AEO as a mandatory requirement for Export Control?

Transcription

1 AEO as a mandatory requirement for Export Control? By: A. de Chêne, Post-Master in EU Customs Law,

2 Table of contents Table of contents... 1 Abbreviations Subject and problem definition Export Control General European Union Definition List of dual-use items The Netherlands Export control requirements EU licenses + requirements Non-compliance Internal Control Program Authorised Economic Operator AEO compliance requirements Linking Export control and AEO Comparison compliance requirements EU dual-use regulations and evolution History Joint Working Group + next steps Conclusion Annex 1, Export control organizations Annex 2, Structure of EU control list (ECCN) Annex 3, Elements of ICP for dual-use Items Annex 4, AEO self-assessment Annex 5, Comparison table

3 Abbreviations AEO AEO-C AEO-S AEO-F AIVD CDIU CGEA CoCom DUCG DUeS EU ECCN FIOS ICP KvK MIVD NL EVD POSS Authorised Economic Operator Authorised Economic Operator Customs simplifications Authorised Economic Operator Safety and Security Authorised Economic Operator Full Algemene Inlichtingen- en Veiligheidsdienst Centrale Dienst voor In- en Uitvoer Community General Export Authorization Coordinating Committee for Multilateral Export Controls Dual-Use Coordination Group Dual-use Electronic System European Union Export Control Classification number Fiscale Inlichtingen- en Opsporingsdienst Internal Compliance Program Kamer van Koophandel Militaire Inlichtingen- en Veiligheidsdienst Nederlandse Economische Voorlichingsdienst Toezicht houder Precursoren, Strategische goederen en Sanctie wetgeving WCO Framework of Standards to Secure and Facilitate Global Trade Small and Medium sized Enterprise SAFE SME UCC Union Customs Code 1 UCC DA Union Customs Code Delegated Act 2 UCC IA Union Customs Code Implementing Act 3 WA WMD Wassenaar Arrangement on Export Controls for Conventional Arms and dual-use Goods and Technologies Weapons of Mass Destruction The Regulation COUNCIL REGULATION (EC) No 428/2009 of 5 May 2009 Setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items. 1 Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code 2 Commission Delegated Regulation (EU) 2015/2446 of 28 July 2015 supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council with regard to detailed rules of specifying some of the provisions of the Union Customs Code 3 Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015 laying down detailed rules for implementing certain provisions of Regulation (EU) No 952/2013 of the European Parliament and of the Council laying down the Union Customs Code 2

4 1. Subject and problem definition As an US based, international operating company exporting dual-use goods and exporting Flavors and Fragrances to restricted countries like Syria and Iran we have to comply to export control regulations according the Union Customs Code (UCC) and US regulations. We set-up, control and manage the policies and procedures via systems and dedicated officers with global or regional responsibilities. In our manufacturing plant in the Netherlands we manage customs licenses, e.g. Customs warehouse, Excise warehouse, inward processing and many others. IFF has been granted the Authorized Economic Operator (AEO) license since Despite the strict procedures and internal compliance requirements for export control we as an exporter are not audited by the authorities when requesting an export license for dual-use goods. We do not have an approved Internal Control Program (ICP) for export control or have been requested by the Dutch Customs authorities for it. Is this because we have an AEO license? There is no formal relationship between export control and AEO and therefor it s not necessary to have an AEO license for this purpose. Every AEO licensee proved to have sufficient internal control procedures in place and act accordingly comparable as the ICP for export control. To reduce double controls and to avoid extra work from both businesses as authorities the controls should be combined. In this thesis I want to question the current relationship between the export control measures for dual-use goods and the AEO guidelines by asking the following questions: What s been published by the EU regarding this topic? What are the differences and similarities between both compliance programs? Is it feasible under current legislation to have AEO as a mandatory requirement for export control? 3

5 2. Export Control 2.1 General After the Second World War multiple western countries setup an embargo to prevent sales of any arms to the Soviet Union and countries of the Eastern bloc. During the Cold War they established an arm embargo regime called Coordinating Committee for Multilateral Export Controls (CoCom). This agreement ceased to function on March, 1994 when it was succeed by the The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, in short the Wassenaar Arrangement (WA). The WA is one of 5 different International treaties for Export Control signed by the EU Member States. Each of the treaties controls specific range of products to secure international security and prevent abuse of human rights. The treaties prevents supplies of goods and technologies that may contribute to illegal weapons of mass destruction (WMD) programmes See Annex 1, Export Control organizations The WA has been established in order to contribute to regional and international security and stability, by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies, thus preventing destabilising accumulations. Today there are 42 countries members of the WA. These participating members seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities. The aim is also to prevent the acquisition of these items by terrorists. 4 In fulfilling the purposes of the WA as described above, Participating States have, agreed to a number of guidelines, elements and procedures as a basis for decision-making through the application of their own national legislation and policies. The decision to transfer or deny the transfer of any item is the sole responsibility of each Member State. All measures with respect to the WA are taken in accordance with national legislation and policies and are implemented on the basis of national discretion. 2.2 European Union The EU adopted the WA guidelines for the export control regime, governed by EU Council Regulation No 428/2009 (Regulation). The legislation manages the EU controls of exports, transfers and brokering and transit of dual-use items. Under the EU regulation, controlled items may not leave the EU without an export authorization. The Regulation is binding and directly applicable throughout the EU. EU Member States nevertheless need to take certain complementary measures for implementing some of its provisions, e.g. in relation to enforcement and applicable penalties Definition 5 dual-use items shall mean items, including software and technology, which can be used for both civil and military purposes, and shall include all goods which can be used for both nonexplosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices; Council Regulation (EC) No 428/2009, Chapter 1, art.2.1 4

