Documents considered by the Committee on 18 January 2017 Contents

5Control of Exports of Dual-Use Items

Committee’s assessment	Politically important
Committee’s decision	Not cleared from scrutiny; further information requested; drawn to the attention of the International Trade Committee and the Joint Committee on Human Rights
Document details	Proposal for a Regulation setting up a Union regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use items
Legal base	Article 207(2) TFEU, QMV
Department	International Trade
Document Number	(38114), 12785/16 + ADDs 1–3, COM(16) 616

Summary and Committee’s conclusions

5.1The misuse of cyber-surveillance technologies against political opponents or in conflict situations by repressive regimes has led to numerous documented human rights violations. In addition, attempts by terrorist groups to obtain so called ‘dual-use’ items such as sensors and lasers, nuclear materials, explosives and various types of computer technology have led to a more urgent need to control the use of such materials by non-state actors. The Commission proposes to respond to these twin threats by recasting its Regulation on the control of dual-use items.

5.2The Commission seeks to introduce an EU list of cyber-surveillance technologies subject to control in instances where there is evidence that they may be misused, resulting in serious violations of human rights or international human rights law. A catch-all control would also permit the control of non-listed cyber-surveillance technologies in situations where there is evidence that they may be misused.

5.3The Commission also proposes to:

Introduce new categories of EU General Export Authorisations (EUGEAs);
Harmonise licensing parameters;
Introduce mandatory consultation between competent authorities;
Clarify controls on intangible technology transfers to enable low-risk transfers;
Revise definitions such as “export” and “exporter” to take into account new technological developments;
Introduce an anti-circumvention clause that establishes an EU-wide legal basis for prosecution of export control violations; and
Begin negotiations with third countries to enable post-shipment verification of exports (“verified end-users”).

5.4The proposal would extend the EU’s delegated authority with respect to amending the lists of dual-use items subject to control, to include updating the new autonomous list of items and to amending destinations or items covered under the EUGEAs.

5.5The Government expresses a number of reservations regarding this “extensive recast” of Regulation (EC) 428/2009.

5.6These relate to:

the introduction of an EU autonomous list of items subject to control (ie one drawn up by the EU itself), which would depart from the established route of introducing new control lists through proposals presented to relevant international export control regimes such as the Nuclear Suppliers Group;
the proposed extension of Commission powers as a means of addressing human rights concerns related to misuse of dual-use items in third countries;
the Commission’s proposal to permit sensitive (Annex IV) items to be exported under General Export Authorisations, which may conflict with “widely established international policy obligations that the UK has previously signed up to”; and
the cost savings and reduction in administrative burden that the Commission suggests will follow from the revised Regulation. The Government believe these could well be offset by additional financial implications and the administrative burden associated with implementation of the new controls.

5.7This is an ambitious proposal by the Commission to revise the scope of the Regulation on the control of export of dual-use items to take into account the misuse of new technologies by repressive regimes and consequent human rights violations. It seeks to achieve this through the introduction of an autonomous EU list of control items, the compilation and amendment of which would mean an extension of EU delegated authority and potentially greater emphasis on human rights in control regimes.

5.8The Government has raised a number of concerns regarding the ambition-level of the proposal, as well as the means sought to achieve its aims. We note that the binding nature of autonomous EU dual controls could conflict with the UK’s obligations under international export control regimes, and that this aspect of the proposal has also been particularly contentious in initial responses by Member States.

5.9In addition, there are uncertainties as to the likely financial and administrative costs of implementing the new controls, which the Government believes have not been adequately mapped out by the Commission. We note that while the Government anticipates additional administrative burdens costs associated with implementing the new provisions, it has not yet carried out detailed consultations on the likely impact on industry and national authorities.

5.10We think it is important that the Government assesses whether the introduction of an EU autonomous list of dual-use items would indeed undermine the UK’s obligations under international export control regimes. We also wish to know the Government’s position on the proposed extension of catch-all controls where there is evidence that items may be misused, resulting in human rights or international humanitarian law violations.

