BASIC Publications

BASIC RESEARCH REPORT

Number 2001.1, July 2001

Export Controls in the
Framework Agreement Countries

By Kathleen Miller and Caroline Brooks

Over the past few decades, the defense industry has become more complex and American companies have come to dominate the industry. In response to this, European governments believe that the harmonisation of cross-border export controls is a necessity. In July 2000, Europe’s six largest arms producers – France, Germany, Italy, Spain, Sweden and the United Kingdom signed a Framework Agreement to facilitate the restructuring and operation of the European defense industry. This Agreement addresses many aspects of the defense industry, notably “to harmonize the requirements of their armed forces, their procurement, research and technological development policies, and defense-related aspects of their export procedures.” The Framework Agreement seeks to eliminate barriers to cooperative defense production.

While the Framework Agreement aims to modify only procedures regarding products jointly produced by two or more participating states and could potentially increase cooperation between EU members and the United States, it does set a precedent for further, potentially dangerous, defense policy harmonization. The risks associated with the harmonization cannot be overlooked. The laws and policies of France, Germany, Italy, Spain, Sweden and the United Kingdom vary greatly in some respects, and the need to reach agreement could drive standards down to the lowest common denominator. The Framework Agreement process raises a number of concerns, most notably that industry priorities rather than human rights and security concerns will take precedence. The best scenario would be for EU countries to be encouraged to raise, not lower, the bar on export controls – adopting the best practices already in use in some European countries.

The Framework Agreement entered into force on April 18, 2001 after two countries ratified it. As of June 2001, France, Germany, Sweden and the United Kingdom had ratified the Agreement. Government officials will continue to meet in the coming months to discuss how to put in place the details of the Agreement.

This paper outlines the export control regulations in the six countries in order to better understand the implications of this harmonization. Its purpose is to describe the policies that exist, without necessarily analysing those policies. It is important to note, however, that some NGOs and other like-minded organisations are highly critical of the Framework Agreement and the process related to its development and implementation, as it has lacked transparency and places industry priorities above other concerns.

BASIC will track the developments in the Framework Agreement, and future publications will go into more depth about the possible impact the Agreement may have. The first step, we believe, is increasing the level of understanding in the arms control and disarmament community on the existing policies in the six countries. This report contributes to that discussion.

Introduction

The European Union was established on the basis of facilitating the synchronization of laws concerning economics and trade. Because of concerns surrounding protection of national security and the sovereignty of each European state, matters relating to defense were left largely to national governments to decide.

Each country has developed unique laws and regulations because the Treaty of Rome Establishing the European Community (1957) allowed nations to preclude the European Union’s common regulations from application to national defense matters.

“Any member state may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes.”¹

Therefore, their sporadic efforts to standardize laws and regulations governing defense aspects of trade have been controversial and the results somewhat slow.

However, as American dominance in the defense industry has become more pronounced, European governments have come to realize that harmonization of cross-border export controls is a necessity. The reason is in part to sustain a viable defense industry capable of competing in the global market, while reducing the barriers to trade between allies. Another driving force for European governments has been the ever-growing costs of today’s weaponry, inflated even more by the price of ‘subsidizing’ national firms through ensuring certain levels of government acquisition in order to preserve jobs.

These concerns, on top of years of debate among European leaders, resulted in the July 2000 signing of a “Framework Agreement Concerning Measures to Facilitate the Restructuring and Operation of the European Defence Industry” by Europe’s six largest arms producers – France, Germany, Italy, Spain, Sweden and the United Kingdom. The agreement aims “to harmonize the requirements of their armed forces, their procurement, research and technological development policies, and defense-related aspects of their export procedures.”

The ultimate goal of the Framework Agreement is the elimination of barriers to cooperative defense production, as well as ensuring broad export possibilities. Two of the most significant policy revisions that will have to take place within the six countries will result from changes in export control procedures and the determination of export destinations for joint venture products.

There is inherent difficulty with the harmonization process between the six participating countries because of the existing differences in national legislation, and the interpretation of those laws. The risks presented by the Framework Agreement, and any subsequent agreements similar in nature, are that countries may be compelled to harmonize at the lowest level, rather than adopting the strongest controls on hand.

