# EUR-Lex - 52003XG1231(02) - EN

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# 52003XG1231(02)

**Fifth annual report according to operative provision 8 of the European Code of Conduct on Arms Exports **

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Official Journal C 320 , 31/12/2003 P. 0001 - 0042 *

Fifth annual report according to operative provision 8 of the European Code of Conduct on Arms Exports

(2003/C 320/01)

INTRODUCTION

The European Union Code of Conduct on Arms Exports provides for a mechanism of information exchange and consultation among Member States in order to ensure the convergence of national export control policies.

Decisions by Member States on practices relating to the Code of Conduct and its application by Member States are recorded in subsequent annual reports. In the interest of transparency this year's report, following the precedent set in 2002, has a Compendium of Agreed Practices attached to it, listing all decisions made by the Working Party in a systematic way. Together with the Code itself the Compendium gives a comprehensive view of the Code and the way it is applied by Member States.

I. REVIEW OF THE FIFTH YEAR OF IMPLEMENTATION OF THE CODE

The European Union Code of Conduct on Arms Exports can rightly be considered as the most comprehensive international arms export control regime. The high number of notified denials and consultations demonstrates the intense dialogue between Member States, contributing to the convergence of the policies and procedures on arms exports applicable in the Member States of the European Union.

The dialogue does not only have an internal dimension between Member States; it also takes place with non-member states, through troika meetings organized in the framework of the political dialogue of the Common Foreign and Security Policy of the European Union.

In this respect dialogue with the Acceding Countries and Associated Countries has been intensified, aiming at improving the implementation of the Code of Conduct which these countries have all accepted in principle. Changes and adaptations are required at the legislative level and in the training of the officials concerned. The contribution which Member States may offer in this respect is crucial.

On 28 May 2003 the Czech Republic hosted in Prague the Fourth Informal Experts Meeting on Arms Exports Policies where issues relating to arms brokering, the implementation of the Code of Conduct and enforcement issues were discussed. National policies were described and the ways of implementing the European arms export controls were confronted. Personal contacts among experts were fostered.

The debate about the possible reinforcement of status of the Code of Conduct by transformation into Common Position has intensified following the adoption by the Council of Common Position 2003/468/CFSP of 23 June 2003 on arms brokering. This issue was echoed in the explanatory statement of the Committee on Foreign Affairs, Human Rights and CSFP of the European Parliament, concerning the Council Fourth Annual Report of the Code of Conduct, which reiterated the call for the Code to be legally binding, and considered the possibility of it being transposed into national law. The Working Party examined the legal implications of the possible transformation of the Code into a Common Position, and is continuing its debate of the issue.

II. STATE OF PLAY CONCERNING THE IMPLEMENTATION OF PRIORITY MEASURES IDENTIFIED IN THE FOURTH ANNUAL REPORT

Harmonisation of national reports

The process of harmonisation of reporting procedures has been continued, and further steps towards fully comparable statistical data have been made. It would appear that changes to national systems concerning the reporting of arms exports can only be made on the basis of a gradual approach. Progress has been achieved concerning the list of recipient countries, which now provides a more comprehensive coverage of the different destinations.

Concerning the statistical data, the Working Party has examined the situation arising from the inability by some States to provide data on both licences granted and actual exports.

Standardisation of end user certificates

Having defined the core elements which should appear on an end-user certificate when it is required by a Member State, in connection with the export of items included in the "Common list of military equipment", Member States continued to examine ways to further standardise such certificates.

In this respect, the set of compulsory details has been enlarged and additional elements to be included have been discussed.

Arms brokering

In June 2003, following final approval by the COARM Working Party, the Council adopted a Common Position on the control of arms brokering. The joint commitment is a formal confirmation of some of the agreed practices listed in the appendix of the Fourth Annual Report. It also contains some criteria and definitions which Member States are to include in their national brokering legislation.

For brokering activities, a licence or written authorisation should be obtained from the authorities where activities take place, and, where required by national legislation, where the broker is resident or established. Member States will assess applications for a licence or written authorisation for specific brokering transactions against the provisions of the European Union Code of Conduct on Arms Exports.

Member States may also require brokers to obtain a written authorisation to act as brokers; they may also establish a register of arms brokers. Registration or authorisation to act as a broker would in any case not replace the requirement to obtain the necessary licence or written authorisation for each transaction.

