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EU export controls: the 821 clinic - Session 3 Could I be caught by catch-all?

Customs Manager Ltd is delighted to present, in conjunction with WorldECR , a six-webinar series giving you the lowdown on the new EU export control regulation. (P)


On 9 September, the new EU export control regime or ‘recast’ came into force. Regulation 821/2021 is not as drastic a revision as some had anticipated or feared, but has important consequences for all compliant businesses.


In this series of easily digestible 30-minute web sessions, Arne Mielken of Customs Manager explains the key provisions of the new ‘recast’ Regulation 821/2021. The sessions will take the form of a Q&A with Tom Blass, WorldECR‘s editor, putting the questions to Arne and inviting participants to ask theirs, too.


This series has 6 sessions:

  • Session 1: Overview of the key changes in a nutshell

  • Session 2: The new cyber surveillance controls – what, why, how?

  • Session 3: Could I be caught by catch-all?

  • Session 4: Two new General Licences: Are they right for my company, and how do I use them?

  • Session 5: The EU Export control regime – for non-EU companies

  • Session 6: Putting it all together: What does the regulation mean for my ICP?


Let's explore Session 3.


Session 3 (21 September): Could I be caught by catch-all?

Catch-all deals with the control of non-listed items that may nonetheless be put to dangerous uses in the wrong hands. It creates compliance challenges because it demands subjective evaluation of items and users. Here we discuss how best to prepare for the 821/2021 catch-all requirements – and having the right systems in place.


Script


Tom Blass: I hear a lot about ‘catch-all’. Remind me what it is again?


Arne Mielken: Catch me if you can, right. The Catch-all provisions in the new EU Dual-use Regulation empower national authorities to prohibit the export of dual-use items not listed in Annex I, usually where they believe those items might be for illicit use.

So, to be clear: Listed items are controlled based on their technical qualification.

Non-listed items can be controlled if the items are – or may be – intended for prohibited use. For example, it the goods are designed for a weapon of mass destruction end-use then you cannot export them without a licence (which you will of course, not get). Or if they are for military end-use when the purchasing country or country of destination is subject to an arms embargo, then these goods are licensable, too.

So, the right to export of non-listed items depends on the use, catch-all are, therefore, also quite known as ‘end-use controls. The assessment as to whether a non-listed item be caught is a decision by the individual Member State and that does not change with the new EU Dual-Use regulation.

In theory, a good idea; in practice, however, problematic. We have many instances where an exporter may be obliged to file for an export authorisation with regard to a non-listed item in Member State A, whereas he may not be obliged to do so for the same item in Member State B

There is also a lot of room for the Member States to apply this rather arbitrarily. Also, it is not always clear when a trader is ‘being informed’ or is ‘being aware’, making catch-all a very difficult area of export controls.

So, while the intentions were goods, the practical implementation was lacking somewhat.


Tom Blass: I see. So, how is the new catch-all requirement different to what existed in the old regulation?


Arne Mielken: The changes are hidden and not obvious if you do not look closely. And they are complex to understand. Let me try anyway.

The Catch-all Clause is first referred to in Article 3.2 of the old 428-2009: “An authorisation may also be required for the export to all or certain destinations of certain dual-use items not listed in Annex I - Pursuant to Article 4 or Article 8”

2 possible articles which can be used to request a licence!

Article 8 allows Member States to prohibit or impose an authorisation requirement on the export of dual-use items not listed in Annex I for reasons of public security or human rights considerations.


Article 4 describes the specific end-use which can lead a Member State to impose a licence requirement. This can occur, if the MS believes that the particular items are, or maybe, in their entirety or in part:

1. intended for uses related to weapons of mass destruction;

2. intended for military end-use, if the country of destination is under an EU, OSCE or UN arms embargo; or

3. intended as parts or components of military items that have already been exported from the territory of that Member State illegally.

If the exporter has been informed by the competent authority that the items in question are or may be intended, in their entirety or in part, for any of these uses, then authorisation is required. And, if an exporter knows or suspects the illicit end use of the item, he is obliged to self-report this to the competent.

These principles themselves do not change under the 821-2021.

Article 3.2 still provides that authorisation may also be required for the export to all or certain destinations of certain dual-use items not listed in Annex 1 but now – wait for it

Pursuant to Article 4, 5, 9 or 10. There are now 4 articles, not 2. There is 50% more catch all if you want…


And that is the big difference.


We talked about Article 5, the cyber-surveillance article. Cyber-surveillance items not listed in Annex I can require a licence where the items in question are or may be intended, in their entirety or in part, for use in connection with internal repression and/or the commission of serious violations of human rights and international humanitarian law. So, a new “limited” catch-all provision for a specific type of item: Cyber surveillance.


Article 9 now mays that controls may be imposed on non-Annex I items for reasons of, public security, Human rights considerations and new, prevention of terrorism. So, the reasons for imposing the requirement a licence on any non-listed item are extended by terrorism.


Article 10 is the “Watch List” article. It is by far the most complex to understand. I understand that it extends the “catch-all” provisions to all items on national control lists. It would mean, to my understanding, that goods on a Maltase national control list would become licensable in Estonia, too. I am still waiting for someone to tell me that this is not the case, so if anyone could correct me here, I would appreciate it.

