Global Export Controls Webinar: A Snapshot of the U.S., EU and PRC

Transcription

1 Global Export Controls Webinar: A Snapshot of the U.S., EU and PRC July 9, 2009 Presenters: Jerome J. Zaucha Vanessa C. Edwards Dr. Christian Hullmann Robert V. Hadley Yujing Shu Vita Xu

2 Agenda Introduction U.S. Export Controls Overview of U.S. Export Controls Extraterritorial Aspects of U.S. Export Controls Evolution of Non-U.S. Controls EU Export Controls Overview of EU Controls Implementation in Germany and German Export Controls Implementation in the U.K. and U.K. Export Controls PRC Export Controls Export Controls in China: Background and Legal Status Conclusion Question and Answer 2

3 Introduction and Overview of U.S. Export Controls Jerome J. Zaucha

4 Index Introduction 5 Overview of U.S. Export Controls 7 Extraterritorial Aspects of U.S. Export Controls 15 Evolution of Non-U.S. Export Controls 19 4

5 Introduction The current concept of export controls is relatively new in the history of international business, first appearing after WW II. Such controls, which initially focused solely on security concerns and trade in strategic goods, now focus as well on an array of additional national, multinational and regional policy objectives. Also, although substantial export controls were initially maintained by relatively few countries, the most prominent example being the United States, export controls have now become much more a global enterprise. 5

6 Introduction (cont d) The consequence has been to make export controls compliance a critical aspect of virtually all cross border trade and other transactions regardless of the borders being crossed. Today we will be looking at a snapshot of the current export controls maintained in a number of jurisdictions, specifically the United States, EU member countries (with a focus on specific controls implemented and maintained in the U.K. and Germany) and the PRC. 6

7 Overview of U.S. Export Controls Currently there are three U.S. agencies that administer U.S. export controls: The Directorate of Defense Trade Controls ( DDTC ) of the U.S. Department of State administers the International Traffic in Arms Regulations ( ITAR ) which control the export and re-export of all U.S.-origin defense articles and associated technical data and defense services ; 7

8 Overview of U.S. Export Controls (cont d) The Bureau of Industry and Security ( BIS ) of the U.S. Department of Commerce administers the Export Administration Regulations ( EAR ) which control exports and re-exports of all U.S.- origin dual use and commercial commodities, software and technical data (including services based on such data). If a U.S. item is not subject to controls under ITAR, it is automatically subject to controls under the EAR; and 8

9 Overview of U.S. Export Controls (cont d) The Office of Foreign Assets Control ( OFAC ) of the U.S. Department of Treasury administers a variety of Presidential Executive Orders and regulations imposing embargo, asset blocking/freezing, and other sanctions/restrictions on designated countries and individual/entities targeted by the U.S. for security and other policy reasons. 9

10 Overview of U.S. Export Controls (cont d) The OFAC regulations generally restrict trade from the U.S. or, regardless of location, the utilization of U.S. items and/or the participation by U.S. persons in trade or other transactions that directly or indirectly involve a designated country or person. 10

11 Overview of U.S. Export Controls (cont d) Except in the case of Cuba, U.S. Person for purposes of the OFAC restrictions is defined to include entities organized or located in the U.S. (and their branches outside the U.S.) and individuals, regardless of where located or by whom employed, who are citizens or permanent residents of, or who are in, the U.S. 11

12 Overview of U.S. Export Controls (cont d) OFAC regulations The countries currently subject to an embargo or virtual embargo under OFAC regulations include Cuba, Iran and Sudan (Syria and N. Korea are subject to embargos under the EAR administered by BIS). Burma (Myanmar) is also subject to substantial restrictions. In addition, the countries that are subject to an array of restrictions not amounting to a complete embargo include: the Balkans, Belarus, Congo, Cote d Ivoire, Iraq, Liberia, N. Korea, Syria, and Zimbabwe. 12

13 Overview of U.S. Export Controls (cont d) OFAC regulations (cont d) Finally, individuals and entities listed on OFAC s list of Specially Designated Nationals and Blocked Persons ( SDN List ) are subject to embargos or virtual embargos. Persons are included on the list for a variety of reasons (under an array of U.S. sanction regimes), including because of their connection to sanctioned countries or for anti-terrorism, anti-drug trafficking, anti-proliferation, and/or regional stability reasons. 13

