International Law Advisory - European Commission Proposes Revision to EU Export Controls Regulations

On December 18, 2006, the European Commission (“EC”) published a proposed regulation (COM(2006) 829 final, SEC(2006) 1696) to revise the present European Union (“EU”) controls on the export of dual-use goods and technology. The proposal, the key provisions of which are summarized below, would involve some significant changes to the current EU dual-use export controls regime, which is currently set forth in Council Regulation No. 1334/2000 (the “Regulation”).1

The EC held a conference on the proposal with industry representatives on January 26, and has invited comments from interested parties on the various aspects of the proposal (as noted below, comments must be received by the end of February or mid-March, depending on what aspect of the proposal the party is commenting on). The EC currently anticipates holding consultations on the proposal in 2007, and ultimately implementing a new legal framework in 2008.

The proposed revisions to the Regulation are in furtherance of UN Security Council Resolution 1540, which requires states to implement regulations sufficient to ensure that weapons of mass destruction (“WMD”) proliferation activities do not occur in their jurisdiction, and the June 2003 Thessaloniki Action Plan, in which the EC recommended several measures to strengthen the EU export controls regime in the wake of the September 11, 2001, terrorist attacks in the United States. 

The EC proposal contains a number of substantive changes to the current EU export controls framework, most of which are intended to ensuring that products exported from the EU are not used in furtherance of WMD proliferation activities. The proposed changes would, therefore, likely have the greatest effect on companies that are engaged in nuclear-related industries, though certain aspects of the proposal would be relevant to EU exporters generally. The most notable of the proposed enhancements to the Regulation are as follows:

• Restrictions on brokering. Article 3 provides that Member States should introduce controls on the provision of “intermediation services” in connection with the supply of dual-use items between third countries. These controls would apply “where the intermediary has been informed  by competent authorities of the Member State where he is established or has grounds for suspecting that those dual-use items are or may be intended for proliferation of weapons of mass destruction or their means of delivery[.]” The term “intermediation services” is defined broadly to include “negotiating or arranging” transactions for the supply of dual-use items from a third country to any other third country, and thus would include typical brokering activities. These controls would apply irrespective of the dual-use product that is the subject of the brokering activity (in other words, it is not limited only to a subset of dual-use items that are particularly relevant to WMD activities). At the January 26 conference, the EC staff noted that the “intermediation services” restriction could include activities such as financing or transportation services.
• Intangible exports. Article 2(b) would amend the Regulation’s definition of “export” to explicitly include “intangible” exports such as through the provision of “technical assistance” or electronic transfers of software or technology (such as, for instance, through electronic mail). The purpose of this amendment would be to harmonize the various definitions of “intangible” exports that currently prevail in Member States’ implementing regulations. During the January 26 conference, the EC staff clarified that the term “technical assistance” would not encompass services provided by EU persons outside of the EU.
• Transit and transhipment controls. Article 3 would also allow Member States to take possession of dual-use items in transit or transhipment through their territory, where there are reasonable indications that the items are, or may be, intended for WMD proliferation activities in a third country. 
• Recordkeeping. Article 16 clarifies the recordkeeping requirements for exports of different categories of dual-use items, and for the provision of intermediation services.
• Criminal penalties. Article 21 would require Member States to implement criminal penalties for “serious infringements” of the Regulation and the implementing regulations issued by Member States. The proposal does not make clear what would be considered a “serious infringement,” or what type of knowledge requirement would be necessary in order for a government to make out a criminal case.

Other aspects of the proposal are geared toward reducing the impact of the EU export controls on industry. These include the following measures:

• Global licenses. Various aspects of the proposal promote the continued use of global export licenses, particularly for companies that have implemented strong internal compliance programs. (Global license frameworks are currently in place in most Member States, but the standards for eligibility vary by jurisidiction.)
• Internal transfers of Annex V items. Article 25 of the proposal replaces the authorization requirement for internal transfers of Annex V (formerly Annex IV) items with a pre-notification procedure, thus easing licensing requirements on inter-Community trade for such items (Annex V contains a subset of particularly sensitive dual-use items which are subject to heightened export controls).
• Increased consistency in export licensing conditions. The proposal promotes greater consultation among Member States in order to harmonize the conditions of use that are included with export licenses.
• Relationship with third-country export controls regulations.  Article 22 provides for the Commission to negotiate agreements with third countries for the mutual recognition of dual-use export controls, and in particular to eliminate authorization requirements under third-country laws for the reexport of dual-use items within the EU.

The EU Council of Ministers ultimately must vote in favor of the proposal by a qualified majority. (A qualified majority is defined as at least 255 votes from at least 14 Member States.2 However, the EC’s goal, as noted in the January 26 conference, currently is to have ongoing consultations on the proposal in 2007 and to implement the regulation in 2008.

In the meantime, the EC has, as noted above, invited comments from industry on the proposal.  Comments on the definition on the regulations of “transit”, “brokering,” and the pre-notification process for inter-Community transfers must be submitted by the end of February; all other comments on the proposed regulations must be submitted by mid March. 

Copies of the proposal, associated commentary, and minutes from the January 29 meeting are available: 

• Report of the meeting organised by DG External Trade with dual-use exporters (Brussels, 26/1/2007)
• Proposal for a Council Regulation setting up a Community regime for the control of exports of dual-use items and technology (Brussels, 18/12/2006)

We will continue to monitor developments on the proposal and advise you of significant changes.  If you have any questions in the meantime, please contact David Lorello at; +44 20 7367 8007 in London; Guy Soussan at +32 2 626 0535 or Laura Atlee at +32 2 626 0516 in Brussels; or Ed Krauland at 202.429.8083 in Washington, DC.

Footnotes

1. Dual-use items are those with both commercial and military uses, as listed in the Regulation.  Exports of military-specific items are separately regulated by EU Member States, under less standardized procedures than those that apply to dual-use items.  
2. Member States have differing numbers of votes. In addition to the criteria on the numbers of votes and supporting Member States, any Member State can require proof that at least 62% of the European Union's population is represented by the votes. It would be unusual, however, for a Member State to require this