6 The scope of the Regulation is defined in Annex 1 of Regulation No 428/2009 and follows the controlled items according the WA List of dual-use items: Category 0 Nuclear materials, facilities and equipment Category 1 Special materials and related equipment Category 2 Materials Processing Category 3 Electronics Category 4 Computers Category 5 Telecommunications and information security Category 6 Sensors and lasers Category 7 Navigation and avionics Category 8 Marine Category 9 Aerospace and Propulsion Each Dual-use item must be classified under a so called Export Control Classification Number (ECCN). Before export an item the exporter would have to classify its product for export controls purposes to determine if the product is included in Annex 1 of the Regulation. See Annex 2, Structure of EU Control list. Also goods not covered by Annex 1, may be subjected to export controls under the Regulation 6 An authorization is required if the exporter has been informed by the competent authorities of the Member State in which he is established, that the items in question are or may be intended, in their entirety or in part, for use in connection with the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of chemical, biological or nuclear weapons or other nuclear explosive devices or the development, production, maintenance or storage of missiles capable of delivering such weapons. This so called catch-all clause is included in Article 4. If the purchasing country or country of destination is subject to an arms embargo. If an exporter is aware that dual-use items which he proposes to export, not listed in Annex 1, are intended, in their entirety or in part, for military purposes Article 23 of the Regulation describes the setup of the Dual-Use Coordination Group (DUCG) with a representative from each Member State. The DUCG shall examine any question concerning the application of the Regulation which may be raised either by the chair or by a representative of a Member State. Note: The goods in the list of dual-use goods that are most dangerous for the security of the EU Member States, are regulated not only export to third-countries but also the transit of these items within the EU. This differs from the free movement of goods and people within the EU. Scope: The European Commission estimates that the exports of dual-use goods are 2,6% of the total EU export, with a value of 44 Billion. To understand the impact of export controlled trade for all stakeholders, below figure shows that approx. 45,000 applications and individual licenses are granted in 2015 in the EU 6 Council Regulation (EC) No 428/2009, Art.4 5

7 for all export controlled trade, including Dual-use goods. Approx companies are engaged in the export of dual-use goods. The dual-use industry is also extremely wide-ranging covering exporters active in such sectors as: nuclear, biological, chemical, materials processing equipment, electronics, computers, telecommunications, encryption, sensors and lasers, navigation and avionics, marine equipment, and aerospace and propulsion equipment. The high volume of licenses processed highlights the fact that export controls represent a significant administrative burden for both companies and authorities. 7 Figure 1. Export licenses In Chapter 5 of this thesis I will describe the impact assessment and the need for improving the related policies. 2.3 The Netherlands As mentioned in chapter 2.2, each Member State is responsible to control import, transit and export of dual-use goods including issuing licenses. In the Netherlands the authorities responsible are 8 : Ministry of Foreign Affairs: primary political and legal responsibility for the implementation of export control. Customs authorities, team CDIU: manage export license requests on behalf of the Min. of Foreign Affairs. Customs authorities, team POSS: audits companies, advice on risk assessments. Ministry of Finance, team FIOD: investigate compliance / legal cases. There are other authorities 9 involved in Export Control enforcement. Companies however do not communicate with these authorities. Scope In the Netherlands approx. 800 companies exports dual-use goods. The export of dual-use goods is 1% of the total Dutch export. The Dutch customs authorities publish the number of issued export licenses for dual-use goods and the value of the goods each month on their website. Figure 2 shows that the number of export licenses has almost doubled in the last decade 10 7 SWD(2016) 315 final, Report on the EU Export Control Policy Review 8 Handboek Strategische Goederen en Diensten, Ministerie van Buitenlandse Zaken, Juli AIVD, MIVD, NL EVD, KvK 6

