Under Pillar II of the AUKUS treaty, the Australian Government committed to developing a range of advanced capabilities, to share technology and increase interoperability between the Australian, United Kingdom (UK) and United States (US) armed forces. 

As part of undertaking Pillar II, the Australian Government has taken several steps to promote further innovation in the defence technology sector. In particular, the Defence Trade Controls Amendment Act 2024 (Cth) (Amendment Act) received royal assent and passed into law on 8 April 2024, amending the Defence Trade Controls Act 2012 (Cth) (DTCA) to, amongst other things: 

• provide an exemption on permits for exports to the US, UK and other entities of certain technologies listed on the Defence Strategic Goods List (DSGL); and
• introduce a new mechanism to enable regulatory controls to be ‘short-cut’ through the Australian Military Sales Program (AMSP). 

These changes dovetail with developments made by our AUKUS allies, in particular: 

• the UK has also released their open general export licence amendments; and 
• the US has sought submissions on its amendments to the International Traffic in Arms Regulations (ITAR),

to reduce certain defence-related technology barriers between AUKUS nations. 

For some, the changes represent a very positive step to foster innovation in this important sector in Australia. For others, they cement a strong pivot into a new AUKUS normal with a greater focus on US and UK collaboration at the expense of others. However, these changes, combined with a range of other Australian Government initiatives designed to reduce barriers to innovation, should make Australia a far more appealing location for investment in technology businesses in the defence sector. However, it is fair to assume that foreign investment in those opportunities would be tightly controlled through the FIRB process.

This is the second article in a series covering changes in Australia’s regulatory and innovation landscape affecting technology. It takes an in-depth look at this significant breakdown in barriers impeding the development of defence and dual-use technology. 

Export control – what has changed? 

Export controls regulate the importation and exportation of defence and strategic goods and goods with defence or strategic applications (referred to as dual-use goods). Regulated military and dual-use goods and technology are specified in the DSGL, as defined in regulation 2 of the Customs (Prohibited Exports) Regulations 1958 and made under paragraph 112(2A) (aa) of the Customs Act 1901 (Cth). 

Goods subject to the DSGL require a licence or permit issued by Defence before the supply of those regulated goods or technology can occur unless one of several specific exemptions set out in the DTCA applies. Supplying regulated goods or services without an exemption, permit or licence may constitute an offence under the DTCA. Importantly, the ‘supply’ of goods or technology extends to communicating about the relevant technology (ie emails of plans etc) and not just the physical supply of goods. The Amendment Act amended the DTCA to:

• include three new offences to the DTCA;
• bring Australia’s export control regime that is comparable to the one the US administers (a requirement to facilitate greater technology trade between the two nations); 
• create a licence-free environment to supply DSGL goods and technology and provide DSGL services from Australia to the UK and the US (or the supply is made to an entity subject to a covered security clearance); 
• exempt ‘fundamental research’ from new offences within the DTCA; and 
• allow different regulatory controls to be placed on transfers of DSGL goods and technology sold or gifted through the AMSP. 

Fundamental research

First, what is subject to Defence Trade Control will expand from only applying to DSGL Technology, which is now defined as:

[…] a thing that:

 (a) either:

1. is technology, as defined in the Defence and Strategic Goods List, not including such technology that has been produced in the course of, or for the purposes of, fundamental research; or
2. is software, as defined in that list; and

 (b) is within the scope of that list,

to include DSGL Goods (goods within the scope of the DSGL) and DSGL services (the giving of assistance (including training) about the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarisation, destruction, processing or use of DSGL goods or DSGL technology that are within the scope of Part 1 of the DSGL). 

This approach is more consistent with US provisions but certainly means that a broader scope of goods or services will be subject to the DSGL. 

Notably, however, the new definition means that certain fundamental research is exempt from the DTCA offences. Fundamental research is not considered DSGL Technology. This is defined as: 

[…] basic or applied research conducted in circumstances where the results of the research: 

(a) are intended for public disclosure and 

(b) are not subject to any restrictions on disclosure for purposes connected with the security or defence of Australia or any foreign country.

Whilst vague, these provisions are intended to provide some comfort around a key aspect of the DTCA: the potential inadvertent overreach it represents to the academic field. 

New offences and rules for some but not all

The Amendment Act has introduced 3 new offences into the DTCA that cast a wide net of potential liability for:

• supplying DSGL Technology in Australia to a foreign person;
• supplying certain DSGL goods and technology from a place outside of Australia; and
• the giving of assistance (including training) about the design, production and use of any DSGL goods or technology outside Australia.

Further, new carve-outs for both AUKUS and Five Eyes Nations and defence sales have been included. Relevantly, a supply or service is not a relevant supply or service if: 

• the supply or service was made to (or in) Canada, New Zealand, the UK or the US;
• an entity that receives the supply is subject to a covered security clearance (a security clearance given by the the Australian Government Security Vetting Agency or the equivalents of the Government of Canada, New Zealand, the UK or the US of America); or 
• the relevant DSGL Technology is covered by the AMSP.

AMSP – good time to sell for Defence 

In addition to the exemptions above, a new mechanism has been introduced to allow different regulatory controls on transfers of DSGL goods or technology by having the Minister for Defence determine that the DSGL goods or technology is an AMSP Item. A determination that a DSGL good or technology is an AMSP Item means that the relevant service or supply is not considered a relevant supply or service. 

DSGL goods or technology designated as AMSP items are supplied under an agreement between Australia and a foreign country and such supply will be exempted from the permit requirements under the DTC Act. That said, it’s not entirely clear cut, and some exceptions to the offences are also restricted from being applied to AMSP items.

What to expect from this provision is somewhat unclear noting that it will be affected via determination. However, this may provide a faster export pathway for valuable Australian technology that has an export path to various nations. 

What does this mean for innovators? 

No matter how you cut it, the ability to supply DSGL Technology between nations with minimal red tape means that those working on cutting-edge technology with potential defence applications will have a much easier time developing or collaborating with AUKUS and Five Eyes nations as well and represents a significant focus on uplifting the Australian defence sector and Australian defence capability. According to Defence, the change will: 

• Affect approximately 900 export permits, valued at $5 billion (AUD) per year, which would otherwise be required under current export controls from Australia to the US and UK.
• Remove the requirement for approximately 200 permits, valued at over $129 million (AUD) per year, required for defence exports from the UK to Australia.
• Enable licence-free trade for over 70 per cent of defence exports subject to ITAR from the US to Australia.
• Enable licence-free trade for over 80 per cent of defence trade subject to Export Administration Regulations from the US to Australia.

If you are operating in the defence sector, you may want to think about doing the following to ensure you are in the best position to capitalise on the changes:

• Review your technology: Review your technology and the underlying IP, and make sure you are in the best possible position to demonstrate your value to the Defence industry and potential investors. Work out whether you are dealing with something that requires a permit, has a potential AMSP application or is considered Fundamental Research. 
• Spinouts: Consider whether now is a suitable time to establish an entity designed to take advantage of these favourable changes to the Defence sectors. Establishing an entity that aims to engage with AUKUS or Five Eye Nations, or seeks to be included as part of the AMSP may be the best method of utilising your technology or attracting investment.
• Get smart on the laws: Ensure you understand them and how they will affect your technology, services or goods.