Dual-use items Recast Regulation: Council finally agrees negotiating mandate with the Parliament

by Dimana Todorova

The EU is currently updating its rules regarding the export control of dual-use items and technologies in order to keep up with new technologies development and prevent authoritarian regimes from having access to products that can be used for military purposes.

For reminder, on 28 September 2016, the Commission adopted a proposal for a new regulation on the export control of dual-use items which will recast the regulation in force since 2009. The Commission’s proposal will be decided upon by the Council and the European Parliament in the ordinary legislative procedure. The Commission’s proposal aims mainly to (i) simplify the administration of controls by optimizing licensing processes, introducing EU General Export Authorizations, and simplifying the controls on technology transfers; (ii) avoid divergent levels of controls throughout the EU by harmonizing the controls on brokering, technical assistance and transit of dual-use items; and (iii) introduce specific provisions preventing the misuse of dual-use items in relation to terrorism or internal conflicts, by extending the scope of the so-called catch-all clause.

The Commission’s proposal introduced also a controversial new “human security” dimension, to prevent the use or abuse of certain cyber-surveillance technologies by regimes with a questionable human-rights record.

In resolutions and statements adopted over the past two years, Parliament welcomed the Commission’s initiative and on 17 January 2018, the Plenary voted positively for the proposal based on the adopted INTA report.

The Council Working Party on Dual-Use Goods started to work on the legislative proposal, but negotiations have not led to the adoption of a Council negotiating position so far, namely as certain Member States have criticized the proposal, on the basis that it could portray “Europe as a technology-averse continent and an unlikely home for any global frontrunners on ICT (*Information and Communication Technology) or other technologies of the future generations“.

Thus, in case of legislative deadlock, trilogue negotiations can only begin when the Council has developed its negotiating position.

After a long stall of the negotiations, EU Member States have finally agreed the Council’s negotiating position on the proposed modernization.

In particular, the proposed mandate includes the following changes:

Definitions:

The Commission and the Council both align the definition of “exporter” with the new definition set in the Union Customs Code. Moreover, the definition is extended in order to include reference to “any natural person carrying the goods to be exported where these goods are contained in the person’s personal baggage”.

The concept of “broker” is also revised to include companies not resident or established in a Member State who carry out brokering services from the customs territory of the Union.

The Council maintains the new definition of “supplier of technical assistance”, which would cover: (i) any natural or legal person or partnership resident or established in a Member State of the EU; (ii) a legal person or partnership owned or controlled by such person; or (iii) another person which supplies technical assistance from the EU into the territory of a third country. An authorization should be required where technical assistance relates to dual use items or their provision, manufacture, maintenance or use, and the supplier of technical assistance is aware that assistance is for, or told by authorities that assistance is or may be for a prohibited end-use.

Cyber-surveillance technologies and human rights:

In accordance with the fears expressed by certain Member States, the Council removes the suggested Category 10 to Annex I covering surveillance systems, equipment, and components for ICT and also removes from the definition of “dual use items” the term “cyber surveillance technology”.

In addition, the Council removes the “serious violations of human rights or international law” and “acts of terrorism” from the end use “catch all” provisions in the initial Commission proposal, expressing again its reluctance to reinforce the “human rights” dimension, so strongly supported by the Commission and the EU Parliament

Licences and authorizations:

The Commission proposed the introduction of four new European Union General Export Authorizations (“EUGEAs”) to help further facilitate trade:

  1. Low Value Shipments;
  2. Intra-company Transmission of Software and Technology;
  3. Encryption; and
  4. Other Dual Use Items.

The Council removes the EUGEAs for “Low Value Shipments” and “Other Dual Use Items”. It also reduces the number of permitted countries under the ‘Intra-company’ EUGEA, and maintains the obligation for operators to put in place an internal compliance programme as a condition of use of the licence.

The Council keeps the concept of a “Large Project Authorization” and states that the licence for such projects could be either a global or an individual licence (compared to the Commission which only suggested global licence).

The Council removed the proposed Union General Transfer Authorization which aimed at facilitating the intra-EU transfer of Annex IV items.

Circumvention:

The Commission introduced certain provisions regarding circumvention, by prohibiting of knowingly and intentionally participating in activities the object or effect of which is to circumvent the export licence requirement for Annex I items or the catch all clause control for items not listed in Annex I items in respect of export, brokering services, transit, and technical assistance.

The Council decided to remove this clause in its entirety.

Compliance and Due diligence:

Both the Commission and the Council introduce the need to adopt Guidelines for “internal compliance programmes” in order to contribute to the level-playing field between exporters and to enhance the effective application of controls. Exporters using global export authorizations should, where requested by the competent authority, implement an internal compliance programme.

Finally, the Council removes the Commission’s proposal that exporters should be required to implement a due diligence process to confirm the absence of any circumstances that could trigger the applicability of the “catch all” clause for items not listed in Annex I.  

Next Steps:

After the EU elections in May 2019, the European Parliament contains more than 60% of new MEPs, which makes it difficult to predict the outcome of the negotiations between the two institutions. At any event, there is no indication that the recast regulation would be adopted in the foreseeable future.

The Council will now proceed to negotiate with the European Parliament within the scope of its mandate and in accordance with the ordinary legislative procedure.

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