14 Overview of U.S. Export Controls (cont d) A particular trade or other transaction may be subject to restrictions under both the ITAR or EAR and the OFAC regulations and overlapping requirements under these regulations may apply. As such, it is necessary to ensure compliance with each of these regulations if applicable to a transaction and, when overlapping requirements apply, the most restrictive requirement/prohibition generally is deemed to apply/must be complied with. 14

15 Extraterritorial Aspects of U.S. Export Controls ITAR (i) all U.S.-origin defense articles and associated technical data and defense services and (ii) all non-u.s. produced items incorporating or based on any extent/amount of U.S. defense articles, technical data and/or defense services remain subject to control under ITAR regardless of the number or locations of transfers (there is no de minimis content rule). 15

16 Extraterritorial Aspects of U.S. Export Controls (cont d) EAR (i) all U.S.-origin dual use and commercial commodities, software and technical data generally remain subject to control under EAR regardless of the number or locations of transfers, and (ii) certain non-u.s. produced items incorporating or based on such U.S. origin commodities, software and/or technical data are, and remain, subject to control depending on the extent and nature of the U.S. content (certain de minimis rules may apply that release non-u.s. produced items with U.S. content from control under the EAR). 16

17 Extraterritorial Aspects of U.S. Export Controls (cont d) In the case of transactions or other activities involving a country and/or person subject to embargo or other restrictions under the OFAC regulations, the bar/restrictions on the participation of U.S. persons in such transactions generally continue to apply even if only non-u.s. origin (or non-u.s. controlled) items are involved and the transaction is wholly outside the U.S. 17

18 Extraterritorial Aspects of U.S. Export Controls (cont d) As a result, the U.S. export control laws apply to: Sales outside the U.S. of U.S.-origin items, regardless of the nationality of the parties involved; Sales outside the U.S. of even certain non-u.s. produced items that have U.S. content, regardless of the nationality of the parties involved; and Sales outside the U.S. of items that are not subject to U.S. export control laws if U.S. persons are involved and the sales involve a country and/or person subject to embargo type restrictions under the U.S. export control laws, regardless of the nationality of the other parties involved. As such, a particular transaction outside the U.S. routinely may require compliance with both U.S. export control and another country's export control laws. 18

19 Evolution of Non-U.S. Export Controls Multilateral control regimes: Wassenaar Arrangement Nuclear Suppliers Group Australia Group Missile Technology Control Regime Zangger Committee 19

20 Evolution of Non-U.S. Export Controls (cont d) UN and other controls by multilateral organizations (such as the EU): UN sanction regimes (mandates for restrictions on certain exports/assets freezes) - Congo Cote d'ivoire Iran Iraq/Kuwait Lebanon Liberia North Korea Nuclear proliferation Sierra Leone Somalia Sudan Terrorism (Al Qaida/Taliban) 20

21 Evolution of Non-U.S. Controls (cont d) EU sanctions/controls - to be discussed by my colleagues in London and Berlin. Tendency to also impose national/unilateral export controls. Previously, unilateral controls were maintained virtually only by the U.S. to implement various policy, including foreign policy initiatives. Now being done by other countries. 21

22 EU Export Controls Vanessa C. Edwards, Robert V. Hadley, Dr. Christian Hullmann

23 Index Overview of EU Controls 24 EU-Wide Export Controls 26 Implementation in Germany and in the UK 32 Prohibition 36 Licensing Requirements 37 Intervention 49 Enforcement 50 Compliance 52 23

24 Overview of EU Controls EU has common rules for exports General principle of freedom to export from the EU Member States can restrict export on limited prescribed grounds (public morality, policy, security; health; national treasures; IP) Member States may take measures concerning production of or trade in arms, munitions and war materials 24

25 Export Controls Within EU Within EU, quantitative restrictions on exports between Member States and measures having equivalent effect are prohibited 25

26 EU-Wide Export Controls Exceptional EU-wide restrictions on export of: Dangerous chemicals Waste Cultural goods Dual-use items Torture Equipment 26

