RECOMMENDATIONS FOR AMENDMENT OF LEGISLATION IN THE AREA OF EXPORTS CONTROL

Introduction
These recommendations were developed within the framework of the joint project between Sweden Nuclear Inspectorate (SKI, Sweden) and Science and Technology Center (STC, Ukraine) for improvement of exports control of Ukraine on the basis of comparative analysis of the legislation of Ukraine with legislation of the European Union in the field of exports control and finding differences between national legislation of Ukraine and main provisions and principles of legislation of EU. Recommendations are designed for government agencies operating in the area of exports control and may be used for adjustment and improvement of relevant provisions of Ukrainian law.
Legislation of Baltic countries was taken for comparison. After through analysis of available legal framework of Lithuania, Latvia and Estonia in the area of control over international transfers of goods of military purpose and dual use, and other sensitive goods not mentioned in lists of multilateral regimes of export control, it was decided to take legislation for export control regimes of Estonia as a basis for comparison as the one which reflects principle provisions and requirements of EU countries in this area to the largest extent.
From the point of scope, range of exports, presence in the markets of sensitive goods, Ukraine and Estonia are incomparable. We only speak of legislative comparison with a country which previously was member of the former Soviet Union and recently became member of European Union. As we believe, it perfectly fulfilled requirements of European legislation in the area of exports control at the national level.

RECOMMENDATIONS WITH REGARD TO THE LAW OF UKRAINE “ON STATE CONTROL OVER INTERNATIONAL TRANSFERS OF GOODS OF MILITARY PURPOSE AND DUAL USE”

Recommendation 1 – Defining legislative provisions of the Law of Ukraine “On state control over international transfers of goods of military purpose and dual use” with regard to the goods which are used for the purpose of violation of human rights
The main legislative act of Ukraine in the sphere of exports control is the Law of Ukraine “On state control over international transfers of goods of military purpose and dual use” dated back to 20 February 2003 #549-IV (hereinafter referred to as the Law of Ukraine). Part 1 of this Law does not contain a definition of goods used for violation of human rights. However, the Article 4 of the Law (Principles of government policy in the field of state exports control) envisages the following as one of the policy principles:

“ensuring activities for prevention of the use of above-mentioned goods [goods of military purpose and dual use] for terrorist and other illegal aims”.

Legislation of Estonia, in particular, part 1 of the Law of Estonia (“On strategic goods”), the goods used for purposes of violation of human rights are strategic goods, i.e. they are automatically subject to control in line with this law. Paragraph 2 (point 4) of the chapter “General provisions” these goods are defined as follows:

(4) “Goods which are used for the purpose of violation of human rights” – are those goods which may not be used for purposes other than execution of death sentence, torture or other cruel, inhuman treatment or degrading treatment or punishment.

Therefore, though the Law of Ukraine envisages control over goods which may be used for the purpose of violation of human rights from a formal prospective, these goods are not included into specific list of those covered by this Law. It would be appropriate to include such definition into article 1 (General provisions) of Chapter 1 of the Law of Ukraine following the example of Estonian law. For this purpose, one has to resolve some formal discrepancy with the name of the Law which refers to goods of military purpose and dual use, and introduce the term “goods which may be used for violation of human rights”. Otherwise, these goods may be attributed to the ones with dual use as it is done in paragraph (6) of Chapter 1 of the Law of Estonia on Strategic goods, in particular:

„(6) “(6) Provisions about goods of dual use shall be applied to goods which, inter alia, may be used for the purpose of violation of human rights, unless otherwise is provided for by law”.

Anyway, this issue requires resolution by specific inclusion by the Law of Ukraine of the above mentioned goods into the list of goods which shall be subject to state exports control; a relevant list of goods which are used for violation of human rights shall also be compiled.

Recommendation 2 – Introduction of additional article ”Grounds for refusal to issue a license” into the Law of Ukraine “On state control over international transfers of goods of military purpose and dual use”
Legislation of Ukraine in the sphere of exports control envisages cases when a license (permit) for international transfer of goods subject to exports control may not be issued. However, they are scattered in various articles of the Law of Ukraine and various regulations. Unlike Ukrainian legislation, the Law of Estonia lists such cases when a license may not be issued in a single paragraph 16 (ground for refusal to issue a license), inter alia, if goods to be exported may be used for violation of human rights or for terrorist purposes. The same paragraph defines conditions under which an issue of license may be refused.
Therefore, there are clear and unambiguous instructions about absolute prohibition or possible ban of exports of goods subject to control.
Introduction of a similar chapter into the Law of Ukraine might have simplified the process of decision making by licensing authorities and would carry out a function of constrain for potential offenders of norms and rules of exports control.

