Report to the European Parliament and the Council on the application of Regulation (EC) 3381/94 setting up a Community system of export controls regarding dual-use goods
Date: 1998-05-15
Institutions: European Commission
Subjects: EU policy, administrative cooperation, dual-use good, export licence, export monitoring

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  15.05.1998 
COM(1998) 258  final 

REPORT TO THE EUROPEAN PARLIAMENT AND THE  COUNCIL 

ON THE APPLICATION  OF REGULATION  (EC) 3381/94 

SETTING UP A COMMUNITY  SYSTEM OF EXPORT  CONTROLS 

REGARDING  DUAL-USE  GOODS 

(presented by the Commission in accordance with Article  18 of the said Regulation) 

.  f 

.vï 

: /3 

»•*>& • 

1 V 

1  •$€ 

4  ff'1 

REPORT TO THE EUROPEAN PARLIAMENT AND THE  COUNCIL 
ON THE APPLICATION  OF REGULATION  (EC) 3381/94 
SETTING UP A COMMUNITY  SYSTEM OF EXPORT  CONTROLS 
REGARDING  DUAL-USE  GOODS 

I) Introduction: EU export controls in the international  context 

Export  controls  are a trade aspect of international  security.  In the European  Community, 
export  controls  have  existed  for  years  prior  to  any  legislation  at  Union  level.  Most 
Member  States have a long-standing policy of controlling not only the export of arms but 
also  the  export  of  "sensitive"  goods  and  technologies  -  the  so-called  dual-use  goods 
which, although they are by no means weapons and in most  cases primarily  intended  for 
civil  applications,  may  be  used  for  military  purposes  or  could  significantly  enhance  the 
military capacities of the country acquiring them. 

Until  the  year  1995, export  controls  in  the  Community  were  implemented  by  national 
legislation  only,  and  the  most  important  discussions  and  negotiations  relating  to  the 
substance  of  such  controls,  in particular  the establishment  of product  lists, took place  in 
international  non-proliferation  regimes.  The  best  known  of  these  regimes  was  the  now 
defunct  COCOM,  an  informal  grouping  of  Western  countries  which  pursued  the 
objective to avoid export of high-technology items to countries of the former  Soviet bloc. 

In  the  last  decade,  the  nature  and  purpose  of  export  controls  have  profoundly  changed. 
Three  factors  account  for  this  change.  The  most  important  factor  is the  end  of the  Cold 
War which has shifted  the emphasis of controls - away from  a policy of general  economic 
containment  of  a  specific  country  group  and  towards  the  objective  of  avoiding 
inadvertent  or  deliberate  contributions  to  programmes  concerning  the  development  of 
weapons  of  mass  destruction  and/or  to  possible  regional  arms  races.  Export  controls 
today are focus more on the specific  end-use and end-user of à given good or technology. 
Generally  speaking, the tendency  of public authorities worldrwide has been to reduce the 
number  of  items  controlled  and  to  allow  for  simplified  licensing  procedures,  whilst 
foreseeing  a  "catch-all"  clause  which  permits  control  of  any  item,  listed  or  not,  if  its 
export  raises  proliferation  concerns.  Whilst  liberalising  and  facilitating  the  trade  with 
dual-use  items, public authorities have thus at the same time obliged  exporters to  "know 
their customers", a burden industry does not always feel comfortable  with. 

Nothing demonstrates the shift  more vividly than the dissolution of COCOM in  1993 and 
its "replacement",  in  1996, by the new Wassenaar arrangement of which Russia and most 
Central  and Eastern European countries, formerly  the most important targets of  COCOM 
controls,  are  founding  Members.  Furthermore,  the  geographical  spectrum  of  the  non-
proliferation  regimes  has  broadened  with  South  Africa  for  instance joining  the  Missile 
Technology  Control  Regime  and  the  Nuclear  Suppliers  Group,  and  South  Korea 
participating  not  only  in  the  latter  but  also  in  the  Wassenaar  Regime  and  the  Australia 
Group  (the  AG  deals  with  proliferation  issues  concerning  chemical  and  biological 
products). 

The  second  major  factor  is the  pace  of the  technological  development.  Certain  types  of 
computers  still  subject  to individual  export  authorisations  in the early  1990's are now so 
commonplace  and so easy to acquire that public authorities have more or less  reluctantly 
liberalised  their  export  by  granting  general  export  authorization  for  shipments  of  these 
goods  to  a  varying  number  of  destinations.  If  the  number  of  allowed  destinations  does 
vary  from  one  country  to  another,  in  accordance  with  differing  policy  assumptions  and 
differing  administrative  traditions,  the  general  tendency  in  favour  of  lighter  controls  is 
obvious. The  same holds true  for  entire categories  of electronics  and  telecommunication 
equipment:  the  progress  of  technology  invariably  leads  to  a  banalization  of  goods  and 
technology  which  would  have  been  considered  "sensitive"  only  a  few  years  ago. 
Administrations  are  therefore  under  increasing  pressure  from  European  exporters  to 
technological 
ensure 
developments  and  of  policies  of  third  countries  whose  exporters  are 
important 
competitors. 

that  export  controls  are  constantly  reviewed 

light  of 

in 

A third major  factor which has changed the situation for industry and public authorities in 
Europe has been the adoption of EU legislation (see below, point II). 

