On 24 January 2024, the European Commission (“Commission”) unveiled a comprehensive trade, investment and research package as part of the roll-out of the European Economic Security Strategy of 20 June 2023. The package includes a legislative proposal for a new FDI regime and recommendations to scrutinize outbound investments, coupled with strategies to add a “European dimension” to export controls on sensitive technology. The European Economic Security Strategy aims at helping the EU to stay competitive in core industries in light of the geopolitical developments and uncertainties of the last years (caused, for example, by the COVID-19 pandemic and the war in Ukraine) through various legislative proposals and recommendations. The EU intends to become less dependent on other global players, allegedly regardless of whether these are allies or rivals.

Need for coordinated action on dual-use export controls at EU level

In the White Paper on Export Controls, the Commission aims to enhance technological progress and R&D as well as to increase the effectiveness of the EU dual-use export controls. The Commission proposes to: (i) introduce uniform EU controls for items that would have been adopted in multilateral regimes but are not due to the blockage in the decision-making process; (ii) improve coordination between the Commission and Member States, especially in relation to the National Control Lists; and (iii) expedite the review of the Regulation (EU) 2021/821 (“Dual-Use Regulation”) to improve its effectiveness and efficiency.

The current framework to regulate exports of dual-use goods and technologies is set out in the Dual-Use Regulation, which reflects the EU commitments in the context of multilateral export control regimes such as the Australia Group, the Wassenaar Arrangement, the Nuclear Suppliers Group and the Missile Technology Control Regime. Progress in certain multilateral regimes to agree on new items for export controls, which is largely consensus-based, has stalled. As a result, Annex I of the Dual-Use Regulation which lists sensitive dual-use items subject to export controls fails to adequately capture new and emerging technologies.

The Commission proposals are as follows:

1. Introduction of uniform controls in the EU:

As a short-term solution to expand Annex I of the Dual-Use Regulation, the Commission proposes to make a targeted proposal to introduce those items that were supported by Member States to include in the multilateral control regimes in Annex I of the Dual-Use Regulation. This approach would ensure uniform controls throughout all the Member States. A unified approach should also be welcome from a corporate perspective, as EU-wide cross-border collaboration could otherwise be significantly hindered.

2. Improved coordination between the Commission and Member States:

The Commission proposes to establish a forum for political coordination, enabling discussions between the Commission and Member States to encourage the development of common EU positions on export controls. It also aims to improve coordination of new National Control Lists by setting up a voluntary notification mechanism so that Member States have the possibility to consider and comment on National Control Lists prior to adoption.

3. Expedited reviewed the Dual-Use Regulation:

The Commission proposes to evaluate by Q1 2025 the shortcomings of the Dual-Use Regulation, including its effectiveness and efficiency. On the basis of the evaluation, the Commission envisages a reform of the Dual-Use Regulation in 2026 – 2028.

Increased attention to R&D activities involving dual-use technologies

The Commission aims to facilitate the promotion of R&D activities involving dual-use technology as it considers it essential for economic security. EU funds such as Horizon Europe and the European Institute of Innovation and Technology (“EIT”) focus on civil applications or the European Defence Fund (“EDF”) which covers only military application, cannot be used for R&D on dual-use technologies.

The White Paper identifies three options to improve access to current EU funds: (i) by relying on already established improvements, such as the EIC Transition Scheme; (ii) by removing the exclusive focus on civil applications in existing funding programs; or (iii) by creating a dedicated instrument with a specific focus on dual-use R&D. EU stakeholders affected by the limited access of dual-use technology to EU funding can participate until 30 April 2024 in the public consultation.

Member States should identify the risks (such as the transfer of sensitive technology to third countries that may misuse research results affecting the EU's security) in research and innovation within both public and private research institutions and establish a more effective and consistent approach for conducting due diligence in these areas. There is a need for increased awareness by research institutions of the risks of unintentional technology transfers and for establishing appropriate due diligence. Improved guidelines can help research institutes address these challenges.

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Hogan Lovells has a global team of export controls experts and is therefore uniquely placed to advise clients on all questions relating to dual-use controls in the EU and beyond.

Authored by Lourdes Catrain, Stéphanie Seeuws, Alp Ozturk, and Julius Gertz.