Chapter 2
Strengthened export controls
2.1
The bill has two key purposes and its parts can be divided up
accordingly: to give effect to the treaty (Parts 3 to 8) and to strengthen
Australia's defence export controls (Part 2). The explanatory memorandum states
that the bill will:
...give effect to the Treaty between the Government of
Australia and the Government of the United States of America concerning Defense
Trade Cooperation. The Bill will also strengthen Australia's export
controls to align them with international best practice.[1]
2.2
In this chapter, the committee examines Part 2 of the bill—dealings in
items in the Defence Strategic Goods List (DSGL). It considers the provisions
dealing with implementing the Defense Trade Cooperation Treaty in the following
chapter.
2.3
Part 2 of the bill is intended to strengthen Australia's control over
activities involving defence and dual-use goods. The bill includes provisions
covering:
-
intangible transfer of
technology relating to defence and strategic goods, such as transfer by
electronic means;
-
provision of services related to
defence and strategic goods and technology, such as training and maintenance
services; and
-
brokering the supply of defence
and strategic goods, technology and services.
Changes to current defence export control
regime–strengthening export controls
2.4
Australia is a member of several export control regimes, including: the Wassenaar
Arrangement on Export Controls for Conventional Arms and Dual Use Goods and
Technologies; Australia Group; Nuclear Suppliers Group, and Missile Technology
Control Regime.[2]
Defence notes in the explanatory memorandum that the measures proposed in the bill
introduce the controls developed by other countries in the Wassenaar
Arrangement, including arms brokering and intangible transfers of technology.[3]
2.5
The bill regulates dealings in items listed in the DSGL, as well as
items covered under the treaty. The bill also creates offences relating to
brokering or transfer of items listed in the DSGL.
Current trade framework[4]
2.6
Currently, before a person can trade in defence goods, technology and
related services between Australia and the US, they need to obtain relevant
authorisation from the appropriate government authorities. In Australia, the
requirements for such authorisations are set out in section 112 of the Customs
Act 1901 and regulation 13E of the Customs (Prohibited Export)
Regulations 1958 and Part 2 of the bill.
2.7
Submitters recognised the importance of the purpose of the legislation. While
they welcome the intention that sits behind the legislation and are looking to
secure a robust regime, they also want unnecessary barriers or impediments to
exporting controlled articles removed.
2.8
Although operating in different sectors—research and industry—submitters'
concerns about the strengthened export controls were similar. They argued that
the regulation of the transfer of intangibles and strengthened controls around
brokering would create a substantial compliance burden and affect research and
international collaboration.
Regulation of transfer of intangibles
2.9
The explanatory memorandum notes in relation to Part 2 of the bill,
that:
At present, technology listed in the DSGL requires permission
from the Minister for Defence for it to be exported in the form of a tangible
good (for example, on paper or a computer drive). This Bill introduces
provisions to control identical technology when transferred via intangible
means, for instance via email, facsimile or internet.[5]
2.10
Under the bill, control over transfer of technology through intangible
means would be overseen by Defence. For example, a person seeking to transfer
technology via an email would require a permit under clause 11 of the bill. Under
this clause, the Minister for Defence approves permits. If a permit is refused,
the Minister must provide the person notice of the refusal and reasons for the
refusal.[6]
2.11
Subclause 11(4) allows the Minister to 'give the person a permit to do a
specified activity if the Minister is satisfied that the activity would not
prejudice the security, defence or international relations of Australia'.
Neither the bill nor the regulations elaborate on the issues the Minister may
consider in determining whether the activity would prejudice the security,
defence or international relations of Australia—only the explanatory memorandum
provides a list of issues, and notes that 'these criteria are consistent with
the considerations made in assessing an application for the export of DSGL
tangible goods or technology under the Customs
(Prohibited Export) Regulations 1958'.[7]
2.12
Companies, research organisations, universities or other organisations
who work with DSGL technologies will require the permits described in clause
11. It is therefore important for the criteria used in determining the success
of an applicant be outlined in legislation. The committee notes that the criteria
for approval of an application to become a member of the Approved Community
have been listed in the bill at subclause 27(3). Further, the Customs
(Prohibited Export) Regulations 1958 lists conditions for assessing
applications for the export of DSGL goods or technology.