The Working Party has further agreed that the Common Position should be implemented via the mechanism laid down in the Code of Conduct. However, not all Member States have a legislation on brokering already in place; it has therefore been suggested that a notification and consultation system should operate on a mandatory basis only for those Member States that have the required laws.

Improving the denial circulation system

The circulation of denials is one of the most important ways through which the aims of Member States' export control policies, and the convergence of those policies, can be achieved. To this end, a "User's guide", intended to clarify Member States' responsibilities in this area, and lead to enhanced exchange of information, has been agreed by the Working Party, The Guide will not replace the Code of Conduct, but gives guidance on interpreting its operative provisions with regard to the definition of a denial, the notification procedure and the information it should contain, the revocation of a denial notification, and procedures for consultations. It is intended for use primarily by licensing officials.

The creation of a central denial database for export licence denials has been decided, setting up a resource for all Member States to use, in order to search for specific denials.

Promoting the principles and criteria of the Code among non-member countries and international organizations

The Code of Conduct, its aims and procedures are constantly presented and proposed in the framework of political dialogue with non-member states and international organizations.

In this respect, the COARM Working Party has agreed in principle to share information on denials on an aggregate basis with selected non-member countries. Each decision in this respect will be taken on a case-by-case basis, inter alia any mutual obligations with the country or countries involved which might arise are currently under examination.

III. FURTHER QUESTIONS ADDRESSED BY THE COARM WORKING PARTY IN CONNECTION WITH THE IMPLEMENTATION OF THE CODE OF CONDUCT

EU common list of military equipment

A new and updated version of the EU Common military list has been approved (the last one dating back to June 2000). In the new version the same numbering system is used as in the Wassenaar Arrangement Munitions List. This new version of the EU list takes into account the Wassenaar Arrangement list. Member States have agreed that future amendment of the Wassenaar Arrangement Munitions List will not automatically entail amendment of the EU Common List. The list has been submitted to the Council and will be published in the "C" Series of the Official Journal.

Implementation of criterion 8 of the Code of Conduct

A survey was initiated focusing on specific guidelines to assist Member States in applying the criterion, and which Ministries or Government Agencies are involved in this work. Other points that are currently being debated concern the indicators used to carry out the assessment required under criterion 8, which should take account of both the conditions prevailing in the importing country and the potential impact of the export, and the sources of information.

Priority guidelines for the near future

Five years of application of the Code of Conduct have shown that the fundamental elements of a common approach to the control of conventional arms exports by the Member States may be considered to be in place. However, there is still work to be done in certain areas that have not been addressed in the past, or where further work is necessary to consolidate and build on the results achieved.

The Member States have identified the following priority guidelines for the near future:

1. Continuation of the process of harmonisation of national reports in order to produce clearer, more transparent summary tables;

2. Follow up of the implementation of the Common Position on arms brokering, taking into account the different situations of the national legislation;

3. Consideration of ways to control the electronic transfer of software and technology associated with equipment on the Common List;

4. Continuation of the policy of promoting the principles and criteria of the Code of Conduct among third countries;

5. Provision of practical and technical assistance, when requested, for the Acceding Countries, in order to ensure the harmonisation of policies on arms export control and the full implementation of the Code of Conduct principles and criteria;

6. Full implementation of the simplified rules contained in the "User's Guide" and ensuring its full implementation, including the central denials data base;

7. Development of dialague with the European Parliament;

8. Development of relations with third countries which have aligned themselves with the Code of Conduct;

9. Review of the Code of Conduct.

Compendium of Member States agreed practices within the framework of the Code of Conduct

I. INTRODUCTION

Since the adoption of the Code of Conduct in 1998, the Member States of the European Union have agreed on a number of practices relating to the Code and its operative provisions with a view to clarifying, detailing and sometimes broadening the scope of the Code's principles and operative provisions.

Agreed practices have been reported in the annual reports on the operation of the Code of Conduct by Member States.

This compendium gathers them in a systematic way and will be updated and published on a yearly basis as an annex to the annual report. Together with the Code itself the compendium provides a transparent and comprehensive view of the Code of Conduct and its application by Member States. The compendium contains two parts. The first concerns general practices related to the operation of the Code and the second, practices linked to specific operative provisions of the Code. The year of publication in the annual reports is indicated in brackets. The Compendium does not cover issues under discussion or identified as priorities for future discussions.

