The CBP has an issue with people who are citizens of VWP countries but born in countries where the vast majority of persons are not perceived to be of European ethnic appearance when those persons are of the ethnic affiliations commonly indigenous to the place of birth . Not always, but more often than for persons who are carrying a VWP country passport but born in a VWP country and perceived to be of ethnic European heritage, regardless of place of birth.

US CBP wanted an exemption so it could engage in racist profiling because it uses racism often enough that if it were measured by say the GAO for its practices then it would be in a potential hot spot with some.

Racism raises its head in how the frequency of certain approaches/non-approaches play out based on perceived ethnicities of the passengers -- for example in seating practices on public transport with open seating arrangements.

About your question to me earlier, your German-born Irish acquaintance seems to have said that even she didn't think she was singled out on a racist basis. That and other things seems to make it easy to conclude that other prejudices were in play between your acquaintance and the Australian woman of Pakistani heritage.