27 Dangerous Chemicals Revised EU regulation on the export of dangerous chemicals Implementation of Rotterdam Convention Principle of prior informed consent Applies to banned or severely restricted chemicals and to extremely hazardous pesticide formulations Numerous exceptions including narcotic drugs, radioactive materials, pharmaceuticals, chemical weapons, food additives 27

28 Waste Regulation on shipments of waste into, out of and within the EU Implementation of Basel Convention System of prior authorisation Exports of waste for disposal in general prohibited Exports of hazardous waste for recovery in general prohibited 28

29 Cultural Goods Defined categories of cultural goods Export licence required Direct export of national treasures having artistic, historic or archaeological value which are not cultural goods is subject to national law of Member State of export 29

30 Military Technology and Equipment Member States have agreed common criteria at EU level for export licences Mandatory UN arms embargoes; occasional EU Council arms embargoes Small arms, light weapons, ammunition: Limited Joint Action at EU level Commitment by Member States to supply small arms only to governments 30

31 Dual-Use Items Complex System of Controls Community general export authorisation National general export authorisations Individual export licence Global licence Freedom of circulation in EU Member States may control export of additional/ non-listed dual-use items 31

32 UK/Germany Mixture of directly applicable EU Regulations: EU Dual-Use Regulation (Council Regulation (EC) No. 1334/2000) EC Regulation on Torture (Council Regulation (EC) No. 1236/2005) 32

33 UK/Germany and Member State-specific legislation UK: Export Control Act 2002 Export Control Order 2008 Export of Radioactive Sources (Control) Order 2006 Germany: National Legislation: Weapons Control Act (Kriegswaffenkontrollgesetz) Foreign Trade and Payments Act (Außenwirtschaftsgesetz) Foreign Trade and Payments Regulation (Außenwirtschaftsverordnung) 33

34 Criminal Sanction It is a criminal offence to export controlled goods without a licence In the UK the most serious offence (knowingly breaching controls) punishable by 10 year prison sentence and unlimited fine In Germany up to 15 years imprisonment and fines up to EUR500,000 34

35 Member State Legislation in Practice Exports can be restricted as follows: Prohibition Licensing requirements Intervention 35

36 Prohibition of Export/Trade In Germany and the UK export is prohibited of e.g., Weapons of mass destruction Radioactive materials Goods under EC Regulation on Torture Restrictions based on embargoes no US-style blanket embargoes but partial embargoes and arms embargoes related to a number of countries and individuals including on providing financial services to named persons 36

37 Licensing Licensing Authorities In the UK the Export Control Organisation (ECO) In Germany the Federal Office of Economics and Export Control is competent authority for licensing proceedings Application online possible 37

38 Is a Licence Required? Largely dependent upon 3 factors: The nature of the goods The destination of the export The End-Use of the goods 38

39 Nature of Goods - Germany In Germany licences required to export e.g., Dual-Use items and technology according to Annex I and IV of EU Dual-Use Regulation Goods listed in Annex to Foreign Trade and Payments Regulation ( Exports List ) For exports within the EU a licence is only required for weapons and goods listed in Annex IV of the EU Dual-Use Regulation 39

40 Nature of goods - UK In the UK: All strategic goods require licence from the ECO Main types of goods, software and technology covered include: Military equipment (arms, bombs, tanks etc) Nuclear-related goods Dual-Use Items Goods that could be used for WMD programmes 40

41 Nature of goods - UK The following goods require a licence regardless of destination: Any goods on the UK Military List More sensitive items on EU Dual-Use List All other items included on UK Control Lists require a licence only if being exported outside of the EU 41

42 Destination of goods List of UK embargoed countries on BIS website subject to arms embargo, including Iran, Iraq and Sudan Generally export of any good contained within the Military List is forbidden The site also contains a list of other sanctions/embargoes in place In Germany details of embargoes are available on 42

43 End-Use Even if the goods to be exported are not: Included on Control Lists; or Being sent to a prohibited destination; a licence may still be required because of the End- Use controls 43

44 End-Use This will be the case if: The goods may be used for/incorporated for use within military equipment ( Military End-Use Control ) The goods may be used in a WMD programme ( WMD End-Use Control ) In the UK there is a duty to inform the ECO if you are aware or suspect that the goods may be used for such a purpose In Germany there is a duty to inform the Federal Office of Economics and Export Control only where there is positive knowledge of such a purpose 44