II. GENERAL PRACTICES RELATED TO THE OPERATION OF THE CODE OF CONDUCT

1. Export of equipment for humanitarian purposes

The issue of the desirability of allowing exports of controlled equipment for humanitarian purposes in circumstances that might otherwise lead to a denial on the basis of the Code of Conduct has been addressed by the COARM Working Party. In post-conflict areas, certain types of controlled equipment can make important contributions to the safety of the civilian population and to economic reconstruction. Member States have come to the conclusion that such exports are not inconsistent with the EU Code of Conduct. These exports, like all others, must be dealt with on a case-by-case basis, taking full account of the criteria set out in the Code. Member States will require adequate safeguards against misuse of such exports and, where appropriate, provisions for repatriation of the equipment (2001).

2. Control of arms brokering activities

In the context of the implementation of the Code of Conduct, the issue of arms brokering was raised and was discussed on several occasions by COARM. In accordance with the intention expressed in the second annual report, Member States have continued and deepened their discussions on the procedures for monitoring arms brokering activities. To this end, they have reached agreement on a set of guidelines for controlling brokering that could be a basis for national legislation.

Residents and entities within the EU must be prevented from engaging in arms transfer activities circumventing national, European Union, United Nations or OSCE embargoes or export criteria of the EU Code of Conduct on arms exports; it is also desirable to establish the necessary tools for information exchange on both licit and illicit brokering activities, thereby enhancing cooperation within the EU with a view to preventing and combating arms trafficking. The controls should cover the activities of persons and entities that act as agents, traders or brokers in negotiating or arranging transactions that involve the transfer of arms and military equipment from one foreign country to another. These measures will also establish a clear framework for legitimate brokering activities.

In order to prevent loopholes stemming from different national approaches and to facilitate the work of Member States wishing to develop or further elaborate national regulations, some suggestions for controls on arms brokers were evaluated and the following conclusions were drawn.

For transactions involving the activities of buying and selling (where the arms or military equipment enter into the legal possession of the arms-brokering agent) or mediating (without direct acquisition of property), a licence or written authorisation should be obtained from the competent authorities in the Member State where the brokering activities take place or where the brokers are resident or legally established. Such licence applications should be assessed on a case-by-case basis against the criteria of the EU Code of Conduct on arms exports.

Additionally, Member States should seriously consider registering brokers or requiring them to obtain a written authorisation from the competent authorities of the Member State where they are resident or established. In the assessment of an application for authorisation to act as a broker, records of involvement in illicit activities should be taken into account. Such a system of registration or authorisation should not be construed as implying any form of official approval of brokering activities, a fact that is made clear also by the maintenance of a system of individual or global licences authorising transactions.

Legal controls in this important area should be supported by effective penalties. Member States could exchange information on legislation, registered brokers and brokers who have a history of proven involvement in illicit activities and could continue discussions in the COARM Working Party to further define, inter alia, possible criteria for the assessment of applications to register as a broker or obtain authorisation to act as a broker (2001).

In the framework of COARM, Member States have collected and discussed relevant data concerning the control of brokering in their respective national legislation. Member States have discussed ways of strengthening the political commitment to control arms brokering both among Member States and in a wider context (2002).

COARM agreed on a draft Common Position on the control of arms brokering, which was adopted by Council on 23 June 2003 (Common Position 2003/468/CFSP on the control of arms brokering) (2003).

3. Intangible transfers of technology

COARM endorsed the importance of considering effective legal controls on electronic transfers of the software and technology associated with items on the common list, which is already done in certain Member States. It agreed to pursue its deliberations on this issue, taking into consideration the work done in the dual-use area (2001).

4. Transit

In those cases where Member States require a licence for transit or transhipment of any of the goods on the European Union Common List, the criteria of the European Union Code of Conduct on arms exports should be duly taken into consideration by Member States when deciding on applications for such licences (2002).