Recommendation 3 – Clarifying the scope and purposes of control over intangible transfers of technology
The Law of Ukraine article 1 (Terms and definitions) of Chapter 1 (General provisions) gives a definition of the term exports. According to this definition, “exports” (please note that in terms of Ukrainian legislation in the field of export control, “technology” is viewed as goods), inter alia, includes:

“sale or transfer, in Ukraine or abroad, of the right to manage (control) goods to a legal entity of a foreign country or its representative, a foreigner or stateless person, including that through means of communications”.

Therefore, the legislation captures transfer of technology with the help of facsimile, telephone, electronic mail, etc.
At the same time, according to the Law of Estonia on strategic goods, paragraph 4 (Import, export and transit) of Chapter 1 (General provisions), exports, inter alia, include the following:

“transfer of software or technology related to goods of military purpose, with the help of an electronic system of data processing, telephone or facsimile to a foreign country. Transfer of spoken information over telephone is considered exports only if a technology concerned is contained in a document or its relevant part and read over telephone or described by telephone in a way which allows actual achievement of the same result”.

I.e. control over intangible transfers is insufficiently specific and unambiguous. The term “means of communications” should be defined more clearly and prevent equivocal interpretation in case of consideration of illegitimate international transfers of technology subject to control. In addition, provisions of a relevant Ukrainian law do not define a threshold after which spoken transfer of information becomes equivalent to fully-fledged transfer of technology as it is mentioned in Estonian law.
In addition, Wassenaar treaty Ukraine is one of founding countries of envisages the following by its recently adopted (Session of 2006) document “Best practices of implementation of control over intangible transfers”:
„1. Development national legislation with clear definition of intangible transfer of technology (ITT) with the help of both spoken communication and electronic means of transfer; including:
a) Definition of what ITT export means; and also
b) Definition of when ITT exports happen.
In view of the above, introduction of clear formulas of exports by intangible transfers in Ukrainian legislation is an urgent need.

Recommendation 4 – Including the provision concerning the report on the activity of the state service for export control into the Law of Ukraine “On state control over international transfers of goods of military purpose and dual use”

In the § 48 of the Law of Estonia «On strategic goods» (The control over Commission actions and accountability) it is stipulated that the Committee is accountable to the Government of Estonia and must render the report on its activity at least once a year. The annual reports are publicly available and are placed at the official web site of the MFA of Estonia.
According to the international commitments, Ukraine also gives annual report on the activity in the field of export control but these annual reports are not provided by the Law of Ukraine. The form of Ukrainian reports, in comparison with Estonian form, is simpler (the amount of information is less).
STC assumes that it is advisable to include the reporting provision to the article 7 of the Law of Ukraine (the information exchange in the process of the state export control realization) and to consider the use of reports form analogous to Estonian reports in the preparation of the annual reports by the State Service for Export Control of Ukraine.

Recommendation 5 – Introducing a provision of exports control into the Law of Ukraine “On principles of national security”
The second chapter “International policy for ensuring national security” of the Concept of national security of the Republic of Estonia adopted in July of 2004 defined the concept of Estonia for exports control: “…Estonia created the state system for control over strategic goods. Estonia accepts principles and legislation of EU on exports control”.
Such provision is missing in Ukrainian legislation. Taking into account the aspiration of Ukraine for approximation to EU and harmonization of its legislation with European standards it is appropriate to introduce a provision into the Law of Ukraine “On principles of national security” on fighting against illegal trading in weapons and goods of dual purpose, and on principles of exports control accepted by Ukraine.

Recommendation 6 – Development and introduction of the Law “On international sanctions”
Estonia has the Law “On international sanctions” dated back to 2 January 2003 which defines all provisions on international sanctions. For clear and unambiguous fulfillment by Ukraine of its international obligations, higher transparency and openness in the field of international security and non-proliferation, such law, no doubt, is necessary for Ukraine as well.