8 Figure 2. Export licenses Dual-use (NL Customs) Export control requirements The exporter of dual-use goods qualifies as an exporter as defined in Article 1 (19) UCC DA, meaning: established in the customs territory of the Union, holds a contract with a consignee in third country, and has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union. The exporter of dual-use goods must comply with the export control requirements and can apply for the necessary licences. The license requirements are dependent upon the good s technical characteristics, the destination, the end-user and the end-use, and it s up the exporter to determine whether the contemplated export requires a license 11 a. The technical characteristics of the goods A key in determining whether an export license is needed from the exporting countries authorities is whether the item which is intended to export is referenced by a specific legal or regulatory text. Usually, the laws or rules provide for lists of goods, technology or services comprising broad categories, and with further subdivisions into product groups (See chapter ) b. Destination to which the goods are to be exported Restrictions vary from country to country. The most restricted destinations are the embargoed countries. c. The person who takes delivery of the exported items (end-user) Certain individuals and organizations are prohibited from receiving certain exporting countries exports and others may only receive goods if they have been licensed, even for items that do not normally require a license. d. What will the item be used for (end-use) Certain end-uses are prohibited and other requires a license Yann Aubin/Arnaud Idiart, Export Control Law and Regulations Handbook, sub-section 2, page 5 7

9 EU licenses + requirements There are four types of export authorizations in place 12 : 1. Individual licenses granted to one exporter and licenses exports to one destination and end-user. Most commonly used export license, used for very sensitive goods and are subject to very strict controls. (Not defined in the Regulation). 2. National general export authorizations (NGEA) offer a simplified procedure for the export of controlled goods to certain destinations. Such authorizations are currently applied in France, Germany, Greece, Italy, Sweden, the Netherlands, and the UK. 3. Global authorizations (granted to one exporter and cover one or more items to one or more countries/end-users. 4. European Union General Export Authorization (EUGEA) EU001 - exports to Australia, Canada, Japan, New Zealand, Norway, Switzerland (Including Liechtenstein) and the United States EU002 - export of certain Dual-Use Items to certain destinations (Argentina, Croatia, Iceland, South Africa, South Korea and Turkey) EU003 - export after repair/replacement EU004 - temporary export for exhibition or fair EU005 - telecommunications EU006 - chemicals The EU is the issuing authority, the decision to grant a license is done by the Member State. There are other licenses for more specific purposes. Figure 3 shows percentages of issues export license per license type 13 Figure 3. Export licenses per license type (2015) Export control forum 2017, 19 December 2017, Stephane Chardon (DG Trade) 8

10 2.5.2 Non-compliance Non-compliance with the Dual-use legislation is enforced by the Member States according art.24 of the Regulation: Each Member State shall take appropriate measures to ensure proper enforcement of all the provisions of this Regulation. In particular, it shall lay down the penalties applicable to infringements of the provisions of this Regulation or of those adopted for its implementation. Those penalties must be effective, proportionate and dissuasive. In principle every exporter who violates the Dual-use legislation can be held liable. Export of Dual-use items without the necessary export license is in most cases an economic offense with high penalties or even a criminal offense with imprisonment, in worst case after previous warnings. Besides the financial impact will non-compliance be a publicity risk. These kinds of violations will most time ends up in news media which will harm the company. 2.6 Internal Control Program An exporter with high compliance values will setup an ICP for its export control of Dual-use goods. Simply stated, an ICP is a series of internal policies, procedures, and written guidelines that companies adopt to facilitate compliance with strategic trade control requirements. An ICP contains procedures that require a company to thoroughly examine all parties to a transaction, the end-user, the final destination, the stated end-use of the items, and to assess the overall risk of diversion; during all appropriate stages of a business transaction. Ultimately, these procedures limit the potential for unauthorized transfers of strategic items and minimize the risk of your enterprise running afoul of the law. An ICP is not a legally binding instrument but it will make sure that different departments in the company (Logistics, IT, legal, Sales, etc.) act according the policies and procedures in the ICP and that this is checked by internal audits. In the WA the next statement is mentioned on ICP, Participating States of the WA, taking into account that development and implementation of Internal Compliance Programs by enterprises and academic institutions (hereinafter called exporter ), though not legally binding, are recommended for their internal management of transfers of dual-use goods and technologies 14 It s agreed in the WA that each Member State should encourage, where appropriate, its exporters to develop and implement ICP s. We can conclude that the WA advices the Member States to be active towards companies exporting dual-use goods to implement an ICP. Each company has to develop its own ICP based on the size of the company, the resources available and the business sectors it is involved in. See Annex 3, Elements of ICP for dual-use Items 14 Best practice guidelines for the licensing of items on the basic list and sensitive list of dual-use goods and technologies 9