45 Trafficking and Brokering UK legislation also controls trading in controlled military goods between two overseas countries Varying restrictions based on the nature of the goods Restrictions cover activities in the UK AND activities outside the UK by a UK national Similar restrictions exist under German law New EU Council Regulation No. 429/

46 Obtaining a UK ECO Licence Ways of checking whether a licence is required: Compare against Control Lists Search the Goods Checker database on the BIS s website Submit a free Rating Enquiry to ECO s Technical Assessment Unit BUT ECO advice does not relieve you of legal responsibility for complying with export control regulations 46

47 Obtaining a UK ECO Licence All applications made via SPIRE licensing system Supporting documentation (e.g. end-user certificates, technical specifications etc) often required ECO aims to process most specific licence applications within 20 working days 47

48 German Federal Office of Economics and Export Control Licences Application online via ELAN Processing time of application for exports to sensitive countries may exceed one month In case of doubt a so-called blank notice may be obtained 48

49 Intervention The German Federal Ministry of Economics and Technology may prohibit export by intervening on a case-by-case basis if, inter alia, Material security interests of Federal Republic of Germany are affected; or Peaceful co-existence of nations is put at risk; or Foreign affairs of Federal Republic of Germany are interfered with HMRC has similar powers in the UK 49

50 UK Enforcement ECO Compliance Unit responsible for ensuring compliance with terms of licences granted But HMRC and RCPO responsible for investigating and prosecuting companies in breach of export controls 50

51 UK Enforcement Latest annual report shows 55 seizures and 3 successful prosecutions Recent prosecutions include: 666 fine for Milestone Trading Limited Jailing of 3 men for total of 10 years UK company paid compound fine of 575,000 for various breaches between

52 UK Compliance ECO Compliance Unit visit companies to check and audit compliance with terms of licence: First visit within 3 months Subsequent visits every months Guidance on effective compliance issued by ECO: Compliance Code of Practice Compliance Newsletter 52

53 UK Compliance 50 warning letters issued since May 2008 First examples of: Suspension of Open General Licence for 3 months for non-compliance Revocation of OIEL 53

54 Problems/Risks Complex regulations regarding criminal acts require diligent proceedings by exporters All Annexes/Control Lists need to be checked Annexes partly overlap but German Export List and UK Control Lists contain further restrictions Assessment of technical details may lead to uncertainties especially regarding dual-use items In Germany in case of doubt blank notice from Federal Office of Economics and Export Control should be obtained 54

55 Steps Review/Check Goods - might we be exporting goods or technology that appears on a Control List Might our activities be said to come within the WMD or end-use or trafficking and brokering restrictions If so - consider application for licence/register for open licence Compliance programme Monitor Control Lists and activities and keep under review Ensure employee awareness and compliance with rules and with licences in place including record-keeping requirements 55

56 PRC Export Controls Yujing Shu and Vita Xu

57 Index Overview 58 Legal Framework of PRC Export Control 59 China and Multilateral Export Control Regimes 61 The PRC s Export Control-related Bodies 62 Special Items Nuclear 63 Nuclear Dual-use Items 64 Controlled Chemicals 65 Dual-use Biological Products and Related Equipment and Technologies 66 Missiles and Related Items and Technologies 67 Waste 68 General Goods, Technologies and Services 69 57

58 Overview Exports are encouraged Economic growth largely depends on exports VAT refund incentives to encourage export Background of the development of the PRC s export control Economic growth International pressure From administrative to legal controls 58

59 Legal Framework of PRC Export Control In the Nuclear Field Regulations on the Control of Nuclear Export and its control list (1997, updated in November 2006, the list was published in June 2001) Regulations on the Export Control of Nuclear Dual-use Goods and Related Technologies and the control list (1998, the regulation updated in January 2007, the list updated in July 2007) In the Biological Field Regulations on the Export Control of Dual-use Biological Agents and Related Equipment and Technologies and the control list (2002, list update in 2006) In the Chemical Field Regulations on Controlled Chemicals and the control list (1995, the list released in 1996) Measures on the Export Control of Certain Chemicals and Related Equipment and Technologies and the control list (2002) Regulations on the Administration of Precursor Chemicals (2005) 59