II) Establishment  of the EU export control regime for dual-use items 

In the Community, the matter of export controls on dual-use  goods was first  raised in the 
context  of the  completion  of the  Internal  Market.  Considering  as  an  objective  that  dual-
use goods should move as freely  between Member  States as they do within each of them, 
and  that  the  elimination  of  controls  on  intra-EC  trade  was  only  possible  if  all  Member 
States  established  effective  controls  based  on  common  standards  for  exports  to  non-EC 
countries, the Commission  submitted  a proposal  for  a Council  Regulation to the  Council 
on  31  August  19921.  On  the  basis  of  this  proposal,  the  Council  of  the  European  Union 
ultimately  adopted  a  system  of  export  controls  on  dual-use  goods  consisting  of  two 
pillars: Council Decision N° 94/942/CFSP2 on the one hand and Council Regulation (EC) 
N° 3381/943 on the other. Both texts were adopted on  19 December  1994, and are closely 
entwined by numerous  cross-references. 

The regime entered into force  on  1  January  1995 and became applicable six months  later, 
on  1  July  1995. 

Article  18  of  the  Regulation  stipulates  that,  every  two  years,  the  Commission  "shall 
present  a  report  to  the  European  Parliament  and  the  Council  on  the  application  of  this 
Regulation". 

1  COM (92) 317 final; O.J.C 253/1 of 30.9.92 p.'l3 

2  OJ L367 of 31.12.94, as last amended by by Council Decision 98/232/CFSP (OJ N°L92 of 25.3.98) 

3  OJ L367 of 31.12.94, as amended by Regulation  837/95 of  10 April  1995 (OJN°L 90 of 21.4.95) 

3 

In conformity  with the provisions  of this Article, the  Commission  therefore  presents  for 
the first  time its assessment of the way the present EU export control regime for  dual-use 
goods has  worked  in practice.  It  should  be  noted  that  this  assessment  is  confined  to  the 
analysis  of  the  practical  application  of  the  Regulation  and  does  not  represent  a 
comprehensive judgement  on all aspects  of the export  control  regime, its structure,  legal 
basis  and  underlying  policy  assumptions.  Therefore  the  two  rulings  of  the  Court  of 
Justice  (cases C-70/94  and  C-83/94)  regarding  the export  controls  of dual-use  goods  and 
firmly  establishing exclusive Community competence even if such controls are motivated 
by foreign  and security policy objectives, will not be discussed in this report. 

Ill) The main characteristics  of the common export control  regime 

1) Basic  features 

The basic principles of the Regulation are: 

* establishment  of  a common  external  fence  by  adoption  of  an  identical  list  of  dual-use 
goods  and  technology  requiring  a  licence  if  exported  from  the  Community,  (common 
product  list). This licence requirement  is spelled  out in Article  3.1  of the Regulation, the 
list of products itself is contained in Annex I of the CFSP Decision. 

*mutual  recognition  of  export  licences.  Article  6.3  explicitly  states  that  an  export 
authorization  granted  by  the  competent  authorities  of  one  Member  State  "shall  be  valid 
throughout the  Community". 

j 

*in  general,  free  movement  of  dual-use  goods  inside  the  Community.  However, 
restrictions  are  maintained  for  certain  highly  sensitive  goods  (Annex  IV  of  the  CFSP 
decision). Furthermore,  some Member  State's still maintain national  controls  for  transfers 
of  certain  dual-use  items  which  they  consider  particularly  sensitive  (Annex  V  of  the 
Decision). 

*a catch-all  clause  which  subjects  non-listed  dual-use  goods  to  a  licence  requirement  if 
there is a proliferation  risk associated with their export. 

In  terms  of  harmonisation  of  policies,  the  legislation  is  limited  to  the  strict  minimum 
necessary  to  allow  free  movement  of dual-use  goods  inside  the  Community.  The  system 
does  not  constitute  a  common  export  policy  for  dual-use  goods.  It  is  a  common 
framework,  but  for  national  policies  which  continue  to  differ, 
in  some  aspects 
significantly. 
As the seventh preambular paragraph of the Regulation itself makes clear: 

"this system represents a first  step towards the establishment of a common system for  the 
control of exports of dual-use goods  which is complete and consistent in all respects; (...) 
it is desirable  that the authorization procedures  applied by the Member States  should  be 
harmonized progressively  and  speedily. 

2) Administrative cooperation 

Since the  present  Community  export  control  regime  is based  on  a "mutual  recognition" 
approach of differing  national policies rather than on effective  development of a common 
policy,  it  relies  to  a  very  large  extent  on  administrative  cooperation  between  national 
authorities to bridge the gaps between Member States policies and procedures. 
Accordingly,  provisions  regarding  various  forms  of  administrative  cooperation  and 
exchange of information  are a major  feature of the Regulation. 

* consultation  of  another  Member  State  before  granting  an  individual 
export  licence  is  compulsory  when  the  good  in  question  is  not  located  in  the  Member 
States where the licence application has been made. The Member State where the good is 
or  will  be  located  has  the  final  word  on  an  export  being  allowed  to  go  ahead  or  not 
(article  7.2) 

* Member  States  may  request  of  each  other  not  to  grant  a  licence  or  to 
revoke etc. a licence  if they  feel  that their essential  interests might be prejudiced  (article 
7.3) 

* Member  States  inform  each  other  about  any  denial  of  an  export 
authorization,  as well as about  any annulment,  modification,  suspension  or revocation  of 
a licence previously granted (article 9.2) 

*  Member  States  generally  undertake  to  "establish  direct  cooperation 
and  exchange  of  information  between  competent  authorities,  in  particular  to  eliminate 
the risk that possible disparities in the export controls may lead to a deflection  of trade" 
(article  13.1) 