5.11We would like the Government to keep us informed of the timetable for negotiations on this proposal; on the outcomes of consultations with industry and others, and assessments regarding the potential administrative burden of implementation; and on any proposed additional changes to the regulation during negotiations.

5.12Given the importance of ensuring that UK industry remains highly competitive following our withdrawal from the European Union, we would like the Government to set out in due course the basis on which it envisages UK-EU technical cooperation on export controls of dual-use items taking place.

5.13In the meantime, we retain this document under scrutiny. We also drawn to the attention of the International Trade Committee and the Joint Committee on Human Rights.

Full details of the documents

Proposal for a Regulation setting up a Union regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use items: (38114), 12785/16 + ADDs 1–3, COM(16) 616.

Background

5.14Dual-use items are goods, software and technology that can be used for civilian and military purposes, or can be used in connection with weapons of mass destructions. Examples include high powered lasers, machine tools, certain chemicals and chemical processing equipment, nuclear reactors and nuclear fuel processing equipment. An item subject to control may not be exported or transferred without a licence issued by the competent national authority. Decision-making on licences and implementation of the controls rests with Member States.

5.15The Commission believes that the current EU export control regime has not kept up with evolving and new security risks, rapid technological and scientific developments, and transformations in trade and economic processes. The Commission’s annual report on the control of dual use items also found that the present system does not take into consideration the emerging trade in cyber-surveillance technologies and the consequent risks for international security and human rights.

5.16The annual report concluded that the current system imposes a heavy burden on industry and national authorities and lacks legal clarity. Divergences in interpretation and application among Member States have resulted in asymmetrical implementation, and have created competitive distortions within the Single Market.

5.17The proposed revisions are intended to support the broad policy objectives set out in Art 3 TEU: “to contribute to peace and security, as well as free and fair trade and the protection of human rights”. They are also intended to respond to new challenges posed by proliferation of weapons of mass destruction; contribute to the fight against terrorism by enhancing efforts to prevent non-state actors gaining access to sensitive items; and, in view of increased blurring between the civilian and defence sectors, strengthen the EU’s efforts to counter hybrid threats.

5.18The proposals are also intended to contribute to the protection of human rights globally. Specifically, the document cites “numerous reports” of cyber-surveillance technologies being exported to repressive regimes and/or conflict areas and misused in violation of human rights. For example, cyber-surveillance technologies, which have legitimate and regulated law enforcement application, have been misused for internal repression by authoritarian or repressive governments to infiltrate computer systems of dissidents and human rights activists, resulting at times in their imprisonment or death. The impact assessment identifies the uncontrolled export of these technologies as a key threat to human rights.

The Commission’s Proposal

New definitions and extension of controls

5.19The Commission proposes to:

revise the definition of dual-use items to reflect new types of items such as cyber-surveillance technologies;
amend the definition of “export” and “exporter” to include natural persons who may be “exporters” when it comes to technology transfers;
clarify controls relating to intangible technology transfers, and facilitate low-risk technology transfers;
reduce the risk of circumvention of controls by extending the definition of “broker” to subsidiaries of EU companies outside the EU, as well as to brokering services supplied to third country nationals from within the EU;
harmonise application of brokering controls to non-listed items and military end-uses, and extend their application to terrorism and human rights violations;
strengthen transit controls to ensure consistency, avoid distortions of competition and the risk of weak links by harmonising application to non-listed items and military end-uses, and by extending controls to risk of misuse for terrorist acts and human rights violations; and
counter illicit trade by ensuring that controls will apply to the activities of EU persons located in third countries.

