I encourage you to take a look at that if you'd like.
We are going to be using questions and answers during the course of today. So if you have a question.
Please go ahead and use the Q&A and our panelists will be responding to that on an ad hoc basis.
We'll also be collecting questions for hopefully for a discussion at the end. As always, because several of our speakers are in
official or an institutional positions.
The speaker statements or in their personal capacities.
I'm joined by Alan Green, who teaches with me in a course on foreign government contracting. It's based on a book that he did.
on International Government Contracting with Marcus Peterson and other authors. Alan is a retired partner at Denton's. He has extensive experience in this area.
And his book was a wonderful foundation for
Our course, it goes through the various challenges that are faced in the US export markets.
And part of that course is on export and trade controls.
And Nick Townsend, who's one of our panelists, joined us in that course earlier this week. We're very, very grateful for his assistance.
Marcus Peterson joined us earlier in the semester to talk about foreign military sales.
Today's webinar has registrants from over 200 registrants from 32 countries around the world. Really very grateful.
For you joining us from around the world.
I'm also very grateful for the public contract law section, the International Procurement Committee. It helped coordinate this session.
And a special shout out to our doctoral student
I'm Manur Al Khalifa, who is from Bahrain, and she is actually writing on trade controls and she's joining the session as well.
So going through our panelists.
Just to give a quick background, we are first going to have Nick Townsend talk about
on the foundations of how trade controls work.
Then we're going to have Bill Greenwald's going to be talking in more detail about the
about the AUKUS arrangement.
Nick is a counsel at Arnold Porter in Washington, D.C, and he regularly handles
trade matters involving both the kind of trade matters we're talking about today, but also handles FCPA matters.
And other types of trade controls, including cybersecurity.
and sanctions. Bill is a visiting fellow. Bill Grunwalt is a visiting fellow at the American Enterprise Institute.
I think we focus on the expansion of America's industrial base, defense industrial base.
technology transfer reform issues, the very kind of issues we're talking about today. And if you look at the resource page, a lot of the resources, a lot of the articles that
we are drawing on today are actually written by Bill and his colleagues. He's a founder of the Silicon Valley Defense Group.
And he's a member with me of the procurement Roundtable. When he served as Deputy Undersecretary of Defense for Industrial Policy.
advise the Undersecretary of Defense on acquisition technology and logistics matters.
pretty much the kinds of matters we'll be discussing today.
Congress has served as a senior staff member for the Center Armed Services Committee, the Senate Governmental Affairs Committee.
and the House Appropriations Committee. In the private sector, Bill has worked for Lockheed Martin and this Aerospace Industries Association.
When Nick, as I said before, Nick is going to start us off and then Bill's going to follow.
But Nick has had expense experience in export controls, trade sanctions, cybersecurity, privacy.
And the aerospace industry. He also worked extensively in conducting internal investigations and audits under ITAR and the export administration regulations, what he'll be talking about today.
And he's also worked on sanctions issues, and that's a very unique issue that complements what we'll be talking about.
today.
Lori Romero is the…
Laurie, I apologize the
I'm working on a multi multi-layered screen. She's the lead trade compliance counsel with Global Trade Group of L3 Harris Technologies.
She provides enterprise legal advice and guidance on issues involving international trade controls
And she supports the vice president of L3 Harris's Global Trade Group.
Before joining L3 Harris in 2021, she served as the Director of Senior Counsel
is CGI Federal. And before that, she was at Raytheon
where she handled trade compliance issues, she served as supply chain council, and she provided legal support to various business units within Raytheon.
She also served as general counsel to Raytheon's transatlantic joint venture, the Thales Raytheon Systems.
Last but not least, Marcus Peterson is the managing director of Pillsbury's Washington, D.C. office.
His practice focuses on counseling, representing aerospace defense and civil contractors.
both federal procurement and international defense sales. As I said, he lectured our class earlier this semester on foreign military sales.
He also discussed direct commercial sales and contracts. He's going to be touching on those.
In his comments, before entering private practice, Marcus served as on active duty in the Air Force
Okay.
in the Office of General Counsel. And I should say Marcus is a former student of mine, and I'm incredibly
I'm very, very glad he could join us.
So just a quick overview. I have to say that this article in the New York Times earlier this year
really launched this webinar. It was an article that talked about the fact that America can't produce the weapons and that the AUKUS arrangement may help the United States
Okay.
to be able to do that. This is a picture from a meeting of the leaders behind the office agreement.
And the ARCA's partnership was announced in September 2021.
All right.
And the idea would be was enhanced trilateral security partnership
between Australia, the US, and the United Kingdom.
There are two pillars to Arcus. Pillar one is a commitment to support Australia
in acquiring nuclear-powered submarines for the Royal Australian Navy. So that's pillar one.
we won't really be spending a lot of time on pillar one. We'll be focusing on pillar two.
under AUKUS, which seeks to enhance joint capabilities and interoperability among the three countries. And we'll be focusing on specifically is on how that affects trade controls.