Recommendation 1
2.13
The committee recommends that the government consider including
in the bill the criteria provided in the explanatory memorandum in relation to
permits issued under clause 11 so that the Parliament can scrutinise them
properly and potential applicants can be clear as to the criteria that will be
used to assess their applications.
2.14
The bill creates offences as part of its regulation of transfer of
intangibles. A person commits an offence if he/she supplies DSGL technology to
a foreign person and does so without a permit or in breach of the condition of
the permit. Also, under similar conditions, the bill creates an offence relating
to the provision of defence services.[8]
2.15
'Foreign person' is defined in clause 4 as being a person who is not an
Australian person. 'Australian person' is defined:
Australian person means:
(a) the Commonwealth, a State or a Territory or an authority
of the Commonwealth, a State or a Territory; or
(b) an individual who is an Australian citizen; or
(c) an individual who is, within the meaning of the Migration
Act 1958, the holder of a permanent visa; or
(d) a body corporate incorporated by or under a law of the
Commonwealth or of a State or Territory.
2.16
Subclause 10(3) provides exceptions to the offences in relation to the
supply of technology under the treaty, for example in an Approved Community.
Regulation of transfer of intangibles–issues
raised by submissions
2.17
Several submitters noted that controls on intangible goods would create
a significant compliance burden on industry. The Defence Teaming Centre broadly
canvassed its membership and summarised these concerns in its submission:
The decision to place controls on non-tangible goods, whilst
logical, will add a significant overhead to many members, especially those who
deal with training, systems engineering and consultancy. This will mean that
the cost and time needed to tender for overseas opportunities for these
companies is likely to be too great. Unless the export approval process is
significantly accelerated, this could lead to companies in this space losing
significant market share. Concern was also expressed that the way that export
applications are currently implemented is inadequate to cover the wide range of
intangible that will now be covered, which will only lead to delays in the
approval process.[9]
2.18
Mr Andrew Giulinn of Saab Systems Pty Ltd (Saab) observed that some
definitional issues would need to be resolved in order to assist compliance
with the regulation of intangibles. He explained:
There are cost of compliance issues with this arrangement
and, obviously, initially some definitional issues to try and work out what it
is that is covered and what we need to have in place to be able to meet the
requirements. That is probably the biggest concern for us once the bill is
sorted out in terms of the detail of it: what do we need to do internally to
try and deal with this? So, while we might get a licence now to make sure we
are covered for tangible exports even if we are expecting most of them to be
intangible exports, there is a lot behind this bill in terms of record-keeping
and that sort of thing that we need to be conscious of. That is probably where
the biggest cost of compliance will come for us.[10]
2.19
Submitters from the university sector noted the effect that these
controls would have on research and development in Australian universities.
Professor Graham Mann summed up the concerns at the 21 March public hearing:
Think about the fact that the extension of this legislation
to intangible transfers is really the critical issue here. The goods themselves
are easy to regulate. When you talk about the intangible aspects of research
such as: communication among researchers; forming of teams to address the
problems proposed by academic influenza [an example of collaboration: the
problems associated with influenza used for research purposes]; the way people
talk to each other; design projects; seek funding for those projects; disclose
what they intend to do to get the money for those projects; the implementation
and management of them; the results; the analysis; and the reporting of those
results in an open research community to get the best and most effective
research actually happening and delivering the intangibles are everything in
this.[11]
2.20
Professor Mann's evidence also indicated that the scope of the term
'intangibles' could be quite broad. In questions taken on notice, the committee
asked Defence to address specifically this matter. In its response, Defence
advised that:
Customs legislation only applies to the export of tangible
goods and technology. The new strengthened export control provisions in the
Bill will close the existing gap in Australian export controls by regulating
the intangible supply of technology and provision of defence services. The Bill
does not specifically refer to 'intangible transfers' or 'intangible export',
however, the Wassenaar Arrangement state parties use the term and throughout a
period of extensive consultation, Defence has found 'intangible transfers' to
be a commonly-used expression that is understood by industry.[12]
Recommendation 2
2.21
In consultation with all relevant sectors, the committee recommends
that Defence provide examples to illustrate the scope of the definition of
'intangibles' and 'intangible transfer' in the explanatory memorandum.