11 Recently a website is published with the ICP guide including the programs core elements 15 : Management Commitment to Compliance Organizational Structure and Responsibilities Transaction Screening Process and Procedures Shipment Control Auditing and Internal Review Training and Education Recordkeeping and Documentation Reporting and Corrective Action There a number of additional elements that may be appropriate depending on the size, structure, and nature of a company s activities: International / Domestic Communication and Information-sharing Technology Transfer and Management Safeguards Guidance for Subsidiaries and Foreign Offices and Operations Integration with Quality Assurance (QA) and Corporate Social Responsibility (CSR) Systems Due Diligence Checks for Mergers & Acquisitions 3. Authorised Economic Operator The World Customs Organisation SAFE program has resulted in national implementation of a customs accreditation system for businesses through which companies can apply to their national governments to become Authorised Economic Operators (AEO s). In the EU, this is implemented through EU regulation 648/2005, meaning that the same program exist in all EU countries. This concept of certified traders was first introduced in the EU in 2008 in order to enhance international supply chain security and to facilitate legitimate trade by certifying reliable and trustworthy traders. With the introduction of the UCC on 1 May 2016, the status of AEO became the cornerstone of the revised customs legislation in the EU. Companies seeking to benefit from customs simplifications or duty savings will now have to meet the criteria set out to become an AEO. The AEO requirements are now a basic condition under the UCC and it s a license instead of a certification as before. By becoming a license the authorities have more control over it. Under the UCC there are two types of AEO authorizations: AEOC for customs simplifications 16 AEOS for security and safety 17 When the company is granted both AEOC and AEOS authorization, the customs authorities shall issue one combined authorization, called AEOF (Full). The UCC will increase the number of companies applying for an AEO license within the EU. Since the introduction of AEO the program was not very popular because there were no or few major benefits for companies Article 38 (2) (a) UCC 17 Article 38 (2) (b) UCC 10

12 Figure 4 shows the top 9 countries with respect to the number of licensed companies per country, status May It shows the big differences between the Member States and the differences between the types of authorizations. Figure 4 AEO authorizations within the EU (May 2017) 3.1 AEO compliance requirements Each company applying for AEO needs to do a self-assessment 18 to determine their level of risk management. They have to set a score for each of the risks provided by the AEO guidelines which are applicable depending on the type of AEO license they are applying for. The score goes from 0 (no control measures) to 5 (Internal controls are integrated in the companies processes and constantly measured and managed). To meet the requirements for AEO the minimum score is 3 or higher. The self-assessment is input for the Customs authorities for the AEO application and the company s strategy to improve processes and internal control, if necessary. See Annex 4, AEO self-assessment. The maternity of the risk management is a strategic choice of the company. This is depending on the role in the supply chain, the type of business and the company s willingness and tolerance in its vision on risk management. Every company will need to comply with the following basic requirements to come into consideration for the AEO license 19 : 1. An appropriate record of compliance with customs requirements Compliance issues in the past, single instance or repeated issues, type and level of the violation. 2. a satisfactory system of managing commercial and, where appropriate, transport records, which allows appropriate customs controls A solid financial, logistics administration which is auditable and accessible for customs audit purposes AEO Criteria (article 39b of the UCC and articles of the UCC Implementing Act) 11

13 Physical and electronic accessibility of the customs administration. The logistics and customs administration must distinct community and noncommunity goods. Satisfactory procedures for import and export licenses The administration system is sufficient for the type and size of the organization and a system for internal control is available for auditing purposes. Sufficient procedures for data and document management secured for loss and which remain available for the required period. Awareness at all stakeholders within the company for customs procedures and requirements including reporting procedures for compliance issues. Measures to prevent unauthorized persons to access the computer systems and administration. 3. proven financial solvency During the past 3 years the company was able to manage their financial obligations with regards to customs duties and other import / export taxes The company can demonstrate that it has sufficient financial means to fulfill its obligations the company has no negative assets, unless it can be shown that these can be covered 4. Where applicable, appropriate security and safety standards. Security of buildings and premises, made of materials which prevent unauthorized persons to enter Sufficient access control Adequate protection of the premises against external intrusion Adequate safety and security of stored goods and cargo Mechanism for clear identification of the business partners Employment policy to prevent infiltration of staff that could pose a security risk Level of safety and security awareness and training of personnel The most significant risks related to AEO authorization and monitoring process including risks control are listed in Annex 2 of the AEO guidelines. For a company to remain to have the AEO license needs to do the self-assessment on a regular base. They need to pro-actively report changes, incidents and events to the Customs authorities. AEO is based on trust between the company and the customs authorities. To gain trust the company has to prove its compliance and show trust worthy. In practice this means a heavy administrative burden and sometimes a change in the company s culture. 12

