Should we lock them up? The Australian government’s 2022 list of critical technologies in the national interest

TL:DR

On 22 August the Federal Department of Industry and Resources (“DISR”) released a Consultation Paper setting out an updated list of current and emerging technologies that have the capacity to significantly enhance or pose risk to Australia’s national interest over the next decade (the “List of Critical Technologies”).

The Australian Government faces policy challenges, including ensuring that the development of and investment in these critical technologies are well supported and protected, but not unduly restricted by, Foreign Investment Review Board (“FIRB”) or Defence export control restrictions.  Foreign investors should exercise caution and forward thinking when looking to invest in the technology space. 

Public stakeholder consultation closes on 30 September 2022.

Please contact a member of the KWM Team if we can assist with your input to the Consultation Paper.

Introduction

The 2022 List of Critical Technologies is intended to underpin such policy objectives as:

• promoting Australia as a regional and global destination for investment in and development of critical technologies;
• securing supply chains feeding into critical technologies; and
• promoting jobs growth in the technology sector – with a goal of 1.2 million “tech jobs” by 2030.

Being an evolution of the inaugural list published in 2021 developed in consultation with the Defence Science and Technology Group, the 2022 List retains a strong defence and national security flavour. 

There are 63 critical technologies, broadly grouped into the following seven categories:

• advanced materials and manufacturing;
• Artificial Intelligence (“AI”), computing and communications;
• biotechnology, gene technology and vaccines;
• energy and environment;
• quantum;
• sensing, timing and navigation; and
• transport, robotics and space.

The Consultation Paper and supporting documentation are available at the critical technologies consultation hub on the DISR website.

Technologies on the List are affected by a number of existing laws and regulations, including foreign investment and export controls.

Foreign investment implications

In November 2021, the Critical Technologies Policy Coordination Office released the ‘Blueprint for Critical Technologies’ which outlines the Government’s framework for capitalising on critical technologies.  The Blueprint welcomes foreign investment, but notes the increased risks associated with foreign investment in critical technologies as a result of changing geopolitical landscapes.  FIRB notes that critical technologies confer a strategic edge, making them potential targets of malicious activity, including foreign interference, espionage, and sabotage.

The List of Critical Technologies is referenced in FIRB guidance, as an indication of what the Australian Government considers to be critical technologies for Foreign Acquisitions and Takeovers Act 1975 (Cth) (“Foreign Acquisitions Act”) purposes.  This means that foreign investors looking at these critical technologies may have to apply for the Australia Federal Treasurer’s no objection notification (“FIRB approval”) (see below).

Under the Foreign Acquisitions Act, a mandatory notification threshold of $0 applies to all foreign persons acquiring interests in a “national security business”.  A national security business includes a business that develops, manufactures or supplies critical goods or critical technology that are, or intended to be, for a military or intelligence use, by Australian or foreign defence forces and intelligence agencies.

Unless another threshold applies, mandatory notifications are not usually required for critical technologies that are not intended for a military or intelligence use and therefore not national security businesses.  Nevertheless, the Treasurer has powers to call-in critical technology investments for review if they pose national security concerns, leading to conditions, prohibition or divestment orders.  This power lasts for 10 years.

FIRB encourages voluntary notifications to “turn-off” the Treasurer’s call-in power, even if the target critical technology is not a national security business. 

Applications for FIRB approval concerning critical technologies are subject to heightened scrutiny.  Such applications often take 3-4 months, possibly up to 6 months or more.  Conditions are often imposed and rejections a risk.  The tiered application fees have also doubled recently, costing A$1,045,000 for transactions of more than A$2 billion. 

These uncertainties and costs could mean life or death for a critical technologies start-up, as foreign investors may have no appetite to accommodate perceived regulatory risk or added costs.  After all, Australia competes with other countries for investment in critical technologies.

Export control implications

Foreign investors may also be deterred if the technology cannot be moved or used offshore.  Earlier and more detailed due diligence will be needed to assess whether potential targets in the technology sector or particular critical technologies are subject to export controls.

A number of Federal Departments and Agencies are responsible for regulating the export of goods and services from Australia.

The Department of Defence through its Defence Export Controls unit, manages Defence export controls (including issuing export permits).

The export of goods from Australia is primarily governed by the Customs Act 1901 (Cth) (“Customs Act”) Part VI and the Customs (Prohibited Exports) Regulations 1958 (Cth) (“Prohibited Exports Regulations”).

Regulation 13E of the Prohibited Exports Regulations prohibits the export of military and so-called “dual-use goods”, as specified in the Defence Strategic Goods List (“DSGL”).  The Customs Act also allows the Defence Minister to prohibit the export of goods not captured by the Prohibited Exports Regulation reg 13E where the exported items would, or may, be for a military end-use, which would prejudice the security, defence, or international relations of Australia.

In addition, the Defence Trade Controls Act 2012 (Cth) (“DTC Act”) controls the supply, publication and brokering of tangible and intangible military and dual-use goods and technologies.

A number of items on the 2022 List of Critical Technologies are likely to be controlled under the DSGL, including under:

• Part 1 of the DSGL, which covers goods and technologies designed or adapted for use by armed forces or goods that are inherently lethal; and
• Part 2 of the DSGL, the so-called “dual use” goods. Dual‑use goods comprise equipment and technologies developed to meet commercial needs, but which may be used either as military components, or for the development or production of military systems or weapons of mass destruction.

As adverted to in the Consultation Paper and the accompanying Critical Technology Profiles, cross-overs between the 2022 List of Critical Technologies and the DSGL are numerous.  These include:

• energy and environment – nuclear energy – applications include energy production for self-contained and/or remote uses, such as space travel, submarines;
• energy and environment – nuclear waste management and recycling;
• transportation, robotics and space;
• advanced materials and manufacturing;
• AI, computing and communications;
• biotechnology, gene technologies and vaccines;
• quantum; and
• sensing, timing and navigation.

A permit issued by the Defence Minister is required to export goods and technologies in these areas.  The Defence Minister may only grant such a permit if the Minster determines that the proposed export would not prejudice the security, defence, or international relations of Australia.

Assuming that private sector development of technologies in this area will require access to export markets for economic reasons, the requirement to secure such permits may act as a brake on, or discourage, investments in these sectors.

There are existing mechanisms that might facilitate such exports – for example the Australian General Export Licence (or “AUSGEL”) regime which provides for broader, long-lasting permits for pre-approved export activities.  It remains to be seen whether the Defence Minister might be more prepared to grant AUSGELs with a view to promoting the policy aims of the 2022 List of Critical Technologies.

Conclusion

Australia’s policy and regulatory framework around critical technologies is still developing.  Foreign investors should exercise caution and forward thinking when looking to invest in the technology space. 

From a policy perspective, the List of Critical Technologies has meaning only in the context of the substantive policy framework that surrounds it.  The Australian Government has the unenviable challenge of balancing national interest considerations and facilitating growth.  Ultimately, premature restrictions may have long term impacts on Australia’s technological start-up sector, with talent moving offshore and a lack of capital available for growth-stage companies.