Countries move to update export controls

11 August 2010

Rhys Williams, Ed Stanley

Most governments impose some form of legal control on the export of certain goods, either unilaterally or under a framework of international agreements. These controls restrict the export or re-export of hardware, software and technologies that have military or security applications either directly, as in the case of weapon systems, or indirectly, as in the case of what are termed ‘dual-use goods’, which are products and technologies produced for civilian purposes but which can have a military application, such as GPS.

Generally, these laws impose obligations on companies not to export certain goods, software or technologies to any country or to a specific country without a licence or permit from the relevant authority. Failure to observe these laws could damage a company’s reputation and may result in criminal and civil fines and loss of export privileges for the company as well as fines and potential imprisonment for any individuals or employees involved.

In the UK, export licensing is carried out and regulated by the Export Control Organisation (ECO): a business unit of the Department for Business Innovation and Skills (BIS). Exporters may need one of a number of different licences from the ECO for goods, depending on their exact nature, destination and end use.

In the United States the export control regime is divided between the Export Administration Regulations, covering dual-use goods and administered by the Bureau of Industry and Security, and the International Traffic in Arms Regulations (ITAR), covering military goods and administered by the Department of State.

Farnborough news

At the Farnborough Airshow in July there was wide consensus that companies were keen to increase their exports to Asia and the Middle East, while contracting to Western countries had slowed down. However, as cross-border competition in the defence market increases, customer nations increasingly desire technology transfer to maintain control over their country’s defence assets. It was apparent at Farnborough that a company’s ability to offer technology transfer is fast becoming an issue that differentiates suppliers. Commentators have observed that European defence companies may have an advantage over their US competitors, who are subject to strict sanctions following a breach of the ITAR rules.

Export control systems have come under scrutiny in recent months in the UK and the US. In April 2010 the US Secretary of Defense, Robert Gates, questioned the validity of US export control rules in relation to weapons and commercial goods with potential military uses, describing the current system as outdated and archaic.

Similarly, in the UK a review conducted by the Committees on Arms Export Controls concluded that, while progress in the development of export control regulation was being made in a number of areas, there is still more to be done and that, in particular, the government needs to take a longer-term view of unstable countries when considering the granting of export licences. From 1 July, and further to recommendations of the Committees on Arms Export Controls, the BIS has released guidance indicating that the ECO will require that undertakings supplied in support of applications for Standard Individual Export Licences contain a declaration by the customer that they will not re-export or transfer the goods to a destination subject to an embargo imposed by the UN, EU or Organisation for Security and Co-operation in Europe and that to do so would be a breach of that embargo.

UK developments

Recent developments in UK legislation include the introduction of the Cluster Munitions (Prohibitions) Act 2010, which entered into force on 25 March. The act establishes a criminal offence in relation to “prohibited munitions” (cluster munitions or bomblets designed to be released from aerial dispensers such as the JP233 runway denial weapon) – with a maximum penalty of 14 years’ imprisonment for anyone using, developing, possessing, transferring or making arrangements for another person to acquire or transfer a prohibited munition.

The Export Control (Amendment) Order 2010 came into force on 27 January to add the controversial and much-criticised electrostatically powered explosive detectors to the list of dualuse goods in Schedule 3 of the 2008 order, thus rendering them subject to UK export control. In addition, the order clarifies that goods, software and technology listed in Schedule 3 of the Export Controls Order 2008 require a licence to prohibited destinations even if going via a third country.

Export update

US The Bureau of Industry and Security published an interim final rule implementing changes to US export controls that is applicable to encryption items. This simplifies the regulation of encryption software, technology and hardware and seeks to reduce the administrative burden associated with their export and re-export.

China Although there has been a suggestion, led by Spain, that the European weapons embargo on China should be lifted, the European parliament appears to be settled that the ban will not be removed. Denmark, the Netherlands, Sweden and the UK are among those countries most in favour of maintaining the ban. China’s human rights record remains a driver behind this move, as does significant pressure from the US.

Israel The export of certain components has been closely monitored over the last 12 months. However, in its 2010 report the Committee on Arms Export Controls confirmed that components supplied under licence from the UK were used by the Israel Defence Force in Gaza during Operation ‘Cast Lead’, which began on 27 December 2008, in direct contravention to the UK government’s policy that UK arms exports to Israel should not be used in the Occupied Territories.

©IHS Global Limited 2010. Reproduced with permission from Jane’s Defence Weekly 11 August 2010