5. Production of military goods under licence

Concerned by the consequences of uncontrolled flows and destabilising accumulations of arms and other military equipment, and the proliferation of the technology and means to produce such equipment, the EU has adopted measures to consolidate and strengthen controls on arms exports, to promote international cooperation in this area and as a contribution to the prevention of conflicts. In this respect the EU recognises the special responsibility of arms exporting States. Recalling the EU Code of Conduct on arms exports of 8 June 1998, Member States have agreed that, when considering licence application for the exports of controlled technology or goods for the purposes of production overseas of equipment on the Common List of military equipment, account will be taken of the potential use of the finished product in the country of production and of the risk that the finished product might be diverted or exported to an undesirable end-user (2002).

III. PRACTICES RELATED TO THE OPERATIVE PROVISIONS OF THE CODE OF CONDUCT

Operative provision 3

EU Member States will circulate, through diplomatic channels, details of licences refused in accordance with the Code of Conduct for military equipment together with an explanation of why the licence has been refused. The details to be notified are set out in the form of a draft proforma at Annex A. Before any Member State grants a licence which has been denied by another Member State or States for an essentially identical transaction within the last three years, it will first consult the Member State or States which issued the denial(s). If following consultations, the Member State nevertheless decides to grant a licence, it will notify the Member State or States issuing the denial(s), giving a detailed explanation of its reasoning. The decision to transfer or deny the transfer of any item of military equipment will remain at the national discretion of each Member State. A "denial of a licence" is understood to take place when the Member State has refused to authorise the actual sale or physical export of the item of military equipment concerned, where a sale would otherwise have come about, or the conclusion of the relevant contract. For these purposes, a notifiable denial may, in accordance with national procedures, include denial of permission to start negotiations or a negative response to a formal initial enquiry about a specific order.

1. Denial notifications and consultations

A serial number indicating the country of origin and the number of the denial will be introduced for denial notifications (accompanied by the Community acronym of the Member State concerned and indication of the year).

Denials still subject to appeal under national procedures will be notified under the Code of Conduct with an indication to that effect.

Decisions to revoke extant licences will be dealt with in the same way as refusals of licence applications.

Denial notifications that have been circulated in the international export control regimes will also be circulated as Code of Conduct denial notifications if relevant to the scope of the Code.

A period of two to four weeks, from the date the request for consultations has been received is established for the consultation procedure envisaged in operative paragraph 3 of the Code, unless a different time period is agreed upon between the parties concerned.

When an arms embargo is lifted, denials solely based on the embargo will expire unless they are renewed by the denying country within a period of one month on the basis of other criteria of the Code.

Denial notifications should include the following particulars:

- country of destination;

- full description of the goods concerned (with their matching common list number);

- buyer (specifying whether the buyer is a government agency, police, army, navy, air force, or paramilitary force, or whether it concerns a private natural or legal person and, if denial is based on criterion 7, the name of the natural or legal person);

- description of the end-use;

- reasons for denial (these should include not only the number(s) of the criteria, but also the elements on which the assessment is based);

- date of the denial (or information on the date when it takes effect unless it is already in force).

A denial of a licence for a transaction deemed essentially identical to a transaction already subject to a denial notified by another Member State should also be notified.

The consulting State should always provide feedback on its final decision to the notifying State, irrespective of whether that decision is to grant or deny a licence.

On denials issued more than three years previously, even though the obligation to consult ends after three years, as laid down in the Code of Conduct, such a denial does not expire but could be the subject of exchanges of information (2000).

2. Dialogue on undercuts

Licensing cases in which denial consultations lead to a positive decision could be of particular use in enhancing the dialogue on the interpretation of the criteria of the Code and thus in promoting convergence in the field of conventional arms exports.

Such cases might be based on developments concerning the destination in question and/or highlight different interpretations of the criteria. Member States deciding an undercut therefore agree to share, to the extent compatible with national considerations and on a confidential basis, information on the undercut decision not only (as specified in the operative provisions) with the State responsible for the relevant denial, but, in the context of COARM deliberations, with all Member States (2001).

3. The concept of "Essentially identical transactions"

Discussion within COARM has led to the following common approach:

Daily operation of the Code's denial mechanism will result in an accumulation of experience that will provide the basis for a clear understanding of what is meant by an "essentially identical transaction".

This process will be facilitated by the adoption of a comprehensive approach to assessing transactions, and by initially using a broad interpretation of the concept of "essentially identical". The resulting consultation will provide the experience needed to gradually evolve a more precise definition of the term.