Recommendation 7 – Adjusting issue of financing the State Service for Export Control activities

According to the Law of Ukraine “On the state budget”, the financing of the activities of the State Service for Export Control of Ukraine is increased in the year 2007, in comparison with the year 2006, by 7 % (at the official inflation rate of 11,6 % in year 2006). At the same time the amount of the processed and issued permissive documents has increased by 10,3 % during the year.
The amount of the permissive documents issued by the SSECU 34 times bigger than in Estonia, and the staff of the SSECU is only 3 times bigger than in analogous licensing body in Estonia.
Considering the importance of the export control in the system of general security and the increasing terrorism threat in the whole world and proliferation of arms, including arms of mass destruction, while adopting the Laws of Ukraine on the state budget it is advisable to take into account the increase of the amount of tasks that are solved by the State Service for Export Control of Ukraine, and to consider this to increase its financing and staff.

Recommendation 8 - Ukraine’s transition to the EU Control List
At present time the dual-use goods are controlled in Ukraine in compliance with five Lists (according to the multilateral export control regime) that are introduced by the Resolution of the Cabinet of Ministers of Ukraine of 28.01.2004 № 86 "On ratification of the state control procedure implementation over the international transfers of dual-use goods” (edited by the Resolution of the Cabinet of Ministers N227 of March 1, 2006).
Taking into account that the EC List combines the control of different multilateral regimes in one list, provides every country with the opportunity to conduct their own national control, is applied by the majority of the EU Member States, aspiration of Ukraine for approaching to the EU and adaptation of its legislation with the corresponding European norms, STC recommends for the Ukrainian bodies of power to accomplish Ukraine’s transition to the EU Control List taking into consideration national interests.
For that it is necessary to develop a national list of Ukraine, analogous to the EU list and introduce it by the Resolution of the Government which would cancel the Resolution № 86 of 28.01.2004.

MAKING CHANGES INTO THE TERMINOLOGY OF THE LEGAL BASE OF THE EXPORT CONTROL OF UKRAINE

Recommendation 9 – Concerning more precise definition of the term “technical assistance”
The Law of Ukraine in the article 1 (Terms and definitions) of Chapter 1 (General provisions) gives definition of the term “technical assistance” – delivery of instruction, consultations, activities for refresher training, training, acquisition of practical skills and methods of work;”
According to the article 1 of the General act of EU Council 2000/401/CFSP dated back to 22 June 2000:
Technical assistance – “any technical support connected to repair, improvement, production, assembly, testing, maintenance or another technical servicing, and may have a form of instruction, training, transfer of practical knowledge about operation, or working skills, or consultations”.
I.e. definition of “technical assistance” in the Law of Ukraine is rather brief. Therefore, STC believes it is appropriate to amend this language.
It is also appropriate to take into account the following provisions of the General act of Council of EU 2000/401/CFSP while amending the regulatory framework:
Technical assistance also includes assistance “provided in spoken form”.
Technical assistance “is subject to export control if it is intended for improvement, production, processing, upgrading to operational condition, maintenance, storage, identification or widespread of chemical, biological or nuclear weapons, or other devices for production of nuclear explosions, or development, production, maintenance or storage of missiles capable of delivery of such weapons”.
Technical assistance shall not be subject to exports control, if it has a form of transfer of generally accessible information, or if such information is part of fundamental scientific research.

Recommendation 10 - Maintenance of an electronic data base of suppliers of military goods
Resolution of the Government of Estonia #60 dated back to 9 March 2004 introduced such a register and a Regulation on its introduction. The register (data base) is much more convenient than its substitution on paper. The State Service of Exports Control maintains various data bases including those on exporters of military goods. However, maintenance of such data bases is not envisaged by Ukrainian regulatory framework.
STC believes it is appropriate to stipulate such provision in the legislation of Ukraine. This will improve efficiency of exports control in Ukraine: time limits of consideration and inter-agency approval of applications for international transfers of controlled goods will be reduced, turnover of paper documents will be cut down, inter-agency agreement on documents on exports control will be accelerated.

