On June 30, 2011, the European Commission issued a Green Paper
on the European Union's export control regulations for dual-use
items having both civil and military applications.1 The
Green Paper is a discussion document and launches a four-month
consultation process in which interested businesses, associations
and other stakeholders are invited to participate. It identifies a
number of key weaknesses in the current EU dual-use export control
regime and presents possible areas for reform. The Green Paper,
however, devotes little attention to potentially significant
transatlantic implications and the ongoing reform of US export
control rules.
Following the end of the consultation period on October 31, 2011,
the Commission intends to publish a report on the results of the
consultation in January 2012. This will be followed by formal
amendment proposals to the EU Council and Parliament later that
year.
Europe's Existing Dual-Use Export Control Regime
Europe's existing dual-use export control regime is laid
down in EU Regulation 428/2009.2 Goods and technologies
that require export authorization are listed in Annex I of the
Regulation. The list constitutes a consolidated and regularly
updated version of the control lists agreed upon pursuant to
international export control regimes (Australia Group, Nuclear
Suppliers' Group, Missile Technology Control Regime and the
Wassenaar Arrangement). Items not listed in Annex I may also be
subject to export controls under certain conditions specified in
the Regulation.
Four types of authorizations are currently available under the
Regulation, three of which are issued by individual Member States
(individual, global and national general export licenses). An EU
General Export Authorization (EU GEA) EU001, is issued by the EU
and applies across all Member States.
The existing dual-use Regulation is a political compromise between
the need for a uniform EU-wide export regime and the desire of EU
Member States to preserve for themselves a significant margin of
discretion. Accordingly, the current regime suffers from important
weaknesses that make it more difficult and costly for businesses to
comply.
The rules are complex and unharmonized and vary across the European
Union – ranging from extremely tough restrictions in some
EU Member States, to the use of broad national facilitation
measures and exemptions in others; they do not adequately address
some of the challenges stemming from new threats to EU security and
the rapid technological progress that has occurred; and do not
facilitate timely access to controlled items and technologies. For
companies whose operations span multiple jurisdictions, the current
system is even more complex and often requires multiple clearances
for a single transaction as a result of parallel Member State and
EU-wide export control procedures and regimes. Finally, disparities
between EU and US regulations continue to hamper global trade and
investment, and impose costs on businesses on both sides of the
Atlantic.
Six Key Elements of Reform Proposed
The Commission's new Green Paper acknowledges many (though
not all) of these problems and recognizes that it is in the
EU's interest to make the system less of a hindrance on
competitiveness and innovation – i.e., to reduce the
burden that export controls impose upon industry. Setting out a
mid- to long-term vision of export controls in the EU, the Green
Paper contemplates six key areas of reform:
1. A common risk assessment approach of all export control
authorities. Such an approach, applied across the entire
EU, would promote consistency in Member States' export policy
decisions and review mechanisms, avoiding situations where
licensing authorities reach different conclusions in comparable
circumstances and ensuring a level playing field for EU
exporters.
2. Improved exchange of information about suspicious
transactions and licensing decisions. Without access to
appropriate information, Member States' licensing authorities
currently lack sufficient bases for making decisions about specific
export transactions. Currently, information is exchanged mainly on
an informal, bilateral basis, and systematic data exchange takes
place only regarding denials issued by licensing authorities. The
Green Paper contemplates a more systematic and thorough information
exchange system, including details of licenses, exporters and
suspicious entities.
3. Phase out National General Export Authorizations in
favor of EU General Export Authorizations. Many EU Member
States, as well as several other countries, already prioritize
their work by making low-risk transactions eligible for National
General Export Authorizations (NGAs), which authorize exports of
eligible controlled items to a broad range of destinations with
reduced administrative burdens. At the EU level, an existing EU
General Export Authorization allows for the export of most
controlled items to seven favored destinations, including Canada
and the US. Two new general authorizations are under discussion in
Brussels. The European Commission believes that EU General Export
Authorizations should be expanded in the future to replace more
NGAs.
