US State Dept expects to finalize AUKUS trade exemptions in next 120 days

By David Brunnstrom

WASHINGTON (Reuters) -The U.S. State Department said on Friday it expects to finalize trade exemptions for the AUKUS defense project with Australia and Britain in the next 120 days, signaling a further delay in but offering the prospect of a positive outcome in the project to counter China.

AUKUS, formed in 2021 to address shared worries about China's growing power, would involve Australia acquiring nuclear-powered attack submarines, among other items of defense cooperation. But the sharing of closely guarded technology is governed by strict U.S. International Trafficking in Arms Regulations (ITAR).

The 2024 National Defense Authorization Act (NDAA) requires President Joe Biden to determine within 120 days of his signing it into law on Dec. 22 whether Australia and Britain have export control regimes "comparable to the United States" and thereby qualify for exemptions to the ITAR regulations. The 120 days is reached on Saturday.

"Exemptions in our export control systems, within a framework of shared standards with Australia and the UK, are key to harnessing and maximizing the innovative power residing in our defense industrial bases," the State Department said.

"We fully expect to finalize the new trade exemptions – based on stakeholder input – over the course of the next 120 days," it said.

Although the State Department statement indicated a delay in a positive determination by Biden, the legislation requires him to revisit the issue in another 120 days.

British government said in a statement it "warmly welcomes the significant progress" to advance AUKUS.

"UK and Australia are on track to meet the requirements of the NDAA and benefit from the exemptions," it said. "We are confident that by the next 120-day period we will have completed all the requirements for full implementation of the ITAR exemptions."

Australia's Department of Defence said in a statement it welcomed the "tangible steps" by the U.S. to streamline export control licensing requirements for AUKUS.

"The decision by the United States Department of Commerce to establish a license‑free dual‑use export environment amongst and between AUKUS partners is another significant step towards establishing a seamless environment for innovation, cooperation and collaboration," it said.

The Republican chair of the House Foreign Affairs Committee, Michael McCaul, called the Biden administration's failure to grant Australia and Britain ITAR exemptions by the initial deadline a "negative certification" and "very unfortunate."

"While I was pleased to see the Commerce Department quickly release an interim rule that will scale back export controls, the State Department continues to delay the necessary decision to deter and counter the threat posed by the Chinese Communist Party in the Indo-Pacific and beyond," he said in a statement.

The White House did not respond to requests for comment about Biden's decision.

On Thursday, the Commerce Department said it was scaling back its export-control requirements for Australia and Britain to foster cooperation under AUKUS.

However, the department only handles licensing of some defense-related items, not the broader range of items covered by the ITAR regime, which is governed by the State Department's Bureau of Political-Military Affairs.

Jeff Bialos, a former senior Defense Department official now a partner with the Eversheds Sutherland law firm, said the State Department has resisted blanket exemptions for Britain and Australia since they were first proposed by the Pentagon nearly 25 years ago, while he was in office.

However, he called the State Department statement "forward leaning" and said he now expected the three countries to put forward draft exemptions covering each other's export control rules.

"One of the criteria is that the other countries also have a system that will allow exports to the U.S. to be exempt. It's reciprocal," he said.

AUKUS' first pillar deals with the supply of nuclear-powered submarines to Australia, while Pillar II calls for more immediate cooperation in high-tech defense items such as quantum computing, undersea capabilities, hypersonics, artificial intelligence and cyber technology.

In announcing its move, the Commerce Department said both Australia and Britain "have robust export control systems and have taken additional steps in recent months to enhance technology protection."

(Reporting by David Brunnstrom in Washington; Additional reporting by Sam McKeith in Sydney; Editing by Jonathan Oatis, Rosalba O'Brien and William Mallard)