So in August 2024, August of this year, the State Department certified, and this is part of a trilateral process.
where each of the three countries is confirming that the trade controls in the other two
correspond or are similarly secure compared to their own trade controls.
So in the State Department did that certification in August for the United States.
Okay.
Arms Department and the State Department.
have issued rules to implement this to open up this
this shared area among the three countries to facilitate
the exchange of information, among them for developing primarily, at least in the first instance.
defense technologies. So Nick Townsend, as I said, is going to start us off talking about giving us an introduction on trade controls.
Bill is going to talk about understanding AUKUS. Lori is going to talk about some
Thank you.
Some naughty, difficult issues that persist under Arcus, which she knows from her own personal work at L3 Harris and the
And the conferences and other dialogues she's been having in the trade control community.
And Marcus Peterson is going to be talking about the market impact.
of August. So with that, I'm going to turn it over to Nick.
Thanks, Chris. So I appreciate you inviting me today. As Chris said, my goal is really to set a foundation for everyone so that people know
in the audience how
trade controls and export controls in the United States generally work under normal circumstances. This may be
review for some of you, but I want to make sure that people have a baseline
to understand what is changing with AUKUS and what the landscape
looks like outside of US exports to Australia and the United Kingdom.
So, Chris, do you want to go to the next slide?
I always start off with this because trade controls can be complicated.
And some people would say that the US system can be contradictory and illogical at times.
Part of the reason for that is
The export controls are a tool
Thank you.
that the United States government is using to achieve some very different goals
So I've listed out here some of the ends that are trying to be addressed
through this one mechanism
And the tool does not fit these various goals in the exact same way.
So you might address
WMD proliferation more strictly
than some of the other ends on this
spectrum. And even within number two, there are differences
between what we were trying to do to protect national security, which you might think of as
protecting the warfighter and US allies overseas and foreign policy, which you might think of as
furthering things like democracy and free speech.
One feature that is often criticized about the ITAR and EAR
is there extraterritorial reach, which we will talk about more later, but three hits home the fact that these actually are multilateral regimes
Particularly in the case of the AR,
where you're implementing the Wassenau arrangement, you're implementing the Australia group.
you're implementing the nuclear supplier group
And the missile technology control regime.
which the US has signed up
to add our allies have signed up as well. So we have obligations
to follow through in our domestic law with those commitments
that we have made in each of those multilateral regimes, as well as
you know what are very different concerns about
DOJ may not be able to bring a criminal case
to indict someone and put them in jail if they are not inside the United States.
But this does provide a tool to punish bad actors
who are outside of US jurisdiction in many cases.
Such as narcotics track, frickers, terrorists.
And other groups.
And finally, we also use this, the US government takes this tool and tries to address
different concerns about human rights, which might
include suppression of religious minorities like the Uyghurs.
or other concerns of that nature. So it's a complicated landscape. But Chris, if you want to go to the next one.
Let's start off with the most basic scoping question.
So to understand and have an informed discussion today, you need to know what an export is.
And it's pretty obvious in the case of an actual shipment
that crosses the border where you have a physical item
moving through international commerce.
That is going to be governed
by US export controls. If it's a US origin item.
It will also apply to a foreign origin item that is physically
moving through or out of the United States. So even if you bring a
French item to
Texas and then ship it on
to Brazil that that's going to be subject
in the shipment from Galveston to Brazil
to some controls under US law.
What people more often miss
is not the
that is being driven or flown
or moved on a ship across the US border
the more difficult element of
compliance and licensing under the US export control rules is really things like
oral discussions, electronic transmissions.
visual inspection of technology. So this last bullet is trying to to
inform the audience that we're talking about a release
often of technology or technical data rather than an actual box that customs is
you know, able to inspect as it crosses the border.
So Chris, if you want to go to the next
The next one here, I'm trying to move through quickly so that we stay on schedule.
But there are three basic elements
to what I've just described as an export and again
They're not always as simple as you might think. So there has to be an item.
that item might be a box
But it is very often also software.
or technology or services that are being provided by a US person.
So physically focusing on tangible exports
is not going to capture the full
scope of what we're concerned about.
then there needs to be a transfer. That transfer can be intangible.
through access to an IT tool or technical data and drawings and blueprints and other information.
Or it can actually be the shipment of a missile or the
flight of an airplane outside the United States.
So you have the transfer as the second element and the other country as the third element.
And again, this is third element is very intuitive
when it's crossing the US border, but you can also have
and export that occurs entirely within the United States.
So you can have a foreign person who is located in Northern Virginia
who you have a discussion with and you
have a deemed export of technology when the US person speaks
to that foreign national here in Virginia.
The foreign national never crosses the border. They're just here and learning something that is effectively under the EAR and ITAR.
and export to their home country.
