On January 26, 2007, the European Commission (“the Commission”) held a
meeting to present its proposal on the reform of the rules governing the export of
dual-use items and to collect exporters’ and stakeholders’ comments. The
proposal, published on December 18, 2006, was put forward in response to a new
international order whereby in the aftermath of the attacks of September 11, 2001,
stricter controls on dual-use items and technologies were identified as one of the
key aspects in the fight against arms proliferation

The Commission’s main objective is to propose measures designed to reinforce the effectiveness
of export controls on dual-use items in the enlarged EU. In particular, the proposal aims at
introducing more clarity in the EU export control regime, reducing regulatory burdens in the
implementation of controls by EU exporters, ensuring a more consistent application of the EU dualuse
export control Regulation (“the Regulation”) within the 27 Member States and facilitating trade within the EU internal market.

The Current EU System of Controls on Dual-use Items

Dual-use items are goods, software or technology which can be used for both civil and military
applications. They can range from raw materials to complete systems (e.g. aluminium alloys,
bearings, or lasers). They also are items used in the production or development of military goods
(e.g. machine tools, chemical manufacturing equipment and computers). Export controls of dualuse
items are designed to ensure that goods or technologies otherwise used for peaceful purposes
cannot reach states that could utilize them for proliferation programs or for terrorist or military

Under the Regulation, licenses are required for the export of controlled items, the list of which is set
out in Annex I to the Regulation. This list is based on the international export control regimes which
cover biological and chemical items (the Australia Group), nuclear items (Nuclear Suppliers’
Group), missile related items (Missile Technology Control Regime) and conventional arms related
components (Wassenaar Arrangement).

Although the Regulation is directly applicable in all 27 EU Member States, its implementation relies
on the national administrations of each Member State, which retain a relatively high degree of
flexibility. EU Member States may introduce additional national controls and determine the types and scope of export licenses to be issued. This aspect of the EU export control regime has resulted
in certain divergences in practices within Member States.

Steps Leading to the Proposal

During the consultation process leading to the draft proposal, the Commission, together with EU
industry and dual-use items exporters, have identified a number areas for improvement at EU and
Member State levels: 

  •  Minimizing any significant divergence in practices among Member States, including
    the interpretation of items under control and the application of national controls on
    non-listed items; 
  •  Improving exchanges of information on denials of licenses, and considering the
    creation of a data base to exchange sensitive classified information;
  • Accelerating the speed of decisions by national administrations on applications for
    export authorizations;
  • Enhancing interaction with exporters and ensuring transparency and awareness of
    legislation implementing the EU system; and 
  •  Simplifying the EU regime by limiting the complexity of the lists of controlled items,
    notably by providing for regular reviews of the list.

Main Features of the Proposal

The Commission’s proposal provides for better security and increased effectiveness of controls,
such as: 

 Controlling goods in transit within the EU and controls on brokerage activities when
they concern goods or technologies that can be used in a Weapon of Mass
Destruction (“WMD”) program; 

  •  Applying criminal sanctions for serious export control offences in each of the 27
    Member States; 
  •  Improving the exchanges of information among Member States and with the different
    parts of their administrations;
  • Providing for adequate review opportunities in case a Member State intends to
    authorize exports that another Member State considers contrary to its essential
    security interests or that have been previously refused by another Member State; and
  • Improving cooperation among Member States regarding the application of national
    controls on non-listed items.

Other proposals for amendment to the Regulation aim to improve the regulatory environment for
EU industry, such as:

  •  Clarifying certain provisions of the Regulation, such as intangible transfers of
    technology, which are currently applied in a different way by Member States; 
  •  Replacement of the current prior authorization requirement applied on intra-EU
    transfers with a prior notification requirement, which would still enable Member States
    to block undesirable transfers; and
  • Providing for the establishment by Member States of indicative deadlines for the
    handling of applications for export authorization

Finally, the Commission proposes the establishment of a regulatory committee for the introduction
of amendments to the annexes of the Regulation, which contain the lists of controlled items and
other technical provisions. This procedure, according to which the Commission would adopt these
amendments after obtaining the favorable opinion of a committee composed of Member States
representatives, would enable a speedier update of the list of controlled items (about 2 months),
which at present requires a Council of the European Union (“Council”) decision on the basis of a
Commission proposal.

Next Steps

The proposal was approved by the Commission and presented to the Council on December 18,
2006. The Council consideration on this issue is expected to be controversial. Certain exporters
and stakeholders expressed concerns about the introduction of controls on brokers. In addition, the
definition of transit as set forth in the current proposal, which is different than in the Community
Customs Code, may lead to certain difficulties in the implementation of the controls. Finally, certain
exporters encouraged the Commission to start a dialogue with third countries such as the U.S.,
Canada and Japan in order to ensure that the EU legislation will be in-line with other countries’
practices in order to avoid a further burden on EU businesses.
Under the EU voting rules, qualified majority requires 255 votes out of the 345 votes of the Council
(the votes are allocated to Member States based on their population), which means that the
approval of the proposal will require a large consensus. The Commission would like to implement
the new system in early 2008 but it is too premature to anticipate the outcome of the discussions at
the Council.