1. Jim Gledhill Defence Materiel Attache Embassy of Australia (Washington) Embassy of Australia US/Australia Defense Trade Cooperation Treaty and Australia’s Defence Industry Policy 6 December 2007

2. Topics Export Control Current Process (pre-Treaty) Treaty Treaty Benefits and Obligations Australia’s Defence Industry Policy Embassy of Australia

3. Export Control Current Process Under the ITAR US Exporters must apply for:  A Technical Assistance Agreement (TAA) before they can engage in discussions with Australian companies;  An export licence before any hardware is exported to Australia. For most defence programs, a number of TAAs and licences are required and these take time – on average about 3 months each. Cumulative impact on projects and sustainment can be years. “Retransfers” especially problematic for Australian Industry. Embassy of Australia

4. Current Process (cont’d) 2361 licences and 312 agreements were approved for Australia in 2006  About 1/3 (718) of Australia’s licences and all agreements (312) are referred  Average licence approval time for referred licences is about 150 days  Average licence approval time for non-referred licences is about 80 days licences and agreements referred to other agencies can take as long as 12 months;  15 % licences are for operations and are very quick Total processing time in 2006 was around 640 yrs Plus knock-on inefficiencies (eg. “Retransfers” in sustainment). Embassy of Australia

5. Treaty Introduction Our Treaty was signed 5 September 2007 by President Bush and Prime Minister Howard. The Australia/US Treaty parallels the UK/US treaty signed in June but with minor differences. The Treaty provides for:  “Licence free” defence trade between Australia and US;  Transfer of articles within the ‘approved communities’ without need for prior approval;  Safeguards against unauthorised release or diversion of technology. Trusted Australia/US Community concept. Implementation arrangements (about 20) have been negotiated. Treaty can be found at www.defence.gov.au/publications.cfmwww.defence.gov.au/publications.cfm Embassy of Australia

6. Treaty Arrangements Under the Treaty, US exporters will only need to advise State Department that they have engaged in eligible defence export activity; Prior export authorisations will not be required. Eligible exports will include: Agreed security and defence projects where the Governments of either country are the end user (classified and unclassified data, software, services and material); Cooperative security and defence research, development, production and support programs; Combined military or counter-terrorism operations. The Treaty arrangements will operate in parallel with existing US export controls this will allow those outside the ‘approved community’ to continue business as usual, ie “Opt out” is allowed. Embassy of Australia

7. Treaty Benefits We expect there will be five key benefits for Australian and US companies: 1.Reduced licence processing times; 2.Increased efficiency in business and shortened delivery times; 3.Enhanced business opportunities; 4.Reinforcement of the special AS/US relationship; and 5.More efficient use of personnel resources by Industry Total processing time in 2006 was around 640 yrs. Estimate around 50% processing not required (320 years saved!) Impact is not just raw processing time. It is multiplier effect of uncertainty $ = (Numerous Workforce) X (unexpected delays). Embassy of Australia

8. Enhanced Business Opportunities The Treaty is expected to improve business opportunities for Australian companies because:  US companies won’t be deterred by protracted US licence approval times;  There are improved prospects for Australian companies to participate in US requirements;  There is freer exchange of defence-related work between US companies and the Australian subsidiaries. The Treaty will also enhance opportunities for AS companies to bid for support work for equipment we buy under FMS.  Retransfer approvals currently take 15 months.  “Retransfer” is the big win for SMEs in the Trusted Community. Embassy of Australia

9. Accessing the Treaty Benefits Establishing the ‘approved community’: Getting in will be voluntary; Admission is likely to be based on:  Facility and personnel clearances;  An appropriate Business History;  An appropriate Export licensing and compliance record;  No problems in relationships with countries of concern. A public list of member companies and individuals will be maintained (company responsibility to provide data). Employees seeking membership will need to be:  Australian citizens  Security clearance of at least Restricted  Valid need to know. Embassy of Australia

10. Obligations for Australian Government under the Treaty The Australian Government will: Maintain visibility of the transfer of US articles; Control access to US technology by dual nationals; Oversight the safeguarding of US technology provided to Australian companies; Control intangible transfers; Monitor and enforce what AS companies do with US defense articles; Strengthen our domestic export control legislation; Consider changes to Customs legislation to track the importing of articles under the Treaty. Embassy of Australia

11. Obligations for Industry Under the Treaty Those who choose to participate will: Gain the prior approval of the US exporter before transferring articles within the approved community; Gain prior approval of State before transferring articles outside the approved community; Ensure that articles received are not used for any purposes other than authorised under the original contract; Implement safeguards to ensure that only authorised employees have access to the defense articles; Maintain records of transactions conducted under the treaty – and make them available for audit.; Transgressions bring the ITAR into effect. Embassy of Australia