14 4. Linking Export control and AEO The purpose of AEO is to build confidence that a company will comply with customs requirements. In complying with AEO or customs requirements, companies may well also work to comply with export control requirements. Moreover, much of the information that a government would need in order to build confidence that a company would comply with customs laws is the same information that a government would need to have confidence that a business would comply with export control laws. It is this principle that drives interest in having links between the two sets of measures. The concept of having certified companies could contribute to export licensing considerations in a number of different ways: 1. Certified companies could be given easier access to general licenses with specific licensing conditions, such as reporting requirements. 2. Licenses are more likely to be granted to companies in third countries to ship goods to certified companies. Rationale: Provided the authority is in good standing with the exporting state, the exporting state can be confident that the goods will be used as described and will not be diverted. 3. AEO certified companies in countries outside the EU should be more readily granted licenses. Rationale: companies that have been certified are not likely to divert goods from the declared end use. There may also be broader benefits to governments of encouraging companies to adopt best practice compliance systems, such as a reduction in supply chain proliferation risk and a reinforcement of the non-proliferation norm. In the export control regulations there is no formal link to AEO. In the UCC however there is a formal link in the AEO requirements with regards to import and export licenses. Article 25 (1) (k) UCC IA is written in more general words about controlled goods and is therefore applicable on export control of dual-use goods. Art.25 (1) (k) provides more detail on the criterion that an AEO should keep appropriate records, requires that, where applicable, the applicant has satisfactory procedures in place for the handling of import and export licenses connected to prohibitions and restrictions, including measures to distinguish goods subject to the prohibitions or restrictions from other goods and measures to ensure compliance with those prohibitions and restrictions. In the AEO guidelines 20, Part 4, means of communication regarding the exchange of information between Customs and other government authorities the relation between AEO and an ICP is mentioned: An example for the data exchange for the benefit of customs, other government authorities and the economic operator is the information on the Internal Compliance Programme (ICP) relevant for purposes of dual-use goods which has a comparable objective as the AEO program. The national authorities who grant licenses for dual-use goods and the national customs authorities are encouraged to exchange information on AEO authorized companies and holders of Global export authorizations, if national legislation allows so guidelines_en.pdf 13

15 In Annex 1 (number 3, Customs routines) of the self-assessment questionnaire of the AEO guidelines the authorities request a list of dual-use goods falling under the Regulation and if the company implemented an ICP. Above is applicable when a company requests the AEO-S and AEO-C license and applicable for every actor in the international supply chain (Manufacturer, Exporter, Freight forwarder, warehouse keeper, customs broker, carrier and Importer) Interview CDIU In an interview with a CDIU officer, they confirmed that having an AEO license has a benefit when the company request a global export license were an ICP is mandatory. During the ICP compliance screening they use the existing information available on the AEO track record of the company. A good AEO track record will speed up and simplify the ICP approval and therefor the license approval. For license requests were an ICP is not mandatory having an AEO license has no benefit. The request is valuated on an individual bases taken into account the type of product, the country of destination, the compliance risk, etc. 4.1 Comparison compliance requirements To be able to determine if the AEO program can be used for dual-use export control a comparison is made to understand the differences and similarities between the requirements of both programs. The comparison is done with the ICP requirements from the WA as the base and added the related chapter from the AEO guidelines See Annex 5, Comparison table. In some cases it is difficult to make a clear comparison because the ICP elements are very specific for dual-use export control while the AEO guidelines are more generic for a broader scope. AEO as currently implemented does not perfectly align with the requirements of export licensing authorities. AEO does not, for example, require companies to demonstrate how they rate their goods or how they screen their customers. Please be aware that the elements in the WA guidelines are a recommendation and are not legally binding. 14

16 5. EU dual-use regulations and evolution 5.1 History May 2009: Council regulation (EC) No 428/2009 Article 25 of the Regulation requires the Commission to prepare a report on the implementation of the EU export control system and possible areas of reform. Every three years the Commission shall review the implementation of this Regulation and present a report to the European Parliament and the Council on its application, which may include proposals for its amendment. Member States shall provide to the Commission all appropriate information for the preparation of the report. June 2011: Green paper dual-use 21 The dual-use export control system of the European Union: ensuring security and competitiveness in a changing world. The objective of the Green Paper is to launch a broad public debate concerning the functioning of the current EU dual-use export control system. Input for this debate is given by civil society, NGOs 22, industry, academia and Member State governments on: o The detailed provisions of the current export control framework in order to prepare the review of the system o The progressive reform of the EU dual-use export control system in order to adapt it to the rapidly changing circumstances of the modern world. The results of the consultation will therefore help to identify the strengths and weaknesses of the current system and map out a longer term vision of the EU export control framework. These results will be translated into concrete amendments to the current system and the preparation of a long term strategy on the development of export controls in the EU. The Green paper is focused on (most important topics): o Dual-use export controls in an evolving world o The evolution of dual-use export controls in the EU o Differences in national approaches to dual-use export controls o Systematic information exchange o Working towards a fully integrated internal market for dual-use items o Improved enforcement of export controls In the last bullet point it s stated that further consideration should also be given to the issue of making better use of AEO status in the export control process. In the questionnaire to the stakeholders the next question is raised: How could AEO status be used within the export control framework? November 2011: Regulation (EU) No 1232/ Amending Council Regulation (EC) No 428/2009 with 5 new EU General Export authorizations, amendment of Annex 1 list of dual-use goods. 21 COM(2011) 393 final, Brussels, Non-profit organizations 23 Regulation (EU) No 1232/2011, 16 November