•Member  States  also  apply,  mutatis  mutandis,  Council  Regulation 
1468/81  of  19  May  1981  on  mutual  assistance  regarding  the  law  on  customs  matters, 
which allows for instance for information  exchange on anti-fraud  measures (article  13.2) 

3) Coordination  at Community  level 

A Coordinating  Group chaired  by the Commission has regularly  convened  to discuss  the 
practical  application  of  the  Regulation.  Member  States  are  usually  represented  by  their 
licensing  officials,  but  customs  officers  have  also  participated  repeatedly.  The  Group 
focuses  on  resolving  practical  problems  and  has  adopted  informal  "Elements  of 
consensus"  (see  annex  1 to  this  report)  on  how  to  interpret  certain  provisions  of  the 
Regulation.  The meetings  have been very useful  in terms  of exchange  of information  on 
the  shortcomings  of  the  present  regime,  and  has  also  served  as  a  forum  for  discussing 
possible  improvements.  Furthermore,  in  line  with  its mandate,  the  Group  has  consulted 
exporters  by  holding  a  hearing  with  industry  representatives  in  February  1996  (article 
16). 

IV) Functioning of the export control system: assessment of the practical 
application  of the Regulation 

The overall  assessment  by the Commission  of the practical application  of the  Regulation 
two years after  its implementation is mixed. Whilst successful  in terms of  intra-European 
trade  facilitation  and  establishment  of  the  Internal  Market,  the  regime  would  appear  to 
have largely failed to function  as a credible common export control  mechanism. 

Achievements 

The  new  EU  regime  has  led  to  appreciable  improvements  for  industry  as  well  as  for 
public  authorities  by  significantly  facilitating  intra-Community  trade  and  thus  cutting 
red-tape for exporters and administrations. 

*the  existence  of  a  common  regime  and  external  fence  has  permitted  free 
movement  of nearly all dual-use goods inside the Community. This is not only  important 
in terms of.the proper functioning  of the Internal Market, but also because it cuts back on 
the  administrative  burden  for  companies  as  well  as  for  administrations.  In  terms  of  the 
efficient  use  of  scare  resources,  cutting  back  on  such  paperwork  enables  public 
authorities  and  companies  to  devote  more  time  and  money  to  the  combat  of  fraud  for 
instance, or to the in-depth screening of sensitive exports. 

* administrative  cooperation  between  Member  States  has  clearly 

increased. 
Consultations on specific  exports as well as exchange of views regarding policy  issues in 
the  Coordinating  Group,have  contributed  to  the  development  of  a  network  of  national 
officials  responsible for export controls. It is safe to say that knowledge of other  Member 
States'  policies  has  indeed  improved,  thus  laying  the  foundation  for  future  common 
policies. 

•practical  difficulties  with  applying  and  interpreting  certain  provisions  of  the 
Regulation  have  been  solved  by  the  Coordinating  Group  through  informal  agreements 
between  Member  States  which  are  recorded  in  a  document  called  "Elements  of 
consensus" (see Annex  1  to this communication). 

*in  connection  with  the  EC  Regulation,  many  Member  States  have  revised  or 
introduced  national  legislation  on  export  controls.  It  clearly  appears  that  the  general 
tendency  is one  of increasing  de  facto  convergence  of licensing policies  and  procedures, 
especially  with  regard  to  exports  to  Australia,  Canada,  Japan,  New  Zealand,  Norway, 
Switzerland  and the United States of America (see Annex 2 to this communication). 

Deficiencies  and problem areas 

The Regulation  and the way it has been applied  in practice has not  succeeded  in creating 
a  effective  common  export  control  regime  which  is  both  easy  to  administer  and  cost-
effective  to  comply  with.  In  particular,  due  to  an  insufficient  convergence  of  national 
policies  and  practices,  the  system  is  too  complex  to  be  routinely  enforced  by  customs 
with  a  sufficient  degree  of  automaticity.  It  would  clearly  appear  therefore,  that  a  level 
playing field  among European exporters has not been established. 

Companies  have  made  it  very  clear  to  the  Commission  and  to  Member  States,  in  a 
hearing by the Coordinating  Group organised  in February  1996, that they find  it  difficult, 
if  not  impossible,  to  operate  in  a  cost-effective  manner  at  European  level  when 
complying  with  relevant  export  control  legislation.  The  Union  of  Industrial  and 
Employers'  Confederation  of  Europe  (UNICE)  and  the  European  Round  Table  of 
Industrialists  (ERT) for  instance have both urged the Commission  and  Member  States to 
simplify  the general and global licensing system, to provide information  on sensitive end-
users  at  European  level, to  restrict  the  scope  of  the  catch-all  clause  to  certain  products, 
and to match US liberalisation of exports of certain widely traded products. 

In practice,  during  the  first  two  years  of  the  existence  of  the  common  regime,  the  main 
difficulties  with  effectively  applying  the  Regulation  have  been  linked  to  the  following 
three issues: 

1) differences in national licensing systems 

2) novelty of the catch-all clause 

3) limits of administrative  cooperation 

1) Differences  in national licensing systems 

The  first  difficulty  is  the  recognizability  of  licences.  The  Regulation  foresees  the 
possibility of three different  types of export authorizations: individual, global and  general 
licences. Customs officials  must  be capable of recognizing  and accepting export  licences 
from  other  Member  States  if  the  principle  of  mutual  recognition  is  to  be  respected  in 
practice.  The  Commission  has  been  informally  told  by  companies  about  cases  of  non-
recognition  of licences. The problem  is by no means that Member  States are  deliberately 
breaching  the  Regulation.  The  problem  is  one  of  delays  at  borders  because  customs 
officials  do not know the licensing systems of other Member States, and therefore  need to 
make  inquiries  about  the  validity  of  a  given  export  authorization.  Many  exporters  have 
concluded  from  such  delays  that  the  system  is  actually  inapplicable  and  have  become 
reluctant  to  export  from  one  Member  State with  a  licence  provided  by  another,  because 
even if the licence is ultimately  recognized  and the export  finally  goes ahead, the  loss of 
time incurred is far too costly. 

