On 28 September 2016, the European Commission published its proposal to modernise the regulation on dealings in dual-use items (the EU Dual-Use Regulation). Modernisation was deemed necessary to keep up with new threats and rapid technological changes. The proposal attempts to make export controls more efficient, consistent and effective.

The proposal has received some criticism, mainly about the extension of the catch-all provision to include products and technology that may cause human rights violations. There is concern that this would unnecessarily complicate the foreseeability and accessibility of export authorisations.

All eyes are now on the ongoing legislative process. In practice, adoption of the proposal in its current form will likely mean that companies will face additional licensing, reporting and other regulatory requirements on newly-added products and technologies under export control. It will also require additional due diligence related to the expanded catch-all provision. It is therefore important to follow ensuing developments. We will keep you informed of these.

A draft of the proposal was leaked a few months before publication, but the contents of the leaked document appear to have largely remained the same. The proposal aims to strike a balance between ensuring a high level of security and adequate transparency, and maintaining the competitiveness of European companies and legitimate trade in dual-use items. Specifically, the Commission proposes to make export controls more efficient, consistent and effective. It also proposes to simplify the administrative process, and controls on technology transfers. The proposal also foresees harmonisation of controls on brokering, technical assistance and transit of dual-use items throughout the EU, and the implementation of specific provisions targeting terrorism and human rights violations.

The proposal inspired comments and expectations in relation to changes such as the intensified focus on software and cyber-surveillance technology, which could lead to violations of human rights. It now includes cyber-surveillance technology as a dual use item listed in a new annex to the regulation. This annex has not yet been published but may include items such as location tracking devices, interception equipment, intrusion software and other items. However, the consequences of the inclusion of cyber-surveillance technology are still difficult to foresee, since the categories of these items are broadly defined. Therefore, further specification of 'cyber-surveillance technology' is required in order to determine the effects on exports in the cyber and technology industry in Europe.

Another amendment that is the subject of much debate is the expansion of the catch-all provision of the regulation. In the proposal, this provision includes potential violations of human rights and humanitarian law, and the potential use of goods in connection with acts of terrorism as a basis for the imposition of an ad hoc licence obligation on the export of non-listed dual-use items. This expansion of the catch-all control was said to frustrate the Commission's objective of clarifying and harmonising the definition and scope of catch-all provisions to ensure uniform application throughout Europe. It has led to questions concerning the practical use of such undefined terms. Further interpretation and guidelines are needed to provide clarity to exporters on when an export may need a licence.

Besides the expansion of the catch-all provision, the scope of the regulation is also broadened by the requirement that European parent companies must seek approval for brokering activities by their non-EU subsidiaries as well.

All eyes are now on the ensuing legislative process. Practical effects of the adoption of the proposal in its current form would include:

  • additional requirements with regard to licensing, reporting, and other regulatory requirements on newly added technologies, and,
  • additional due diligence related to the expanded catch-all provision.

In light of this, it is important to follow further developments and we will, of course, keep you informed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.