The Australia-USA Defense Trade Cooperation Agreement

2007 signing
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On Sept 5/07, The Australia-United States Treaty on Defense Trade Cooperation was signed by Australian Prime Minister John Howard and US President George W. Bush. The USA and Canada have had a special agreement for several decades, designed to remove many defense export restrictions on US-Canadian industrial cooperation. In June 2007, Britain and the USA also agreed to a treaty framework.

The new agreements with Britain and Australia were not fully defined when signed, however, and full implementation is a long and complicated process. This article explains the issues with the current system, the intent of the treaty, and the steps involved on the way to finally implementing it in May 2013.

The Trouble With the Current System

X-35
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The difficulty with the current set-up is the need for licenses at all stages, where each license can take from 3-12 months for approval. Licenses must be sought even for efforts involving cooperation between subsidiaries, such as Raytheon Co. and Raytheon Australia. This is an important feature of any serious export control regime, because it prevents “cut-out technology transfers”; nevertheless, it does get in the way of relations between trustworthy allies.

These difficulties with the existing arrangement manifests in a number of ways. It even strikes at the very initial stages of cooperation, by creating huge hurdles and costs for any discussions to even begin exploring cooperation between American and Australian firms. It strikes at the active cooperation stage by making full Australian participation in joint projects difficult, because licensing slows down the process and makes it easier to select US partners instead. Finally, it gets in the way of transfers of US-origin equipment and technical data. That slows down any effort to do more maintenance and sustainment work locally, after Australia buys US equipment or upgrades what it has. Which effectively encourages Australia not to buy from the USA in the first place.

The US Congress agreed to pass a watered-down “solution” in 2004. It gave UK and Australian export requests expedited status, which improved but did not fix the situation. US defense industry companies had also banded together on this issue to press for change to export system as a whole, but Australia was an important enough ally that it both deserved and could support a faster fix.

Hence the USA-Australian Defense Trade Cooperation Treaty of 2007, signed by President George W. Bush and Prime Minister John Howard.

How the New Treaty Is Intended to Work

Under the Treaty, US exporters working with firms in the “approved community of companies” can forego the licensing requirement, and just advise the US State Department that they have engaged in an eligible defense export activity with Australia. Eligible exports will include exports for:

* Mutually determined security and defence projects where the Commonwealth of Australia is the end-user (which will not include the F-35, since that’s a multinational project with its own agreements);
* Cooperative security and defence research, development, production and support programs; and
* Combined military or counter-terrorism operations.

A compliance and audit regime whose details took a little while to work out will monitor the agreement. This will include accreditation standards for “approved community” status, covering issues like facility clearance, business history, export licensing and compliance record and relationships to countries of concern.

Australian companies that are not part of the “approved community” will still be able to use standard US ITAR export control arrangements. ITAR procedures will also apply to certain highly sensitive exports that are not covered by the treaty, no matter which firms are involved.

Steps Toward Final Approval, and Updates

It has taken several years of parallel developments to flesh out and to ratify this treaty. While the document signed in September 2007 indicated agreement in principle, implementing arrangements had to be developed and agreed upon that defined precisely how the Treaty will operate in both Australia and the US, and how its obligations will be implemented. Implementation involved changing both countries’ legal and regulatory regimes, and putting these changes into effect.

On the political front, treaties must be approved by the US Senate, and American bureaucracies had to enact new regulations finalizing the specific changes. In Australia, legislation such as the Customs Act 1901, Customs (Prohibited Exports) Regulations 1958, and Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 (WMD Act) needed amendments, in order to comply with the treaty’s terms and conditions. The treaty also had to be be tabled in Australia’s Parliament, and examined by Joint Standing Committee on Treaties (JSCOT), before being passed by Parliament. In the wake of the November 2007 national elections, that task fell to the new Labor Party governments, first under Prime Minister Kevin Rudd, and then under Julia Gillard after Rudd was ousted by his party.

April 11/13: ITAR changes done. The US State Department’s Directorate of Trade Controls (DDTC) issued a final rule amending ITAR 126.16 to implement the Defense Trade Cooperation Treaty between the United States and Australia. It’s the last step on the American side before the treaty can come into effect. Sources: Steptoe & Johnson LLP, “US-Australia Defense Trade Cooperation Treaty Implemented In ITAR And Officially In Effect; License-Free Exports Now Available For Australia Under Certain Circumstances”.

