceleration rather than fundamental reform.
Conversely, other stakeholders argued that enduring reform would require congressional action, either as a signal to the executive branch of legislative support or to augment executive authorities that would remain limited without changing US law.178 The upside of congressional legislative action would be the political durability of any proposed solution. Indeed, the concept of ITAR reform for AUKUS countries — including something akin to an AUKUS carve-out with these regulations — enjoys bipartisan support from prominent Democrat and Republican legislators,179 with these supporters proposing legislation that would compel the Departments of Defense and State to provide assessments of “recommended improvements to export control laws and regulations of Australia, the United Kingdom and the United States that such countries should make to implement the AUKUS partnership.”180 However, the legislative route is comparatively slow. Though in a best-case scenario, reforms could be passed through the annual National Defense Authorization Act by the end of 2023, key supporters of AUKUS within Congress have warned that targeted reforms to export licensing for Australia and the United Kingdom — let alone redrawing the legal parameters for collaborative innovation — will realistically take multiple years to finalise.181
Representative Joe Courtney, Co-Chair of the Congressional Friends of Australia Caucus, speaks during a news conference, April 2015
Getty Images
Scope of application
The second major consideration is whether reforms should address only existing technology transfer programs or include scope for emerging and as-of-yet uninvented technologies; the relationship between legacy and emerging technologies; and how these controls should treat the origin source(s) of individual innovations as part of larger cooperative projects. As it stands, the current system is biased towards legacy US military systems, with emerging technologies introduced into such programs tainted by their interplay with older legacy technology systems. Indeed, it is often when allied companies’ technologies ‘touch’ or interact with these systems that US controls are triggered. This is why commercial and foreign companies are extremely careful in how their technologies interface with US systems and engineers, in order to preserve their metaphorical “freedom of manoeuvre” in future innovation cycles and to prevent their intellectual property from being controlled by the US State Department.
Resolutions to questions of control regarding allied technological inputs into collaborative capabilities and legacy US systems and technology alike should revolve around a consideration of what level of materiality is important to protect among close US allies, what the US trusts these allies to protect, and how much bureaucratic or procedural oversight should be required as a result. For emerging technology, it will be important to address how commercially derived technology and especially cooperative joint innovation is treated and protected to incentivise participation by commercial companies and allied governments. Finally, developing a means to determine how specific classes of Australian and/or UK-developed technology and knowledge should be reciprocally treated when coming into contact with US intellectual property also deserves deep consideration.
Industry incentives
Any reforms need to take into account the incentive structure for private industry to participate in AUKUS. Unlike authoritarian systems, the governments of AUKUS countries cannot compel their national companies to work on military programs. At the same time, building enough mutual confidence between the partners regarding their individual and shared technology regulations and protections, and the trustworthiness of their national companies, is critical to realising the concept of a trusted industrial base.182 How to define this trusted defence industrial base, the authorities for judging which companies are suitable for inclusion, and the appropriate criteria and processes for adding industrial entities to this enterprise are all key questions that will need addressing.183 The other central issues are the cost of compliance and the need for regulatory harmonisation. Companies face many different compliance regimes that all cost time and money to manage. All up, AUKUS is currently subject to six distinctly different export control regimes with interconnecting complexity. The need to harmonise these regimes between the allies is well understood (and indeed, was a central objective of the NTIB),184 particularly given that defence export control authorities in different national governments are not always housed in counterpart organisations.185 Yet there is less consensus on what the best collective standards are or what they should be based on short of copying the US system — which, as discussed above, is a less-than-optimum solution.
