Technology transfer in export controls: what you need to know
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Technology transfer in export controls: what you need to know

Help with questions around technology transfer in export controls and the difference between technology exports and knowledge transfers.

Questions around technology transfer

After we published our interview on "Technology transfer and export controls", we received a lot of follow-up questions about the subject. Here are three examples:

How do I give the business partner working with me on a project access to sensitive server data?

Is it considered technology transfer when sensitive information is shared by telephone for the purpose of providing repair services?

What do I need to know when I send an email with sensitive content to a recipient outside the EU?

Businesses can find official support for this issue in the Commission Recommendation (EU) 2021/1700 of September 15, 2021, which addresses export control regimes for technology transfer and technical assistance (full text here).

Addressing these issues requires a very differentiated approach. It’s important to distinguish between technology transfer in the form of technology exports and technology transfer in the form of knowledge transfers. The mechanisms of the EU Dual-Use Regulation require consideration of both technology exports and the provision of technical services in the civilian sector.

This article takes a somewhat broader look at technology transfer in the context of export controls to answer the questions above and others as well.

Please note that this article does not address technology transfer in the military sector, nor do we consider EU sanctions, which always take precedence.

The Dual-Use Regulation (EU) 2021/821 – which took effect on September 9, 2021 – is the legal basis for all questions relating to export controls of civilian goods in the EU. The new EU Dual-Use Regulation is still focused primarily on the export of goods, offering little insight into questions about the rapid developments of technology transfer in a digitally interconnected business world.

Export controls in the context of the Dual-Use Regulation most typically involve a requirement for authorization to export the dual-use items listed in Annex I as set forth in Art. 3 (1) of the EU Dual-Use Regulation. There are no exceptions to the requirement for authorization to export dual-use items. Annex I of the EU Dual-Use Regulation is a technical list describing dual-use items subject to authorization based on their specific technical parameters. All goods that have the technical specification mentioned in the goods descriptions of Annex I are subject to export controls as dual-use goods.

An important point to remember

The concept of goods in export controls extends beyond the physical objects of goods per se to include software and technology developed in connection with those goods. The EU Dual-Use Regulation is intended to prevent critical goods from being used in the wrong hands to proliferate weapons of mass destruction. 

But the interest in export controls transcends the export of critical goods to include the export of proliferation-related technology. Those who acquire the basic knowledge can produce critical goods by purchasing the necessary components. That’s why the list of dual-use items includes not only the physical goods but also the associated software and technology.

Dual-use classification per Annex I of EU Dual-Use Regulation

The only way for a business to comply with the authorization requirement of Art. 3 of the EU Dual-Use Regulation for listed technology is to first classify its goods based on the list of dual-use items in Annex I. This makes it clear that a reliable export control regime depends on list screening.

The classification of goods is a strictly technical check. Classifying goods under the dual-use control list means comparing the technical attributes of the goods to be classified with the those described in the control list. A common mistake is to include the known use or simply the mere possibility of use in the goods classification.

This approach leads to huge uncertainties, since the same goods are classified differently based on their use. That’s why it’s important to classify goods as the law requires, without considering the recipient or use.

Example: frequency changer

Businesses whose product master includes frequency changers must run a comparison of the technical attributes of their frequency changers with the technical specifications outlined in the dual-use item number 3A225 when classifying under Annex I. Always use the language of the list item – in this case 3A225, which includes the following:

3A225 Frequency changers or generators, other than those specified in 0B001.b.13., usable as a variable or fixed frequency motor drive, having all of the following characteristics:

(…)
a. Multiphase output providing a power of 40 VA or greater;
b. Operating at a frequency of 600 Hz or more; and
c. Frequency control better (less) than 0.2%.
(…)

All frequency changers exhibiting these technical specifications thus require authorization for export as dual-use items under Art. 3 (1) of the EU Dual-Use Regulation.

What's special about dual-use classification of technology

Before we look at what's special about the classification of technology, let’s first define the term "technology" as it applies to the EU Dual-Use Regulation. In the definitions of terms under Annex I of the EU Dual-Use Regulation 2021/821, technology is defined as "specific information necessary for the development, production, or use of goods." 

This definition is the basic starting point for the classification of dual-use technology. Under this definition, only technology for the development, production, or use of listed goods is cited.

The connection between goods, software, and technology is often overlooked in practice. This then gives rise to uncertainties and, not infrequently, significant overregulation of technology exports.

The fact that technology must always be seen in the context of the listed goods becomes clear from the structure of the dual-use item numbers. The letters A, B and C (second digit of the dual-use item number, see 3A225 above) describe goods. The letter D covers software related to the listed product, and the letter E refers to the associated technology.

Example: Frequency changer (continued)

Listing of software and technology related to frequency changers described in 3A225 – excerpt as follows:

  • 3D225 "Software" specially designed to enhance or release the performance of frequency changers or generators to meet the characteristics of 3A225.
  • 3E225 "Technology," in the form of codes or keys, to enhance or release the performance of frequency changers or generators to meet the characteristics of 3A225.

Practical tip for dual-use classification of technology

Under this system, companies that don’t have any dual-use items in their portfolio never have any dual-use technology that would require an export authorization under Art. 3 of the EU Dual-Use Regulation. Non-listed goods must undergo a catch-all check per Art. 4 of the EU Dual-Use Regulation and Section 9 of Germany’s Foreign Trade and Payments Ordinance (AWV).

If there is any uncertainty as to whether a given technology is listed, it’s a good idea to inquire with the relevant export control authority.

Concept of export in technology transfer

After the classification of technology according to the dual-use item list of Annex I, the second key element of technology transfer is the definition of the term export.

