Beyond borders: the importance of U.S. Export Controls for EU companies

EU-based companies exporting dual-use items will usually start their export-control assessment with EU law. In particular, they will consider whether Regulation (EU) 2021/821 requires an export authorization and whether the destination, end-user or intended end-use gives rise to additional restrictions.

That EU-law assessment may not always be sufficient. Where a product, software, technology or production process has a sufficient U.S. nexus, the U.S. Export Administration Regulations may also become relevant, even if the item is manufactured in the EU, sold by an EU company and exported from EU territory.

This blog explains how export controls operate in relation to dual-use items, how the EU framework applies, and why EU companies may also need to account for U.S. export-control rules when their products or supply chains involve controlled U.S.-origin components, software or technology.

What are export controls?

Export controls enable states to regulate the cross-border movement of goods, technology, software and services. By subjecting exports to licensing requirements and end-use restrictions, states can monitor and influence where strategically sensitive items ultimately end up. Export controls are closely tied to national security and foreign policy: a state may want to prevent certain goods that can be used to do harm from reaching conflict zones or ensure that advanced semiconductor equipment does not reach the production base of a strategic competitor, as seen in ongoing U.S. restrictions on China’s access to advanced chips.

While export controls are in place for various categories of items under different legal frameworks, this blogpost focuses exclusively on dual-use items. Dual-use items are goods, software and technology that can be used for both civilian and military applications based on their technical characteristics.  One can think for example of microchips and advanced integrated circuits that can be used to power everyday commercial electronics, but can equally be integrated into weapons systems or surveillance technology.

Within the EU, dual-use exports are governed by Regulation (EU) 2021/821 (the EU Dual-Use Regulation).The EU Dual-Use Regulation requires authorization for the export of listed dual-use items and imposes so-called catch-all controls in certain circumstances. This is for example the case where an exporter has been informed, knows or has grounds for suspecting that non-listed items may be intended for use in connection with weapons of mass destruction or certain military end-uses. Licensing and enforcement take place at Member State level. The EU Dual-Use Regulation is primarily territorial in scope, covering exports from the EU customs territory and certain related activities, including intra-EU transfers, brokering, technical assistance and transit. As a general rule, it does not regulate the subsequent use of EU-origin content once that content has been incorporated into products manufactured outside the EU.

When do U.S. export controls become relevant for EU exporters?

For EU-based exporters, the EU Dual-Use Regulation is the natural starting point when exporting goods from the EU. However, where a product, software or technology has a sufficient U.S. nexus, the U.S. Export Administration Regulations (EAR) may also become relevant.

In contrast to the EU Dual-Use Regulation, the EAR is not limited to export from the U.S. or to transactions carried out by U.S. companies. In certain circumstances, the EAR can apply to items located outside the U.S. including items exported from the EU, because of their connection to U.S.-origin goods, software or technology. This is where the EAR really differs from the EU Dual-Use Regulation. Rather than being limited to exports from U.S. territory, the EAR can continue to apply to controlled U.S.-origin items, and to foreign-made items with a sufficient U.S. nexus, after they have left the United States.

The EAR has several mechanisms in place to reach EU companies, which we will briefly explain.

• First, U.S.-origin items generally remain subject to the EAR after they left the United States. If an EU company re-exports a U.S.-origin items to a third country, the U.S. may require a license for that export depending on the item’s classification, destination, end-user and end-use, even where the original export from the U.S. to the EU was lawful.
• Secondly, foreign-made products may themselves become subject to the EAR if they incorporate controlled U.S.-origin content above a certain threshold, the so-called de minimis. In practice, this means that an EU-manufactured product may be subject to U.S. export controls if it contains U.S.-origin components, software or technology in sufficient quantity or of sufficient sensitivity.
• Thirdly, the Foreign Direct Product Rule can capture certain foreign-made items even where they do not physically contain U.S.-origin content. In simplified terms, the rule may apply where a foreign-made item is produced using specified U.S.-origin technology or software, or certain equipment that is itself based on such technology or software, and where the relevant product, destination, end-user or end-use criteria are met. This rule is particularly important in sectors such as advanced semiconductors, semiconductor manufacturing equipment and other strategically sensitive technologies.

What does this mean for EU producers of dual-use goods?

For a producer based in the Netherlands, France, or Germany, the EU Dual-Use Regulation will be the primary framework for assessing whether a dual-use item may be exported. That assessment will focus on, among other things, the classification of the item under EU law, the destination, the end-user, the intended end-use and any applicable licensing requirement. However, where the item or the relevant production process has a sufficient U.S. nexus, that analysis may not be exhaustive.

The legal consequence is that the exporter may need to determine not only whether the transaction is permissible under EU and national export-control law, but also whether the item is “subject to the EAR” and, if so, whether a U.S. licensing requirement applies. This is a separate inquiry, governed by U.S. classification, destination, end-user and end-use controls.

By way of example, consider an EU-based manufacturer of semiconductor manufacturing equipment. The equipment may be designed and manufactured entirely in the Netherlands and may, from a Dutch and EU export control perspective, be sold to a buyer outside the EU, whether freely or pursuant to an EU export authorisation. Yet if the equipment incorporates controlled U.S.-origin content, or is developed using specified U.S.-origin technology or software, the export may also fall within scope of the EAR, potentially requiring a U.S. export licence. In other words: a transaction that is fully compliant with Dutch and EU law can still require a separate assessment, and potentially a separate license under U.S. rules before it may proceed.

What are the recent developments within the U.S. export control regime?

The issue is therefore not only that EU companies may already fall within the scope of the EAR. It is that the range of technologies and supply chains for which this analysis matters is expanding. Recent U.S. export-control policy has increasingly focused on strategic technologies, in particular advanced semiconductors, semiconductor manufacturing equipment, artificial intelligence and other technologies considered critical to national security.

This trend also explains the U.S. push for closer alignment with allied export-control regimes. The proposed Multilateral Alignment of Technology Controls on Hardware Act, better known as the MATCH Act, is an example. The proposal aims to prevent adversaries from obtaining advanced semiconductor manufacturing equipment from the United States or countries the U.S. defines allies, equipment they cannot build themselves. If enacted, the MATCH Act would seek to strengthen multilateral controls on advanced semiconductor manufacturing equipment and reduce the risk that allied-country suppliers provide access to equipment that U.S. exporters are restricted from supplying. Whether or not the proposal is enacted in its current form, it reflects a broader policy direction: U.S. export controls are becoming more closely linked to allied coordination in strategically sensitive sectors.

Conclusion

Compliance with EU export-control law alone is not always sufficient for EU companies exporting dual-use items. European companies should separately assess whether their products, technology, or supply chains contain U.S.-origin content that could cause the item or transaction to become subject to the EAR.

Recent legislative proposals, including the MATCH Act, reflect a broader trend towards closer multilateral alignment in strategically sensitive sectors. Exposure to U.S. export-control law is therefore unlikely to diminish. European companies are well advised to map U.S.-origin content in their portfolio and supply chains, and incorporate a U.S. export control assessment into their existing compliance policies, rather than treating it as an afterthought to national and EU compliance.