Dual-use items and the basics of export control: what every exporter needs to know

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Export controls are affecting an increasing number of Finnish companies. Finnish products and technology are trusted, and with growing geopolitical uncertainty, the development and demand for dual-use items is on the rise. In this blog post, we go through four key areas that every company aiming for international markets should pay attention to.

1. Is your product a dual-use item?

The first step for a company considering the dual-use sector or exporting is to determine whether its product, software or technology falls within the scope of dual-use items subject to export controls.

Dual-use items refer to products that have both civilian and military applications. The EU Export Control Regulation (2021/821) lists dual-use items for which an export authorisation is required for when exported outside the EU. The Regulation covers a wide range of products, from electronics and telecommunications technology to chemicals and navigation systems. Classification is based on the product’s technical characteristics, not its intended use, and this is often where the pitfall lies.

A company may manufacture and sell a product exclusively for the civilian market, but if its technical characteristics meet the criteria set out in the control list, an export licence is still required. Classification often requires technical expertise, and exporters and manufacturers should carefully review the product descriptions in the Regulation. Compliance with export control rules is the exporter’s responsibility, but in difficult cases, assistance with classifying a product can be obtained from the authorities. In Finland, the Ministry for Foreign Affairs is the licensing authority for dual-use items.

When classifying products, it is also important to bear in mind processes for defence materiel. An export licence is also required for the export from Finland of products listed in the Common Military List of the EU. In Finland, the Ministry of Defence is responsible for this.

2. Who is the product going to and for what purpose?

The export control regime for dual-use items includes a so-called ‘catch-all’ mechanism: even if a product is not listed in the EU Regulation’s list of dual-use items, the authorities may, in certain situations, determine that an export licence is required. Such a situation may arise, for example, where there is reason to suspect that the product will end up being used in the development of weapons of mass destruction or for military end-use in a country subject to an arms embargo.

From a company’s perspective, however, what is essential is not the authority’s decision on export control itself, but the reporting obligation that arises for the company even before that decision is taken. A Finnish exporter of dual-use items must notify the Ministry for Foreign Affairs if there is reason to suspect that the item is intended for an undesirable end-use as specified in the legislation. Failure to submit this notification is subject to criminal sanctions.

In practice, the reporting obligation means that every company exporting dual-use items outside the EU must actively ascertain the end-user and end-use of its products. In practice, this means, among other things:

  • requesting end-user statements and assurances from the customer
  • setting up a system for monitoring customers and orders, for example, the company should be able to identify orders where the customer is reluctant to disclose the product’s final intended use, or where requests are made to omit certain information from documents or to use unusual payment arrangements
  • checking the customer and the end user against international sanctions lists.

3. Have you also classified intangible exports?

Export controls do not apply solely to the shipment of physical goods abroad. Export controls also extend to the transfer of technical information, software and know-how by electronic or non-physical means.

In practice, this means that the following situations, for example, may require a licence:

  • sending technical drawings or specifications by email to a customer or partner outside the EU
  • granting access to data or software in a cloud service to a user outside the EU
  • providing training or technical support to a person outside the EU, including via remote connection.

These situations often arise almost unnoticed in day-to-day business operations, as well as in connection with post-sale maintenance obligations or spare parts deliveries. Companies should therefore have clear internal guidelines on how to resolve licensing issues relating to transfers of intangible assets before making the data available outside the EU.

4. Remember that intra-group transfers are not a free zone

Multinational companies often make the mistake of assuming that the transfer of goods, technology or technical data between units of the same group in different countries is automatically exempt from export controls. However, this is not the case.

From the perspective of export controls, intra-group data transfers are exports in the same way as any other export. If a Finnish parent company sends export-controlled technology to its subsidiary in a third country, a licence requirement may apply in the same way as when exporting to a customer.

A practical challenge arises particularly when a group uses shared information systems or cloud services to which employees in different countries have access. International internal training sessions and visits by experts may also raise questions regarding export controls.

Key Takeaways

Export control is a complex field that requires a systematic approach.  The areas discussed above, namely the classification of physical or intangible goods, the verification of customers and end-use, and intra-group transfers, form the foundation form the foundation with which every company engaged in or considering international trade must be thoroughly familiar.

Responsible export of strategic goods also requires the ability and willingness to keep abreast of changes to regulations. For example, the Ministry for Foreign Affairs recently confirmed new reporting obligations regarding the export of dual-use items, whilst the Ministry of Defence has just published a draft bill reforming the Act on the Export of Defence Materiel. However, building a strong compliance culture creates a strong foundation for keeping pace with a changing world and evolving regulations.

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