The problem  appears to have been partly  solved  for  exports requiring  individual  licences 
(a  small  fraction  of  exports,  although  important  because  the  most  sensitive  ones).  A 
proposal  by the  Commission  Services to informally  harmonise  national  licence  forms  in 
line  with  a  Standard  Model  was  accepted.  Most  Member  States  are  using  this  Model 
form,  and  all  have  indicated  their  intention  to  apply  it.  Ultimately,  use  of  this  standard 
model should become mandatory. 

For  exports  under  general  and  global  licences, however,  the problem  of  non-recognition 
at borders has, to the best of the Commission's  knowledge, remained  sufficiently  serious 
throughout  the  entire  period  to  create  a  significant  lack  of  confidence  on  the  side  of 
industry regarding the practical applicability of the Regulation. 

The  problems  are  numerous:  not  only  do  customs  officials  lack  knowledge  of  other 
Member  States'  export licences - there are important  differences  between Member  States 
in  the  scope  of products  covered  and  the  destinations  allowed  for  exports  under  general 
export  authorizations  - but  in  some  cases,  these  general  licences  (which  are  basically  a 
general  permission  by  public-authorities 
to  export  controlled  goods  to  certain 
destinations)  are  defined  by  legislation  only,  and  are  not  "materialised"  by  a  licence 
document.  For  the  customs  official  in  another  Member  State,  it  is  therefore  difficult  to 
assess if the export has been authorised or not, even when indications are provided  on the 
relevant commercial  document. 

Furthermore,  global  licences  (a licence  given to a specific  company  for  export  of  certain 
goods  to  certain  destinations)  represented  a  new  concept  for  some  Member  States,  and 
therefore  is still not always understood and accepted at borders by customs  officials. 

Again, one must  stress that non-recognition  is not the consequence  of a deliberate  breach 
of the  Regulation,  but of the  complexity  of the regime  which  allows  for  the  coexistence 
of very different  licensing  systems without providing customs official  with efficient  tools 
to  cope  with  this  complexity.  The  result,  less  dramatic  for  the  customs  administrations 
than for  the exporter,  is delay. The risk of delay  in turn  is a strong deterrent  for  industry 
to  use  the  possibility  of  the  EU  regime  to  export  from  a  given  Member  State  with  a 
licence issued by another Member State. It is fair to say that in the present  circumstances, 
most  companies  avoid  to  make  use  of  Article  6.3,  and  only  have  recourse  to  it  in 
exceptional  cases. This  assessment  is  corroborated  by  the  fact  that  the  Commission  has 
been informed  not only by exporters, but also informally  by certain national  officials  that 
in  practice  the  use  of  Article  6.3  is  so  rare  that  when  it  does  occur,  higher  ranking 
officials  are contacted which in turn sometimes need to consult their counterparts in other 
capitals. 

Some Member  States, observing that  in practice few  exporters use the possibility  offered 
by  article  6.3, have  concluded  that  therefore  the  practical  implications  are  quite  limited, 
and no action  is required.  Industry  has taken a different  view, and UNICE as well  as the 
ERT have  urged  the  Commission  to  improve  the present  system,  especially  with  a  view 
of ensuring  a level playing field for  European exporters  in comparison to their  American 
and  Japanese  competitors.  Generally  speaking,  it  is  quite  clear  that  industry  does  attach 
considerable  importance  to  an  efficient  European  export  control  system  -  and  it  is 
precisely  because  confidence  by  exporters  in  the  practicality  of  the  current  regime  is 
lacking that it is not used. The problem is not so much one of faulty  application or lack of 
interest,  but  of non-application  in practice,  because  industry  in  general  does  not  believe 
the system will work. 

A second major  difficulty  with the discrepancy between national licensing systems is that 
they  are  extremely  difficult  to  manage  efficiently  for  companies  established  in  several 
Member  States. These  companies  are precisely  among the most  important  producers  and 
exporters  of  dual-use  goods.  Although  operating,  economically  speaking,  as  one  large 
company, they  are considered  in legal terms - and therefore  for  export  control purposes  -
as separate national entities. 

For  the  export  of  non-controlled  goods, the  commercial  logic  of  "eurologistics"  usually 
prevails  -  the  different  subsidiaries  have  common  "hubs"  and  stocks,  and  orders  from 
customers are processed with a view to minimise costs: 

the  subsidiary, which  can ensure  the  quickest,  most  cost-effective  delivery  does the  deal. 
In practice, such logistics are actually computerised  and very routine. 

For  controlled  goods  however,  a  conflict  between  the  economic  and  the  legal  logic 
emerges.  When  considering  possible  exports,  companies  cannot  operate  on  a  purely 
logistical  basis  (how  to  deliver  the  products  to  the  customers  in  the  quickest  and  most 
cost-efficient  way),  but  must  also  check  if  the  national  subsidiary  in  question  -  a 
completely  distinct  entity  for  export-control  purposes  - is allowed  to  deliver  the  item  by 
virtue  of  a  global  or  general  licence  for  instance,  and  what  kind  of  supplementary 
requirement  (end-use  certification  for  instance)  may  be  obligatory.  Furthermore,  it  must 
be  clearly  established  who  owns  the  goods  or  has  similar  rights  of  disposal,  in  other 
words who is, legally speaking, the exporter. 