In order to better understand the implications of the harmonization of European defense export controls, it is first necessary to examine the regulations within each state. Such analysis, however, is made difficult because there is no EU compendium of national laws. Although countries publish their export regulations, some countries provide little, if any, transparency as to how and why decisions are made. In addition, it is difficult to categorize, compare and contrast European controls because of the varying approaches taken by just the six Framework Agreement countries. If the nine European Union member states not yet participants in the agreement are taken into consideration, the challenge only increases.

Multilateral Agreements
The Framework Agreement countries have similar international commitments with regard to arms control. All six nations are members of the five multilateral military-related export control regimes (the Zangger Committee, the Nuclear Suppliers Group, the Australia Group, the Missile Technology Control Regime, and the Wassenaar Arrangement). While not specifically harmonizing export regulations, these five groups attempt to control the flow of various materials to states of concern. There are few, if any, legally binding provisions on the actions of these groups.

All six countries also have agreed to abide by all arms embargoes put in place by either the U.N. Security Council or the European Union.

These common international commitments imply the existence of similar export regimes among the six countries. If all are using the same criteria to judge license applications, honor the same embargoes, and most belong to the same security alliance, it could be inferred that these six nations share similar arms export concerns and, therefore, regimes. However, these six countries range from “among the most restrictive in the world”² to among the weakest in controlling the flow of armaments and dual-use military goods. Further, the six countries vary significantly in their choice of acceptable export destinations, based on different historical ties and national interests outside of Europe.

European Code of Conduct on Arms Transfers
In addition to other multilateral commitments, all EU countries have agreed to an EU Code of Conduct on Arms Exports – adopted in June 1998. The EU Code recognizes “the wish of EU member states to maintain a defense industry as part of their industrial base,” while “prevent[ing] the export of equipment which might be used for internal repression or international aggression, or contribute to regional instability.”

This is a politically binding commitment between EU member states aimed at setting higher standards for the management of conventional arms transfers.

As per the conditions of the Code, the six Framework Agreement countries have agreed to abide by the following criteria:

Respect for international commitments of EU member states, in particular the sanctions imposed by the United Nations and agreements on non-proliferation.
Respect for human rights in the country of final destination.
Internal situation in the country of final destination, as a function of the existence of tensions or armed conflict.
Preservation of regional peace, security and stability.
National security of member states, as well as that of allied countries.
Behavior of the buyer country with regard to the international community, its attitude towards terrorism and respect for international law.
Risk of diversion of equipment or re-export under undesirable conditions.
Whether a proposed export would impede sustainable development in the recipient country.³

Like the five export regimes mentioned above, the EU Code is politically, not legally, binding. It was designed to be a minimum starting point from which participating states can build stronger controls. It should in no way prevent EU countries from implementing more restrictive national policies.

The EU Code of Conduct on Arms Exports provides for an annual review of its implementation. The first review was prepared in November 1999, and noted the considerable progress made towards realization of the principles contained within the Code. The second review was completed in 2000.

Because the implementation of the EU Code of Conduct is an ongoing endeavor, the second annual report identified priority guidelines for the upcoming years:

Finalization of a common list of non-military security and police equipment.
Development of exchanges of information on national control policies for the export of arms to countries or regions requiring special attention. Harmonization of operational provisions of the EU Code.
Harmonization of national annual reports on the application of the EU Code.
Coordination of EU states’ positions on arms export control within multilateral bodies.
Promotion of the EU Code’s principles in third countries.

National Export Control Systems
In order to obtain a better sense of what will ensue from European harmonization efforts, it is helpful to consider the laws and regulations currently in place within Europe’s six largest defense equipment producers. These countries have taken the first step towards coordinating their laws to allow easier export of joint venture products – a development that undoubtedly will result in further amendments to national legislation.

The six countries involved in the Framework Agreement all have affirmed governmental duty to control exports through primary legislation. However, they practice varying degrees of authority over what they attempt to license and control.