So Chris, if you want to go to the next one, this will start to get into
the extraterritorial reach
that is somewhat unique for US export controls
or at least more extensive
under the US regimes than those of many of our allies.
So the big arrow you see on this slide is an export. The item is going
from the United States to Germany.
The US also governs the re-export of that item. So this is the smaller arrow that you're seeing on this slide.
where it's going from Germany to France.
there is an additional
that the US regulations do not stop
controlling the item at the big arrow. They continue to the little arrow
And even a re-transfer or in-country transfer to move that item from Paris to Toulouse
would also be governed
And in the case of more sensitive.
items.
the US jurisdictional hook would also extend
to giving the item to a new end user or changing the end use of an item.
under the ITAR. So Chris, if you go to the next slide, you know, now that I've established some of the basic concepts.
I got to dive a little into the law and the regulations because I'm a lawyer and lawyers like to do that sort of thing.
So you see two very parallel structures here.
You have a statute, the Arms Export Control Act, that was passed by Congress in the 70s.
that statute is implemented by a part of the State Department called the Directorate of Defense Trade Controls.
And DDC promulgated regulations
And you've already heard me refer to the ITAR, which is the International Traffic and Arms Regulations.
Within those regulations, there's a list.
And that list tells you what is ITAR controlled and what is not ITAR controlled.
That list is called the USML. Then if you move over to the right hand side of this slide, you see the exact same thing.
So the Commerce Department has a list. It's called the CCL.
The Commerce Department has a statute, the Export
parole reform act of 2018.
which charges them with regulating dual use exports
that authority has been given to
the Bureau of Industry and Security.
Which is the Commerce Department equivalent to DDTC.
BIS has issued regulations called the EAR so that the Export Administration regulations
are the dual use controls in the US regime.
So if you go to the next slide, Chris.
So that bifurcated system that I just described
can all apply to the same
the same end item.
And there's a spectrum
of how tight the controls are. So I've got my
top secret, hyper advanced flamethrowing tank on the far right.
Clearly, this is an item on the USML
probably a ground vehicle somewhere in category seven.
And so that's going to be subject to the most stringent licensing requirements.
A step down from that, we have this thread for the tank.
Which is, you know, you're not going to use this on your car in place of your wheels
But it doesn't have the same hypersensitive
intelligence and military critical advantage that the fully assembled end item does.
So that might be controlled under the 600 series if it's specially designed
for a ground vehicle, then you go back a step where you might have this
technology to make the flames, but that technology could be used in a really advanced tank.
Or it could be used in an industrial furnace of some kind.
So that might be caught on the CCL at a higher level than the
EAR99 threshold
But it would still be
able to go to most countries without a license. And then in the far left, you have things that are not controlled at all. They're just not subject to US export controls.
And that might include the invoice for this tank. So even if the tank is super sensitive, the dollars and cents and whether you're behind on your bills aren't necessarily export controlled.
So one last slide to put this all together.
Although my table on slide 21 made this look like everything is perfectly parallel.
In reality, the EAR
is complex but flexible.
There are lots of license exceptions. There are a lot of
different paths that you can follow to get to an outcome
Whereas the ITAR is
strict and simple. The answer is almost always get a license.
Now, that is a little unfair to Kat Hamilton and DETC. They do have license exceptions that are very
valuable for government contractors. They're called exemptions rather than exceptions.
But 126.4B would help a company like L3 Harris if they're working
for the US Army in providing radios.
And similarly, if there's an FMS contract, they might be able to use
exemption 126.6
We're now going to talk about a whole new exemption that has just been created
called 126.7 for August. So that's sort of the setup to build to tell you
All about what's new.
Yes, and to do that, I might have to go a little bit into what's old too but uh
The interesting thing about the complexity of that system
is that it becomes a burden
to those who use it the most.
So, you know, for example, if we are thinking someone wants to uh
address something with perhaps maybe the country of
Panama or
Chad or somewhere else, you know, we don't do a lot of
a lot of military work there and you know there's there's there's those things, those countries might be not have that much of a burden.
With our closest allies that we use the
We cooperated with the most
you have a high degree of compliance and working through all these issues because they're our closest allies. And if you're transferring technology, military technology or working with them.
You're going to have a higher birth.
And so historically.
there's been a push to try to limit some of that burden.
Not always successful.
And August right now is designed to do that.
Again, there are two pillars. I'm going to introduce a third pillar, which I refer to.
Obviously, the submarine situation is uh
a long-term project. It's a military unique project. There's a lot of rules and regulations that are going to cover that, but you've got decades in which to
move forward on that so you can set it aside.
Pillar two is extremely interesting in the sense that it's designed to bring together
the industrial bases and scientists and engineers from the three countries to work on
militarily adjacent technologies to create
capabilities in the three nations.
And that will require
either a lot of would have required either a lot of licenses or exemptions that actually work to allow this to happen.
