Dual-use products requiring authorisation: export control in the pharmaceutical, medical and chemical industries

published on 11 November 2020 | Reading time approx. 3 minutes

There aren’t many areas where the motto “prevention is better than cure” would be more accurate than in the area of export control. Anyone who exports dual-use products knows how risky it is because even signing the contract requires authorisation and if none is obtained, penalties may be imposed. Those who import pharmaceuticals and medical devices into the European Union are required to obtain the appropriate authorisation or CE-marking to be able to place such products on the market.

General information on export control »
Application for export authorisation in Germany »
Developments in EU export control legislation »
Conclusion »

General information on export control

Quite recently, on 7 October 2020, after a one-year consultancy process, the EU Commission adopted amendments to Annexes I, IIa to IIg and IV (regarding items covered by those annexes) to Regulation (EC) No 428/2009 (EC Dual-Use Regulation). It is due to come into force in mid-December 2020.

IMPORTANT: Export control is not only about controlling whether an exported item is an item of weapons of war and arms as is often assumed, but also about controlling the wide-spread export of the so-called dual-use items – which can be used not only for civil but also for military purposes, such as machine tools, electronic integrated circuit boards, aerospace electronic products, software, encryption technology or CBRN defense equipment, damping or flotation fluids, ceramic powders, non-fluorinated polymeric substances, oxidiser substances, polymers, calcium or magnesium.

Therefore, exporting potential dual-use items to countries outside the European Union is prohibited unless authorisation is obtained and any violations of this prohibition are subject to penalties.

The European, and especially the German export system is heavily affected by this issue because dual-use items may involve many different products, e.g.

chemical substances,
laboratory materials or tubes.

Deliveries of replacement parts can be particularly affected by the Dual-Use Regulation (e.g. frequency converters, sensors or lasers or measuring devices which are also widely used in the medical sector).

IMPORTANT: The requirement to obtain authorisation for the export of dual-use items to countries outside the European Union arises from EU law (Article 3 of the EU Dual-Use Regulation) or from German national law (Article 8 Foreign Trade and Payments Ordinance).

As a rule, supplies of dual-use items within the European Union are allowed. This does not apply only to certain items specified in the Dual-Use Regulation whose supply within the European Union is subject to the requirement of obtaining authorisation. In addition, the supply of dual-use items, as defined in the German Foreign Trade and Payments Ordinance, requires obtaining authorisation if the manufacturer or supplier is aware that the final destination of the items is outside the territory of the EU.

IMPORTANT: The final country of destination and knowledge of it are crucial.

Items requiring authorisation are listed in specific lists of items. Items specified in the respective lists have objective, specific technical characteristics enabling their special functionality or quality or are “specially designed” for a particular purpose. If a product is found to be included in one of those lists, an application for export authorisation should be filed; in Germany, the competent authority for that is the Federal Office for Economic Affairs and Export Control (BAFA) (e.g. in the case of CBRN defense equipment – classification code 1A004, or electronic circuit boards requiring authorisation as per 3A001).

Application for export authorisation in Germany

An application for export authorisation can only be filed by the exporter handling the specific export transaction. Applications for export authorisation should be filed in Germany online through the so-called ELAN-K2-System (German: Elektronische Antragserfassung und Kommunikation). The required forms are available from the system. Thus, the process of filing the application can be handled entirely online. In addition, other documents such as end-use statements should be enclosed. Application documents enable determining

the end user,
the end use,
the purpose of use of products

and evidence it to BAFA.

IMPORTANT: There are different types of export authorisations and companies can use diverse forms of relief.

Individual export authorisation is limited to one specific export transaction. “Maximum amount authorisation” allows making multiple export deliveries by one exporter to one consignee up to a certain amount. It is a special form of individual export authorisation. General export authorisation, in turn, permits exporting goods generally requiring authorisation but without the specific export transaction requiring undergoing an individual authorisation procedure. For example, dual-use-items except those listed in Annex IIg may be exported to certain countries such as Japan, Canada, USA, Norway, Switzerland based on the general export authorisation. Using the general export authorisation involves registration and notification obligations towards BAFA.

IMPORTANT: It is also possible to apply for the so-called advice on the list of goods with BAFA (AzG). As part of this procedure, BAFA checks whether an item is listed in the list of goods. The advice on the list of goods is a technical expert opinion concerning a particular item of goods mentioned specifically there.

For this, special software can be used or the findings of the examination of the items can be documented at the level of master data management as part of the merchandise management system. Unfortunately, experience shows that the various software systems are often not optimally integrated with each other, thus resulting in gaps.

IMPORTANT: Therefore, in order to avoid sanctions, it is of great importance to close these gaps in the best possible way and to document not only the findings but also the audit process itself.

Developments in EU export control legislation

As already mentioned above, on 7 October 2020 the EU Commission adopted amendments to the EC Dual-Use Regulation that are expected to come into force in mid-December 2020.

Conclusion

Companies that trade in sensitive products from the nanotechnology or pharmaceutical and medical industries should view export controls as their very own task and not just react out of fear of possible sanctions. It is essential to develop an understanding of the necessity of export controls and to establish a functioning compliance system.

The EU has published guidelines in this regard (Commission Recommendation (EU) 2019/1318 of 30 July 2019 – Best practice approach). In particular, the Federal Office for Economic Affairs and Export Control (BAFA), which is responsible for export control in Germany, uses these guidelines for granting possible simplified export authorisations.

In addition to personnel resources, clear processes and responsibilities are absolutely essential. Only in this way can export control be carried out effectively and without wasting unnecessary resources.