AUKUS, formed in 2021 to address shared worries about China's growing power, was designed to allow Australia to acquire nuclear-powered attack submarines and other advanced weapons such as hypersonic missiles from the U.S.

However, the sharing of closely guarded technology, which is governed by strict U.S. International Trafficking in Arms Regulations (ITAR), has been a hurdle for cooperation.

Under the rule change proposed by the U.S. Department of State on Tuesday, the Department's Directorate of Defense Trade Controls (DDTC) will no longer be required to license or approve defense articles, reducing some administrative burdens for companies seeking to make defense products in Australia or the UK.

"This exemption is designed to foster defense trade and cooperation between and among the United States and two of its closest allies," the State Department said in its posting in the Federal Register.

"This is a very positive development," an Australian official told Reuters. A British Embassy spokesperson said that "these stages are instrumental in ensuring the success of AUKUS, which enables us all to work together for a free and open Indo-Pacific."

The UK and Australia were set to release similar rule changes, a State Department official told reporters, adding that the U.S. move "exempts the vast majority of current licensed defense trade" between the three countries.

The State Department said the new rule would still generate an "excluded" items list, making approval necessary for articles with national security import. That includes items governed by an international arms control agreement called the Missile Technology Control Regime (MTCR) and inputs for nuclear devices and some landmines, the State Department official said.

A list of authorized users would also be generated to help sensitive technologies remained contained.

Bill Greenwalt, a former senior Pentagon official for industrial policy and a senior fellow at the American Enterprise Institute, said the exclusion list is so broad as to make the policy changes almost meaningless.

"The message in that list is that we really don't trust our closest allies to do much with us or are confident in their ability to positively contribute in those areas," he said.

Jeff Bialos, a former senior Defense Department official now a partner with the Eversheds Sutherland law firm, said the State Department has resisted blanket exemptions for Britain and Australia since they were first proposed by the Pentagon nearly 25 years ago, while he was in office. The U.S. Commerce Department announced it was scaling back export control requirements for Australia and the United Kingdom to earlier this month. The Commerce Department only handles licensing of some defense-related items, not the broader range of items covered by the ITAR regime, which is governed by the State Department's Bureau of Political-Military Affairs.

A public comment period on the rule will begin on May 1 and end on the 31st.