And as I will argue and have argued.
the deal that we just cut with the Australians and the Brits
doesn't necessarily achieve that
degree. There are a lot of disincentives
for industry to participate in Pillar 2.
But there are also just a lot of barriers that would tie up their
Not everything is exempted. There's a large list called the exempted technology list, which is not necessarily
conducive to the type of cooperation that we may have been thinking.
I talk about pillar three.
In the sense that pillar three
is the non really the non-submarine, the non-new emerging technology, the kind of
traditional back and forth that the US, Australia, and the UK have had
primarily over the transfer of
US weapon systems and knowledge around those weapon systems that have been a burden to
to the countries in the past.
That is actually what has been freed up.
You know, in, in the
in the AUKUS debate, things that really weren't a part of AUKUS.
But that will be possibly the biggest benefit of that.
of a straight transfer of something that going to the UK that they're not going to retransfer and the burden, the paperwork burden and the old compliance burden
may not be as great, although I think Lori will come up and argue that even that's going to require
a lot of burden. It's just you don't have to go to the State Department to get a mother, may I, and get a get a license.
So why is that the case? I think that's something that's very interesting to
to walk through is that
you know we we didn't quite succeed in encouraging
pillar two to work, but we have at least eliminated some
some burdens on these transfers. And it really goes back to
This has been a long-standing old issue.
The Linton administration tried to do exactly what we just achieved
30 years ago. And the fact that we just got there
30 years later is an extremely, you know.
Just show you how long it takes washington
to work.
that particular agreement was was
put in place to mimic the canadian
ITAR exemption. And apparently there was a lot of discussion. You can read an article by Jeff Bialis that kind of goes into that.
And the president's side for giving the exemption.
But the reality is that state was working with the Center for Foreign Relations Committee, which put in legislation to over
come that and put in new requirements to make it very difficult to do any further Canadian-like exemption in the future.
So the Bush administration tried to negotiate a treaty.
And to create this free trade zone, ITAR free exemption zone between the Australians and the Brits.
That didn't fare very well either.
Treaty was negotiated in 2007.
the implementing arrangements were agreed to, treaty ratified.
Eventually went into force around 2013 and 14, and it was pretty much useless as it was undermined by the Security Cooperation Act of 2010, which made it very difficult to change it. And it needed to be changed because industry wasn't going to use it.
Senator McCain tried to add
the Australians and Brits to the National Technology Industrial Base. He succeeded in that. It was designed to spur on these new export control range.
arrangements and exemptions. That didn't work either. Finally, we have AUKUS.
And now with AUKUS, we seemingly have a great case and a lot of political capital push forward.
But it's not working. It's not going to work.
Why is that? It's because the way the agreements
have been so far made
is that it's very helpful in potentially allowing for the transfer of US technology.
But it's a great disincentive for any Australian, British, or frankly commercial firm
to bring in their IP and get it contaminated or tainted. And I'll let Lori maybe talk a little more about how that process works.
But it's essentially that's this whole knowledge process of how things get caught up in the ITAR.
So there's a great incentive for a commercial industry
to ensure or try to figure out and not get their technology tainted
to be brought into an ITAR situation where they'd have to go to the State Department. So they try to stay in the EARR world.
if the British or the Australians were to bring technology into AUKUS right now.
what happened there? Well, that technology would more than likely be considering the way the agreements are arranged.
be unable for them to control their own technology. And so there's great disincentive for them to even
bring that in. So the whole idea of having engineers and scientists working together on new problems
isn't going to happen because they're incredible industry
disincentives to doing that.
So, you know, so where are we? What do we need? We're three years into August.
We now are at the export control
portion of where we thought we should have been
30 years ago. And so we've got 30 years of ground to cover and we have to look at
how do we, if we, from Apollo's perspective, do we really want to have our engineers and scientists work together
then ITAR still has to change even more.
If we don't, if this is all about the transfer of existing old legacy US technology.
to our closest partners without them adding anything or
working with Sonnet, then that's what we'll get and that's what August will be.
from a geostrategic competition standpoint, that's probably not what the governments were thinking about.
That's probably not the end goal they want, but we have to be realistic that this is exactly what they're
what the situation is.
And going forward, it's going to be
how do you free that up? How do you encourage that collaboration? What needs to be done?
And this ITAR exemption
that's currently been negotiated. How does that need to be changed? So with that, I can probably
hand it over to Lori, who can tell us maybe some of those specific
problems that maybe they can how they can fix it.
Thank you for that setup, Bill. That's really, really helpful. And it is the case that we are finding in industry
that AUKUS participation in the AUKUS as an authorized user in the United States in the UK, in Australia.
is relieving a tremendous licensing burden from industry.
I think we were able to eliminate
probably 60% of our licensing
Among those
two territories just based on the AUKUS exception. So it is of benefit.