17 January 2013: Commission staff working document 24 Strategic export controls: ensuring security and competitiveness in a changing world - A report on the public consultation launched under the Green Paper COM (2011) 393 In this document the results of the public debate concerning the function of the dual-use regulation and its future strategy are published. In total over 100 responses were received from the stakeholders (Member States, EU parliament, industry associations and economic operators). This document is used to review the EU export control system which should outline a long-term vision for EU strategic export controls and announce concrete policy initiatives for their adaptation to rapidly changing technological, economic and political circumstances. Feedback on the Green paper question: How could AEO status be used within the export control framework? Some stakeholders express readiness for granting of 'trusted exporter' privileges, as a complement to licensing, in particular in order to offer favorable conditions for firms which continuously require the same type of transfer of goods (for ex., from one subsidiary of the company to another). Some suggest that this could be combined with existing certification mechanisms such as the Authorised Economic Operators (AEO) status. However, other stakeholders fear that any additional system might create a higher administrative burden than the licensing procedure. Last concerning companies not having an AEO certification. Other Member States, industry associations, companies and consultancies consider that the use of AEO status in the export control process should be further examined, so that companies that have obtained AEO status could benefit from an expedited export control procedure or trade facilitation measures. They underline that AEO status requires an assessment of a company s regulatory compliance, and might thus be useful to enable a simplification of licensing procedures October 2013: Report from the commission to the Council and the European Parliament 25 on the implementation of the Regulation. Regarding the topic of this thesis this report of the Commission includes a report on the introduction of EU General Export Authorizations and other topics and activities reported by the dual-use Coordination Group. Relevant is that some Member States have introduced registration requirements and some also have record-keeping and auditing obligations in place. Some Member States make use of customs data. Stakeholders also devote considerable attention to the effective implementation of controls and some promote ideas concerning the development of an EU export control network with enhanced infrastructure commonalities based. They also call for more transparency and dialogue with the private sector and academia in order to enhance both legal certainty and the effectiveness of controls e.g. through the recognition of ICPs and the provision of guidelines. 24 SWD(2013) 7, 17 January COM(2013) 710 final, 16 October

18 April 2014: Communication from the Commission to the Council and the European Parliament 26 : The Review of export control policy: ensuring security and competitiveness in a changing world This document describes the outcome of the second review (article 25) of the dual-use regulation. Summary: 1. Adjust to an evolving security environment and enhance the EU contribution to international security - Evolving toward human security, taken a wider security approach. - Smart security, new emerging technologies - Cyber space 2. Promote export control convergence and a global level-playing field - Introduction of a system for a regular review of National General Export authorizations (NGEAs) - Shift towards open licensing through the introduction of additional EUGEAs 3. Develop an effective and competitive EU export control regime - Expand the secured IT infrastructure "DUeS" to support enhanced information sharing between Member States (denial authorization information) - Compliance efforts could be recognized through the facilitation of control and fast-track export processes by setting clear private sector compliance standards for use of simplified mechanisms (such as EUGEAs, NGEAs, Global Licences) as a substantial privilege granted to reliable exporters - standard requirements for 'Internal Compliance Programs (ICPs) - Promote convergence with customs' "trusted operators" Programme (AEO) could reduce duplication of controls and offer cost-effective avenues for both operators and administrations. The export control policy review has been identified as an initiative under the Regulatory Fitness and Performance Programme (REFIT) in consideration of its potential regulatory simplification and burden reduction. The REFIT platform advises the Commission on how to make EU regulation more efficient and effective while reducing burden and without undermining policy objectives September 2016: Commission staff working document 27 In 2015, the Commission conducted an impact assessment of the review options outlined in that Communication to identify the most suitable regulatory and non-regulatory actions to bring them into effect. This staff working document is used for the proposal which was published under COM(2016) 616 final. September 2016: Proposal for a Regulation of the European Parliament and of the Council 28 : setting up a Union regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use items (recast) On 28 September 2016, the European Commission adopted a proposal for a modernization of EU dual-use export controls. The proposal aims to upgrade the EU s export control system to deal with new challenges and generate the modern control capabilities the EU needs for the coming decade and beyond. The Commission proposes introducing a "human security" dimension to allow controls on the export of cyber-surveillance technologies that may be misused for committing serious human right violations or against EU cybersecurity. It also 26 COM(2014) 244 Final, 24 April SWD(2016) 315 Final, 28 September COM(2016) 616 final, 28 September