Faced  with  these  difficulties,  certain  companies  appear  to  have  tried  to  organise 
themselves  in such a manner as to ensure that the export  of a dual-use good from a given 
Member  State  is preferably  done  by  virtue  of  a licence  delivered  by that  same  Member 
State.  Companies  tend  to  try  and  obtain  a licence  in the  Member  State  where  the  goods 
are actually  located  and to export  directly  from  that  Member  State. Again, use  of  article 
6.3  would  appear  to  be  confined  to  exceptional  cases,  where  it  cannot  be  avoided  for 
contractual  reasons.  Other  solutions  are judged  to be too  complex  to  manage,  especially 
since they must be implemented  in every-day work routinely  by order-desk  staff  which is 
assisted by logistic  software. 

In  conclusion,  the  Commission  believes  that  if the  common  export  control  regime  is  to 
fully  function  in practice, two steps must be taken: 

*it  will  be  necessary  to  harmonise  the  forms  of  national  licences  in  order  to  ensure 
recognizability  of  licences  (which  is  in  fact  simply  a  practical  precondition  for  mutual 
recognition).  Without  such  harmonisation,  either  the  delays  mentioned  above  will 
continue, or, if customs  officials  simply  "assume" licences  of other  Member  States to be 
valid, the risk of fraudulent  export will increase. 

*the  degree  of  complexity  of  the  present  system,  where  numerous  types  of  national 
global  and  general  licences,  often  for  the  same  destinations  but  with  slightly  different 
product  scope, coexist, must be reduced to manageable  levels. A harmonised  Community 
licence  for  export to the Annex  II destinations  - presently  Australia,  Canada,  Japan, New 
Zealand,  Norway,  Switzerland  and  the  United  States  -  should  be  introduced,  especially 
since there is already much de facto  convergence between Member States policies'  in this 
respect.  Furthermore,  all  Member  States  should  be  required  to  offer  the  possibility  of 
global  licences  to  their  exporters.  Such  harmonization  and  simplification  is  in  the  best 
interest not only of exporters, but also of customs and law enforcement  officials. 

2) novelty  of the catch-all  clause 

The  introduction  of  a  "catch-all"  provision  into  the  Regulation  was  one  of  the  most 
difficult  and  controversial  issues  at  the  time  the  present  dual-use  export  control  regime 
was  negotiated.  Implementation  of  this  clause  -  which  makes  any  good  subject  to 
licensing  requirement  if  the  exporter  is  informed  by  his  authorities  or  "knows"  that  the 
good  is intended  to be used  in relation  to a programme  of weapons  of mass destruction  -
has been an innovation for most Member States. 

The  main  problem  with  the  practical  application  of  the  catch-all  clause  is  the  different 
degree  to  which  governments  inform  their  exporters  about  sensitive  end-users.  The 
difference  in  information  provided  to  exporters  may  of  course  be  an  indication  of 
Member  States  governments'  own  differing  degree  of  knowledge  about  ABC-weapons 
proliferation  and proliferators.  It may  also have to  do with  administrative  traditions,  and 
with  the  more  or  less  long  experience  with  catch-all  type  provisions.  Whatever  the 
reason,  the  consequence  is  clearly  that  exporters  are  differently  informed  (and  warned) 
about end-users depending  on which Member  State they are established  in. This diversity 
not  only  raises  questions  of  distortion  of competition  but  puts  the  effective  enforcement 
of the catch-all claiise in doubt. 

The  Commission's  conclusion  is  that  the  procedures  as  now  foreseen  in  the  Regulation 
are  not  satisfactory.  In  fact,  in  an  internal  market  where  unlisted  goods  move  without 
restrictions,  it  would  appear  that  in  absence  of  improved  exchange  of  information 
between  Member  States  on  the  one  hand,  and  between  government  authorities  and 
exporters on the other hand, the catch-all provision can too easily be  defeated. 

In  the  first  hand,  legally  speaking,  nothing  can  prevent  a  company  established  in  a 
country  where application of the catch-all  for  a certain export  is being considered  to  ship 
the good to another Member  State whose authorities might not even be aware of any risk. 
The  unlisted  item  could  then  easily  be  exported  licence-free  from  that  other  Member 
State  which  has  not  decided  -  for  lack  of  knowledge  about  any  possible  danger  -  to 
monitor (and possibly refuse)  this specific  transaction. 

In fact,  lack  of in-depth  information  exchange  between  Member  States  on  sensitive  end-
users  - the  catch-all  is only  applied  when there  are doubts  about  the  end-user  - may  lead 
to  a  situation  where  exporters  in  other  Member  States,  simply  not  aware  of  any  danger, 
may  ship  similar  or  identical  items  to  the  sensitive  end-user  in  good  faith.  Insufficient 
information-sharing  thus  defeats  the  purpose  of  the  catch-all  whilst  also  putting  the 
exporter  in  the  Member  State  where  authorities  have  issued  a warning  at  a  competitive 
disadvantage. 

In the Commission's  view it will therefore  be necessary  that Member  States  significantly 
improve  their  information-sharing  on  sensitive  end-users  with  a view  to  ensuring  that  a 
similar degree of guidance is given to exporters throughout the  Community. 

