EU-Dual-Use Regulation: Council Mandate

POSITION PAPER | REFORM DUAL-USE REGULATION | EXPORT CONTROLS

EU-Dual-Use Regulation: Council Mandate

August 2019 After lengthy negotiations since 2016, the Council of the European Union (EU) has agreed on a common position on the reform of the Dual-Use Regulation, published in June 2019. The new proposal strikes a balance between the effective protection against misuse of dual-use goods and corporate freedom in the EU as a location for high-tech industries. The Federation of German Industries particularly welcomes the fact that Member States have committed themselves to their obligation with regards to the protection of human rights. Impact assessment of legal and political nature regarding human rights violations are not left to individual enterprises. This position must defend itself in the Trilogue to come between the three European institutions.

Background on the Reform Dual-use items are goods that can be used for both civilian and military purposes. The EU regulates their exports on the basis of decisions taken by multilateral control regimes, including the Wassenaar Agreement. The relevant legislation in the European Union is Council Regulation (EC) No. 428/2009 of May 2009 (Dual Use Regulation). Following the events of the Arab Spring, the EU Commission launched a reform process of this regulation in September 2016. The reform sought to prevent future potential Human Rights violations by controlling the exports of telecommunications surveillance equipment.

Whereas export controls were previously directed towards the non-proliferation of weapons of mass destruction, protection against the illegitimate use of telecommunication surveillance items represents a shift towards the so-called human security approach. In contrast to the national security approach, this strategy establishes a broader concept of security based on individual rights (e.g. freedom of opinion and assembly).

Dr. Stormy-Annika Mildner | External Economic Policy | T: +49 30 20281562 | s.mildner@bdi.eu | www.bdi.eu Dr. Nikolas KeĂ&#x;els | External Economic Policy | T: +49 30 20281518 | n.kessels@bdi.eu | www.bdi.eu

EU-Dual-Use Regulation: Council Mandate

At the same time, the Commission proposal for a new dual-use regulation aimed to serve as an antiterrorism instrument, by which companies should prevent the possible misuse of their products for human rights violations and as means of terror by internal monitoring prior to every single export (socalled catch-all control).

In March 2017, the Federation of German Industries (BDI) published a position paper on this issue, targeting and highlighting the difficulties encountered in the practical implementation of catch-all controls. In catch-all control, technical experts assess whether a good could be misused for the production of weapons of mass destruction. For example, orders for a plant construction or electrical goods are rarely placed “ready-made.” The specification of the order is the decisive point here. This means that in a certain configuration a plant can be used for harmful purposes – in another configuration, this would not be the case. Hence, the catch-all control is also known as usage-specified export control. If all goods were all the same, they could simply be listed. Even though the individual assessment of the specification of a good requires a lot of technical expertise, it remains feasible for companies. German industry supports the protection of human rights and in particular, the protection of freedoms of speech and assembly. However, the assessment of possible terrorist threats or human rights violations by telecommunications surveillance equipment by far exceeds the technical expertise of companies.

State of the Reform In January 2018, the European Parliament presented its amendments, rejecting an extension of the export control regime to cover counter-terrorism control. Parliament also tried to ease the complication of human rights control cases by tightening the proposal’s scope.

The Council followed suit with its common position on the reform in June 2019. The consensus now supported by all Member States rejects an extension of export controls to include counter-terrorism and human security. The Council does not support subjecting telecommunications surveillance equipment to an export authorisation requirement, nor does it extend companies’ internal monitoring obligations at EU level.

However, the Council’s proposal grants Member States the opportunity to introduce such export monitoring obligations at national level. According to the Council’s amendments, companies will be obliged to obtain a licence prior to export of unlisted items if they have reasonable grounds for suspecting that these goods could be used for military purposes. This wording is similar to the due diligence clause of the Commission’s initial proposal. According to the latter draft, companies should assess the end-use of goods as part of due diligence. This due diligence obligation at national level is followed by a Council amendment: in the future, companies should be obliged to submit end-use declarations to the competent authorities. Neither the Commission nor the Parliament saw the need to require such declarations in their drafts. In the Council’s view, member states should again be allowed to create exceptions to this obligation at national level. Finally, the Council rejected the wish of the Commission and Parliament to prescribe Internal Compliance Programmes (ICPs) at EU level for companies and turned this decision over to the Member States.

With the Council’s common position, the mandate for the Trilogue procedure has now been granted.

In the Trilogue, Council, Parliament and Commission coordinate their positions in order to finalise the draft regulation.

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EU-Dual-Use Regulation: Council Mandate

BDI Position on the Council’s Mandate The initial draft submitted by the Commission has been reviewed and from the perspective of German industry, many important and necessary adjustments were made to the Commission proposal by the European Parliament and recently, by the Council.

German industry welcomes the fact that both the European Parliament and the Council have rejected the COM’s proposal to extend catch-all to be an anti-terrorism tool.

In light of this limitation, it seems to be only logical that the Council also rejected the catch-all control with regards to possible human rights violations. BDI commends the Member States for their commitment to their obligation to protect human rights and for not charging companies with the difficult task of political and legal assessments.

The two-year validity for individual and global export licences remains crucial. The proposal by the Parliament and the Council to allow large-scale project licenses of up to four years (two years with an optional two-year extension) offers companies more planning security. However, the validity of such licenses should be further expanded. It would be moreover desirable to be able to obtain major project permits as a consortium.

The BDI supports the plan to simplify the intangible transfer of technology within companies by means of a new EU general authorisation. However, this must be implemented in a practical and unbureaucratic manner. The German industry therefore takes a critical view of the communication, information and publication requirements currently demanded by Parliament and the Council.

However, the Council has shifted some issues to Member State level. Here, different requirements must not lead to a regulatory patchwork, which would result in an even more uneven playing field within the EU.

German industry therefore rejects the introduction of a due diligence standard with regard to the military use of goods at national level. The previous standard pertaining to certain knowledge held by the exporter themselves has proven effective and achieves a fair balance of burdens between industries and government.

The BDI rejects the Council’s proposal to prescribe end-use statements when granting individual export licences. Neither the Commission nor Parliament have seen the need for a binding requirement here. This would lead to unnecessary bureaucratisation of export procedures where authorisation is required. The uncritical end use is often sufficiently secured even without formal end-use statements. The exemption by national authorities envisaged by the Council is not sufficiently flexible.

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EU-Dual-Use Regulation: Council Mandate

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite StraĂ&#x;e 29, 10178 Berlin, Germany www.bdi.eu T: +49 30 2028-0 Contact Partners Dr. Stormy-Annika Mildner T: +493020281562 s.mildner@bdi.eu Dr. Nikolas KeĂ&#x;els T: +493020281518 n.kessels@bdi.eu Lukas Vollmer T: +493020281518 l.vollmer@bdi.eu BDI publication number: D 1042

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