Ship owners, carriers, brokers and transhippers may be exposed regulatory risk and even sanctions when transporting so called Dual-‐Use items. Dual-‐Use items are those which can be used --- even if only potentially --- for military purposes.
The object of the Dual-‐Use rules is simple. They are designed to ensure that goods coming from the EU (or the US under separate and even stricter rules) do not end up being put to a military purpose.
The law is laid down by the European Union. Regulation 428/2009 sets up a regime to control exports, transfer, brokering, and transit of dual use items. In other words, the Regulation covers the activities of all our normal readers.
Not only that but if exporters suspect that good might be intended for military use they have the obligation to inform the customs authorities.
Customs authorities have been given wide powers to seize, and under Article 16 of the Regulation, to suspend an export for up to 4 months, dual use goods shipped on vessels flying the EU flag unless they have the necessary documentation in place.
The Dual-‐Use regime has a significant impact on risk analysis and management in the shipping sector. To help in understanding what can happen look at the following case.
These are the facts:
- the ship owner of a vessel flying the EU flag was requested to transport, from Asia to North Africa, some containers containing metallic material sold by the Asian loader to the final consignee.
- in the course of the voyage, the master was instructed by the ship’s “flag” State not to unload the containers at destination in North Africa;
- upon arrival in the first scheduled port of call in the EU, the master was instructed by the Customs Authority to unload the containers, which were “detained” on the assumption that they contained dual-‐use items;
- the ship owner was, therefore, unwillingly exposed to standing costs determined by the detention of containers as well as, in its opinion, deprived of the power to ask for the authorisation (pursuant to Regulation 428/2009) to move the goods since ownership of the goods lay elsewhere.
It does not take long to see how this can lead to increased costs. Normal standing and demurrage costs for detained containers are increased by:
the substantial impossibility to obtain by the consignor/consignee of the seized goods the amount paid because of the detainment order;
lengthy procedures to release the goods;
the impossibility to count on the cooperation, with respect to documents, of the consignors/consignees which, if there is a problem often “disappear”.
Pursuant to Regulation 428/2009, neither the ship owner nor the carrier can always avoid liability in case the goods are detained or seized, on the basis of a claim that they are not the consignor, owner or consignee.
It is clear from customs law that the ship owner/carrier, as the possessor of the goods, is responsible. Consequently it may be charged with the costs originating from the detainment of goods ordered by the Authorities.
What can shippers do? Clearly prevention is better than cure and thus ensuring that the right documentation is in place is essential. The first step is to understand what can and what is not a dual-‐use item and what destinations trigger the strictest standards.
But if there is detention or seizure there is a solution. However, it’s not always easy to implement.
The procedure provides that the entity owing the right to «decide the shipment of the products outside the customs territory of the Community» (and therefore, in certain cases the carrier too) may request the authorisation, from the competent authority, to transit Dual-‐Use products inside, or to send them outside, the EU customs area.
The request has to be in writing and addressed to the authorities appointed by the Member States (the Ministry of Economic Development for Italy) and the applicant has to communicate all details relating to the transfer, use and destination of the products.
It’s in the details that the problems arise. The shipper might not know the intended use of the goods. That being said the authorisation is valid all over the European Union.
Shippers do not normally undertake this sort of customs or administrative function but they may have to if they are to avoid lengthy procedures and delays in conducting their normal business.