60 Legal Framework of PRC Export Control In the Missile Field Regulations on Export Control of Missiles and Missile-related Items and Technologies and the control list (2002) In the Arms Export Field Regulations on Administration of Arms Export (promulgated in 1997 and revised in 2002) and the control list (2002) In other fields Foreign Trade Law of China (promulgated in 1994 and revised in 2004) Regulations on the Administration of the Import and Export of Goods Regulations on the Administration of Import and Export of Technologies 60

61 China and Multilateral Export Control Regimes Australia Group Missile Technology Control Regime (MTCR) International Code of Conduct (ICOC) Nuclear Suppliers Group (NSG) Wassenaar Arrangement Zangger Committee (ZAC) 61

62 The PRC s Export Control-related Bodies State Council Ministry of Commerce (MOFCOM) Ministry of Foreign Affairs (MFA) Central Military Commission (CMC) Commission for Science, Technology and Industry for National Defense (COSTIND) China Atomic Energy Agency (CAEA) Chemical Weapons Convention Implementation Office (CWCIO) General Armaments Department (GAD) State Administration for Industry and Commerce General Administration of Customs (GAC) 62

63 Special Items - Nuclear Scope of Restriction Nuclear items that fall into the Control List of Restricted Nuclear Items for Export are subject to export control Special Company Only those companies designated by the government are allowed to export nuclear items. Approvals are needed from Several Authorities China Atomic Energy Authority Ministry of Commerce Commission for Science, Technology and Industry for National Defense (now known as the Ministry of Industry and Information Technology of China) In some cases: the State Council 63

64 Special Items - Nuclear Dual-use Items Scope of Restriction Items that fall into the Control List of Restricted Dual-use Nuclear Items and Related Technologies are subject to export control Special Company Only those companies registered with the Ministry of Commerce are allowed to export nuclear dual-use items Authority in Charge of Approval Ministry of Commerce 64

65 Special Items - Controlled Chemicals Four Categories are Subject to Export Control Chemicals which can be used as chemical weapons; Chemicals which can be used as precursors of chemical weapons; Major raw materials for the production of chemical weapons; Some specially designated organic chemicals other than explosives and pure hydrocarbons Extent of supervision and control is different among the four categories of chemicals 65

66 Special Items Dual-use Biological Products and Related Equipment and Technologies Scope of Restriction Items that fall into the Control List of Dual-use Biological Products and Related Equipment and Technologies are subject to export control Special Company Only those companies registered with the Ministry of Commerce are allowed to export dual-use biological products and related equipment and technologies Authority in Charge of Approval Ministry of Commerce In some cases: the State Council 66

67 Special Items Missiles and Related Items and Technologies Scope of Restriction Items that fall into the Control List of Guided Missiles and Related Equipment, Materials, and Technologies are subject to export control Special Company Only those companies registered with the Ministry of Commerce and which have obtained legal authorization to engage in military export activities within their approved business scope are allowed to export guided missiles and related items and technologies for military purpose Authority in Charge of Approval Missiles and related items and technologies shall be reviewed by the national military export control authorities or by the national military export control authorities in conjunction with the relevant departments in the State Council and the Central Military Commission 67

68 Special Items Waste Scope of Restriction The following items are subject to export control: Items that fall into the Category of National Hazardous Waste; Items that belong to the hazardous wastes and other wastes as mentioned in the Basel Convention; or Items categorized as hazardous wastes for import or transit as determined in bilateral treaties or international treaties by the contracting parties. Authority in Charge of Approval Ministry of Environmental Protection 68

69 General Goods, Technologies and Services Goods, technologies or services may be prohibited or restricted from export for the following reasons: state security, social public good or public morality; human health, the life or health of any animal, plant or the environment; implementing the measures relating to the import or export of gold or silver; protection of any exhaustible natural resource that is in short supply; to establish or accelerate the establishment of a particular domestic industry; limited market capacity of the destination country or region; serious disorder of the export business management; any other circumstance as provided in other laws or administrative regulations of China or international treaty or agreement that China has concluded. 69

70 Thank you! Questions? Please contact: Jerome J. Zaucha, Washington, D.C Dr. Christian Hullmann, Berlin +49.(0) Vanessa C. Edwards, London +44.(0) Robert V. Hadley, London +44.(0) Yujing Shu, Beijing Vita Xu, Beijing