As such, under current conditions, to pursue a trilateral industrial or technology project with the AUKUS countries, a commercial firm would need to comply with specific Australian, UK and US export control requirements that are all different — two sets of national regimes for Australia and the United Kingdom, and four separate US export regimes in ITAR, EAR, the Defence Trade Cooperation Treaties, and the Foreign Military Sales mechanism. Furthermore, the experiences of industry with these various export control regimes are not uniform and generally tend to impact small to medium enterprises much more adversely, a fact which is particularly problematic for a niche technology provider like Australia.186 Indeed, while some larger companies see dealing with these regimes as the cost of doing business, many smaller companies do not have the in-house expertise or financial capital to contend with complex export control reporting requirements.187 Unaddressed, these costs will deter innovative start-ups from contributing potentially game-changing technologies to AUKUS programs.188
RECOMMENDATIONS TO ADDRESS THE ITAR PROBLEM
Note: the proposals in this section can be found in their fully drafted form in the document accompanying this report: “Annex 1. Proposals for Executive Branch and Congressional Action to Reform ITAR for AUKUS Countries,” authored by William Greenwalt.189
The following recommendations for AUKUS-enabling export control reforms are divided into two major and three sub-categories. The major categories depend first on whether reform is conducted by the US president or Congress. In reality, these options are not mutually exclusive: both an executive order or a proposed regulatory rule could be issued to address the creation of a robust AUKUS export control framework, while specific legislative language could further reinforce reform efforts to support AUKUS.190 These two primary categories are then divided into three sub-categories depending on the applicability of different origins of technology — whether it is existing US technology, predominately allied-developed technology, or jointly developed emerging technology.
US President Joe Biden signs an executive order at the White House, Washington, DC, February 2021
Getty Images
Executive branch recommendations
Because of the requirement for a bilateral agreement in the Arms Export Control Act (AECA), the executive branch is limited in not being able to give a blanket export control exception to the United Kingdom or Australia. On the other hand, it can be argued that the president has significant discretion to make AUKUS a functional reality by classifying different rule sets for programs or categories of technologies. The larger question, therefore, is whether there is the political will to use that discretion. Given the investment of his own personal political capital behind the AUKUS initiative, President Biden should issue an executive order to streamline US export controls processes and procedures for AUKUS nations, addressing existing US technology, predominately allied technology, and jointly developed emerging technology in the following manner:Existing US technologies: The president should take maximum advantage of existing authorities to conduct program and open general licensing to streamline licensing requirements within a trusted industrial base.
AUKUS-specific program licences and open general licences (OGLs) should be specified and created. These AUKUS program licences and OGLs should cover broad categories of pre-existing and already transferred defence items to ease the operational use and maintenance of these items within a generally accepted trusted community of private sector suppliers, approved by each AUKUS nation within their country. The departments of Defense and State should be directed to jointly create a list of programs and categories of legacy technologies to which these measures will apply and to create OGLs and specific program licences to enable future cooperation under such programs and the use of such technologies by the AUKUS countries, so as to encourage interoperability and interchangeability of defence capabilities among this partnership. At a minimum, the agreed-upon Pillar II categories should be included in the first set of future cooperation OGLs.
This industrial base for AUKUS program licences and OGLs should not be tied to the Defense Trade Cooperation Treaty definitions. Rather, a mutually agreed-upon process to define a trusted industrial base should be established by the AUKUS countries, one that incentivises commercial industry participation by those firms needed to work on defence solutions. In that sense, ensuring that these conditions are sufficiently attractive and fair for the participation of small and medium enterprises, and not just industry primes, should be of particular concern.
Such specific program licences and OGLs should be established for the transfer of US technologies to establish various production capabilities within Australia, leveraging a jointly agreed-upon and trusted group of industry firms working in the United States and Australia. As a simple first step, the transfer of such technologies and technical data should be prioritised for the local production in Australia of select precision munitions through the Guided Weapons and Explosive Ordinance (GWEO) enterprise as soon as possible.
Existing Australian and UK technologies: Allied technologies transferred to the United States from AUKUS nations should be treated in a reciprocal manner as US technologies are treated in the AUKUS nations. As such, any AUKUS country-aligned sustainment organisations working on non-US manufactured and designed equipment should be exempt from the ITAR within US borders. The extraterritorial application of the ITAR should be abolished for parts and components of defence articles (not containing sensitive mission data) that are returned to AUKUS Original Equipment Manufacturers for repair or maintenance, and the ITAR should not be attached to non-US AUKUS intellectual property.
Joint development of emerging technologies: The president should take maximum advantage of the licence-free options under ITAR 126.4 and, in particular, establish trilateral cooperative programs under the authorities of 10 USC 2350a to correspond with the lines of effort articulated under AUKUS Pillar II: undersea capabilities, hypersonics and counter hypersonics, quantum, artificial intelligence and autonomy, cyber, and electronic warfare.