3) problems of administrative  cooperation 

As  outlined  above  (see  point  II.2),  different  mechanisms  of  administrative  cooperation 
are  an  important  feature  of  the  present  Regulation.  In  the  Commission's  view,  any 
common  export  control  regime  which  stops  short  of  full  harmonization  requires  a 
maximum  of  cooperation  between  national  administrations.  Different  export  policies  in 
this  sensitive  area  can  only  subsist  to  the  extent  that  this  diversity  remains  manageable 
and  is  counterbalanced  by the  establishment  of  a network  of  responsible  officials  which 
routinely  work  together.  In  this  respect,  the  problems  relating  to  the  catch-all  clause  as 
described  above (see IV.2.b) are a case in point. 

10 

In  the  first  two  years  of  the  application  of  the  Regulation,  the  Commission  has 
contributed  to  the  extent  possible  to  set  up  a  network  of  direct  communication,  and 
Member  States  have  generally  been  receptive  to  suggestions  to  improve  channels  of 
communication  as  well  as  the  quantity  and  quality  of  exchange  of  information  on 
individual  cases  as  well  as  general  policy.  The  Coordinating  group  has  played  a  very 
positive  role  and  has  certainly  enhanced  mutual  comprehension  of  national  export 
policies. 

Nevertheless,  with  regard  to  the  assessment  of  the  quality  and  the  frequency  of 
administrative  cooperation  between  Member  States,  the  Commission  is  unfortunately 
unable,  because  of  limitations  foreseen  by the  Regulation  itself,  to  fully  discharge  itself 
of  the  responsibilities  and  obligations  conferred  to  it under  Article  18. For  instance,  the 
Commission  cannot  fully  assess  the  quality  of  the  consultation  procedure  (Article  7.2), 
since  it  is not  involved  in these  bilateral  or multilateral  contacts  (which take place  when 
the good is or will be located in another Member State than the one issuing the licence). 

The  procedure  spelled  out  in  Article  7.2  involves  the  licensing  authorities  of  the 
concerned  countries,  and  the  Commission  has  only  indirectly,  or  via  discussions  in  the 
Coordinating  Group,  been  informed  about  some  of  these  consultations.  From  such 
discussions,  it  would  appear  that  whilst  occasional  problems  have  arisen  with  regard  to 
delays in replies  and also with the  degree of precision  of exchanged  information  that,  on 
balance, the consultation procedure has worked to the satisfaction  of Member States. This 
judgement  is  however  no  more  than  a plausible  assumption  on  the  basis  of  the  limited 
information  available to the  Commission. 

As  far  as  exchange  of  information  regarding  denials  of  licences  (or  modifications, 
suspensions,  limitations  of  already  granted  licences)  are  concerned,  the  problem  is 
similar, Member  States being free  to choose whether to communicate  such information  to 
the  Commission  also,  or  only  to  the  other  Member  States.  In  the  first  two  years  of  the 
application  of  the  Regulation,  a  large  majority  of  Member  States  have  chosen  not  to 
involve  the Commission  in such exchange of information.  As far  as the Commission  can 
tell,  it  would  appear  that,  with  regard  to  denials  of  licences,  Member  States  exchange 
little  information  beyond  what  is  foreseen  in  the  international  non-proliferation  regimes 
of which they all are Members. 

Furthermore,  the  information  exchange  seems  to  concentrate  too  much  on  the  denials, 
which  is  a  somewhat  formalistic  approach  since  actual  denials  are  not  that  frequent. 
National  administration  often  do not need to resort to actually refusing  an  application  for 
an export  licence but may convince potential  exporters to abstain  from  asking  permission 
for  selling  to  certain  destinations/end-users.  There  is  no  obligation  to  discuss  such 
''dissuasive practices" (which usually  convince exporters) with other Member  States, and 
as far  as the  Commission  can tell, based  on  comments  by  national  officials  interested  in 
increased  exchange  of information,  there  are indeed  too  few  exchanges  of views  on  such 
matters. 

Certain  national  administrations  have  however  asserted  that  they  do,  on  a  case-by-case 
basis, inform  partners when they think that it is relevant. 

11 

Whilst recognising the value of such informal  contacts, they appear to be insufficient  for 
developing  a  more  harmonised  approach  on  exports  of  dual-use  goods,  implying  that 
Member States come to common views on sensitive destinations and end-users, and that 
relevant information  is quickly shared and discussed, and, if appropriate, communicated 
to customs and law enforcement  officials. 

V) Conclusions 

The practical problems with the application  of the Regulation  all appear  fundamentally 
linked to the fact that the present Community export control regime is essentially limited 
to a mutual-recognition  exercice. Member  States have agreed to recognise  each others' 
export licences but do not necessarily agree with the each others' different  export policies 
underlying  these  licences.  There  is  a  lack  of  agreement  in  substance  which  cannot 
indefinitely  continue  if  an  effective  common  export  control  regime  is  to  function 
properly. 

In  the  Commission's  analysis,  administrative  cooperation  has  not  been  sufficient  to 
overcome this lack of agreement on export policy with regard to dual-use goods, and it is 
highly doubtful  that even the best will of national administrations to co-operate would in 
itself suffice to bridge this policy gap. 

As far  as the Commission can judge, the present  system is too complex to be routinely 
managed by custom officials  at the border, and is in any case judged by industry to be too 
cumbersome to be useful in practice. 

In the Commission's view, these difficulties  are inherent to the regime itself, and only a 
more  harmonised  export  control  regime,  combining  elements  of  common  policy  with 
reinforced  administrative cooperation will produce a system satisfactory  to the practical 
needs of exporters and public authorities, ensuring both swift and smooth enforcement of 
the  shared  non-proliferation  objectives.  The  Commission  is  therefore  submitting, 
simultaneously with this report, proposals for an improved Regulation. 