4. A common approach to catch-all controls. Most
export control systems have catch-all provisions that restrict
exports of items not specifically listed on the EU control list,
but that could nevertheless be used for proliferation purposes.
According to the Commission, the EU Member States do not
sufficiently inform each other about license applications and,
consequently, authorizations or denials. The Green Paper proposes
that EU Member States should be required to exchange information
and suggests that consideration may need to be given to creating an
EU-wide catch-all control. Under such a mechanism, any EU Member
State could ask the Commission to impose special catch-all export
licensing requirements applicable to all 27 EU Member States for a
certain period of time.
5. Working towards a fully integrated internal market for
dual-use items. The Commission acknowledges that intra-EU
controls inhibit economic development as companies seek to avoid
cross-border cooperation that might implicate export control
restrictions or recordkeeping. Therefore, the Green Paper
contemplates removal of such intra-EU controls. The Commission
proposes a greater use of post-shipment verification mechanisms and
introducing lists of certified end-users in the EU who could
receive specific items or technologies without an export
license.
6. Coordinated enforcement across the EU coupled with
improved access to relevant information for customs
enforcement. Finally, the Commission recognizes problems
with the enforcement of the current export rules and proposes to
expand the use of Authorized Economic Operator (AEO) status in the
export control process.3
Transatlantic Convergence and Opportunities for Business to be Heard
The Green Paper addresses some, but not all of the areas that
are widely believed to warrant reform. Notably absent, for example,
is the issue of differences among transatlantic and global export
control rules. As a practical and legal matter, exporters and
importers continue to face different US and EU regulatory regimes
for dual-use products. Such divergence is costly to exporters and
importers, and hampers EU and US competitiveness, volume of export
trade, and incentives for technological innovation.
For example, the US rules encourage voluntary self-disclosures of
past regulatory violations as a means to limit liability from
voluntarily disclosed violations. The EU has no formally recognized
system for voluntary disclosures, and companies are effectively
left on their own to determine how to handle export errors. Another
area of persistent divergence is the extraterritorial application
of export controls. US authorities have long sought to impose
controls upon non-US companies and persons, and increased penalties
and enforcement in this area have sought to broaden the reach and
effectiveness of US export control in this regard.
The US, moreover, has begun a comprehensive reform of its own
export control system. This parallel reform effort will address
some of the same issues at stake in the EU consultations. Among the
objectives of the US reforms are creating a single export licensing
authority, single enforcement agency, single control list, and
single information technology system. As part of this effort, the
US has introduced new export license exceptions, new control
categories, and clarifying guidance on issues such as the handling
of disclosures of controlled technologies to dual nationals. Yet,
harmonization among export control regulations remains far from a
reality. In the meantime, companies impacted by these regulatory
changes face the challenge of updating their systems and compliance
capabilities as products migrate from one list to another, key
terms are redefined, and licensing and administrative requirements
are modified. Exporters will need to remain vigilant while US and
EU export controls are changed and, from a business perspective, it
will be important to ensure that the EU and US processes are
undertaken in a coordinated and consistent fashion.
Importers, exporters and other interested parties have a chance to
address these and other issues in the EU consultations that have
now begun and are scheduled to end on October 31, 2011. Taking into
account their input, the Commission will publish a report on the
results of the consultation in January 2012, followed by a formal
report to the EU Council and Parliament, as required under Article
25 of the Dual-Use Regulation, later that year. A formal proposed
revision of the dual-use export Regulation is expected as early as
the second half of 2012, followed by a legislative process,
including input from the European Parliament and the Council and
Member States.
All of these provide possible avenues for companies and others to
provide comments and influence the debate. But for those who
believe they have a real interest, getting involved early is
typically best.
Footnotes
1. Green Paper, The dual-use export control system of the European Union: ensuring security and competitiveness in a changing world, presented on June 30, 2011, available here.
2. Text of the Regulation can be found here.
3. An AEO is an economic operator who, by satisfying certain criteria, is considered to be reliable in their customs-related operations throughout the European Community and is therefore entitled to favorable and more centralized licensing, export control and customs clearance treatment.
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