12. Treaty Considerations The aim is to have: Equivalent treatment by the US of Australian technologies exported to the US; and US agencies undertake compliance auditing of members of the US approved community. We have negotiated about 20 Implementing arrangements to give effect to the Treaty; The timeline for completing the IAs is …. ; Consultation with Australian Industry is occurring; Expectation is that the IA’s will be completed to allow US Congress to consider asap. Each country will need to ratify the Treaty under their respective laws; Important that US parent companies work with Australian subsidiaries to make it happen. Embassy of Australia

13. The Industry Policy Statement - Why did we need one ? New and changing demands on industry due to the ongoing high tempo of ADF operations Significant additional investment in the ADF Aligning industry policy with the new approaches to procurement The reshaping of defence industry worldwide through globalisation strategies and rapidly changing technologies

14. Embassy of Australia The Policy Statement - What is it meant to do ? Provide the Government side of the infrastructure to allow “the cost effective delivery of equipment and support to the ADF in line with Australia’s strategic circumstances” Provide guidance to Australian industry to better target its investment Create a more economically competitive defence industry within Australia Create a cost competitive defence industry competing in the global defence economy Improve working relations between Defence and Industry 9 Strategies to address the requirements

15. Embassy of Australia Australia’s Industrial Requirements The Australian Industrial Capability (AIC) program: Based on strategic guidance from Government in the Defence Industry Self-Reliance Plan Priority Local Industry Capabilities Tenders seeking capabilities will require any costs and risks associated with delivery to be identified Defence Capability Plan (currently 2006-16, next will be 2008-18) Recognition of any clearly defined ‘Premium’ for capabilities to be resident in Australia Demonstrated through competition Focus will be on supporting the ADF www.defenceindustrypolicyreview.com.auwww.defenceindustrypolicyreview.com.au and at ww.defence.gov.au/dmoww.defence.gov.au/dmo

16. Embassy of Australia 9 Strategic Objectives of Australia’s Industry Policy Strategic approach to equipping and sustaining the ADF Maintaining priority local industry capabilities Securing value for money through best-practice procurement Creating opportunities for Australian firms, where they are internationally competitive Encouraging small and medium enterprises Supporting the development of skills in defence industry Facilitating defence exports Driving innovation in defence technology Defence and industry working together

17. Mr Jim Gledhill Defence Materiel Attache Embassy of Australia (Washington) (202) 797 3388 (Work) (202) 250 4051 (Mobile) jim.gledhill@defence.gov.au Embassy of Australia

18. Existing Initiatives The Treaty will take us significantly further than the improvements we have secured under ADAC, including the Hillen Letter In Feb 2007, through ADAC initiatives, State agreed to approve Australian licences in 10-30 days;  This was significant progress but dependant on State’s implementation of electronic licensing;  In practice, this implemented very slow and not ready yet. We estimate that the Treaty will remove the need for about 50% of TAAs and licences.  But note that licences will still be required for highly sensitive technologies and when industrial partners outside AS and US are involved. Embassy of Australia

19. How we got to this point AUSMIN (late 2005) – Dr John Hillen advised that Congress will not approve the stalled ITAR exemption and would not consider a “treaty”. Hillen further challenged Australia to propose broader capability sharing arrangements, if they supported greater interoperability for combined operations and transformation. Greg Suchan advised that we should consider alternate proposals based on a 2004 HIRC Report (US Weapons Technology at Risk: The State Department’s Proposal to Relax Arms Controls to Other Countries) Subsequently 18 proposals were submitted to Departments of State and Defense – one of which concerned dual nationals. Embassy of Australia

20. Dual-Nationality – Defence Employees Australian citizens who are Department of Defence employees with a security clearance and a need-to-know do not need to provide a Non-Disclosure Agreement or nationality information. Does not apply to non-citizens (eg, exchange officers) or those whose dual-nationality includes proscribed countries listed in ITAR 126.1 – they require prior written State Department approval before access is granted. Embassy of Australia

21. Dual-Nationality – Company Employees For cooperative projects or where Defence is the ultimate end-user, Australian citizens who are Australian company employees with a security clearance and a need-to-know do not need to provide a NDA or nationality information. Does not apply to non-citizens or those whose dual-nationality includes proscribed countries listed in ITAR 126.1 – require prior written State Department approval before access. Embassy of Australia