On 23 March 2015, the UK Export Control Organisation (“ECO”) indicated that it would review its licensing process, with a view to assisting UK exporters active in the technology sector. ECO pledged to explore options to (i) provide more and better guidance to businesses as to whether a license is required for a given product, and (ii) pursue export licensing reforms aimed at cutting red tape and minimising the burden on UK businesses. ECO’s actions came in response to criticism voiced by techUK, an industry association representing information, communications, technology and electronics companies.

Businesses face uncertainty as to whether they need to obtain an export license for certain electronics products. They find it difficult to obtain quick and user-friendly guidance on specific queries. According to techUK, this has put small and medium enterprises (“SMEs”) at a disadvantage, in particular compared to competitors in other European Union (“EU”) Member States, including Germany and France.

I.         Summary

techUK analysed responses from 35 UK tech companies. These included, in particular, all major UK manufacturers of printed circuit boards (“PCBs”). Together, the PCB manufacturers surveyed account for more than 80% of the sector’s annual UK turnover.1 PCBs typically are not ‘off-the-shelf’ products, as they generally involve a degree of customisation. While PCBs are not specified in Regulation 428/2009 (the “Dual-Use Regulation”),2 they are capable of falling within the ambit of export controls, where they are intended for military or dual-use products.3  However, techUK’s survey found that “the UK is the only country that requires the licenses for PCBs.”4

Generally, techUK identified the following main shortcomings in ECO’s licensing process:5

  • some techUK members reported lost or cancelled orders amounting to as much as 20% of annual exports due to export license issues (while competitors in other EU Member States are reported not to have to apply for export licenses for certain types of electronic components);
  • UK exporters of certain bespoke electronic components reported that the time taken to obtain a license is too long, and that the delays in shipping result in lost or cancelled orders and customers placing their orders with EU competitors instead; and
  • most businesses surveyed reported that ECO advice and guidance was unclear and confusing.

In its (interim) response, ECO stated it would address these concerns,6 inter alia, by

  • reconsidering the classification of particular products;
  • easing the burden of licensing by using de-controls (where these can be agreed on internationally), expanding “light-touch” and more flexible licensing solutions, reducing the need for repeat applications, and  widening the  scope of exports  covered by Open General Export Licenses (“OGELs”); and
  • reviewing its current requirements for End-User Undertakings, compared to requirements in the U.S. and other EU Member States.

ECO also pledged to continue to work with techUK to improve its systems.

II.         Background

The EU Dual-Use Regulation is the export control regime governing items that may be used for civilian or military purposes (“Dual-Use Items”). The Dual-Use Regulation provides for (i) common EU control rules, (ii) a common EU control list, and (iii) harmonised policies for implementation. The Regulation is binding and directly applicable in each EU Member State. However, export controls relating to Dual-Use Items are not always uniformly applied across the EU. Indeed, the European Commission has expressly raised this issue: “Instead of having a harmonized EU approach to export controls where security considerations are brought to bear on a case-by-case basis to protect essential security interests and prevent high-risk transactions, we have different approaches being applied to export controls across the EU.”7

Further, while the Dual-Use Regulation deals specifically with certain areas, such as minimum record- keeping requirements,8  general types of licenses,9  and information sharing requirements among EU Member States’ competent authorities,10 ultimately there remain considerable areas where Member States are free to set (at least some of) the rules, as they see fit. This includes, first and foremost, national provisions giving effect to the enforcement of the Dual-Use Regulation and setting penalty provisions in the event of infringements.11 However, even in relation to areas governed directly by the Dual-Use Regulation, there are some discrepancies concerning the interpretation of certain provisions.

For instance, techUK’s report raises the issue of ECO’s interpretation of the ‘catch-all’ provision:12

items not listed as Dual-Use Items under the Dual-Use Regulation may nevertheless require a license, inter alia, where there is reason to believe such items are intended for use in connection with a biological, chemical, nuclear weapons or ballistic missile weapons programme, or for use in violation of an arms embargo.13

According to  techUK’s report, e.g., a German manufacturer of certain  electronics items would not generally be required to provide the Federal Office for Economic Affairs and Export Controls with end- user information for its exports, while ECO generally requires such information to be submitted by UK exporters. This is the case even in relation to standard components, which are brought into the scope of the controls by way of the ‘catch-all’ provision.14

III.         Outlook

Despite being directly applicable, the Dual-Use Regulation does not yet provide for a fully harmonised control system regarding Dual-Use Items across the EU. However, ECO has clarified that it will aim to ensure a level playing field for UK exporters with their EU competitors: (i) the delays in processing UK license applications will be reduced; (ii) guidance and informal advice will be made less confusing and easier to obtain; and (iii) ECO will seek to align itself more closely with other national competent authorities.

These changes should go some way towards assisting SMEs, who have to juggle the need for export control compliance with the commercial pressures under which they operate. Many companies in the tech sector are start-ups and other SMEs that do not have the resources to engage in burdensome application processes for relatively low-value and high volume items. Indeed, techUK’s report makes this point forcefully by citing one business that was surveyed: “… [they] had spent more than the value of this order on people’s time dealing with it – and suggested that this was the essence of the problem – that they were not selling £150M fighter jets, but were selling lots of low value components and therefore needed to sell more parts to generate revenue. They indicated that they believed the licensing system seemed to be designed for big ticket, long lead-time items.”15

In addition to tailor-made ECO training sessions, more focused guidance documents for SMEs (and/or tech start-ups) could be helpful. In the sphere of UK/EU sanctions, what was then the UK Financial Services Authority published this type of guidance in 2012.16 Similarly focused guidance material, including for export controls, could be a good way of providing a more detailed response to the Review.