Definition of export within the meaning of the EU Dual-Use Regulation

The term "export" is defined in Art. 2 (2) of the EU Dual-Use Regulation. The essential characteristic of an export is the shipment of goods across the external EU border. All shipments to non-EU countries are exports within the meaning of the EU Dual-Use Regulation. The physical export of technology is easy to determine. If the listed technology is contained in a blueprint, for example, then an export occurs when the blueprint crosses the border into a non-EU country.

Electronic exports under Art. 2 (2) (d) of the EU Dual-Use Regulation

Technology transfers in business are often electronic rather than physical. The definition of an export in the EU Dual-Use Regulation also covers electronic exports. The manner in which technology is transferred is not important in determining whether an export has taken place. Under Art. 2 (2) (d) of the EU Dual-Use Regulation, the transmission of technology by electronic media such as fax, telephone, electronic mail, or any other electronic means to a destination outside the EU is also an export. This includes making technology available in electronic form to people outside the EU.

Example: sending email outside the EU

If dual-use technology is sent via email, an export requiring authorization exists only if the sender knows that the recipient of the email is outside the EU. This means that the sender’s knowledge of the actual location of the email recipient is important to determine whether an export occurred when an email was sent.

Practical tip for export of controlled technology

To prevent the uncontrolled outflow of critical technology, businesses should take appropriate organizational measures to ensure that dual-use technology is appropriately identified and protected within the company. It must not be possible to either access the listed technology from outside the EU or transmit it physically or electronically outside the EU without prior authorization.

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Distinction between technology export and technical assistance

According to the definitions in Annex I of the EU Dual-Use Regulation, the specific technical knowledge defined as technology must be embodied in "technical assistance" or "technical data." "Technical assistance" is illustrated in the notes with examples that include instructions, training, and working knowledge, while "technical data" is described as including blueprints, plans, and models. 

This means that technology transfer includes both the export of technology and the transfer of knowledge. When it comes to the requirements for authorizations, a strict distinction must be made between technology transfer in the form of technology export and technology transfer in the form of technical services.

Definition of "technical assistance"

Technical assistance within the meaning of the EU Dual-Use Regulation is defined in Art. 2 (9) as "any technical support related to repairs, development, manufacture, assembly, testing, maintenance, or any other technical service." It can take forms such as instruction, advice, training, transmission of working knowledge or skills, or consulting services, including by electronic means as well as by telephone or any other verbal forms of assistance.

Authorization required for the provision of technical assistance

The provision of technical assistance pursuant to Art. 8 (1) and (2) of the EU Dual-Use Regulation requires authorization only if the technical assistance is provided for dual-use items listed in Annex I and the provider has been informed or is aware by the competent authority that the items in question are or may be intended, in their entirety or in part, for any of the uses referred to in Art. 4 (1) of the EU Dual-Use Regulation.

The relevant factor determining whether a technical service requires authorization is not the export defined in Art. 2 (2) of the EU Dual-Use Regulation, it is the provision of technical assistance. Art. 2 (10) of the Dual-Use Regulation defines the place of performance – the place where the result of the technical assistance is achieved – and the recipient of technical assistance subject to approval.

Art. 2 (10) of the EU Dual-Use Regulation defines the "provider of technical assistance" as any natural or legal person

  • that provides technical assistance from the customs territory of the Union into the territory of a third country;
  • resident or established in a Member State that provides technical assistance within the territory of a third country; or
  • resident or established in a Member State that provides technical assistance to a resident of a third country temporarily present in the customs territory of the Union.

Example: provision of technical assistance subject to authorization

An EU-based service employee provides remote support from the EU for the repair of a listed milling machine in South Africa. A critical use of the milling machine within the meaning of Art. 4 of the EU Dual-Use Regulation is not known, nor has the exporter been informed of any such use by the competent authority. 

The remote maintenance of the milling machine constitutes the provision of technical assistance for a listed dual-use item. 

Neither has the exporter been informed by the competent authority nor does the company have any knowledge that the listed milling machine is or may be intended for any of the uses cited in Art. 4 (1) of the EU Dual-Use Regulation, so the provision of technical assistance does not require an authorization under Art. 8 (1) and (2) of the EU Dual-Use Regulation.

Note

Art. 4 (1) of the new Dual-Use Regulation covers use in connection with chemical, biological, and nuclear weapons, including missiles capable of delivering such weapons (Art. 4 (1a)), military end-use in a country subject to an arms embargo (Art. 4 (1b)), and use as parts or components of military items exported without authorization (Art. 4 (1c)).

Managing technology transfer in practice: summary

The larger issue of technology transfer, like other areas of export control law, suffers from a proliferation of superficial knowledge that makes it seem like an almost insurmountable task. As is so often the case with legal issues of export controls, dealing with technology requires a basic understanding of the legal principles and purpose of export control law. 

The core of a company’s export control regime is the classification of both goods and technology under Annex I of the EU Dual-Use Regulation. Only those companies that have classified their product master according to the dual-use item list and have maintained their master data are in a position to comply with the authorization requirements of export control law.

Beyond goods classification, a differentiated approach based on the legal principles of the EU Dual-Use Regulation is indispensable for assessing the various issues that technology raises. Companies that approach technology transfer in this way will be surprised at one point or another to discover that technology transfer can also be managed with compliance through appropriate internal organizational measures.

Minimizing risks with TCM software

AEB's Trade Compliance Management software solutions make it possible to automate and seamlessly document all export control steps, greatly minimizing the risk of criminal violations of foreign trade laws and regulations. Including screening your business partners, running export control checks across jurisdictions, and managing licences.