Oct 29/12: Australia politics. Australia’s Senate passes the Defence Trade Controls Bill 2011 upon a 3rd reading, with amendments. It now goes through a reconciliation process that’s more formal than the USA’s, before both houses can pass a bill with the same text.

In the end, Senate Amendment #9 concerning “Exclusion for research, education and information in the public domain” is the only amendment that’s refused by the House, and fails to make it into the final bill. See Australia’s Parliament, “Defence Trade Controls Bill 2011: Schedule of the amendments made by the Senate” for full text.

Aug 15/12: Australia politics. The Senate’s Foreign Affairs, Defence and Trade Legislation Committee publishes its preliminary report [PDF] on the Defence Trade Controls Bill. The gist of the delays is that export controls in the bill may have detrimental effects on other sectors, from higher education and research to pharmaceuticals, biotech and nanotechnology. The committee believes the Department of Defence has not yet sufficiently consulted these actors, and sets publication of its final report to Oct 31/12.

The committee also thinks that it would make more sense to let ITAR reform fully unfold in the US. Their recommendation to wait is strongly worded:

“The committee believes that it would be folly to proceed with the bill at this time while the resolution of important matters remains outstanding.”

Sources: Australian Parliament, “Foreign Affairs, Defence and Trade Legislation Committee—Defence Trade Controls Bill 2011 [Provisions] – Preliminary report” | University of Sydney is happy.

Nov 21/11: Australia’s Defence Trade Controls Bill 2011 passes a vote in Parliament and is introduced in the Australian Senate.

July 2011: Australian politics. Stage 3 of Australia’s industry consultation process: release of the exposure draft of the Defence Trade Controls Bill 2011 for broader industry and community feedback. Source.

May 2011: Australian politics. Stage 2 of Australia’s industry consultation process: establishment of the Defence Trade Cooperation Treaty Industry Advisory Panel under Ken Peacock AM. It included experts from major Australian defence companies, small-to-medium businesses and the Department of Defence. Source.

December 2010: Australian politics. Stage 1 of Australia’s treaty-related industry consultation process: meetings with Australian defence companies in 8 cities. Source.

Sept 21/10: US politics. The US Senate Foreign Relations Committee reports favorably on the U.S.-U.K. Defense Trade Cooperation Treaty, the U.S.-Australia Defense Trade Cooperation Treaty, and a bill that would implement both of these treaties. The work is a joint effort by Sens. John Kerry [D-MA] and Richard Lugar [R-IN]. Foreign Policy magazine reports that:

“Administration sources said that in the home stretch leading up to the committee vote, Undersecretary of State Ellen Tauscher played a large role in ironing out differences, not only between the administration and Congress, but also between the State Department and the Justice Department. “

See also: Australia’s The Age | Sydney Morning Herald | Agence France Presse | AP | Defense News | Export Law blog.

Sept 19/08: US politics. The US Aerospace Industries Association releases a statement regarding the Australian and British defense trade treaties, which were not put forward for voting and approval by the majority leader (in this Congress, that was Sen. Harry Reid [D-NV]). The statement says:

“We are very disappointed that Congress has deferred approval of the U.S.-UK and U.S.-Australian Defense Trade Cooperation Treaties. We had been optimistic that they would be approved and signed by the president this session, despite the press of last minute business facing the Senate… It is critical to our nation’s security and economic prosperity to continue with modernization efforts in the next administration and Congress, to include passage and implementing these treaties.”

Additional Readings

* US Embassy, Canberra – Fact Sheet on U.S. Defense Trade Cooperation Treaties with the United Kingdom and Australia

* Australian Parliament – Defence Trade Controls Bill 2011. Full history.

* Steptoe & Johnson LLP (June 4/13) – US-Australia Defense Trade Cooperation Treaty Implemented In ITAR And Officially In Effect; License-Free Exports Now Available For Australia Under Certain Circumstances

Related Efforts

* DID – USA Moves to Improve Arms Export Regulation Process. This is a broader process that is remaking large sections of US export control law, based on a “4 singles” approach put forward by Secretary of Defense Robert Gates.

* British MoD (June 22/07) – US & UK sign treaty on defence co-operation. The counterpart to Australia’s similar treaty.

* DID (updated July 31/07) – US Industry Associations Pushing to Reform Export Controls

* DID (Dec 1/05) – UK Warns USA Over ITAR Arms Restrictions. Explains ITAR export control restrictions, and the red tape they create, in more detail.

Tag: ausitar, itaraustralia