AUKUS Pillar I and Pillar II
ITAR developments continue as the U.S. responds to national security threats with strategic trade controls and security partnerships. In recent news, AUKUS Pillar II has greatly eased the transfer of defense articles and technologies between Australia, the United Kingdom, and the United States. This trilateral security partnership was created to address Indo-Pacific threats from China.
The agreement between AUKUS partners initially pertained to the transfer of nuclear propulsion technology. Under Pillar II, it now includes cyber capabilities, quantum technologies, artificial intelligence, and additional underwater capabilities. Licensing requirements have been greatly reduced for the transfer of defense articles between parties registered in the Defense Export Control and Compliance System (DECCS).
The resulting International Traffic in Arms Regulations (ITAR) exemption as defined in 22 CFR part 126.7 applies to transfers within the physical territories of the three countries to authorized users that are registered with the Directorate of Defense Trade Controls (DDTC). These exemptions came about as Australia and the UK reformed their export control regimes to align with U.S. requirements and add key restrictions and enforcement mechanisms.
As detailed in the Journal of Strategic Trade Control October 2024 report this security partnership could result in the creation plurilateral export control regime that could rival the Wassenaar Arrangement and serve to augment U.S. geopolitical security interests.
Revisions to Reexports and Requirements for Foreign Companies
The DDTC is planning to redefine the export and reexport of technical data to foreign nationals such that any release in or outside the United States is deemed to be an export or reexport to all countries to which the recipient holds citizenship or permanent residence. The ITAR is extraterritorial in that any reexport of a controlled article, service, or technology requires relicensing and providing detailed information concerning end-users.
This revision further calls for end-users or consignees to have in place adequate processes for screening employees for intra-company, intra-organization, and intra-governmental transfers. This screening must include a risk assessment that considers a foreign person’s substantive contacts with contacts with restricted or prohibited countries.
Revisions to Defense Services
This proposed revision of the ITAR would change the definition of Defense Service (22 CFR 120.32) to include items currently specified in design, engineering and manufacturing definitions. It also includes clarification that the disrupting a nation’s military capability by the disabling or degradation of defense articles is to remain a controlled activity. The term training is proposed to include the term consulting.
Category IX of the USML is proposed to include two now entries and the entire category is to be renamed “Military Training Equipment, Intelligence Defense Services, and Military Defense Services”. The proposed new text states that defense services pertaining to intelligence assistance do not necessarily include defense articles. This is to further stipulate that the ITAR does regulate intelligence services including “assistance on tactics, techniques, procedures, and other types of training that enables the intelligence activities a foreign government, unit, or force, or their proxy or agent”.
Further ITAR developments with regards to defense services deal with catch and release functions as they pertain to U.S. persons drafted into the armed forces of a foreign nation. This is to clarify that the Department of State intends to regulate the activities of such draftees.
Revisions to the USML
The United States Munitions List (USML), which is part of the ITAR, enumerates articles, services, and technologies that are defense or space related and therefore fall under export regulations. Numerous areas with Categories IV, V, VIII XI, and XV will be revised to provide more concise descriptions of regulated items and address comments received.
Many of the proposed changes will involve circuit boards and semiconductors that could be utilized in launch vehicles, ballistic missiles, night vision equipment, spacecraft, or nuclear weapons.
CVG Strategy Export Compliance Management Programs
ITAR developments are continuing to add complexity for businesses engaged in sales of items that are intended for international sales international sales. Failure to comply with regulations can result in criminal prosecution including imprisonment and fines. It can also result in civil penalties and disbarment from export activities.
Export Compliance Management Programs establish clearly defined policies and procedures for all departments within an organization. They ensure that registration, item classifications, license applications, denied part screening, and security measures are taken that will prevent violation. They also ensure that training, auditing, and record keeping are maintained according to requirements.
CVG Strategy can help you in understanding the ITAR and EAR, and help you establish a coherent and effective export compliance program. We can perform export control classifications, perform audits, assist in filings for export licenses and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.