19 puts forward a number of new well-defined Union General Export Authorizations in order to simplify certain licensing procedures and make them more efficient. The proposal aims to strike a balance between security and trade so as to ensure a high level of security and adequate transparency without impeding competitiveness and legitimate trade in dual-use items 29 Specifically, the Commission proposes to make these export controls more efficient (simplifications), more consistent (harmonizing) and more effective (by introducing specific provisions preventing the misuse of dual-use items in relation to terrorism). There were 8 key elements defined in the proposal for modernization of the Regulation 1. Modernisation of existing control provisions 2. Optimization of EU licensing architecture 3. Convergence of catch-all controls 4. Re-evaluation of intra-eu transfers 5. An initiative to control exports of cyber-surveillance technologies 6. Enhanced cooperation on implementation and enforcement 7. Transparency and outreach private sector partnership 8. Export control dialogue with third countries The proposal describes 5 options to achieve the objectives: Option1, Baseline This option would leave the current legislation, administrative and IT arrangements unchanged, maintaining a well-known system in place. Option 2, Implementation and Enforcement Support This option would address problems associated with the lack of clarity and transparency and uneven implementation of controls, and with rapid technological and scientific developments Option 3, EU System Upgrade Drawing on "lessons learnt" from the implementation of various provisions of the Regulation, this option would address problems associated with lack of clarity and transparency, uneven implementation of controls and the risks associated with rapid technological and scientific developments and the interconnected global trading system Option 4, EU system modernisation This option would introduce a new "human security" dimension to the EU export control system, recognizing the links between security and human rights and addressing the specific problem posed by the insufficient control of cyber-surveillance technologies Option 5, EU system Overhaul This option would imply radically changing the EU approach to export controls, including full centralization and harmonization of controls towards the establishment of a central licensing agency at EU level The document describes the conclusion and preferred option by the Commission. In summary, option 3 "EU system upgrade" appears as the most efficient and effective option to address problems identified and when comparing the advantages and disadvantages in light of economic and social (security and human rights) impact criteria, and in relation to the set objectives

20 However, considering that Option 4 "EU system modernisation" is indispensable to address the problem associated with the lack of control of cyber-surveillance technology, it should also be retained. Therefore, the combination of Option 3 and 4 is recommended by the Commission as the 'preferred option'. Changes related to AEO- Export Control: In option 2 the enhanced cooperation with Member States authorities is described including the synergy with the AEO Customs program and the development of tools for operators are likely to have positive economic impacts. The mentioned tools are: - The development of compliance standards or standard ICP requirements which would improve the security because of the structured approach to the detection of possible bad transactions. - Mutual recognition of ICP s with third countries - Electronic licensing In spite of its positive long term impact, option 2 appeared relatively costly with additional resources both at national and EU level. Therefore, Option 2 was not recommended, although the implementation of some actions and tools could be considered (e.g. development of electronic licensing systems, technical consultations with industry) on the basis of a clear prioritization of tasks and provided the necessary resources can be allocated by the Member States and Commission. In the detailed explanation of the specific provisions of the proposed changes of the Regulation describes the optimalisation of the EU licensing architecture. The harmonization of the licensing processes must reduce the administrative burden. The proposal provides for a definition of authorizations and for common licensing parameters (e.g. validity period) and conditions for use of the EUGEAs (registration, reporting requirements...) and for global licences (requirement for an ICP). A standard requirement for transparency on licensing is proposed to reduce the differences between Member States. The requirement for companies to implement an ICP mainly applies in relation to global licences, while small companies that cannot afford to develop a formal ICP can export under most general authorizations and/or individual licences. Moreover, the proposal's simplification of licensing procedures and enhanced legal clarity will bring important benefits to SME s. 5.2 Joint Working Group + next steps The DUCG set up, jointly with customs administrations, a technical sub-group to examine the potential convergence of the AEO program with export control ICP program 30 The goal is to strengthen the AEO program through its broader recognition by other authorities in the relevant existing or future partnership programs or in the control regimes, like dual-use export control. The joint working group held a survey amongst the Member States to define the current practices, issues and recommendations. High level conclusions of the survey (September 2017): No sector specific guidelines Non-binding guidelines No-one-size-fits-all Guidance for SME s 30 COM(2015) 331 final 19