12 

EUROPEAN  COMMISSION 
DIRECTORATE  GENERAL 
EXTERNAL RELATIONS  : COMMERCIAL  POLICY, RELATIONS WITH NORTH AMERICA, 
THE FAR EAST; AUSTRALIA AND NEW ZEALAND 
I-M-2  -  Investments, TRIMS, Dual  Use, Standards and  Certification 

I 

Annex 1 

Brussels,  15 My  1997 
I.M.2 

ELEMENTS  OF CONSENSUS BETWEEN MEMBER  STATES 

In implementing  the' Council  Regulation  on the control  of exports of dual use goods, the 
Member States have, on an informal  basis, agreed to the following  guidelines: 

Procedures for  consultations 

For  the  consultation  between  licensing  authorities  based  on  Article  7  par.  2  of  the 
regulation, two forms have been developed, one for initiating the consultation and one  for 
the reply. The forms are included as an annex to these "Elements of consensus". 

The consultation  shall  be addressed  to the person mentioned  in the  list  of  contact  points 
under  'Licensing  Offices'.  Consultation  should  be initiated  by fax.  If so requested  by  the 
consulted Member  State, the transmission by fax will be confirmed  by letter. The start of 
the ten working day period, as foreseen  in the Regulation will be the date of the fax. 

Member  States can also ask for  consultation  under Article  7 par.  3. This request  shall  be 
made  by  fax  and  will,  if requested  be confirmed  by  letter.  The consultation  includes  the 
case of consultations between the licensing Member State and the Member State in which 
the export is intended to be declared for exports. The consultation shall be initiated by  fax 
and  addressed  to  the  person  mentioned  in  the  list  of  contact  points  under  'Licensing 
Offices'.  Upon request confirmation  shall be provided by letter. 

Exemptions  to the need for consultations 

Consultations  under  paragraph  2  of  Article  7  of  the  Regulation  are  not  necessary  in 
certain  cases.  Although  an  exporter  should  still  indicate  where  the  good  he  wants  to 
export  is  or  will  be  located,  national  authorities  agree  that  explicit  approval  of  the 
authorities  of the Member  State  in which this  good  is located  is not necessary.  This  will 
apply to the following  cases: 

13 

•  Temporary  exports 

•  Exports for the purpose of maintenance and repair 

•  Replacements within the framework  of contracts already licensed after  consultation. 

Model Form for individual licences and global licences 

The  Commission  Services have developed  a model  form,  which  constitutes  the basis  for 
national  individual  licence and possibly  application  forms.  This form,  as well  as its  note 
on elements of guidance, has been distributed  for  the meeting of the Coordinating  Group 
of 22 March  1995. Member  States have agreed to use the same model form  as a basis  for 
their global  licences 

If questions arise at the external border of the Community concerning a licence issued by 
another Member  State than the one of which the customs authorities are dealing with the 
export  declaration,  the  responsible  customs  officials  can  contact  the  point  of  contact 
under 'Licensing Office'  of the licensing Member State directly in order to save time. The 
official  may,  however,  prefer  to  establish  that  contact  through  his  national  licensing 
office. 

Procedures with respect to the recognition of general  authorisations 

According  to the Regulation,  all  authorisations  (individual,  global  and  general)  are valid 
throughout  the  Community.  Since  it  might,  however,  be  difficult  for  enforcement 
authorities  to  control  general  authorisations  issued  by  licensing  authorities  of  other 
Member  States, some procedural  arrangements  will have to be made. It will therefore  be 
obligatory  for  exporters  to  indicate  in  the  Single  Administrative  Document  (SAD) 
accompanying  the goods, under other information,  the specific  general authorisation  their 
good  is  exported  under.  A  summary  table  of  the  general  authorisations  granted  by 
Member  States has been made available by the Commission. 

If questions arise at the external border of the Community  concerning a licence issued by 
another Member  State than the one of which the customs authorities  are dealing with the 
export  declaration,  the  responsible  customs  officials  can  contact  the  point  of  contact 
under 'Licensing Office'  of the licensing Member State directly  in order to save time. The 
official  may,  however,  prefer  to  establish  that  contact  through  his  national  licensing 
office. 

Relevant commercial  documents 

The relevant commercial documents referred  to in Article  19.1.a. of the Regulation are, in 
particular, the sales contract, the order confirmation,  the invoice or the dispatch note. 

14 

International Import  Certificates 

When  delivering  IICs, Member  States will  give the  following  commitment:  the  relevant 
goods  "will not be reexported  without the authorisation  of the authorities  of the  Member 
State of the European Union where the exporter is established." 

International  Import  Certificates  will only  be used to certify  that  an export  authorisation 
for reexports from  the Community exists. Such certificates  will in no case be required  for 
any intra-Community transfer  of dual-use goods. 

'Goods that only pass through the Community' (article 3, paragraph 3) 

1.  Goods imported from  third countries and subsequently  released  for  free  circulation  in 
the Community4  are to be considered  as Community  goods and are thus subject  to an 
authorisation when exported. 

-

2.  Non-Community  goods  brought  into  the  Community  territory  are  at  all  times 
assigned  a customs approved treatment or use5, with the exception of goods on board 
vessels or aircraft  crossing the territorial sea or airspace of the Member States without 
having  as  their  destination  a  port  or  airport  situated  in  those  Member  States.6  The 
latter are not subject to an authorisation. 

3.  In the  light  of the  above, the  following  cases  of non-Community  goods  brought  into 
the  Community  territory  should  be  considered  as  subject  to  authorisation  under  the 
Regulation: 

*  customs warehouses7. 

