The European Union (EU) has been busy at the end of 2021 and into early 2022 in the area of export controls. New laws, interpretations, etc. have occurred. Here are some highlights:
EU Updates List of Dual Use Items Controlled
On January 6, 2022, the EU published the changes approved last year to the dual-use items as found in the Regulations No 2021-821. Similar to the U.S., the EU list of dual-use items consists of goods, software and technology that can be used for both civilian and military applications. The EU also controls the export, transit, brokering and technical assistance of dual-use items against the proliferation of Weapons of Mass Destruction.
The EU reviews and updates their regulations and list of dual-use items in line with member states as well as other international agreements including the Wassenaar Regime, Australia Group, etc.
EU Recommends Exporters Develop and Implement Internal Compliance Programs
In addition, last fall the EU formally recommended exporters develop and implement an Internal Compliance Program for dual-use items. In the formal recommendation published, they state “common approaches and practices as regards internal compliance programmes can contribute to a uniform, efficient, effective and consistent application of controls throughout the EU.” Additionally, “[t]his recommendation also provides a framework to support Member States competent authorities in developing specific outreach programmes, as well as in their assessment of risks related to research activities, in the exercise of their responsibility for deciding on export authorisations for dual-use items listed in Annex I of Regulation (EU) 2021/821.”
EU Blocking Regulations
Have you ever run into conflict with your European subsidiaries compliance group when they have advised that they are not able to terminate a contract or order strictly to comply with U.S. sanctions?
If you have, this is due to the EU’s blocking statute. The law is to protect EU entities from extra-territorial applications of third country laws. It is stated that the EU “does not recognize the extra-territorial applications of laws adopted by third countries and considers such effects to be contrary to international law.” The “blocking statute” was developed in 1996 when the U.S. enacted comprehensive sanctions against Cuba, Iran, and Libya.
Specifically, the blocking statute prohibits compliance by EU entities with any requirement or prohibition based on the specified foreign laws. Further, EU entities whose financial interests are affected by this extra-territorial application of those laws are required to report such requests to the European Commission.
At the end of last year, the Court of Justice of the EU provided interpretation concerning this statute. The ruling indicates that it is possible to end a contract with a U.S. sanctioned party without providing reasons, but if the case turns into civil proceedings, the EU entity must demonstrate that they did not terminate the business agreement in order to comply with U.S. Sanctions.
This is a complex area of export controls that are faced by U.S. subsidiaries of U.S. companies who are treated as U.S. Persons per U.S. export regulations. The ruling does assist EU companies in understanding what they can and cannot due specific to this area of the Law.
It is hoped that updating the Blocking Regulations will further provide guidance to the EU parties but also to their U.S. parents. Compliance with both laws can be like walking a tightrope.
The EU provides extensive resources including explanation of authorizations, export control system at the European Commission’s Trade Site. If you need additional assistance in reviewing and navigating export compliance regulations, please contact us for a free consultation.
Rebecca Yeager is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm that specializes in helping companies comply with U.S. and international import/export regulations.