And now comes the most subtle, yet most consequential change that many have overlooked. It is the change in Article 4.1. and its consequences.

Compare the two.


In 428/2009, Article 4.1. refers only to a catch-all provision for goods used “in connection with the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of chemical, biological or nuclear weapons or other nuclear explosive devices or the development, production, maintenance or storage of missiles capable of delivering such weapons”. Article 4.1. deals only with ONE end use where a licence is required – WMD.


Article 4.1 is quoted later in the regulation, as regards broking services and transit. And the new regulation also quotes 4.1. several times:


In Article 6 for Brokering, Article 7 for transit movements. It is even mentioned in the new article 8 on technical assistance.


So, what is the problem?


The problem is that one WMD end-use or reason for control has multiplied. The end uses I mentioned earlier, military end-use and illegal exports, that were out of scope for 4.1. are now in scope. This means that these reasons for controls are extended to brokering services and transit movements. In other words, these movements or groups need to up their game when it comes to screening. As a result, more broker services will require a licence and more transit movement may get stopped if there is no licence.

In short, more headache for exporters – the devil is in the details.


Tom Blass: Is there anything I can do to prepare for catch-all? Does this mean I need to increase my due diligence?


Arne Mielken: Well, the first thing to do is to carefully review your supply chain, for example, where do you use brokers, brokers services? Are their transit movements in your supply chain that may be considered? Do you deal with non-listed cyber-surveillance items that may be in the scope of the regulations?


Businesses need clarity on this to be able to exclude certain catch-all controls right away. And if you work with a broker and you deal with embargoed countries, then your due diligence efforts may have to be extended to your wider supply chain (given that these end-use rules now apply to them, too). Imagine, you are notified by the authorities that your good x requires a licence on grounds of one of military end-use from today. Some of these goods have just left the EU last week (there was not licence required last week) and are now in Egypt. They are due to be transported to Afghanistan next week. The transport and sale are arranged with a broker in the EU. Under 429/2008, that broker could execute this order without a licence. Under the new regulation, the broker may need to obtain a licence before executing on this transaction.


So, if you are concerned about an item, the investigation on how this law affects the exportability of the item must be carefully assessed, possibly with the authorities.

Raisin awareness, providing training, and stepping up the due diligence efforts, to include screening against potential human rights abuses and terrorism, as far as possible, will be useful. Using Red Flags indicators to spot suspicious activities may also be a good way to proceed.


Tom Blass: Is some MS more likely to apply catch-all than others?


Arne Mielken: Indeed, this was and is big concern. The current system leaves too much room for Member States to weigh national political interests over common interests when considering applying the Catch-all Clause. The EU hopes that the new mechanism will provide much-harmonised decision making. A good example of how national interests can influence


the application of catch-all controls was seen in their use by the Dutch authorities in relation to the Russia sanctions regime after the MH-17 crash. Because of the involvement of the Netherlands in this crash, the Dutch authorities applied for stricter controls over exports of non-listed items to Russia and for Russian end-use.

It can create an advantage for exporters operating in the Member States with more favourable policies and may encourage exporters with illicit intent to choose to have their products exported from the Member States with less risk of discovery and lower penalties for violations.


A solution that was suggested was a better way of information sharing between the Member States is recommended. This should result in the Member States increasing the amount of information being shared, as well as providing detailed information about their decisions to deny, issue or not require an export authorisation, all of which would benefit a common approach.


Under Article 9 of the new regulation, Member States must now notify the Commission and the other Member States of any measures adopted without delay and indicate the precise reasons for the measures.


The Commission will then publish the measures notified in the Official Journal of the European Union. A multilingual compilation of national control lists in force in the Member States will then be published, too.


And then Article 10 says that an authorisation is required for the export of dual-use items not listed in Annex I if another Member State imposes an authorisation requirement for the export of those items on the basis of a national control list where the procedure of Article 9 is followed. The Member State should also inform the other concerning the items and end-users concerned. The other Member States shall give “due consideration” and then inform customs authorities and others.


So, the hope is that unilateral decisions are then a thing from the past. Time will tell.


Tom Blass: I do business with ‘safe’ jurisdictions – e.g., the US, Canada, NZ, Switzerland, India etc. – does that mean that I don’t have to worry too much?


Arne Mielken: I would say that the chances of your exports being prohibited or not authorised are lower than when you export to a country of significant concern. Changes that most catch-all concerns are raised may be rare in these countries.

And don’t forget that even if a licence requirement is imposed, there are EU GEA’s that you can explore first.


Having said all of this, the catch-all provisions apply and are tied to end-uses, not necessarily to countries. And as you know, the world changes. What is a safe country today is no longer safe tomorrow. Terrorism is everywhere. Human rights abuses can and do occur even in the richest countries. And bad, rogue business partners also exist.

In Germany, we have a saying, „Unwissenheit schützt vor Strafe nicht“ (ignorance does not protect against punishment). So Due diligence is key, implement a red flag system and get an ICP! Strong take on procedures for any customer

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