Will Regulatory Poison Pills Render AUKUS Dead on Arrival?

Intractable and longstanding U.S. regulatory challenges in the areas of export controls, foreign military sales, and national disclosure policy, if left unaddressed, threaten to block the planned AUKUS security partnership between the United States, the United Kingdom, and Australia. The chronic inability to resolve these issues may very well doom the entire enterprise before it gets off the ground.

Notably, most of the proposed solutions for AUKUS now before the U.S. Congress have either been repeatedly tried and failed, or are too limited in nature to achieve the needed cooperation. And some prominent options on the table include “poison pill” provisions that will effectively kill the technology sharing needed for the deal to work. Other approaches could further accentuate inter-agency turf battles. In short, as Yogi Berra would say, it’s “déjà vu all over again.”

All is not lost, however. With the National Defense Authorization Act (NDAA) now pending, Congress has a generational opportunity to “seize the day” and adopt a novel approach for AUKUS – something very different needed to break the unvirtuous cycle. This reform effort could even be a model for the broader U.S. regulatory reform that has eluded the United States for a generation. If successful, enhanced security cooperation with allies and improved coalition warfare would follow.

First, What’s the Problem? 

The national security logic of AUKUS is clear. The three-way partnership is designed to “promote a free and open Indo-Pacific that is secure and stable.” The challenge, however, is that the two core pillars of AUKUS – the provision of a fleet of nuclear-powered attack submarines to Australia (Pillar I) and the collaborative development of advanced defense capabilities across eight technological and functional areas (Pillar II) – both run right into the complexities, countervailing policies, and bureaucratic turf of the U.S. regulatory system. 

Specifically, these pillars implicate three separate and distinct bureaucratic processes. The sale of highly sensitive U.S. equipment – nuclear submarines – must be done on a government-to-government basis under U.S. foreign military sale (FMS) rules; the transfer of cutting edge U.S. defense technology in Pillar II implicates the State Department’s transaction-specific export control system, namely, the International Traffic in Arms Regulations (ITAR); and the disclosure of sensitive operational information necessary for coalition operations requires advance approvals under U.S. national disclosure policy.

The challenge is that the existing ITAR, FMS, and national disclosure regimes have together created a longstanding morass of complexity and bureaucracy that result in well-known barriers to cooperation with the United States’ closest allies – barriers that Washington just cannot seem to overcome, despite a generation of efforts to do just that.  

Why is this the case? Some of it is inherent in antiquated rules and policies of a different era. The prevailing “go it alone” view of national security – a legacy of the Cold War – prioritizes protection of U.S. technology over coalition war fighting and reflects a distrust of even close U.S. allies. In the view of some, the standards for cooperation with allies should be so high – requiring allies to adopt U.S. rules lock, stock, and barrel – as to render collaboration virtually impossible. 

Further, the fractured allocation of authority over these issues among different federal departments, bureaus, and congressional committees – all with jurisdictional “turf” – have tended to exacerbate the problem and undermine the prospect of effective solutions. In particular, the State Department has continued to vigorously defend against departures from its transaction-specific licensing system – which is very slow and complex, and often results in narrow authorizations only – over alternative and broader models of technology transfer. 

Why Have Solutions Escaped Us?

Sadly, numerous proposals have either been tried and failed over the years or were of limited consequence – only expediting or adding limited flexibility to technology sharing at the margin, with little prospect of materially moving the needle. Moreover, and perhaps more importantly, opponents of these reforms, who share an antiquated view of the role of export controls and seek to retain transactional control, have continuously managed to impose conditions that effectively rendered the reforms of limited utility.

Witness the efforts over two decades to create broad country-specific exemptions to the defense trade controls for collaboration with close allies such as the United Kingdom and Australia. The paradigm was and is to create broad vehicles for technology sharing that obviate the need for narrowly tailored transaction-specific licenses that take months to obtain and, even when issued, are often subject to “killer” provisos or limitations that undermine the very purpose of the license.  

I was personally involved in significant export control reform efforts in the late 1990s designed to facilitate closer defense industrial cooperation with close allies. The idea of a regulatory ITAR exemption (along the lines of the existing Canada exemption) was adopted by President Bill Clinton after an interagency dispute and over the opposition of the State Department. State’s objections to this broader approach to technology sharing were rooted in a view that efforts to move away from the traditional transaction-specific approvals, even with safeguards, would open the floodgates and put the United States’ technology-based military dominance at risk. In effect, State assigned more value to preserving this antiquated export control model than broadening coalition cooperation.

Despite the president’s decision to create the exemption, congressional opponents immediately sprung into action. Working with supporters in the State Department ITAR bureaucracy, they included a “poison pill” provision into law in 2000, establishing standards that effectively made it impossible for the exemptions to be take effect. Specifically, the new law not only carved out key technology areas from the country exemptions, but required that the United States enter into a bilateral agreement with the foreign country involved that would, “at a minimum,” require that country to amend its laws and regulations to create an export control regime that is comparable to the U.S. system and incorporates specific key features. Needless to say, getting allies to rigidly and fully adopt U.S. standards is a non-starter and is unnecessary; there are numerous other export control systems that can be effective but different and promote more technology sharing.

Years later, after failed efforts to change the 2000 law, the George W. Bush administration executed a work around – the president negotiated, and the Senate ratified, defense cooperation treaties with Australia and the United Kingdom for the same purpose (which would have the force and effect of law and override prior legislation). However, Congress struck again and adopted the Security Cooperation Act of 2010, provisions of which effectively rendered the treaties unusable. This law narrowed the applicability of the treaties, added restrictions on their use, and imposed onerous restrictions on future modifications to the implementing arrangements adopted pursuant to the treaties – thereby eliminating flexibility for the future. 

