A new set of EU export control rules went into force on September 9, 2021. The new rules apply to dual-use items, which are goods and technology that can be used for both military and civilian purposes.  These rules will apply generally, but are likely to have a big impact on EU trade with China. They will not only add new restrictions on EU exports of some technology, goods, software and services to China, but also hinder intra-company technology transfer where Chinese production is involved. As a result, the rules will have significant implications for businesses and create uncertainties for European exporters.

The Regulation

The new rules, entitled Regulation (EU) 2021/821 of the European Parliament and Of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items, are updates of a 2009 export control regulation (Regulation 428/2009). In 2013, the Commission issued a report on the implementation of the 2009 regulation, and it conducted a review of the EU export control regime in 2014. In 2016, the European Commission issued a proposal to update the rules. After a lengthy legislative procedure, the Regulation was adopted by the European Commission on May 20, 2021. (More regulatory history can be found here.)

Broadly speaking, the Regulation introduces EU-wide requirements for internal compliance policies, creates two new EU general export authorizations, harmonizes the licensing procedures, simplifies procedures to update the list of controlled items and destinations, and introduces more due diligence obligations for exporters.

One of the key features of the Regulation is to introduce a new end-use control on cyber-surveillance equipment, which is defined as items “designed to enable the covert surveillance of natural persons by monitoring, extracting, collecting or analysing data from information and telecommunication systems.” According to the European Commission's press release, the new rules “allow[] the EU to take a number of important actions to pool expertise and tackle particular challenges, notably in relation to cyber-surveillance.”

In particular, the Regulation states that an export license “shall be required” for “the export of cyber-surveillance items" even when they are not on the controlled list, “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 use in connection with internal repression and/or the commission of serious violations of human rights and international humanitarian law.” (Article 5.1) This catch-all provision leaves room for EU countries to restrict exports related to cyber-surveillance without going through a lengthy regulatory process.

The Regulation also creates two new EU general export licenses for exports of software and technology among intra-company groups (EU007) and export of certain encryption items (EU008). The general licenses only apply to certain countries and China did not make it onto the list. This means that for multinational companies to transfer software and technology, and exporters to sell encryption items, they will have to go through more hurdles if the destination is China compared to other destinations such as India.

With regard to the EU general export license for telecom equipment, while companies are allowed to sell to China (including Hong Kong and Macao) in principle, such sales are conditioned on not being used “in connection with a violation of human rights, democratic principles or the freedom of expression as defined by the Charter of Fundamental Rights of the European Union.”

China focus

The Regulation does not single out China, but the new rules certainly have a heavy focus on China, especially in its new rules for cyber-surveillance equipment.

Human rights issues have recently resulted in sanctions between the EU and China, which has hindered economic cooperation between the two sides, including the EU-China Comprehensive Agreement on Investment. In particular, China’s surveillance programs have drawn criticism from human rights advocates (see here and here). Last year, human rights group Amnesty International found that European companies are selling surveillance tools to China’s security agencies and EU technologies are used in China’s surveillance programs.

After the Parliament adopted the regulation, Markéta Gregorová, MEP from the Czech Pirate Party and lead negotiator of the inter-institutional negotiations, argued that the new rules will improve the situation:

With the reform of the dual use regulation, the Parliament has put human rights and human security at the forefront of European export policy. The new rules for cyber-surveillance exports paired with companies’ new due diligence requirements and meaningful transparency will make sure that our facial recognition technology and other European high-end surveillance do not end up in the hands of the Chinese Communist Party or other authoritarian regimes to violate human rights. EU countries now must implement the rules and apply the new tools we created to make this a reality.

Gregorová is not alone. During a March debate in the European Parliament over the regulation, Maroš Šefčovič, Vice-President of the European Commission for Interinstitutional Relations, made the following statement:

The EU already decided in July 2020 to tighten controls on the export of cyber-surveillance technologies to Hong Kong following the introduction of its national security law. In the course of this year, using the new provisions of the regulation, the Commission will bring Member States together to encourage further EU action on cyber-surveillance technology whose misuse leads to human rights violations.

Liesje Schreinemacher, Dutch MEP for the People's Party for Freedom and Democracy, stated that:

[I]n the past years we have seen mass surveillance systems used against Uyghurs in China, spyware used against the people in Hong Kong and surveillance technology used during the Arab Spring... Even this past year, it was reported that three European companies exported surveillance technology, such as facial recognition, to China. We must be clear that EU companies and technology should never be or become part of the problem.

Miapetra Kumpula-Natri, Finnish MEP for the Social Democratic Party, also noted that:

[T]he reform of the Dual-use Regulation is an important step forward in promoting human rights in the value-based EU trade policy. Dual-use equipment is a concern, as emerging and disruptive civilian technologies are more and more frequently used by authoritarian states to suppress human rights both internally and externally. China’s military-civil fusion is very good example of this.

Not everyone in the Parliament agreed with the China argument. During the same debate, Clare Daly, MEP from Ireland for the Left Group, also made the following remarks:

I do think we have to be wary when we come to civilian items that can have military applications, particularly when they’re going to serial rights abusers like Saudi Arabia and Israel, and that’s why I think it’s a bit of a hard neck for people in here to get up and talk about China and Russia when the EU has been aiding and arming Israel for years, despite its human rights violations and flagrant disregard for international law. The fact that the EU is the second-largest exporter to Saudi Arabia and the UAE countries which have been pummelling Yemen into the dust, murdering civilians, starving babies – clearly human rights isn’t really a problem for us when we’re selling arms, so why welcome this? We might want to stop our military activity, full stop.

Multilateral approach

In addition to establishing new EU rules, the Regulation also emphasizes the importance of multilateral cooperation on this front. Article 29 of the Regulation states that:

1. The Commission and the Member States shall, where appropriate, maintain dialogues with third countries, with a view to promoting the global convergence of controls.

The dialogues may support regular and reciprocal cooperation with third countries, ... The dialogues may also encourage the adherence of third countries to robust export controls developed by multilateral export control regimes as a model for international best practice.

2. Without prejudice to the provisions on mutual administrative assistance agreements or protocols in customs matters concluded between the Union and third countries, the Council may authorise the Commission to negotiate with third countries on agreements providing for the mutual recognition of export controls of dual-use items covered by this Regulation. ...

The European Commission is ready to take up the responsibilities. Executive Vice-President and Commissioner for EU Trade Valdis Dombrovskis recently stated that: “Thanks to these new EU rules, the EU countries will now also work even more closely amongst themselves and with allies on potential security risks arising from biotech, Artificial Intelligence and other emerging technologies. We will also team up to ensure a level playing field for companies, for example, in the context of the new EU-US Trade and Technology Council.”

The cooperative and multilateral approach is also a focus of U.S. export controls, according to a U.S. official in recent testimony. Jeremy Pelter, Acting Undersecretary and Deputy Undersecretary, Bureau of Industry and Security, Commerce Department stated during a hearing at the U.S.-China Economic and Security Review Commission that “we've seen a very promising collaboration from several key partners in Asia and in Europe. I will also add, as a great example of where this process is advancing, is the new EU-US Trade and Technology Council that is standing up with a working group for export controls.”

The EU-US Trade and Technology Council (TTC) both sides referred to here is an arrangement set up by the U.S. and EU at the June 2021 EU-US Summit. It will be co-chaired by U.S. Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo, and Trade Representative Katherine Tai, as well as European Commission Executive Vice-Presidents Margrethe Vestager and European Commissioner for Trade Valdis Dombrovskis. The TTC will have ten working groups, covering a series of issues including export controls. The first meeting is scheduled for September 29, 2021.

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