However, there are several
speed bumps and drawbacks that we're experiencing.
as kind of a disincentive to additional cooperation.
The first biggest issue is that the defense services, defense services is an area right now that is in turmoil
Because DDTC is
trying out and flexing its muscles on expanding the defense services
definition to include not only
services that are of a military nature, but also services of an intelligence, military intelligence nature.
So as we're going through the
the growing pains and settling into what is defense services, this is going to be an area
of discomfort for a while.
Anyway, for defense services, even under the current definition, under the AUKUS exemption, the service must take place within the territory of the exemption.
that is either Australia.
the US or the UK. So if the
Australia has a plane grounded in Singapore.
And they need to have it fixed in order to get back into the action.
the US OEM cannot go to Singapore under the exemption and help
the Australian customer fixed that plane.
that's you got to still license that activity or find some other exemption for it.
So the requirement to have the service take place within the territory
really severely limits the opportunities for
defense services under
the AUKUS exemption.
I think the biggest problem is it doesn't cover services performed by a US person abroad.
sometimes referred to as a USPAB or USPAB.
A US person is someone who
has US citizenship.
They can be a dual national, they can be a resident in Australia and be permanently domiciled in the UK or Australia. But as long as they've got that US citizenship.
They're considered a USPAB, and if what they're performing overseas for their foreign
Employer is defense services.
there's a whole process to get that covered.
If you don't do that and you're trying to rely on the exception.
doesn't cover services performed by a US person abroad.
Also, as Bill mentioned, there is a whole list of excluded technologies.
So if you have some
project that has mixed technologies.
you're going to have to decide what you're going to do
with that mixture, whether you're going to license everything
You're going to license what's not covered by the exemption and keeping track of that paperwork
as required for both of those authorizations from DDTC.
might come down to being very, very confusing and
difficult to comply with.
Anyway, the biggest thing that I see is that the services definition still is not tied to
defense articles. So you can have
Defense services that are wholly not
directly associated with a defense article.
Say you're going to change the tire
on a military jet.
changing the tire on a military jet, the tire itself is not a defense article.
However, if it's still on the military jet and you're fixing it.
defense service if it's off of the military jet and you're fixing it off
not a defense service. So the confusion with regard to whether or not what you're performing is a defense service
And whether it's covered under the exemption is not going to be tied to what is the defense article
that you're working with.
go ahead to the next slide, Chris.
Bill also mentioned avenues for contamination.
Once you have a
a u.s a
Origin technology component
or engineering service.
you're going to
ITAR jurisdiction is going to follow that
ITAR controlled
component service or technology wherever it goes.
That means if you take an ITAR control component that you
sent to Australia.
under the exemption, so you didn't have to get a license for it.
You didn't have to get a technical assistance agreement to provide the services to help them install it in whatever they're installing it in.
The DDTC is going to continue to control that component
Regardless of where it goes.
And if anybody in the audience has ever tried to tell Australia that they can't
do whatever they want to with their
defense article that they've now
incorporated U.S. technology they're
components or technology.
And that they have to get
permission from the DDTC to re-export it or do whatever they want to with it that's
they don't take that well.
So contamination is going to be a
continuing issue
an impediment to
the real collaborative work that this
treaty was intended to
to sponsor.
So any services involving the design, development, manufacture, production, assembly.
there's a whole list and they've recently included demilitarization and destruction
of a defense article.
services involving those kinds of things
the ITAR is going to follow
those services and attach to whatever is the product of those services.
So using us
defense services or US technical data
in any of those
efforts you're going to
be subjecting your otherwise
wholly foreign defense article to
the regulations, the ITAR.
What's the result? You can't use it outside the original intended use. You can't use it outside of the approved community.
And in order to do either one of those things, you got to get authorization from DDTC.
And these these
two issues these two
problems had been the subject of a lot of discussion in the industry over the last couple of months. I was in
SIA.
earlier this week, and August was a big topic of discussion
especially the see-through rule.
And under the EARG, you have the foreign direct product rule. If you have a foreign product that is the direct
result of EAR control technology, especially 600 series technology.
that you're going to have the extraterritorial control of the US in those areas as well. So this is
an area that's getting a lot of discussion lately.
And with that, Chris, I'll
bring it back to you.
Thanks very much, Lori.
All right. Thank you, Chris. So you guys left me with the easy part because with all of that set up, it's like, well, what the heck are we supposed to do from an
industry perspective. I want to touch on a couple points because
Lori teamed me up for this because I had a call this week with the
Australian company who had the exact issue, the issue too on the contamination situation where the client was saying, wait a minute.
we're not sending our stuff over to the United States if at the end of the day, we have to hand over this, that, and the other in order for you all to do this. I thought.
AUKUS was to you know designed to
eliminate some of those barriers and some of those extraterritorial things that Nick went over in his presentation.
And so the top level sort of analysis here is for industry.