21 Cross reference and no contradiction with other types of guidelines such as AEO and ISO 31 certifications. The joint working group has to make recommendations for this synergy for the AEO network and the DUCG by defining a roadmap with next steps regarding AEO-ICP Convergence. Further increase of capacity building in the area of dual-use items is considered. As mentioned in chapter 4 of this thesis the reference to ICP in the AEO guidelines is recommended by the joint working group and implemented. The Commission 32 presented the results of the survey in 2017 that aimed at assessing the status of the implementation of the Recommendations of the Joint Working Group on AEO- ICP convergence. The survey indicates that most Member States are in an early phase of enhanced cooperation, and the Commission expressed appreciation for the actions that have been taken in this field and are about to be taken. The Commission announced that this survey will be repeated at a later stage in order to assess again the status of implementation. Some Member States reported having joint actions and pilots together, the detailed results of which could be presented in one of the next meetings of the Joint working group Export control forum, 19 December 2017 The 2017 Export Control Forum in Brussels brought together export control officials from EU institutions and Member States with industry associations and exporters, manufacturers and other economic operators involved in production or trade of dual-use items, as well as representatives of civil society and academia. The main objective of the 2017 Export Control Forum was to exchange information about the ongoing dual-use export control implementation in the EU, and to review the state of play of the legislative process regarding the proposal for a modernisation of EU dual-use export controls. Recently we have seen some progress by the EU technical work group by developing a website 33 to assist SME s establish, implement, maintain (and enhance) an ICP. This is the first step to formalize ICP guidelines. The website consists of all necessary information about ICP s, the elements of an ICP, how to setup an ICP and tools. Other examples of focus points of the work group Electronic licensing via DUeS Harmonization of the licensing process Centralization 31 ISO: International standards organization 32 TAXUD/B2/017/2017, Minutes of the 12th AEO Network meeting

22 6. Conclusion With 2.6% of the total EU exports, the export of dual-use goods is limited. Because of the type of products and the high risk for safety and security the export of dual-use goods is highly regulated and controlled. Every exporter of dual-use goods is expected to be focused on compliance and have high compliance standards because of the high risks (financial and non-financial) for a company. The same standard is required for customs purposes when a company is AEO licensed. When applying for a global export license for dual-use goods an Internal Control Program (ICP) is mandatory. An ICP is an internal (export) control system setup by an exporter for internal measurements to ensure compliancy during the export of dual-use goods. There are until today no formal guidelines for setting up an ICP. Companies are using best practices, for example the ICP structure from the Wassenaar Arrangement (WA). This is however not mandatory and not legally binding. The authorities of a Member State will do an assessment on the ICP before issuing global export licenses to gain trust in the compliance program of the exporter. An ICP is not mandatory for exports of dual-use when the exporter requests an individual license, which is 46% of all issued export licenses. If we compare the AEO guidelines with the ICP best practice from the WA we will find many similarities. Both programs have the goal to ensure compliancy to the related EU provisions by creating awareness in the complete organization, assign a dedicated responsible person to manage and control customs and security processes in the day-to-day operations and for example in the administrative systems. AEO as currently implemented does not perfectly align with the requirements of export licensing authorities. AEO does not, for example, require companies to demonstrate how they rate their goods or how they screen their customers. My experience is when having an AEO or an ICP program embedded in the company s culture it is not just a certification by authorities but it s a way of thinking and companies act accordingly. The problem within the EU is that AEO is not popular; the number of AEO licensed companies differs a lot between Member States. Some Member States are not able to stimulate companies to use AEO for their customs and trade processes. The benefits are limited and companies experience it as an administrative burden and it is costly to become an AEO licensed company. The same problem exists for implementing and maintaining an ICP. This is also the reason why the EU Commission is reluctant to make use of the similarities of both programs and decrease the administrative burden for both authorities and companies. Since 2011 when the Commission published its Green paper in which the long term vision of the EU export control framework is described, the Commission and its work groups are looking for an answer to the question: How could the AEO status be used within the export control framework? Since recently we see some progress by the EU technical work group by developing and publishing ICP guidelines. The next step will be to have these guidelines formalized in new regulations and necessary for every license type. In the future I expect to have the strategic export control centralized within the EU including electronic license management and control. This would align the Member States export control measurements and improve the level playing field for exporters within the EU. I do not expect that AEO would replace the ICP and become mandatory for exports of dualuse goods in the near future. 21

23 We will have a mandatory AEO program for customs licenses and a mandatory ICP program for export control licenses. Companies with both programs will benefit at audits and requesting licenses. 22

24 Annex 1, Export control organizations Export control organisations + controlled items Wassenaar Arrangement: Conventional arms and dual-use Goods Australia Group 34 : Chemical and biological weapons Missile Technology Control Regime 35 : missiles, weapons of mass destruction Nuclear Suppliers Group 36 : nuclear weapons Zangger Committee 37 : nuclear weapons Participating States WA The Participating States of the WA are: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom and United States

25 Annex 2, Structure of EU control list (ECCN) Important in determining whether an export license is needed for the material intend to export the material has to be classified for a specific ECCN number. Next step is to check if the ECCN number is mentioned in Annex 1 of the Regulation. ECCNs are five character alpha-numeric designations used on the Commerce Control List to identify dual-use items for export control purposes. An ECCN categorizes items based on the nature of the product, i.e. type of commodity, software, or technology and its respective technical parameters. 24

26 Annex 3, Elements of ICP for dual-use Items Elements of Internal Compliance Programs for dual-use Items (Reference List)

27 26

28 27

29 28

30 29

31 Annex 4, AEO self-assessment AEO self-assessment, Belastingdienst/Douane. Only available in Dutch 30

32 31

33 32

34 33