Brokering
2.22
Brokering forms another part of the bill's framework for strengthening
export controls. The explanatory memorandum notes in relation to Division
2—Brokering:
Currently, Australian persons, and foreign persons in
Australia, can arrange the supply of DSGL goods and technology or the provision
of services associated with those items from a place outside Australia to
another place outside Australia without Government authorisation.
The international export control regimes to which Australia
belongs have long recognised that brokers have been involved in the delivery of
military equipment to countries under arms embargoes, and to criminal
organisations and armed groups, including those believed to be engaged in
terrorism.
The purpose of this Division is to allow the Australian
Government to regulate the brokering of controlled goods or technology and the
provision of services in relation to such goods or technology when that
transaction is arranged by an Australian or the arranging occurs wholly or
partly in Australia. This will be achieved through a power to register brokers
and issue permits to engage in brokering activities involving DSGL goods,
technologies and services.[13]
2.23
Subclause 15(1) creates an offence in regard to arranging supplies and
provision of defence services in relation to the DSGL, in the instance where
the arranging occurs without appropriate permits. 'Arrange' is not defined in
the bill; however, the explanatory memorandum provides this information:
The term 'arranges' is intended to include, but is not
limited to, circumstances where for a fee, commission or other benefit, a
person acts as an agent or intermediary between two or more parties in
negotiating transactions, contracts or commercial arrangements for the supply
of DSGL goods or technology or provision of services related to DSGL goods or
technology.
The term 'arranges' is not intended to cover situations where
a first person provides a second person with a point of contact for the supply
of DSGL goods or technology or provision of services related to DSGL goods or
technology and there is no fee, commission or other benefit obtained by the
first person.[14]
2.24
Persons may apply for registration as a broker under the conditions set
out in Division 3. A registered broker may apply for a permit under clause 16.
The Minister for Defence may approve a person's registration as a broker (Division
3) and may approve the granting of permits (clause 16).
Brokering–issues raised by
submissions
2.25
Boeing Australia and South Pacific (Boeing) and Saab both raised
concerns regarding elements of the brokering regulation. Boeing submitted that
the scope of the registration and oversight requirements for brokers was too
broad and that as a result it captured persons and activities which were not
necessary for the intent of the bill—that is to protect national security
interests. Boeing provided a specific example:
Freight Forwarders—The term "supply", which is
defined in section 4 as including supply by way of "sale, exchange, gift,
lease, hire or hire-purchase", is broadly used together with the term
"arrange" throughout Section 15, which establishes brokering
offences. Under this definition, a freight forwarder delivering goods to one
customer on behalf of another customer could be construed as "arranging to
supply" the goods, therefore offering a brokering service and becoming
subject to Section 15. In order to avoid possible confusion, we recommend
defining the term "arrange" in the Section 4 definitions in such a
way as to make clear that although a freight forwarder may "supply"
Defence and Strategic Goods List items, in the normal course of business a
freight forwarder does not "arrange" that supply.[15]
2.26
Saab too was concerned about the scope of the brokering requirements. Mr
Giulinn explained:
Saab notes the reference on page 53 of the explanatory
memorandum to a fee commission or other benefit. Saab accepts
this would reduce the scope of the brokering rule and align more closely with
intent, which is, in our view, to stop uncontrolled movement of technology and
where it is being arranged by somebody who is getting some sort of fee for it
and therefore there might be a potential for them to prefer to ignore export
control regimes around the world. Saab's concern remains, however, firstly
because the explanatory memorandum says the term 'arranged' includes but is not
limited to circumstances where a fee, commission or other benefit is involved,
so it is not only those but also leaves things that do not require a fee.
...