There are a couple of areas, and I'll touch on this in a second, in pillar one, where I think there are some opportunities for some of your traditional government contractors in the submarine business and things like that, what they'll be able to do
transfers and sales of old technology. Bill mentioned that. I'd hearken to everyone on this webinar to go and, you know, I did this
preparing for this to read some of Bill's articles here. He has lots of articles written on this point and on this subject. And I think that they really are eliminating
In sort of how pillar one and pillar two, the advanced capabilities, which I think is going to be a longer term solution that we have to come up with.
From an issue perspective.
To go back to sort of Chris and his introduction here, here's the deal. I mean, at the end of the day, we are faced with a situation, a geopolitical situation in the Indo
Pacific region where we have to expand our industrial base.
You know, we don't have the capabilities at home
100% to be able to meet
just the the sort of the need
to make sure that we have the ability to confront
potential adversaries in the Indo-Pacific and just worldwide. So at present right now, you know, we have a demand situation that's outpacing our supply.
And collaborating with our allies is critical.
And part of that is going to be co-production.
Now, it's interesting because both Bill and Nick mentioned this
We are operating under the Armed Export Control Act and the Foreign Assistance Act.
it's a it's a
Armed Export Patrol Act, I think Nick's 1976, I believe.
And the sort of rubric of that is positioned for the US to sort of continue its dominance on technological developments. But interesting.
One component of that is security cooperation. It's the big sort of, you know, bubble within, you know, and within it is security assistance and other things
And one of the things of security cooperation is to make sure that we have interoperability.
But I think too often in the US's mind, interoperability means, hey, we give you our stuff.
And you guys then sort of, you know.
figure it out and we can interoperate with you. And what AUKUS by its terms
It requires a degree of integration in order to have things that we may not as a US industrial base be able to bring to the table. And that's something that I think is elusive.
And we have to figure out whether or not we're going to actually meet the moment here
Because I think on its paper, AUKUS presents some really good opportunities for industry, but I'm not sure that we are quite there yet for all the reasons that Bill and Lori laid out.
If you would go to the next slide, Chris, that'd be helpful.
So, you know, it's been set up already. There are two bills at three. I think he's right on there, but two big pillars in August that, you know.
present opportunities for industry.
The first is submarines, and that is where Australia has been granted authorization to acquire
I think three to five conventionally armed or conventionally powered nuclear submarines
They also have, by virtue of an agreement signed this past August.
to receive the transfer of certain naval nuclear propulsion information, also to put Australian folks in our shipyards, our submarine shipyards and things like that.
So there's an ability to sell certain special nuclear materials and things like that associated with
with pillar one. That is exactly what Bill was talking about a little bit ago when, you know, and Bill, correct me if I'm wrong here, with the old technology, okay? Some of the conventional things that we have traditionally, and I think that that does set up
some of our traditional marine shipbuilders to be able to enter into
potential sales opportunities with Australia and the United Kingdom as Australia
you know um uh you know gets together, you know, their submarine program
The harder part is over here in this pillar two, and I'm not going to read the slides here, but pillar two, and that's the advanced capability or the emerging technologies. And it's a lot what, you know, Nick's foundation is critical here to understand how that's going to work and then what Lori and Bill kind of were saying about that.
Pillar two represents some amazing opportunities on paper.
for industry to be able to joint develop things
But as we know under the ITAR, for all the reasons that Lori, the two issues that Lori just mentioned, it's going to be, I think, a wait and see.
Because navigating some of these issues to get to approval by DDTC
And some of the reticence
from our allies, despite the fact they're our closest allies, I think is going to continue to be a, you know.
a challenge. Next slide, Chris.
So Bill mentioned the expanded, the exempted technologies list. And so, you know, Andre really kind of under pillar two here. So technically, you know, under August, there's supposed to be an expanded array of range and range of capabilities. So we're going to enhance interchangeability, interoperability.
We need to have a development of our munition stockpiles and things like that and intelligence sharing. But that's something that we've always been reticent to share, even with our closest allies.
In that same vein, co-develop
come in and join operations, join operations. Now, we know that can lead to faster development and deployment of technologies.
But the way that our export control system is currently set up, even with the AUKUS exemptions.
They don't address a lot of the really nuanced, cutting edge emerging technologies that many companies who play in this space.
are going to necessarily be able to work with our allies in the industrial base in Australia.
And in the United Kingdom, which is why this week on, I think it was Tuesday or Wednesday, my client said, who has a very cool technology, said, there's no way
that we would be able to share this information because as I understand it, and I'm still running this to ground.
even the government of Australia, and I think maybe Laurie, this is what you were getting at, the government in Australia says, hey, wait a minute
you're not sharing your technology if you lose control of technology because the US government comes in and takes basically ownership and blocks everyone out.
And that was the first time that I had really heard that it's put so succinctly
on that call earlier this week.