* 

inward processing8; 

*  processing under customs control9 

* 

temporary  importation10; 

4  See  Council  Regulation  (EC)  N°  29/13/92  of  12 October  1992  establishing  the  Community  Customs 

Code; OJ L302,  19.10.92, Title IV, Chapter 2, Section 2, p. 18 

5  vide supra, Title III, p. 12 

6  vide supra, Article 38 par. 6, p. 13 

7  vide supra, Title IV, Chapter 2, Section 3, C, p.21 

8  vide supra, Title IV, Chapter 2, Section 3, D, p.24 

9  vide supra, Title IV, Chapter 2, Section 3, E, p.27 

10  vide supra, Title IV, Chapter 2, Section 3, F, p.28 

15 

4.  The following  cases are covered by Article 3(3) and are thus exempt from the  export 

authorisation procedure: 

*  external transit11; 

*  temporary  storage12 (this includes goods remaining on board of vessels or  aircraft 

entering an EC port or airport). 

5.  Following  the  definition  in the  Customs  Code,  free  zones13  are  part  of  the  customs 
territory  of  the  Community.  Therefore,  the  re-export  of  non-Community  goods 
which  are  leaving  the  Community  via  a  free  zone  is  covered  by  the  Regulation. 
However, in the case of transhipment of goods in the free zone, when these goods are 
not placed under a customs procedure and where no record of them has to be kept of 
them  in  an  approved  stock  record  under  the  Customs  Code,  they  are  not  subject  to 
the export authorisation procedure. 

In  the  context  of  combating  fraud,  customs  can  of  course  check  any  good  which  is 
entering or leaving a free zone. 

11  vide supra, Title  IV, Chapter 2, Section  3, B, p. 20 

12  vide supra, Title III, Chapter 5, p. 14 

13  vide supra, Title IV, Chapter 3, Section  1, page 32 

16 

INVENTORY  OF GENERAL  AUTHORIZATIONS 
(as perl  July  1997) 

Ann£x_2_ 

Below  you  will  find  an  overview  of  general  export  authorization  granted  by  Member 
States  on  the  basis  of  Article  6(1 )(a)  of  EC  Regulation  3381/94.  As  the  latter  does  not 
impose an obligation on Member  States to use simplified  procedures for  any  destination, 
please  note  that  three  countries  presently  do  not  provide  for  any  general  export 
authorization: LuxembourgT Portugal and Spain. 

I) General export licence to 
Annex II destinations 

Australia 
Canada 
Japan 
New Zealand 
Norway 
Switzerland 
United States of America 

This type of  licence  is granted  by  12 out of  15 EU Member  States, although the  product 
coverage varies. Five "versions" of this general export licence exist : 

1) General export authorization for  all dual-use goods listed in Annex  1 to the Annex II 
countries 

except for 

a) *goods covered by annex 4 

This  type  of  general  authorization  is  granted  by  three  EU  countries:  Belgium,  Ireland 
and the Netherlands. 

2) General export authorization for  all dual-use goods listed in Annex  1 to the Annex II 
countries 

except for 

a) *goods covered by annex 4 
b) *all nuclear products (category O of Annex 1) 

This type of licence is granted by two EU countries: Finland and Austria. 

3) General export authorization  for  all dual-use goods listed in Annex  1 to the Annex II 
countries 

except for 

a) *goods covered by annex 4 
c) *goods covered by the national column of 

Annex 5 

This type of licence is granted by three EU countries: Greece, Sweden, Denmark. 

17 

4) General export authorization  for all dual-use goods listed in Annex  1 to the Annex II 
countries 

except for 

~a) *goods covered by annex 4 
b) *all nuclear goods 
c) *goods covered by national column of annex 5 
d) * supplementary  national exclusion lists 

This  type  of  licence  is  granted  by  three  EU  countries:  Germany,  Italy,  United 
Kingdom. 

5) General export authorization  for  all dual-use goods listed in Annex  1 to the Annex II 
countries 

except for 

a) *goods covered by annex 4 
c) *goods covered by national column of annex 5 
d) ^supplementary national exclusion list 

This  type  of  licence  is  granted  by  one  EU  country:  France  (G001).  It  should  be  noted 
that the  export  of Australia  Group  items to Annex  II countries  is regulated  in a  separate 
French  general  licences  (G  301)  imposing  specific  conditions.  Furthermore,  certain 
nuclear  products  may  be  exported  to  Annex  II  countries  under  another  separate  French 
general licence (G201). 

For  the  general  licences  of  type  1, 2  and 3, the product  scope  is  easily  determined  by 
consulting  Decision  CFSP  94/942. In the  case  of Ireland  for  instance, all  dual-use  items 
but the very  sensitive  products  listed  in Annex  4 may be  exported  to Annex  II  countries 
under the Irish general  licence  (Annex I products  - Annex IV products = coverage  of the 
Irish  General  Licence.  In  the  case  of  Sweden,  the  Swedish  Annex  V  products  are  also 
excluded  (Annex  1 -  Annex  4  -  Annex  5,  Swedish  column  =  coverage  of  the  Swedish 
General  Licence.) 

For  countries  using  "supplementary  national  exclusion  lists" however  (type  4  and 
5),  the  product  scope  of  the  general  licence  cannot  be  determined  simply  by  looking  at 
the  relevant  annexes  of  Decision  CFSP  94/942.  One must  consult  the  exclusion  lists  of 
the relevant general licences. 

18 

ISSN 0254-1475 

COM(98) 258 final 

DOCUMENTS 

EN 

10  15  02  17 

Catalogue  number  :  CB-CO-98-275-EN-C 

ISBN  92-78-35385-X 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

A