Assessment of German Industry

Position-Finding in the EU Council Working Group1

The Council’s position is relatively clear. The following points are supported by the vast majority of Member States. No camps have currently been formed within the Council, as in previous trilogue negotiations.

Catch-all rules:

In the case of military end-use, the Council seeks to continue to control only exports to embargoed countries. No alternative is foreseen as to how economic operators – who after all export multi-use goods – could be otherwise legally responsible for such transactions. In the view of the Council and particularly under the German Council Presidency, the weakness of the Commission proposal lies in the fact that exports to embargoed countries are already largely prohibited.

In the case of terrorist end-use, the rejection in the Council is also clear from the state of affairs. Individuals with a terrorist background are already listed. It is therefore even now not permitted to export to this group of persons.

A dedicated cyber catch-all, which is really limited to the aforementioned area, is conceivable. However, the members of the Council working group insist that this can only apply as long as the application criterion remains as clear as described before.

Decision-making rules: With regard to the structural changes to the decision-making mechanism, the Council is cautiously optimistic that such a mechanism could be politically possible. This would give all Member States a veto right and therefore pose little danger. Transparency: There should not be a listing mechanism of the kind which the EP has demanded for at least since the listing of export licenses in the wake of the Covid-19 restrictions. The German Federal Government rejects the individual listing of exporters and end-users.

For the Federal Government and thus the current Council Presidency, a cyber catch-all as previously described is conceivable through the procedural changes based on the unanimity principle. Even under the current conditions, the Federal Government believes it can realistically conclude the negotiations in November.

The Commission proposal managed to surprise German industry, particularly because positions from 2016 are being taken again in the areas of terror catch-all and military end-use of dual-use goods. From the perspective of German industry, an end-use-related export control for terrorist or military end-use would be a fatal mis-regulation with unforeseeable consequences for economic operators and international non -proliferation. Without a meticulously maintained list of persons with terrorist connections, it is impossible to foresee a terrorist end-use in any meaningful way. The same applies to a military catch-all for dual-use goods. On the basis of customer and business data and without official instructions, economic operators cannot assess whether the export of a dual-use good – as stated in the Commission’s draft – could possibly threaten international peace. From the point of view of German industry, the terror and military catch-all would be redundant. In the

1 The following information is based on publicly accessible information from the Federal Government from 30 June 2020.

best-case scenario, such controls would still create new bureaucratic hurdles in an already intensively controlled area.

German business is also critical of the plans for an ICT catch-all. Good export controls are based on meticulously detailed work. The difficult negotiations between the European co-legislators have demonstrated how complex the definition of technologies is in such a way that covers only offensive and not also defensive cyber-instruments. The amended Commission proposal from August 2020 still lacks a precise definition of “covert data detection.” As long as this remains the case, cyber defense instruments may be covered.

In principle, end-use-related export control is an instrument designed to prevent WMD proliferation. Non-proliferation is a valuable commodity – it must not be risked lightly. The legitimacy of catch-all controls is underpinned by the ability of economic operators to identify and decentralize risk assessments. In the area of nonproliferation, this is technically feasible and sensible. German industry continues to strictly reject any end-userelated export controls beyond non-proliferation. Politically, the Commission proposal also damages the integrity of multilateral non-proliferation regimes. However, from the perspective of German industry, substantial changes could lead to a solid negotiating compromise during the German Council Presidency.

German industry finds that an EU autonomous list could be a compromise, making the application framework set by the Commission more comprehensible for economic operators. First of all, dual-use telecommunication equipment specially designed to covertly intercept information and telecommunications data of natural persons with the aim of monitoring, extracting, collecting or analyzing this data should be controlled.

Secondly, before a listing, official evidence should be put forward that fundamental human rights, such as the rights to privacy, freedom of speech and assembly, are seriously, actually and demonstrably endangered by an export of these ICT items to a specific third country. From the perspective of German industry, it is important that a structured exchange of information between the export control authorities of the EU Member States take place in the context of the EU autonomous list.

Thirdly, in the view of German industry, two things are absolutely necessary to prevent increased unilateral controls and strengthen non-proliferation regimes:

1.

2. An EU autonomous list should be expandable according to the rules of qualified majority voting. Additional list positions would be adopted by at least 55 percent of the Member States, making up 65 percent of the Union’s population. According to this mechanism, there would also be the possibility of a blocking minority, in which 4 Council members representing at least 35 percent of the Union’s population could prevent a resolution. Such a decision-making mechanism would guarantee that central European security interests could be swiftly implemented without excessively restricting Member States’ central sovereign rights.

In order to prevent the danger of mission creep, i.e. an unimpeded regulatory encroachment of EU autonomous controls far beyond the non-proliferation objectives, a further condition must be fulfilled: the decision-making mechanism should be accompanied by a commitment obligating those EU-Member States represented in the Wassenaar Agreement to jointly push towards a regime listing of the relevant item.

In concrete terms, German industry calls therefore for a qualification of EU autonomous controls equivalent to the 0Y521-ECCN Series in the United States (see the blue box for background). This would ensure a temporary mechanism by which European export controls would remain linked to the processes in the Wassenaar Agreement. This would prevent political conflicts over European export controls in the future as well as the escalation of unilateral controls. Such an approach would not break new legal ground. The German

Foreign Trade and Payments Act (AWG) already provides for the right to temporary individual interventions in accordance with AWG § 6 Paragraph 1:

„…the provision of funds and economic resources for the benefit of certain persons or private companies may be restricted in order to avert a threat to the legal interests mentioned in § 4 paragraph 1 [national security], also in connection with paragraph 2 [international obligations].”

The proposed EU autonomous controls are a unilateral intervention in the freedom of foreign trade. Ideally, this should serve to enforce multilateral security interests. It is therefore necessary to link EU controls back to the decision-making process in the Wassenaar Agreement. This would strengthen the list-based global control of dual-use goods and reduce competitive disadvantages for European economic operators.

German industry rejects comprehensive disclosure obligations as demanded by parliament. The main reasons are additional costs for economic operators and authorities and the unclear informational added value for public safety. Business relations should remain confidential – when possible – when exporting dual-use goods, in order to prevent competitive disadvantages. Highly aggregated data in which the exporter and end-user remain unnamed could be a good compromise here.

Background 0Y521-ECCN-Series

This is a classification series introduced in the United States as early as 2012 and has initiated a process for basically civilian goods that was previously only possible under Category XXI (Miscellaneous) of the United States Munitions List (USML). The aim of the 0Y521 series is to enable unilateral export control at short notice. In contrast to Category XXI USML, however, the U.S. government must bring a commodity that is temporarily held in the 0Y521 series in the multilateral process of the Wassenaar Agreement. The time limit under 0Y521 is initially limited to one year with the possibility of extending this control twice for one year each time. During this period, the Departments of Defense, Commerce, and State must agree on whether an initiative for multilateral control in Wassenaar is worthwhile. In exceptional cases, the U.S. Undersecretary for Industry and Security may decide to extend it beyond the three years.