But I think in these areas, this is going to be a problem. Now, these are some of the benefits on this slide that I think if
If some of the issues that we're talking about are actually implemented
But it's a question here. I think there are opportunities.
for the US industrial base
to be able to go out and lead in this area. But I think we're sort of, you know.
operating with the regulations behind us, okay? So we don't yet have a clear path in front of us.
But I do think that there are real opportunities if Congress particularly gets in front of this issue in the executive branch on making sure that they actually agree with what the sort of impetus behind AUKUS is
Next slide.
Chris.
So this sort of one other, just a couple other challenges. I mean, like, you know, under the august i mean there's purportedly, you know, reduced export control restrictions. And as Bill and Lori said, I mean, that's true to a limit. It's really with a lot of our older technology.
There's certainly a process for expedited license applications, but when you're talking about some of this intelligence sharing and some of these other emerging technologies, that's not clear that that's actually going to be implemented.
One of the aspects too that many companies have, and just jumping down to the second bullet is the sort of entry and establishing a footprint into the US market.
Those are always challenges because you create a US entity. A lot of these emerging technology situations have
classified elements to them. So, you know, we have to then work through the dcsa
sort of apparatus and the nispalm or the NIST palm rule as to, you know, how you navigate that.
how you mitigate foci and things like that. And those are all going to be challenges for our UK and Australian partners.
when they want to bring their technology, if they want to bring their technology to the United States.
to have an opportunity to co-develop things with US industry.
I'm going to leave it at this because I know I'm almost at 10 minutes before, but we have questions. But I would say this. I mean, I think August really does on paper present
an amazing framework for
things that could be, but I do think that it's a little bit early to say how it's going to actually impact
the US Defense Industrial Base, particularly with the exception of the submarines under pillar one, because I do think that those have some very low hanging fruit opportunities for companies to go into.
But in the emerging technology space, for all the reasons that I think we've heard today, I think there's a lot of further development on how we're going to actually implement that.
to see how it's going to actually benefit the US industrial base for right now. So I'll stop there, Chris, and open it up to you and any questions.
Thanks very much, Marcus. And as I noted in the chat, if audience members have questions, they should feel free to put them in the Q&A and then we'll bring them into this panel discussion. We have a few minutes left.
to work through some of the issues that are lingering out there.
So the first one for any member of the panel, the August arrangement seems
to be a breakthrough sort of
What happened? Is it a breakthrough or is it not? What do you think, Bill?
I think, you know, again, after a 30-year struggle, we finally convinced the State Department to
acquiesce into a
exception for the UK and Australia.
So that's a breakthrough.
The reality is that's a different place at a different time.
And at that time, the US was dominating in all technologies.
Now we have areas where our partners
actually have really good technology and are either ahead of us or can, if we collaborate, we're going to you know.
One plus one will equal three.
And so we need to do that. So yeah, it's progress.
But the geopolitical world is changing around us. And if we have to make a lot more and go a lot faster. And we've also gone a little bit, we've got a little backwards as well. And I think we haven't talked about this, but
State really encouraged the Australian government to adopt our system, the US system in Australia.
With its taint, with its extraterritoriality.
You know, now US firms work and other firms working in australia
face an interesting same problem that they do when they work with the US government.
And I'm not sure the Australian government really understands what it's signed up to.
The Brits, on the other hand, didn't do that. And I think there's a real distinction
when we see where innovation flows in the future on what country that actually happens in.
I mean, I'll jump in and
Chris, go ahead, Nick, please.
Oh, Alan, you go first.
Well, just very briefly, Alan Green, hello, everyone.
just historically, from a policy viewpoint, AUKUS Pillar 2 is not just a simple co-production. Pillar one is there have been others.
It's an umbrella development arrangement between three countries
that have good technological capabilities in these core areas that Marcus outlined
And pillar two, and as you said, Marcus, concerning pillar two, the U.S,
is no longer the leader in a lot of that.
The elephant in the room is China.
This was an Indo-Pacific driven
arrangement. One of the Australian equivalents to CSIS found that of the 30 key military technologies.
that are being developed, China leads in 19 or more.
The idea is to fix that.
But that kind of fix when you're developing various and sundry technologies also leads
to commercial.
benefits so
If you take…
as a given, which you may or may not.
that the US no longer has a
has done for so often, so long.
is able to develop everything itself and control exactly where it sends it.
And it needs these partners in particular right now. Okay.
then that's not working yet.
And it defeats the policy. And finally.
The UK has been talking for some time now about bringing in Canada, Japan, and South Korea.
The U.S. Defense Department just announced it'll be meeting with its equivalent in Korea.
to discuss at least bilateral more cooperation and potentially AUKUS.
cooperation.
That's a lot going on. And as you say, Bill and Nick and all.
If the baseline isn't implemented.
that's a problem.
If you can implement the baseline, you can lead to something that I think
in the defense world is dramatically different. Chris?
