Proposed update of EU Export Control Regulation of dual-use products: Adjusting the adjustments

In September 2016, the European Commission proposed a change to its export control rules for dual use products. The proposal aimed to replace the existing Regulation (EC) No. 428/2009) to introduce important changes in definitions and significantly enlarge the scope of controlled products. This new regulatory settlement had two main objectives: (1) the controversial introduction of “human rights” as a reason for control and enhanced control on surveillance technologies, and (2) the EU licensing architecture’s optimisation, ideally leading to a compliance process simplification.

Almost three years later, during June 2019, the European Council agreed on a mandate that will define the perimeters of negotiations with the European Parliament. This mandate reflects the Member States’ intent to limit effective changes in this update of Regulation (EC) No. 428/2009, as several provisions developed in the Commission proposal are not maintained and did not secure the Member States’ support. The next phase will be negotiations with the European Parliament, in order to reach an agreement on the last proposed text.

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Adjusting the adjustments

The Council mandate removes, or substantially adjusts, several of the Commission’s proposed changes.

What will change?

In 2016, the most essential change proposed by the Commission relates to the “controlled goods” concept. The products that would be subject to control would no longer be limited to items and technology that could be used for both civil and military purposes, but would also include products that could be used for the violation of human rights or in relation to acts of terrorism.

The Council mandate removes the above suggestion, mainly because both the industry and the responsible authorities challenged the practical applicability of this wider scope, arguing that it would lead to additional burden, ambiguity and delays.

The other point of disagreement with the Commission proposal was the creation of new a Category 10 in relation to cyber-surveillance technologies and a targeted catch-all control, which would allow controlling the export of non-listed cyber-surveillance technologies in certain situations where there is evidence of possible misuse. The Council decided to remove this change from the mandate perimeters following concerns expressed by several Member States regarding the introduction of dual use controls exclusively at an EU level and without following “coordinated” updates from the international multilateral export control regimes.

What will remain unchanged?

The Council mandate does nevertheless support several changes introduced by the Commission proposal. Updates to outdated definitions, for example, have been retained in the proposal.

The Commission proposal also includes a new licensing architecture by introducing four new EUGEAS. The Council mandate removes two EUGEAS and maintains those for “Intra-company Transmission of Software and Technology” and “Encryption”. However, the conditions to be granted with these EUGEAS are tightened.

The mandate also supports the proposed introduction of a new type of global export authorisation, or “Large project Authorisation” (LPA), which will benefit companies associated with the execution of large-scale projects. Member States remain competent in determining the definition of “Large”. The mandate also introduces a time limit of a maximum four years for LPAs.

Currently, the obligation to have a proposed internal compliance program in place to obtain any kind of abovementioned global authorisations also remains in scope.

What does it mean for you?

The proposed changes will likely reactivate work on updating the current Regulation and place it high on the agenda.

Although the controversial proposed changes to the “human security” approach and the cyber-surveillance product controls will in theory no longer be included in the EU Regulation, Member States can in practice still (and are encouraged to) impose such controls through national legislation, or even through the existing catch-all clause. Although stricter controls remain expected, industry and national authorities would have more time to adapt and introduce such “human right due diligence” in a pragmatic manner, as part of their export controls internal compliance programme.

The impact of the remaining changes should also be assessed. Following changes in definitions, specific transactions could be affected by differing interpretation.

Who to contact

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who can provide specialised assistance to companies in global trade matters. Our professionals help companies seeking to manage the impacts of the developments described above.

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