New licensing provisions

5.20The Commission proposes to reduce the administrative burden associated with licences by:

harmonisation of the licensing process such as setting common validity periods and conditions of use, and introducing a standard requirement for transparency on licensing timelines;
introduction of new categories of EU General Export Authorisations (EUGEAs), which will facilitate trade while ensuring a sufficient level of security through registration, notification, reporting and auditing processes. These new categories relate to (i) encryption devices (ii) low-value shipments (iii) intra-company transmission of software and technology (to non-sensitive countries, where the technology remains under the control of the parent company); and, (iv) “other dual-use items”—to enable the imposition of controls on certain items when “considered appropriate for certain items and destinations”; and
Expanding the delegation of competence for the Commission to modify destinations or items on EUGEAs, with the aim of ensuring that the EU export control regime is more flexible and better capable of reacting to technological or economic developments.

Catch-all controls

5.21The proposal provides for clarification and harmonisation of the definition and scope of catch-all controls, including introduction of mandatory consultation between competent authorities and the regular exchange of information between the Commission and Member States, supported by an EU database of catch-all controls.

New general transfer authorisation

5.22The proposal also revises the list items subject to control within the EU so as to focus on the most sensitive items (set out in section B of Annex IV). These will remain subject to robust control requirements. It also introduces a new general transfer authorisation for certain sensitive items (section A of Annex IV), to minimise administrative burdens and disruption to trade within the EU.

Introduction of EU autonomous list of specific cyber-surveillance technologies of concern

5.23The proposal seeks to respond to the proliferation of cyber-surveillance technologies whose misuse poses a threat to international security by introducing an EU autonomous list of specific cyber-surveillance technologies of concern which would be subject to controls.

5.24This would be complemented by a targeted catch-all control, which would permit the control of non-listed cyber-surveillance technologies in situations where there is evidence that they may be misused.

5.25This would apply where “there is evidence that the items may be misused by the proposed end-user for directing or implementing serious violations of human rights or international human rights law in situations of armed conflict of internal repression in the country of final destination”.

5.26Amending the EU autonomous list would entail an extension of EU delegated authority.

Transparency and outreach to the private sector

5.27The Commission aims to “develop a ‘partnership with the private sector’, as the ‘first line of defence’ against evolving security risks”. Proposed actions include the development of “tools for operators” and publication of guidance for exporters on topical issues,

5.28Publication of annual reports is expected to enhance transparency and enable civil society organisations to “fully contribute to the formulation and implementation of export control policy”.

Export control dialogue with third countries

5.29Greater regulatory convergence and a more level global playing field is sought through the introduction of regular dialogues between the EU and key trade partners.

5.30The proposal provides for the possibility of negotiation of end-user verification programmes whereby selected third country companies could be granted special status as ‘verified end users’, thereby obtaining EU-wide recognition and facilitation of controls.

Government’s Explanatory Memorandum of 17 October 2016 and related correspondence

5.31The Parliamentary Under-Secretary of State (Mark Garnier) notes that “this is a wide ranging package of measures that…proposes initiatives intended to achieve tougher controls, greater efficiency and consistency”.

5.32However, he expresses reservations about the proposed introduction of an autonomous list of EU-specific cyber-surveillance technologies of concern. He notes:

“This is a significant departure from the established position where control lists are derived from the various international export control regimes… The proposal would allow for autonomous Union controls to be added to the Regulation on cyber-surveillance technologies beyond those agreed in the international export control regimes (the current normal method for introducing controls into the Regulation).”

5.33With regard to the aims set out in the proposal to use the EU autonomous list to control cyber-surveillance technologies that risk being exported to repressive regimes and/or into conflict areas and misused in violation of human rights, the Parliamentary Under-Secretary states:

“The UK will need to carefully balance its thinking on the extension of Commission powers in this way against our policy for addressing such human rights concerns related to this sector via proposals in the export control regimes.”

5.34In correspondence with the Chair of the European Union Committee of the House of Lords (Lord Boswell of Aynho), the Parliamentary Under-Secretary elaborates on this point:

“The established route of introducing new control lists for goods and technology has been through proposals presented to the relevant international regimes [e.g. Missile Technology Control Regime, Wassenaar Arrangement, Nuclear Suppliers Group] by regime members. The Commission are not full members of the regimes and cannot introduce proposals for goods to be subject to control. The regimes are supported by relevant technical experts from across the international community who ensure that the proposals are viable and robust. This ensures a level playing field on export controls across the international community.