In order to accelerate the process further, the consulting Member State will, to the extent compatible with national considerations and on a confidential basis, endeavour to share with other EU Member States, in the context of COARM deliberations, information on the occasions in which consultations result in the conclusion that two transactions are not essentially identical. According to the logic of the consultation mechanism, these cases are not considered as undercuts (2000).

Operative provision 4

EU Member States will keep such denials and consultations confidential and not to use them for commercial advantage.

1. Confidentiality in consultations

Member States have looked at the arrangements for the consultation procedures and, in particular, problems relating to the necessary confidentiality of such contacts, which should not, however, thwart the objective of transparency underlying the Code of Conduct (2000).

Operative provision 5

EU Member States will work for the early adoption of a common list of military equipment covered by the Code, based on similar national and international lists. Until then, the Code will operate on the basis of national control lists incorporating, where appropriate, elements from relevant international lists.

1. The Common List

The common list of military equipment was adopted by the Council on 13 June 2000 and published in the Official Journal of 8 July 2000. The Council decided to publicise the list in accordance with the principle of wide-ranging transparency underlying the Code.

Member States will now use the common list's references in denial notifications (with retroactive effect for earlier denial notifications), thereby clarifying and simplifying their information exchanges on these matters.

Denials on items subject to national controls by Member States, but not included in the above-mentioned list, will continue to be notified to all Member States. Member States that do not control these items will inform others.

The common list of military equipment has the status of a political commitment in the framework of the Common Foreign and Security Policy. In this sense, all Member States have made a political commitment to ensure that their national legislation enables them to control the export of all the goods on the list. The common list of military equipment will act as reference point for Member States' national military equipment lists, but will not directly replace them.

Since the list has an evolutionary character, Member States will continue updating it on a regular basis within the COARM Working Party.

Member States have made it known that they would endorse efforts for any items from the common list of military equipment which are not contained in the Wassenaar list, to be put forward for consideration within the Wassenaar Arrangement (2000).

COARM agreed that Presidencies should periodically convene special meetings (at technical expert level) with a view to deciding on the possible update of the EU common list in order to take account of modifications of the Wassenaar list and coordinating Member States' positions and agreeing on possible common proposals for modifications of the Wassenaar list (2002).

COARM agreed on an updated version of the common list to be published in the "C" series of the Official Journal, which takes into account changes agreed within the Wassennar Arrangement since publication of the EU Common List in July 2000 (2003).

2. Controlling exports of non-military and police equipment

COARM undertook to draw up a common list of non-military security and police equipment, the export of which should be monitored in accordance with criterion two of the code "Respect for human rights in the country of final destination". The Commission has now announced a proposal for a Community mechanism for controlling exports of non-military equipment that may be used for internal repression (2001).

The Commission presented a proposal for a Council Regulation concerning trade in equipment and products which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment (COM(2002) 770 final of 30 December 2002). The proposal is presently being examined by the Trade Questions Working Party (2003).

Operative provision 7

In order to maximise the efficiency of this Code, EU Member States will work within the framework of the CFSP to reinforce their cooperation and to promote their convergence in the field of conventional arms exports.

1. Appeal procedures

The COARM Working Party discussed possible appeal procedures relating to exports of military equipment (2001).

2. End-user certificates

Member States agreed on a common core of elements that should be found in an end user certificate when it is required by a Member State, concerning the export of goods included in the Common List of military equipment. They also identified an additional set of elements, which might also be required in accordance with their national legislation.

The following are the minimal details to be set out in an end-user certificate:

- exporter's details, at least name, address and business name,

- end-user's details, at least name, address and business name. In the case of an export to a firm which resells the goods on the local market, the firm will be regarded as the end-user,

- final destination country,

- a description of the goods being exported (type, characteristics), or reference to the contract concluded with the authorities of the final destination country,

- quantity and/or value of the exported goods,

- signature, name and position of the end-user,

- the date of the end-user certificate,

- end-use and/or non re-export clause (2002),

- indication of the end-use of the goods (2003).