The FMS system and national disclosure policy are plagued by some of the same complexities and bureaucratic considerations and inability to adopt real solutions. This year, both the State and Defense Departments conducted their own but separate FMS reform efforts (Defense’s “Tiger Team” and State’s “FMS 2023” Initiative) rather than an integrated effort. Without plowing through the details, both departments came up with long lists of proposed administrative changes, many of which have been proposed or tried before without producing significant results. National disclosure policy governing the release of classified military information is similarly challenged, with a tendency toward limited sharing even in operational contexts – resulting in “dumbed down” coalition warfare.

Where Are We Today? About to Swallow Another Poison Pill? 

Thus, today, two decades later, the United States still suffers from the same chronic problems. The well-meaning speeches of senior leadership who support AUKUS sound the same and are painfully reminiscent. There persists an inability to adopt meaningful solutions. And the State Department is still at it – guarding its transaction-specific ITAR turf. 

Notably, a June 2023 State Department legislative proposal, which is included in a number of the AUKUS proposals under consideration for the NDAA, called for ITAR exemptions for Australia and the United Kingdom only if the two countries implement their own export control regimes “that are at least comparable to those administered by the United States” and meet the same standards as in the 2000 law. In short, the State Department still is seeking the very same “poison pill” or its grandchild – it may sound promising, but it is a non-solution that has killed export control reform over the decades and would largely be unworkable.

Does this mean that the State Department wants to kill AUKUS? Certainly, the department’s leadership is fully committed to this major initiative’s success and say the right things about fixing the underlying regulatory issues to make it work. Rather, the State Department “poison pill” proposal is the handiwork of the export control bureaucracy in the Bureau of Political-Military Affairs who undoubtedly have advised the leadership that they can have their cake and eat it too – that AUKUS can move forward with sufficient technology sharing under this approach. 

Unfortunately, this is not the case. Indeed, when all the senior leaders finish giving top level speeches and making broad commitments on AUKUS, its implementation ultimately will be left in the hands of mid-level bureaucrats who favor the application of the existing ITAR rules – an approach that impedes the parties from the necessary levels of technology cooperation.

As Senator James Risch aptly observed, “Rather than acknowledging our closest allies have legal, regulatory and technology control regimes comparable to those of the United States, some policymakers are cherry-picking flaws in those systems in an effort to preserve the existing approach to licensing and technology controls. Demands that our closest partners undertake extensive changes to their legal and regulatory systems suggest extraterritorial overreach and demonstrate an inability to characterize risk accurately.”

Similarly flawed are proposals before Congress to create departmental “coordinators” for AUKUS – as the case may be, giving either a senior State Department or Defense Department official authority, within that department, over a range of AUKUS matters. This comes after two decades of inter-agency disputes over these issues and the separate FMS reform efforts underway. While a departmental coordinator might help intra-departmental coordination, the prospect of one or even two separate departmental coordinators risks entrenching inter-agency bureaucratic turf fights even further.

In short, these approaches, expected to be considered in the House-Senate conference on the NDAA this fall, are largely doomed to failure, with fractured authority and impossible-to-meet standards. Moreover, if Congress does not address these issues – does nothing on the regulatory side – the status quo will prevail and the same problematic processes in place today will continue to burden AUKUS.

Time for an Outside the Box Approach

However, with the NDAA likely to move in the fall, there now is a historic opportunity to try a new, “outside the box” approach. Specifically, Congress should adopt an AUKUS regulatory proposal that has at least two core elements: a single AUKUS coordinator and a regulatory exemption creating a separate regime for AUKUS.

A single AUKUS coordinator should be appointed and empowered to manage U.S. participation in the AUKUS partnership – but on a U.S. government-wide basis rather than as an official of an individual department. In effect, Congress should establish the coordinator’s office as an integrated, unitary center, along the lines of a military command, for the multi-year AUKUS effort – with the relevant AUKUS-related functions typically handled by the State and Defense Departments delegated to the coordinator. In short, the coordinator’s office would be a separate, freestanding office that would work with other departments and draw its integrated team from those departments, but report separately to the president through the National Security Council.

Congress also should establish an overall exemption from not only ITAR, but the FMS rules and national disclosure policy that the coordinator would administer (they would not be subject to departmental rules or vetoes). In effect, the coordinator should be afforded carte blanche to create a new, freestanding regulatory framework specifically tailored for AUKUS rather than to slog through the impediments generated by existing rules, policies, practices and bureaucracies.  

Just as Congress afforded the Defense Department “other transaction authority” (OTA) to operate under and avoid the strictures of complex government contract rules, we need an OTA approach for AUKUS. The coordinator thus would be empowered to negotiate with Australia and the U.K. to create a flexible framework to facilitate Pillars I and II that at the same time builds in appropriate, but not unmeetable, safeguards for protecting the underlying technology and operational data among the three allies.

Significantly, for this approach to work, Congress needs to avoid the poison pills of the past and afford the coordinator full authority to create this special framework – without regard to straight-jacket provisions in the 2000 law. With security considerations in mind, the coordinator could be required to certify to the president that: 1) the exceptions from existing rules and standards he or she utilizes are warranted in order to meet AUKUS goals in certain circumstances; and 2) the OTA solution utilized has sufficient safeguards to protect allied technology and is consistent with U.S. national security.

If and when Congress thinks outside the box and creates an OTA for AUKUS, we can develop a framework not only useful for AUKUS but for broader reform that can move our regulatory system into the 21st century.