“Autonomous EU dual use controls are a new and untried initiative. Should the addition of autonomous EU controls be adopted, they will be binding on all member states and will form part of export control legislation. Many EU member states have expressed reservations on this part of the proposal and we will consider it very carefully.”

5.35The Government also has some concerns over the introduction of a General Export Authorisation for certain categories of sensitive items (“Annex IV items”):

“Under the current Regulation, Annex IV items require an individual licence between Member States because of their sensitivity as recognised by the international export control regimes. The Commission proposals will need to be examined against these widely established international policy obligations that the UK has previously signed up to.”

5.36Again, in correspondence with the Chair of the House of Lords European Union Committee, the Government adds:

“The UK has obligations—for example under the Nuclear Suppliers Group—to obtain an end user undertaking for the exports of very sensitive goods, before issuing a licence and obligations under MTCR [Mission Technology Control Regime] to obtain government to government assurances in support of export certain licence applications. Including such goods on an open licence could mean such obligations might not be satisfied.”

Impact of harmonisation initiatives

5.37In the Explanatory Memorandum, the Parliamentary Under-Secretary of State notes:

“the UK will also need to consider carefully the practical implementation of the various Commission proposals on the effective functioning of the UK’s export licensing function and in particular with regard to so called harmonisation initiatives that would impose burdens on both the UK licensing and administration and the exporting community.”

Financial implications and administrative burden

5.38The Government has not yet produced an Impact Assessment, but plans to do so “at an appropriate point in the future if during negotiations in the Council Working Group it becomes clear that potential burdens in the text would result in burdens and cost to UK industry”. The EM suggests that the Commission may have overestimated the reduction of administrative burden on Member States through increased use of the new EUGEAs, saying “this might be more of a challenge than they believe”.

5.39The Government also believes that the Commission may have underestimated the costs involved in implementing the extended controls:

“There would be financial implications for the UK export control administrative network associated with several aspects of the Commission proposal. There has been no attempt made at this time to estimate these costs. The Commission EM acknowledges these extra costs in respect of their proposals on cyber-surveillance controls but they do not provide actual estimates. However, the costs are likely to be more extensive than just those for processing additional export licence applications for cyber-related controls if the Commission proposal is accepted in full. The implementation of new controls in technical assistance, revised brokering, transit and catch-all controls all have potential for additional costs. The reduction in validity periods for all licences to one year would also bring to bear a significant cost burden to the licensing process as would any requirement to carry out post shipment verification of exports in third countries.”

5.40Responding to a question on the above point from the Chair of the European Union Committee of the House of Lords, the Parliamentary Under-Secretary elaborates that

“the proposal introduces administrative burdens that are unlikely to be offset by the increased use of EUGEAs. These increased administrative burdens include:

Limiting the validity of an export licence to one year.

Extending the use of end-use control to include violations of Human Rights, International Humanitarian Law and terrorism.

Requiring member states to undertake extensive consultation, and share information (including sensitive information) with each other when requiring an exporter to apply for an export licence under the end use controls.

Extending brokering activities and transit controls, to include all goods—not just controlled goods—when there are concerns related to the extended end use controls.

Introducing technical assistance controls to include all goods—not just controlled goods—where there are concerns related to the extended end use controls.”

5.41The Government notes that:

“the UK has been involved in the extensive Commission consultations leading up to the publication of this final Commission proposal, and is now considering its position ahead of the commencement of discussions in the Council Working Group.”

5.42The Government further informs us that no date has yet been set for the Commission proposal to be presented for adoption.

Areas of contention

5.43In correspondence with the Chair of the European Union Committee of the House of Lords, the Parliamentary Under-Secretary states that

“from the initial statements given by member states, the extension of catch-all controls to Human Rights/International Humanitarian Law, the requirement for consultation between member states when applying the end use control, and the creation of an autonomous list appear to be the most contentious elements.”

Previous Committee Reports

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23 January 2017