Within these cooperative programs, knowledge and technical data produced should be controlled by each AUKUS nation under their own distinct export control laws and regulations, and not be unnecessarily subject to each other’s jurisdiction or control. A joint grouping of the AUKUS nations should meet to discuss any necessary harmonisation of export controls for the development and use of end-items produced from these cooperative programs.
Within the AUKUS nations, a de minimis standard should be established to determine the ultimate control of a defence end-item based on the transfer of technical data or defence services provided to a solution predominately developed in one AUKUS country.
Representative Mike Gallagher, chairman of the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, at a hearing in Washington, DC, February 2023
Getty Images
Legislative branch options
In addition to the above, Congress should consider acting to provide or reinforce the relevant authorities to the executive branch, and/or to send a positive signal regarding the use of existing executive branch discretion, to make AUKUS implementable in a genuinely trilateral manner. Here, there may be a need for Congress to clarify or broaden the executive branch’s discretion. The biggest legal impendent may be in the ability of the executive branch to implement measures to overcome the ITAR taint. If these measures are somehow interpreted as being exceptions to the ITAR, and considering that only Canada technically has such an exception, then these directives may not be implemented unless the Defense Trade Cooperation Treaties (DTCTs) can be made to work as intended (i.e. facilitating more seamless transfers of defence articles within a trusted community).
The easiest way to do this would be to repeal the restrictions in law that prevent the AUKUS nations from more easily renegotiating the implementing arrangements to the treaties. Several experts consulted believe that passing legislation which provides Australia and the United Kingdom with a specific exception beyond the bounds of the treaties could provide the types of authorities that could make AUKUS work in practice.191 In this interpretation, without a change in law, the ITAR will remain an authority that must be applied equally to all countries with the exception of Canada. Other legal experts believed there is much broader discretion in the ITAR for the executive branch to act,192 but this has yet to be borne out in practice.
The most significant point of clarification for the purposes of Pillar II cooperation is the application of the ITAR taint. Here, Congress could legislate to abolish the taint for the AUKUS nations. Some experts believe this could be addressed in individual program or category licences, as the taint is a regulatory construct.193 Others suggested that there is no basis for positive discrimination for countries that do not have an exception in Section 22 USC 2778(j). Regardless, even if Congress granted such an exception or the DTCTs were made to be implementable, the taint would not be immediately addressed because it is driven by regulation, rather than by statute. While cooperative programs could be initiated and open general and program licences could still be granted to the AUKUS nations, there is currently no exception to ITAR 124.8(a)(5) that would overcome the ability to use technical data or a defence service to develop a defence item without these falling afoul of US export controls. This would jeopardise advanced cooperative development and the importation and application of Australian and UK technology in the United States for the reasons explored in this report. In other words, industry in each of the AUKUS nations, including in the United States, would continue to see the threat of the ITAR taint as a reason not to participate in any US-led defence research and development programs.
For the purposes of reform, considering the ITAR to include the source of the taint would be an executive branch interpretation of a very broad-based legal authority and the definitions in the Arms Export Control Act (AECA) explored above. In that sense, Congress may want to expand the executive branch’s discretion to positively discriminate in favour of AUKUS countries, by providing such clarity in written law. To further address the ITAR taint, Congress could choose to provide greater rigour in the definition of what is considered to be a defence item according to the AECA. It could also clarify that the executive branch has discretion to apply these definitions differently to the AUKUS nations, rather than to all foreign nations indiscriminately. The ITAR should be flexible enough to differentiate between close allies, adversaries, and other countries that should not be given easy access to certain advanced defence technologies. The fact that many believe that the ITAR cannot presently make those distinctions is a good reason for Congress to act.
