Export Controls

▪ In order to fully understand the Union’s interest, the economic operators concerned should be involved in individual proceedings from an early stage on and in an appropriate manner.

▪ When applying the Enforcement Regulation, the EU should be careful not to undermine WTO law.

Export Controls

Status quo

Due to increasingly differentiated licensing requirements, fair framework conditions for German industry are important regarding export controls. There is a specific need for action in two areas. The tightening of US export controls to counteract civil-military integration in China is putting pressure on the internationally interconnected German industry. The U.S. response to Beijing's behavior in recent years has threatened to create exclusive economic hemispheres. The desire to protect against technology piracy carries the plausible risk of inhibiting companies' innovative strength and thus damaging their competitiveness. Because of the extraterritorial application of U.S. export control law, there is a potential that supply chains will have to be permanently restructured. However, an area that is, so to speak, semi-sanctioned under export control law would have a negative impact on efficient value chains and lead to a loss of prosperity. Moreover, export control practice in the European single market is still not uniform. Even with Europe’s reformed dual-use regulation in place, aligning legal practice to serve the needs of governments and economic operators equally across the EU will take time. What is more, the reform failed to make European export controls future-proof. There is a particular need for improvement in controls regarding emerging and foundational technologies so that the EU has the legal means at hand to effectively represent its interests and the interests of its economic operators in plurilateral control initiatives.

1. Tightening U.S. Export Controls

Under the last administration, the U.S. continued the export control law trend of the Obama years and introduced further restrictions. It is very likely that controls will continue to be expanded under the Biden administration. The driving factor behind the tightening of U.S. export controls is China's civil-military fusion - that is, the elimination of the distinction between a civilian sphere on the one hand and military end-users on the other. When economic operators can no longer distinguish between civilian and military end-uses for their customers, tighter controls are urgently needed. Two tightening measures adopted by ordinance are particularly worth mentioning here.

Tightening against China, Russia and Venezuela

In the summer of 2020, the Bureau of Industry and Security (BIS) published enhancements that now apply to certain shipments involving China, Russia, or Venezuela (Expansion of Export, Reexport, and Transfer (in-Country) Controls for Military End Use or Military End Users in the People's Republic of China, Russia, or Venezuela ). This regulation significantly expands the scope of application of U.S. export controls related to end-use, expands the scope of application for the "regional stability" evaluation category, and tightens disclosure requirements for exports to China, Russia, and Venezuela. Basically, in the new version of § 744.21 of the Export Administration Regulations (EAR), BIS prohibits the export, re-export, and non-border transfer of goods in the event that exporters should have knowledge under U.S. law that those goods could be directed to a controlled military end-user or enduse. In addition to items listed on the Commerce Control List (CCL), §744 of the EAR (Control Policy) includes a so-called "Supplement Number 2" for those countries, which includes an additional nine

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separate categories of items from the area of future and enabling technologies – for example, sensor technology – and laser technology or propulsion technology.

Control of emerging and foundational technologies

Export controls serve national security interests beyond the non-proliferation of weapons of mass destruction. U.S. export controls in particular are designed to deny third parties access to security-relevant technologies of the latest generation for as long as possible. The aim is not technological isolation, but to ensure a technological lead. It is against this background that the discussion on the control of emerging and foundational technologies must be evaluated. The 2018 John S. McCain National Defense Authorization Act integrated control of these technologies into U.S. export control law for the first time. Initially, there were significant concerns that the extraterritorial experience with the U.S. administration at the time would transfer to the area of export controls. However, despite the existence of the instruments for unilateral and extraterritorial application of export controls, this extreme scenario did not materialize. On the contrary, in December 2019, the 42 member states of the Wassenaar Arrangement for the Control of Conventional Arms and Dual-Use Goods were able to agree on six new entries on the common control list that fall within the scope of emerging technology controls. These are the only listings in this area to date, even in the U.S. case. This multilateral approach is encouraging, but a realistic scenario remains in which delays in the Wassenaar process could, at worst, lead to unilateral action by Washington. Likely in this context is the possibility of plurilateral initiatives outside the Wassenaar in the context of a coalition of the willing.

2. Reform of the EU regulation on export control of dual-use items

In May 2021, after more than five years of negotiations, European co-legislators passed a reform of the EU Dual-Use Regulation. The aim of the reform was to strengthen the contribution of export controls to the protection of human rights. Following the Arab Spring of 2010, export controls indeed had to be adapted to a changed technological and security environment. Authorities in the affected states used telecommunication surveillance equipment to spy on social networks and committed targeted human rights violations (identification of protesters, abduction, torture, targeted killings, etc.) to intimidate and suppress protesters. As a contribution to the reform process, German industry had proposed an EU-autonomous list. This would have created clarity for economic operators and would also have been an effective instrument towards a strategically focused EU foreign policy. Such a list would have represented a unilateral intervention outside the Wassenaar process but would not be a legal rarity in Germany and Europe. To ensure that a European regulation would not harm the multilateral non-proliferation regimes, BDI advocated that those EU Member States represented in the Wassenaar Arrangement commit to introduce such controls into the Wassenaar control process. This would have ensured that a temporary European mechanism could be effectively linked to an overarching multilateral process.

However, European legislators have agreed in legal practice on an eclectic one-time solution with the concept of a list-based catch-all. Quality categories covered by this instrument can be expanded by consensus of the Member States. Rather than into the future, this agreement points to the arduous negotiation process of recent years. Thus, there is no mechanism by which the EU would have an instrument to assert its interests in plurilateral control initiatives. Moreover, no end has been put to the unlevel export control practice within the common market. Transparency rules and measures to improve cooperation between the authorities of the Member States are supposed to pave the way for a Europeanized export control practice. However, the EU is still a long way from common control standards across its Member States.

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