Export to fast growing emerging markets is important for defence and security companies. Emerging markets offer potential. But with these opportunities for growth come the need to understand and navigate the complexities of the export control system, not least understanding which goods and services need to be licensed and which licences are needed. So writes Richard Morgan, partner at the law firm Harrison Clark Rickerbys and head of the firm’s Defence, Security and the Forces sector. He seeks to answer some common questions posed by SMEs thinking about this area.
What qualifies as ‘strategic goods’?
“Rules vary between European Union (EU) and non-EU countries, and much depends upon whether what you produce is classed as ‘strategic’ goods, because different Government departments control strategic and non-strategic export licences. Strategic goods are military goods, or dual-use goods which have a mainly civilian use but can be used militarily – these could include chemicals, components for aviation or telecoms equipment and cyber security software. Regulated by the Export Control Organisation, they will be identified as strategic if they are:
•designed or modified for military use,
•could be used by the military,
•could be used for torture or have radioactive sources.
“They will also need a licence if there are concerns about their end use – for instance, if you produce chemicals which are not in themselves strategic, but could be used, in combination with other goods, to create a weapon of mass destruction. Lists exist to make classification easier – the UK Military List and the EU Dual-Use List both clearly indicate which categories of goods or services will need licensing.
What else is covered by military end use controls?
“Military end use controls can extend to the transfer of technology by electronic means, to the maintenance and development of military equipment (so analytical or test equipment or parts for heavy plant are included) and to the final destination of a product. For instance, civilian vehicle parts from the UK, installed in a military vehicle in Pakistan, which is then supplied to Uzbekistan, are covered by export controls.
What about brokering a deal? Do I still need a licence?
“If you are involved in brokering a deal between firms in two other countries in these goods and services, you also need to check on the licences needed – this is known as ‘trafficking and brokering’ and is regulated by a licensing regime.
What else should I consider when choosing where to export?
“You also need to consider carefully the country to which you want to export – are there any trade sanctions or arms embargoes imposed on that country? Sanctions are restrictions on exports, imposed for political reasons by countries and international organisations to maintain international peace and security. For instance, the UK Government has currently imposed sanctions against Russia, Iran and Syria and arms embargoes on more than a dozen other countries.
What are main types of licence needed?
“Trading in many sensitive goods and services without a licence is a criminal activity and even those with a licence will need rigorous systems in place to deal with the inevitable compliance audits. There are several different types of licence available to exporters, depending on what you are exporting.
“Open General Export Licences (OGELs) have set terms and conditions and more than 40 of them are available in pre-published form, covering a range of different circumstances. They are suitable for less restricted goods being exported to less restricted destinations.
“If your goods, technology, software, destination or situation is not covered by an OGEL, you will need to apply for a Standard Individual Export Licence (SIEL). SIELs are specific to your company and your recipient, for a set quantity and/or value of goods. You will need to supply information on the end use of your product or service for this licence. Long-term contracts, projects and repeat business are covered by Open Individual Export Licences (OIELs). This licence is company specific, but not necessarily consignee specific. There is no set quantity or value of goods, although conditions covering this may be set on the licence. You will usually need to establish a track record of exporting before you can apply for an OIEL.
“Most military and dual-use goods can pass through the UK on their way to another set destination without the need for a UK licence, provided that the exporter has complied with certain conditions. However, sometimes, you will need a transhipment licence where either the goods or the destination country – or both – represent a sufficient degree of risk.
“Trade Control Licences relate to trafficking and brokering activities, and Global Project Licences allow partner countries to cooperate on sensitive projects involving military goods and technologies over a long period of time without constant licence renewal – the countries involved are the UK, France, Germany, Sweden, Italy, and Spain.
“There is a wealth of advice, information and expertise available from the experts at Harrison Clark Rickerbys to support exporters in negotiating their way to successful international business deals. We know this is a very complex area, and there are pitfalls for exporters, but my team can assist with all aspects of the regulatory system surrounding exports, so we can help businesses to avoid problems and to find the right way ahead.”
For more on the export control system and related issues – contact Richard Morgan at Harrison Clark Rickerbys on [email protected].