Given these legal differences in opinion, it would be best for Congress to clarify and enhance executive branch discretion in the ITAR’s application to enable broad-based cooperation on new innovative technologies developed jointly or by the AUKUS allies. Congress could consider legislation to clarify executive branch discretion to streamline export control processes and procedures among the AUKUS nations addressing existing US technology, predominately allied technology, and jointly developed emerging technology:ITAR exceptions: There are three statutory fixes that could provide the executive branch with clarity in the use of its discretion. The first is to simply add Australia and the United Kingdom to the Canadian exception in Section 22 USC 2778(j)(1)(B).194
The second is to enable the modification of the implementing arrangements of the DTCTs to allow this ITAR exception to work in practice. This would allow for the modification of the makeup of the trusted industrial base communities that could allow the treaties to work as their makers intended. This would also negate the need to create a plethora of program and open general licences or other cooperative programs for these countries, as envisioned in the executive order solution, reducing procedural burdens for all three states. This could be accomplished by simply repealing Section 105 of the Security Cooperation Act of 2010. While the entirety of the act could be reviewed as to its impact on implementing the DTCTs, with other sections repealed or amended, repealing Section 105 would provide the means to create a mechanism for greater flexibility in the DTCT implementing arrangements, short of a more extensive review.
A more limited statutory change could provide a carve-out exception for the United Kingdom and Australia on how technical data and services are treated. This would address most of the ITAR taint issues for both existing technologies developed in Australia and the United Kingdom and for cooperative emerging technology development. This could be accomplished by providing for the AUKUS countries that “any defense articles produced or manufactured from technical data or defense services provided pursuant to a Technical Assistant Agreement, Manufacturing Licensing Agreement, or developed within a cooperative agreement shall be controlled under the export control requirements of the country of the final manufacturing of the defense item and will not be subject to the restrictions of ITAR 124.8(a)(5) and ITAR 126.18.”195
Changes addressing existing US technology: In stand-alone legislation, Congress could also encourage the executive branch to use its existing authority to create an AUKUS-specific program and open general licences within a trusted industrial base. These AUKUS program and general licences should cover broad categories of existing, already transferred defence items to ease the operational use and maintenance of these items within a generally accepted trusted community of private sector suppliers approved by each AUKUS nation within their country. This industrial base should not be tied to the DTCT definitions of a trusted industrial base but should be mutually agreed upon by the countries involved. Congress may also want to specifically direct the executive branch to establish co-production capabilities of guided weapons and munitions within Australia, covering a jointly agreed upon trusted group of firms in the United States and Australia.
Changes addressing existing Australian and UK technology and a trusted industrial base: In addition to addressing the ITAR taint in the above section, it may be possible to do something similar by carving out an exception in the definition of technical data and services. It should also be possible to create a de minimis standard here for AUKUS countries, as well as to specifically address cases of concern for Australian and UK companies regarding protections for their intellectual property when exporting defence items to the United States.196 Congress could direct the president to establish such a de minimis standard for AUKUS similar to that which operates in the control of dual-use exports. It could also exempt from the ITAR those AUKUS country-aligned sustainment organisations working on non-US manufactured and designed equipment within US borders. A similar exemption could be made for parts and components of defence articles (not containing sensitive mission data) that are returned to Australian and British companies that originally manufactured these items. Finally, Congress could clarify that any underlying Australian or British intellectual property used on US weapon systems is not subject to US export controls.
Specifically, Congress could address the source of the ITAR taint by amending Section 2778(j)(4) of Title 22 to provide an exception to the definition of defence articles for those articles transferred to Australia and the United Kingdom.197 In this case, defence articles could be defined only as defence items, meaning that technical data and services transfers would then not be covered under the ITAR.
Changes addressing joint development of emerging technology: Amending the definition of a defence article or the application of US-applied defence services and technical data as described above, to focus on only controlling end-item hardware to the AUKUS nations, should address not only the ITAR taint issue for existing technologies, but also for future joint cooperative programs. Still, it would be helpful to further clarify the non-application of US export contamination to cooperative programs.
Congress could direct the executive branch to maximise the use of authorities in ITAR 126.4 to include establishing joint cooperative programs under the authorities of 10 USC 2350a. These programs could correspond to AUKUS Pillar II technologies: undersea capabilities, hypersonics and counter hypersonics, quantum, artificial intelligence and autonomy, cyber, and electronic warfare. Within these programs, Congress could ensure that knowledge and technical data produced shall be predominantly controlled by each AUKUS nation under their respective export control laws and regulations, and not be subject to US jurisdiction or control under the Arms Export Control Act by default. Similar to what Congress intended for the NTIB to do, a joint working group of the AUKUS nations could be established to discuss any necessary harmonisation of export controls for the development and use of end-items produced from these cooperative programs.
No comments:
Post a Comment