AUKUS Tech Pact Update

The State Department has published a Memo articulating the AUKUS Trade Authorization Mechanism (ATAM) designed to facilitate trade of U.S. defense articles and defense services between the United States, the UK, and Australia in support of AUKUS programs.

The AUKUS pact, a defense agreement among Australia, the United States, and Britain, was signed in 2021 and involves $368 billion worth of investments.

The transfer of submarines to Australia is a key part of the agreement, aimed at bolstering the Indo-Pacific region's security in the face of challenges from China.

AUKUS involves changes to U.S. export controls related to Pillar I (providing Australia with a conventionally armed, nuclear-powered submarine capability) as well as Pillar II (advanced capabilities, including hypersonic ballistics.).

The State action is an interim measure to streamline defense trade of U.S. origin items while the administration pursues legislative changes.

The AUKUS Trade Authorization Mechanism will provide a consistent framework that will cover Direct Commercial Sales (DCS) (private sector-to-government or private sector-to-private sector transfers) as well as some items that were previously sold as Foreign Military Sales (FMS) (government-to-government agreements) but may be handled as DCS under ATAM.

This mechanism relies on existing authorities, both to increase the speed and efficiency of defense trade while doing so in a way that is familiar, and therefore easier, for U.S. exporters.

• This approach was adopted to address concerns regarding how the speed and efficiency of the Foreign Military Sales (FMS) and Direct Commercial Sales (DCS) processes would be inadequate for the expected increase in volume of AUKUS-related defense trade.

The Administration will take three steps to implement the AUKUS Trade Authorization Mechanism:

1. First, identify the scope of AUKUS programs. This will optimize operations and compliance, as both government and industry will have a clear understanding of which uses/programs are authorized under this Mechanism.
2. Second, identify what technologies are not eligible under this Mechanism.
3. Third, identify which communities in each country would be approved for access to the technology, which includes an obligation to record what is transferred and to secure and protect the technology. This will help reduce the likelihood of unauthorized diversion of sensitive defense technologies and, if necessary, help to investigate any potential diversion.

Next, utilization of ATAM will proceed as follows:

• The exporter must check proposed transfers under AUKUS against these three basic and transparent criteria (programs, technologies, and authorized communities) that Defense and State would develop, and review with partners.
• Transfers beyond the UK or Australia, or transfer to a non-AUKUS program or a community not eligible to receive it, would require standard non-ATAM authorization.
• Based on legislation, the U.S. government would need to notify shipments under this authorization exceeding $100 million at least 15 days prior to the shipment. Existing systems will be utilized to conduct congressional notification.

The AUKUS Trade Authorization Mechanism will allow DCS transfers of some items typically transferred only under FMS.

The AUKUS Trade Authorization Mechanism offers an immediate solution to expedite and secure defense transfers of U.S. defense items for AUKUS projects, leveraging existing authorities (§ 126.4 of the ITAR) "to allow seamless and speedy defense trade."

Congressional Progress

The Senate Foreign Relations Committee has approved the transfer of nuclear-powered submarines to Australia, a move that signifies progress for the AUKUS security pact. The decision was part of the National Defense Authorization Act, granting Australia a unique 20-year exemption from the stringent export rules of ITAR.

Despite this progress, the National Defense Authorization Act is still set to encounter hurdles before receiving full Senate and House approval. Both Democratic and Republican lawmakers are locked in a fierce debate over social spending measures in the Pentagon’s defense budget, unrelated to the AUKUS agreement.

Committee Chairman Bob Menendez (D-N.J.), underscored the bill's significance in meeting global challenges and modernizing the State Department for 21st-century demands. The proposed legislation is seen as a critical step in updating the U.S.'s diplomatic and national security capabilities, a move supported by Ranking Member, Sen. Jim Risch (R-Idaho).

In a strategic move to expedite approval, the AUKUS provision was included in the broader National Defense Authorization Act, rather than introduced as separate legislation. This decision is expected to speed up Congressional endorsement.

Australia's Ambassador to the U.S., Kevin Rudd, welcomed the committee's decision, expressing hope for the swift passage of the legislation. The transfer of submarines signifies a significant step in the implementation of the AUKUS pact, strengthening Australia's defense capabilities in the Indo-Pacific region.

The U.S. House Foreign Affairs Committee approved a series of authorizations on Wednesday, July 26, aimed at accelerating the implementation of the AUKUS agreement, including the sale of up to two nuclear-powered Virginia-class submarines to Australia. This authorization was included as a provision in the broader National Defense Authorization Act, in a strategic move to speed up Congressional endorsement.

The controversial decision faced opposition from Democrats due to proposed exemptions for the U.K. and Australia from a crucial U.S. export control regime. However, Republicans in the committee advanced the legislation along party lines.

According to Rep. Michael McCaul (R-TX) "The nuclear sub is one thing the Chinese don't have us beat on. We've got superiority with the nuclear sub. So getting that moving is hugely important for deterrence reasons.”

Despite the support, the Senate's debate over submarine capacity complicated the passage of AUKUS authorizations. The Pentagon had previously requested Congress to attach submarine transfer authorizations to the National Defense Authorization Act for fiscal 2024.

ITAR Waivers Proposed

In addition to the submarine sale authorization, two other bills were advanced by the House Foreign Affairs Committee. These aimed to provide both the U.K. and Australia with blanket exemptions from the International Traffic in Arms Regulations (ITAR), a privilege currently only enjoyed by Canada. The committee narrowly voted to advance both bills.

The corresponding Senate bill introduced by Senate Foreign Relations Chairman Bob Menendez stops short of offering a blanket ITAR exemption, unlike its House counterparts.

"ITAR Comparable"

A June legislative proposal from the State Department, seen by Defense News, asked Congress to give Australia and Britain the ITAR exemptions only if the two countries implement their own export control regimes “that are at least comparable to those administered by the United States.”

Non-Proliferaton Concerns

The International Atomic Energy Agency (IAEA) has stated it will inspect Australia’s future nuclear submarines both before and after deployments, as part of a watertight agreement to ensure no fissile material is diverted for other purposes. Rafael Mariano Grossi, director general of the IAEA, stated that further negotiations are due to ensure the AUKUS deal does not conflict with non-proliferation obligations.

The Guardian reports The Aukus deal exploits a loophole in the 1968 Nuclear Non Proliferation treaty that allows nuclear fuel used for non-explosive military uses like naval propulsion to be exempted from IAEA inspections. To limit access, nuclear fuel will be delivered to Australia in welded power units which would be installed in submarines to be assembled by Australia and ready by the 2040s.

China Objections

Meanwhile, China has voiced its strong objection to the deal, alleging that the AUKUS partners had coerced the IAEA into accepting the agreement. It remains to be seen how these geopolitical tensions will impact the final passage and implementation of the AUKUS legislation.

[State Memo]