Identifying dual-use goods
In daily practice, identifying dual-use goods is an important aspect of complying with sanction and export rules but also a difficult task. Dual-use goods are goods that can be used for civilian as well as for military purposes, or goods that can be used to manufacture or spread weapons of mass destruction. Companies are not always aware that they (possibly) produce, sell and export dual-use goods or goods that could be classified as such. This blog gives some practical tips for conducting an initial check as to whether a situation may involve dual-use goods.

Dual-use goods fall within the scope of general export regulations and may also be subject to additional restrictions under sanction regulations. In both cases, Council Regulation (EC) 428/2009 (‘Dual-Use Regulation’) is important to determine whethergoods qualify as dual-use goods. Annex I to the Dual-Use Regulation contains the EU control list. An export permit may be required for products that appear on this list and additional restrictions may apply under sanction regulations.

The terms used in the Dual-Use Regulation are interpreted broadly. For example, the crucial term ‘goods’ does not only concern tangibles, but also items, components, technology and software. The restrictions that apply to goods may also apply to technical services associated with those goods. Furthermore, the term ‘dual-use’ is also interpreted more broadly than is sometimes thought. Examples of this include certain radar and laser technology that can be used for maritime and other navigation, but also potentially for missile launch systems.

Dual-use goods are characterised by an alphanumeric strategic goods product code (SGP code)
To determine whether a situation involves or may involve dual-use goods, it helps to understand how the EU control list is structured: dual-use goods are characterised by an ‘alphanumeric strategic goods product code’ (‘SGP code’), consisting of at least five characters. SGP codes consist of various components and show:
• in which technical category a dual-use good is classified;
• in which product group a good is classified; and
• on the basis of which treaty or regime a dual-use good is classified.

The technical categories are:
0. Nuclear materials, facilities and equipment
1. Special materials and related equipment (including chemicals, microorganisms and toxins)
2. Materials processing
3. Electronics
4. Computers
5. Telecommunications and information security
6. Sensors and lasers
7. Navigation and avionics
8. Marine
9. Aerospace and propulsion

Each technical category is then divided into product groups. There are five product groups, which correspond to the letter in the SGP code. These product groups are as follows:
A. Systems, equipment and components
B. Test, inspection and production equipment
C. Materials
D. Software
E. Technology

Lastly, the last three characters of the SGP code refer to the treaty or regime under which the good was included on the list. If it is unclear whether a good can be classified as a good on the list, the treaty, regime or their legislative history can sometimes help to answer that question. The underlying regimes and treaties are as follows:
• 001-099: ‘Wassenaar arrangement’ on export control for conventional arms and dual-use goods and technology (WA)
• 100-199: Missile Technology Control Regime (MTCR)
• 200-299: Nuclear Suppliers Group (NSG)
• 300-399: Australia Group (AG)
• 350, 351, 450: Chemical Weapons Convention

One example of an SGP code is: 0-B-001. The first ‘0’ refers to the classification of the good in the technical category (nuclear materials, facilities and equipment), the ‘B’ indicates that it concerns test, inspection and production equipment, and ‘001’ shows that the underlying regime is the Wassenaar arrangement.

EU authorisation differs from Dutch authorisation
Where an examination of EU export and sanction regulations shows that an export permit is not needed for a product, the Dutch authorities may as yet require you to have an authorisation. This is because the Dual-Use Regulation includes a catch-all provision that grants the competent authorities the power to as yet classify goods as goods for which a permit is needed despite the fact that they do not appear on the EU control list. This authority is set out in Article 4 of the Dual-Use Regulation, combined with Section 4a of the Dutch Strategic Goods Decree (Besluit Strategische Goederen).

The catch-all provision
This provision grants the competent authorities the power to determine ad hoc and at any moment that a good is a dual-use good. The catch-all provision provides for this possibility for example if there are indications that the goods concerned are intended or may be intended for weapons of mass destruction or their means of delivery. One example in which that provision can be applied is where a weapons embargo has been announced against the purchasing country or the country of destination and the goods are or may be intended for a military end-use in the sense that they can be processed in or used for the development or production of military goods. If such indications exist, the authorities will issue an individual decision to the exporter stating that the goods concerned are dual-use goods and that the exporter must therefore apply for an export authorisation. If an exporter is aware that the goods that are, in principle, not subject to an authorisation are intended for a purpose specified in the Dual-Use Regulation, the exporter must report this to the authorities of its own volition and the authorities will decide whether an authorisation is needed to export the goods.

The above provision offers a broad basis to classify additional goods as dual-use goods, depending on the circumstances of a case. This provision means that it is even more important for companies to know by whom and for what purposes their products will ultimately be used. In the Netherlands, the catch-all provision is applied less frequently than in surrounding countries because it is used in a different way. Other countries apply the catch-all provision more frequently as a means to obtain more information about an intended export in order to assess it. In the Netherlands, the provision is mostly restricted in its application to situations where the Netherlands wishes to prohibit the export and therefore as a prelude to refusing an application for an export authorisation. Another important premise in sanction regulations and in the Dual-Use Regulation is ‘prohibitions on circumvention’.

The purpose of these prohibitions and our next blog
The purpose of these prohibitions is to broaden the scope of protection for the objectives of sanction measures and export regulations to also protect against direct and indirect circumvention. We will address these prohibitions on circumvention in our next blog, which is the second part of our diptych on sanction rules and export prohibitions. The title of our next blog is: What are prohibitions on circumvention?

Please feel free to contact us if you have any questions about compliance with sanction regulations and the export of dual-use and/or other products.