Yeah, I mean, so I guess I'll be a little bit more positive than my co-panelists. I mean.
I think that AUKUS is an opportunity
You know, the State Department has put something out
And we'll see if people use it or not. And that's going to be critical.
From what I've seen, there aren't a huge number
of UK entities that are authorized users that have signed up
to become part of the community. So there are two elements
to use the exemption. One is it can't be on the excluded list, which we already talked about.
But two, you've got to become part of the authorized community
And companies are reluctant to do that. I mean, one reason might be what Bill
mentioned about putting their IP in, but there are also conditions that you're agreeing
to report certain things to the government within a certain number of days if a violation
has occurred and you're taking on obligations that private industry is reluctant to today
you know, I went to SIA just like Lori did and Mike, the Deputy Assistant Secretary.
said August will fail if we built this and nobody uses it.
And I think that's kind of what happened with the defense trade cooperation Treaties, because they did not
continue to evolve
We live in a more dynamic world than we did when it was completely unipolar or bipolar during the Cold War
We need to be able to evolve this system, but we've at least set something up
Where you are seeing Japan and Korea and other countries saying, we'd like to get in on something like this, which could bring us
to a more multilateral series of controls.
If it's frozen in time
the way it is today? Is it going to achieve all of the lofty goals we had when the
three heads of state got together in front of those flags no
But we have seen export controls evolve more in recent years.
The Obama administration had major export control reforms where things were moved off of the USML to the CCL to provide that greater flexibility.
And just a couple of weeks ago, there were modernizations in space-related export controls
that were proposed. So we are getting a little bit more flexible than maybe
you know, 30 years ago during the Clinton administration where
there were good ideas that couldn't be followed through on.
I guess cautious optimism rather than
You know, Bill's more cynical view would be my stance.
Yeah, and Chris, let me just kind of jump in on that. And there's a question also that I'll tee up in the chat, but I look.
I share both viewpoints because while I think Bill kind of has the really right sort of where it's at right now, I think
Like I said, I think AUKUS presents a fantastic framework. I frankly think that
to what Nick and Allen just mentioned, that joint development by the Australians, the Brits, the
South Korea into Japan on that sixth generation fighter, I think, was also a very good
wake up call for the US and to make sure that because one of the concerns there, why we weren't invited was because
of how we control technologies and things like that. That was one of several concerns.
And so, but I think it's a good framework, but I do think on the emerging technologies piece, we have to figure out a way that we get comfortable
With meeting the export control controls piece of that and also the sort of joint development and things like that.
Chris, in the questions, there was a good question, I think here that says, does potentially
Does this potentially increase the likelihood that there may be more
combined multilateral procurements involving the development of DOD requirements that can be interoperable by design.
Or for those procurements where Great Britain or the United Kingdom can financially contribute directly to the procurement at the outset.
In lieu of having to wait for potential FMS case. So I just throw that out to the group. Maybe folks might have thoughts on that.
I think it's going to depend upon whether there's a market beyond just the AUKUS nations. And I think that's the disincentive here.
is that if there's a large export market
It might be hard for certain British firms to want to come in and give up their IP or actually bring in
other European firms to bringing in their IP.
if it's going to basically
give control to state.
is that exoteritoriality issue that's, I think, going to be a problem in doing that. Again, if it's
co-production of GMLRS, US spec.
I think we're there. And we can probably do that. And then, you know, state will just control where the excess goes.
There it goes.
I have to say that there's one other issue that I think is going to
play a big role, and that is the growing privacy concerns
around the globe.
It's great that
most countries can take advantage
of the 126.18
rule for
covering people who have dual nationalities or third country nationalities.
It's depressing that US persons abroad cannot take advantage of that.
provision under B there specifically excluded
But privacy concerns and discrimination provisions in the local laws and jurisdictions around the globe
are really going to really
create havoc with the rules under the ITAR where you have to know the nationality of the people who are working on it.
Will, I have one last hard question for you. It's the submarine in the room.
Would Pillar 2…
have happened without pillar one.
Was the submarine
sale an important part propelling this
ARCA arrangement with regards to trade controls.
Absolutely. I just don't think we would have got there. We'd have been mucking around like we did with the trade treaty and
NTIP and so on. The arrangement for the submarines
really drove this. And really much, if you see the all the
the media and everything else about it and the focus, pilot focus has always been on submarines. But again, to me the real
meat of this is the potential for pillar two. And I hold optimism as well, because I think if that
If we can't solve, you know, we should be able to solve this because these are the two allies in Canada and New Zealand that we share the most sensitive intelligence information with
Why in the world can we not figure out a way to share and have a trusted community within the industrial base to share that kind of information?
And so I hold optimism out that we can pull that off. I just think we need to do it a little faster.
With that, we'll close out. We're a little bit over time. Thank you all for really an excellent session. Thanks very much to the audience as well.
And have a great day. Take care.
Bye-bye. Bye-bye.