Moreover, in accordance with their national legislation, Member States can require, inter alia:

- a clause prohibiting re-export of the goods covered in the end-user certificate. Such a clause could, among other things:

- contain a pure and simple ban on re-export;

- provide that re-export will be subject to agreement in writing of the authorities of the original exporting country;

- allow for re-export without the prior authorisation of the authorities of the exporting country, to certain countries identified in the end-user certificate;

- an undertaking, where appropriate, that the goods being exported will not be used for purposes other than the declared use,

- an undertaking, where appropriate, that the goods will not be used in the development, production or use of chemical, biological or nuclear weapons or for missiles capable of delivering such weapons,

- full details, where appropriate, of the intermediary,

- if the end-user certificate comes from the government of the destination country of the goods, the certificate will be authenticated by the authorities of the exporting country in order to check the authenticity of the signature and the capacity of the signatory to make commitments on behalf of their government (2002).

3. Member States' Coordination

Coordination within the European Union was exemplary at the United Nations Conference on the Illicit Trade in Small Arms and Light Weapons held in New York from 9 to 20 July 2001, where the European Union was the only group of States to submit an overall plan of action.

The EU also established a high profile at the Conference's preparatory committee meetings where it showed no hesitation in clearly articulating its ambitions in this area with one voice (that of the Presidency) (2001).

Operative provision 8

Each EU Member State will circulate to other EU Partners, in confidence, an annual report on its defence exports and on its implementation of the Code. These reports will be discussed at an annual meeting held within the framework of the CFSP. The meeting will also review the operation of the Code, identify any improvements which need to be made and submit to the Council a consolidated report, based on contributions from Member States.

1. Harmonisation of national reports

Member States agreed that the public report will provide data, broken down by recipient country, on the number and value of licences granted and the value of actual exports (if available). It will also provide the total number of denials issued by each Member State and the total number of denials by all Member States for each recipient country and indicate the criteria invoked for denials and the number of times these criteria were invoked (2002).

Operative provision 9

EU Member States will, as appropriate, assess jointly through the CFSP framework the situation of potential or actual recipients of arms exports from EU Member States, in the light of the principles and criteria of the Code of Conduct.

1. Consultations within COARM

Any individual case of arms exports can be raised for discussion by delegations in the COARM Working Group, if it is considered to be useful for national licensing deliberations (1999).

Member States continue to exchange information on national interpretations of embargoes imposed by the United Nations, the European Union and the Organisation for Security and Cooperation in Europe.

Member States also concert on national policies to control arms exports to certain embargo-free countries or regions that are being closely monitored (existence of an internal or external conflict, human rights situation, etc.) (2000).

2. The development of exchanges of information on national control policies for the export of arms to certain countries or regions regarded as requiring special vigilance

A substantial body of denials, notified in the framework of the mechanism of the Code, is the concrete basis for such exchanges. The exchanges have also been supplemented by exchanges of views and information amongst all Member States undertaken on a regular and systematic basis within COARM, focusing on specific countries and regions (2001).

Operative provision 11

EU Member States will use their best endeavours to encourage other arms exporting States to subscribe to the principles of this Code of Conduct.

1. Third countries

Non-EU countries which have declared their adherence to the principles and criteria of the Code, and which have become involved in the restructuring of the European defence industry, shall be allowed to gain access to the evolving interpretation of the Code's principles and criteria. This shall not entail access to information made available in the course of the procedures referred to in the operative provisions of the Code.

The European Union and the Member States continue to encourage other arms-exporting countries to subscribe to the principles of the Code (2001).

The Code of Conduct was a primary subject of all political dialogue consultations with non-member States.

Consultations are ongoing with the United States of America on ways to follow-up on the December 2000 Declaration by the European Union and the United States of America on the responsibility of States and on transparency regarding arms exports (2002).

2. Involvement of third countries

Member States agreed to share information on denials on an aggregate basis with Associated Countries and encourage these countries to similarly inform Member States about their denials. This information will be shared through the Presidency and contain the following details: country of destination, short description of equipment and military list rating of items, classification of end-user as government agency or private entity, and reasons for refusal (criteria of the EU Code of Conduct) (2002).

ANNEX

INFORMATION ON CONVENTIONAL ARMS EXPORTS AND IMPLEMENTATION OF THE CODE OF CONDUCT BY THE MEMBER STATES OVER THE PERIOD 1 JANUARY TO 31 DECEMBER 2002

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