In addition, some countries have made their licensing regulations more concrete through secondary legislation, while others have simply left the details to inter-ministerial committees. This is a cause of concern because it means that some countries have more flexible systems than others, and this increased flexibility could be exploited to allow exports that would have been illegal under another system.

As a result of competing interests involved in the decision-making process, national arms export systems involve numerous, and varying, governmental ministries. This is an attempt to guarantee all interests are represented. Foreign and defense ministers frequently are represented, as they are the most capable of passing decisions on the appropriateness of an export and possible security consequences. In addition, economics ministers also frequently are involved, representing the interests of the commercial sector. Ministers in charge of internal security and other matters are sometimes placed on inter-ministerial bodies to further represent possible consequences of the proposed transaction. Members of Parliament also sometimes are involved to represent the interests of the public at large.

A national export control system allows countries to make the decisions whether or not to export certain defense-related items to particular destinations. Some of the most common elements of such systems include:

Primary Legislation
National legislation on arms exports defines the responsibility of federal governments to ensure sufficient regulation of exports. The laws will identify the governmental departments (or actors) responsible for particular steps in the export process and also will provide exporters with the information necessary to finalize transactions.

This legislation also will name, if applicable, the list of proscribed destinations, as well as the list of controlled defense items.

Countries often will build upon primary legislation by enacting additional legislation or regulations. This secondary legislation is designed to be updated when needed, without requiring the primary legislation to be completely invalidated.

It is often presumed that legislated systems provide stricter controls over arms exports because entrenched laws are not subject to change by government whim. In addition, legislated systems tend to be more transparent because of the power of parliamentary oversight. However, these laws – often enacted decades ago – do not always address political changes and technological transformations in the realm of military equipment.

Regulated systems are flexible and subject to varied interpretation and enforcement by government – therefore they can be considered weak and vulnerable. There is generally no public or parliamentary debate on proposed regulations. However, in some cases the flexibility of regulations allows particular issues and gaps to be tackled by government.

Licensing Procedures
The most effective method to execute the legislation a state has put into place is through the issuance of an export license. Some countries have many different types of licenses, dependent on factors, such as whether the items are for commercial or military export and the sort of equipment to be exported. Other countries have only one type of license, regardless of the aforementioned factors.

There are many elements that contribute to licensing decisions. First is the department or ministry responsible for making the determination. Usually one department is given the prime responsibility to approve license applications, however, it is expected to consult with other relevant bodies. In other cases, an inter-ministerial committee, comprised of representatives of appropriate departments, works to make these decisions.

Criteria for Determination of Export Destinations
The decision whether or not to export certain defense items is based on a set of criteria predetermined by national governments. In some cases, these criteria are very specific, but in some cases they are subject to wide interpretation. Often included in the list is a country’s protection of human rights and adherence to international commitments relating to arms control and non-proliferation. The criteria laid out in the EU Code of Conduct are politically binding for the six Framework countries, but they have not all legislated the criteria into national regulations.

Enforcement Mechanisms
In order to ensure that both the domestic exporter and the importing country or company is complying with all national legislation, states usually choose to enact means to follow-up on exporting activities. The most common mechanism is the use of end-use certificates. These are guarantees given by the importing country/company as to the final destination and purpose of the military equipment being transferred.

Sometimes countries agree not to re-transfer goods without prior authorization from the country of origination. This is a way to protect the exporting country from transfers to third-parties that would not have been sanctioned originally.

Transparency and Parliamentary Scrutiny⁴
Only when information surrounding the arms export activities of a state is in the public domain can that state be held accountable for its actions. The most comprehensive method is through the publication of annual reports that detail imports and exports of defense equipment. In this way, parliaments and the public can analyze the level of adherence to national policies and international commitments.

States can enhance transparency by legislating the condition of prior parliamentary scrutiny on arms exports. This allows parliamentarians to examine potential sales and determine whether such sales would be in the best interest of national and regional security.

Implementation
Even the strongest export control legislation can be undermined by weak – or deficient – policy implementation. While legislated systems often are more reliable than regulated systems, the opposite can be true – depending on the level of governmental awareness of export activities.

Even when examining the systems that appear to be relatively comprehensive, it is possible to find examples of loopholes and the exploitation of such gaps in policy.

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