Saab is also concerned as to when during the business
development process the activity becomes controlled brokering. The issue here
is that early activities to develop business, which might include arranging the
movement of items between overseas locations, often requires speed and
flexibility. It would be impractical to be required to apply for a licence in
that situation and it could be years before that initial contact results in a
contract and subsequently the actual transfer. The department has indicated
that the need for a licence would start from the point of sale. Saab awaits
further information as to how this might work.[16]
2.27
It is clear from evidence received by the committee that while the
intention of the brokering regulation is clear, the requirements under the bill
require further definition to take into account the practicalities of
conducting business. Defence has responded to these concerns, noting:
The preference of submitters to have key terms defined in the
Bill rather than in the regulations or EM [explanatory memorandum] has been
noted by Defence. It is acknowledged that this particular concern was raised in
the context of the Bill's reference to the term 'arranges' in the brokering
offences contained in Part 2, Division 2 of the Bill.
The term 'arranges' is intended to be read using the ordinary
meaning of the term in conjunction with the additional guidance provided by the
explanation given in the EM at pages 53-54. The EM provides clear examples of
situations that 'arranges' is intended to cover, as well as situations that are
to be regarded as outside the scope of the term.
Defence has considered the submissions made in relation to
this point, in addition to the comments made by the Committee, and would be
prepared to include a definition of the term 'arranges' in the Bill that is
consistent with the guidance in the EM, if recommended by the Committee.[17]
2.28
The committee explored the reasons for having key terms defined in the
explanatory memorandum at both public hearings. Defence's explanation for not including
definitions of key terms in the bill was not convincing. The committee,
however, is encouraged by Defence's new willingness to do so.
Recommendation 3
2.29
The committee recommends that Defence include the definition of
'arrange' in the bill, and that in defining the term Defence consult with
submitters who have raised issues regarding the scope of the term.
2.30
For future drafting, the committee draws Defence's attention to the
Acts Interpretation Act 1901, in particular the use of extrinsic
material in the interpretation of an act, and notes that clarity of definitions
greatly assists the efforts of those who have to comply with the legislation.
Lack of transition arrangements in
the bill
2.31
Four submitters, including Saab, registered concerns regarding
transition arrangements: specifically that no arrangements had been outlined in
the bill or the regulations for the transition to the new strengthened export
controls.[18]
The government has noted in the explanatory memorandum; in the Second Reading
Speech; and in its response to the Scrutiny of Bills Committee, that
implementation of the measures in the bill will include education and
consultation with industry. However, while submitters such as the Defence
Teaming Centre and the AMWU note that industry education is required, most
industry submitters were concerned about:
-
when new measures would take
effect,
-
whether there would be a gradual
process, and
-
the status of in-train projects.
2.32
Universities Australia also argued for transition arrangements noting
that:
Universities require a very substantial transition period
before the Bill is enforced against universities, so that they and the
authority have sufficient time to intelligently deal with the administrative
and technical challenges contained in the Bill. Due to the de-centralised
nature of universities, it will take considerable time to train staff to a
level that is sufficient, as well as provide that training across entire
campuses, including overseas campuses where impacted.[19]
2.33
Defence responded to submitters' concerns in an answer to a question on
notice:
The Bill's commencement provisions provide that the Bill will
not commence operation until the Treaty comes into force. Once the Bill has
passed through the Australian Parliament, the Treaty will not come into force
until the US President has ratified the Treaty, the Attorney-General has sent
correspondence to the Federal Executive Council and there has been a bilateral
exchange of notes to agree upon a Treaty commencement date.
In light of continuing consultations with the university and
research sectors, the strengthened export control provisions of the Bill and Regulations
may need some changes, and may delay the Bill's passage through Parliament.
This, combined with the process above, will give Defence, industry and
universities a period of time to prepare to meet the requirements of the Bill.[20]
2.34
It should be noted that the period of time needed to ratify the treaty
cannot be defined. The committee is concerned that the approach outlined by
Defence does not provide certainty for the industry, research and university
sectors affected by the strengthened export controls. Further, Defence
suggested that the time taken for the bill to pass Parliament should be
sufficient for organisations to prepare for the regulatory changes—this assumes
that there would be no substantial changes to the bill made by Parliament.
Recommendation 4
2.35
The committee recommends that Defence, in consultation with the
industry, research and university sectors, establish a timeline for the gradual
transition to the strengthened export controls regulated by the bill.
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