Where does the UK-US Treaty stand now?
The UK-US Treaty into force in April 2012. The first transaction was completed nine months later in December 2012 and was relation to the UK Air Seeker project, which was one of the Treaty’s seven ‘Pathfinder’ projects.
To date the UK-US Treaty has six members in the UK Approved Community, with 20 more UK applicants in the process of becoming Approved Community members. The processes for adding Approved Community members, intermediate consignees and projects to the Treaty are continually under evaluation to identify improvements and it is expected that the number of UK Approved Community members will increase significantly over time.
With just six Approved Community members after almost a full year of the UK-US Treaty in force, it can be said that the process of becoming an Approved Community member is not something that happens quickly. Though DECO will certainly be able to capitalize on the work done by the DDTC in working with the UK to fine-tune the operation of the US-UK Treaty, Australian industry can and should anticipate a long lead time for exports to begin happening regularly under the (yet to be created) ITAR exemption for the AU-US Treaty.
How is the UK-US Treaty used?
The UK-US Treaty was designed to support government programs and projects. Given the requirements of UK-US Treaty, it is most useful for new programs and projects and will likely play a more important role in the future as more Treaty eligible projects are rolled out. Of course, its success will depend on US exporters seeing the value of the Treaty and encouraging their UK counterparts to become Approved Community members to facilitate trade under the provisions of the Treaty.
In the US, the UK-US Treaty is implemented through an ITAR exemption (126.17). All requirements for the use of the Treaty are outlined in the exemption, making identifying eligibility requirements relatively easy. It can be said that there is a six step process that US exporters follow when exporting under the ITAR exemption for the UK-US Treaty:
- 1. Examine the transaction. Is it in support of a UK-US Treaty eligible project? The DDTC website has a list Approved Community members can refer to in order to determine if a particular program or project is Treaty eligible. Government contracts and Department of Defense RFPs may also contain information about Treaty eligibility.
- 2. Refer to the UK-US Treaty’s Exempted Technologies List (supplement to ITAR 126) to verify that the particular ITAR controlled article is not exempted from the Treaty.
- 3. The US party will need to obtain the UK facility’s Approved Community Identification Number (ACID). The DDTC has this information in a secure treaty reference database, which is only available to US companies registered with the DDTC and UK Approved Community Members.
- 4. Ensure that the intermediate consignee(s) are authorized to participate in the transaction.
- 5. Ensure that the item (or paperwork) is properly marked.
- 6. Ship the item to the Approved Community facility and ensure recordkeeping processes and procedures have been followed for the transaction should questions arise about the shipment in the future.
Although this level of guidance for the AU-US Treaty has not yet been published, the process for the UK-US Treaty may be indicative of how AU-US processes may function. What is the most significant hurdle to using the UK-US Treaty? One of the most onerous requirements of becoming a UK Approved Community member is to obtain List X status for their facility. List X status allows the company to handle items and technology with a ‘confidential’ or above classification. The Approved Community process ‘shadows’ the List X process. The company makes an application to the Security Advice Centre and due diligence checks are conducted by the UK government’s DE&S Infrastructure Security on the facility seeking Approved Community membership. A ‘nomination form’ is subsequently sent by DE&S to the DDTC, which conducts its own checks. Next, the UK government conducts an ‘assurance team visit’ to the UK facility seeking Approved Community status. The visits typically take one day and, prior to the visit, the applicant receives the required forms to complete along with a list of documents and facility areas to be reviewed during the visit. After the visit, a formal report is prepared by the assurance team, which may include recommendations for required adjustments before the facility can be approved. A second visit may be required to ensure all requirements have been met. Once approval is received, a recommendation for Approved Community status is forwarded to the DDTC. The DDTC, upon approving the facility for Community Member status, will assign an Approved Community Identification Number (ACID) to the facility (physical address) that has been approved. The process takes about 6 months and depends largely on the ability of the facility to handle controlled goods in accordance with Treaty requirements and their agility in implementing the recommendations for any process or security changes outlined in their assessment report. With respect to the AU-US Treaty, Australian companies may face a review process that is similar to the process in the UK. Facilities will likely be reviewed to establish that security processes and procedures are in place to adequately safeguard ITAR controlled technology. In addition, as in the UK, the assessment of the facility will include a review of the company’s compliance track record, foreign influence and other factors to assess eligibility for Approved Community membership. Where does the implementation of the AU-US Treaty stand now? The Defence Trade Controls Act 2012 (the Act) received royal assent on 13 November 2012, however, most of the Act’s provisions are not yet commenced. The reason for this is that much of the administrative detail still requires clarification and industry consultation. The Act not only implements the AU-US Treaty, but also strengthens Australia’s export controls on the intangible supply of DSGL controlled technology, including research and electronic data. The Australian government is undertaking a two year implementation period during which the effect of the strengthened export controls on industry will be evaluated. A Strengthened Export Controls Steering Group, comprised of members of industry, academia and government representatives has been created to provide regular feedback to the Minister of Defence on the impact of the new export controls. It is expected that the feedback provided will lead to further amendments to the Act and the Defence Trade Controls Regulation 2013 (the Regulations), which is currently in draft form. The Regulations were released for industry consultation in early 2013, though only a small number of submissions were received by DECO. One of the criticisms of the Regulations, as drafted, is that they do not provide sufficient administrative detail with respect to how trade will operate under the AU-US Treaty. DECO has stated that they intend to release an Approved Community Manual, which will provide the administrative detail sought by industry to allow for companies considering becoming Approved Community members to conduct a cost/benefit analysis. Australia has a long road ahead In summary, Australian industry may be waiting for some time before we see the AU-US Treaty in operation. Before Australian industry can operate under the Treaty, the following must happen:
- the Regulations must be finalized,
- the Approved Community Manual released,
- further consultation must be conducted with industry on certain provisions of the legislation,
- an exemption to the ITAR must be created,
- pilot programs will need to be conducted, and
- the exempted technologies list must be drafted.