New Dual-Use Regulation about to enter into force
What you need to know
Good things come to those who wait, as the proverb goes. On 11 June 2021, Regulation (EU) No 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items was published in the EU Official Journal. The lead-up to that new piece of EU legislation was not an easy one. On 10 May 2021, after an exceptionally protracted legislative process, the Council finally adopted the new EU rules on the control of exports, brokering, technical assistance, transit and transfer of dual-use items. The adoption came almost five years after the European Commission (“Commission”) proposed a significantly revised version of the 2009 Dual-Use Regulation (Council Regulation (EC) No 428/2009) in September 2016. The Council and representatives of the European Parliament eventually reached a political agreement on the new rules in November 2020 and the European Parliament formally endorsed the dual-use reform in March 2021.
But: Did good things come indeed? The 2021 version of the Dual-Use Regulation updates the EU rules on the trade of dual-use items in a manner that takes into account company interests and longstanding concerns from the business community. Yet, while trying to balance the various perspectives and interests involved, and while providing long-awaited simplifications for companies, the revised regime may give rise to new areas of legal uncertainty.
A. Balancing various perspectives and interests
On the one hand, the EU rules on the trade of dual-use items serve well-established goals of dual-use-related export controls: national security, the prevention of the proliferation of nuclear, chemical and biological weapons and their means of delivery as well as peace, security and stability. To that list of declared objectives, the new Regulation adds an additional – much awaited – item, namely the protection of human rights in foreign countries by means of dual-use-related controls. On the other hand, the 2021 version of the Dual-Use Regulation stresses the importance of the global competitiveness of EU exporters and clearly states that one compliance programme does not fit all. Instead, the size and the organisational structure must be taken into account which in particular addresses small and medium-sized enterprises.
B. Simplifications for companies
The 2021 version of the Dual-Use Regulation brings about several significant simplifications for companies. Thus, the scope of the so-called general licenses on EU level – meaning that the exporter basically only needs to register for the use of such general licence (in addition, he may be required to make six-monthly reports) – will be broadened. The probably most important new general license covers the intra-group export of software and technology under certain, rather severe, conditions (cf. Annex IIg of the new Regulation). But if those conditions are met, this general license simplifies intra-group solutions significantly. In its recitals, the new Regulation encourages Member States to provide general and global licenses, or harmonised interpretations of provisions, for certain transmissions of dual-use software and technology in order to limit the administrative burden with regard to day-to-day business operations that may constitute a transfer of software or technology by means of electronic media, fax, phone, etc.
In addition, the 2021 version of the Dual-Use Regulation introduces a new type of license: the so-called “large project authorisation”, defined as “individual export authorisation or a global export authorisation granted to one specific exporter, in respect of a type or category of dual-use items which may be valid for exports to one or more specified end-users in one or more specified third countries for the purpose of a specified large-scale project”. This new type of license may be valid for up to four years. Still, it does not seem to entail distinct advantages compared to global export authorisations.
It is further noteworthy that the dual-use-related definitions in the new Regulation now regularly refer to relevant definitions and concepts under EU customs laws. This is due to the objective that the new Regulation shall, to the extent possible, be consistent with EU customs laws. This is to be welcomed for the sake of clarity and the consistent application of EU law.
C. New areas of legal uncertainty
Unfortunately, however, the 2021 version of the Dual-Use Regulation also creates new areas of legal uncertainty. First and foremost, the export of cyber-surveillance items that are not listed (!) is nevertheless subject to a notification requirement should the exporter be “aware, according to its due diligence findings”, that the item in question is or may be intended “for use in connection with internal repression and/or the commission of serious violations of human rights and international humanitarian law” (cf. Art. 5 of the new Regulation). An authorisation is required where the exporter has been informed accordingly by the authorities. This concept is well-known: it is identical to non-listed items used in connection with ABC weapons or for a military end-use in a country subject to an arms embargo.
It remains unclear, however, where to draw the line between prohibited “serious” violations of human rights and – in theory – not at all prohibited “violations” as such. In addition, the definition of “cyber-surveillance items”, i.e. dual-use items specially designed to enable the covert surveillance of natural persons by monitoring, extracting, collecting or analysing data from information and telecommunication systems, is not clearly circumscribed. The legal uncertainty thus created could have been avoided by a list-based approach, either within the new Dual-Use Regulation or within the already existing Regulation (EU) 2019/125 of the European Parliament and of the Council of 16 January 2019 concerning trade in certain goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment.
D. Is there anything else that should be noted?
Yes, there is. The export control of the provision of brokering services has been widened. In particular, a “broker” now includes also non-residents as long as they provide services from the customs territory of the EU.
The provision of “technical assistance” – meaning any technical support related to repairs, development, manufacture, assembly, testing, maintenance and other services – in connection with end-uses deemed critical is now subject to the new EU dual-use regime while it has not been before. Still, this is not big news for exporters in Germany given that, on a national level, the provision of such technical assistance is already subject to German foreign trade laws.
The recitals of the new Regulation explicitly express concerns with regard to academic and research institutions given their often-existent commitment to the free exchange of ideas (which might constitute controlled technology) in a high-tech environment.
EU Guidelines for internal compliance programmes are expected to be introduced soon.
Finally, the scope of consultations and of information exchange between Member States and the Commission has been intensified in order to establish a widely uniform and consistent export control practice.
E. Bottom line
Following its publication in the EU Official Journal on 11 June 2021, the 2021 version of the Dual-Use Regulation will enter into force on the ninetieth day following that of its publication. The above-listed shortcomings of the adopted rules notwithstanding, exporters now have to deal with the new set of rules and are well advised to make good use of the time till entry into force in September to update their internal compliance programmes accordingly.
Any questions? Please contact: Dr Bärbel Sachs, Prof. Dr. Christian Pelz, Dr Dr Claus Zimmermann, Dr Johannes Schäffer or Giovanna Ventura
Practice groups: Regulatory & Governmental Affairs, Compliance & Investigations