Recommendation 11 - Terms of issuance of a general permit
According to the Law of Ukraine, article 15 (Permit and findings), an agent of international transfers of goods is granted the right to multiple transfers to specific end users in line with foreign economic contracts (agreements) upon receipt of a General permit (i.e. only to one courtly of destination of goods).
According to the paragraph 22 of the Law of Estonia “On strategic goods”, a General permit gives an agent “the right to export strategic goods or render services connected to military goods under conditions and to countries of destination defined in the General exports permit” (i.e. in several countries defined in the General permit).
STC recommends introduction of this norm into the Law of Ukraine for companies exporting products manufactured by themselves into various countries and having a reliable reputation in the sphere of exports control and having a certified system of internal company control. This will reduce costs of such companies, increase their profit, deductions to the budget and favor national interests of Ukraine. Here, risks of illegal international transfers of goods subject to control will not grow taking into account interest of such companies to observe the law and retain the above-mentioned privileges.

Recommendation 12 – “Customs execution and Customs Control over goods”
In Article 21 (Customs execution) of the Law of Ukraine it is stipulated that: “Customs execution and customs control over goods is carried out according to the procedure provided by the Customs Code of Ukraine”. But the procedures of customs control that are connected with the execution of military and dual-use goods are not stipulated by the Customs Code of Ukraine.
In the Decree of the Government of Estonia № 257 of 22.07.2004 «The procedures of customs control that refers to Strategic Goods and their transfer within the European Union and also the information that must be presented to the customs bodies» the procedures of customs control over the relocation of strategic goods across the border of Estonia are covered in full.
In the Ukrainian normative and legislative base the abovementioned procedures are specified by the Order of the Customs Service of Ukraine № 38 of 20.01.1999 «The passing procedure across the customs border of Ukraine and customs execution of the goods that are subject to export control».
Taking into account the significance of customs procedures of export control (these procedures are provided by the separate section of the EU Regulation № 1334/2000) STC suggests considering the advisability of defining the procedures of customs control over the relocation of military and dual-use goods and cooperation of different state bodies in these issues in a separate normative document of the Government of Ukraine as it is has been done in Estonia.

Recommendation 13 - Receiving of the permissive documents by the entities of international transfers of goods.
The § 12. (Licenses granting) of the Decree of the Government of Estonia № 61 of March 9, year 2004 defines that “over a period of 5 days after making decision to grant a license by the Committee on strategic goods, it must be sent to the applicant by the post registered letter”
In Ukraine the applicant (his agent) should personally receive the license at the SSECU. It increases his expenses both financial and time. To simplify the licensing process in Ukraine and to increase its effectiveness STC suggests taking into account the above-stated normative document in the article 15 of the Law of Ukraine.

Recommendation 14 – Amending the Cabinet of Ministers of Ukraine Resolution dated 08.06.1998 No. 838 On Approval of the Provision on the Procedure for Authorizing Actors of Foreign Economic Activity to Export and Import Military Goods and Goods Containing Information Constituting a State Secret
In case of export of high technology production a customer requests of appropriate guarantee for supplies and post-warranty service for 15-20 years and even longer period. Therefore conducting negotiations a potential importer expects an appropriate export authority from the enterprise-supplier for the whole term of a contract. In this regard it is reasonable to provide the enterprise-producer with the authority not limited in time.
Recommendation 15 – Amending the Cabinet of Ministers of Ukraine Resolutions dated 20.11.2003 No. 1807 On Approval of the Procedure for State Control over International Transfers of Military Goods and dated 28.01.2004 No. 86 On Approval of the Procedure for State Control over International Transfers of Military Goods and Dual-Use Goods.

STC assumes that it is advisable to shorten the term of issuing applications for international transfers of goods particularly owing to the interagency adjustment by means of implementing of electronic circulation of documents among all bodies involved in this activity.

Recommendation 16 – Paper work for warranty service of goods.
According to the current legislation of Ukraine it is envisaged to keep the paperwork for warranty service of the goods supplied earlier to the same extent as in case of international transfer of the goods.
STC believes it is valuable to introduce a regulation into an appropriate legislative act allowing an entity to implement any international transfers of goods within the warranty service without the warranty service permit with regard to goods delivered earlier.

PROPOSED TOPICS FOR STUDIES IN THE FIELD OF LEGISLATION AND PRACTICE OF EXPORT CONTROLS

1. Intangible transfers of Technology. Academy and research institutions outreach. Development on the basis of EU member states and the United States experience of the educational package for academic and scientific audience to familiarize them with the risks connected with illegal transmission of information by electronic means (including oral transmission). Study of the experience of the EU member states and the U.S.A. in the area of law enforcement concerning intangible transfers of technology.

2. Study of the EU member states experience with introducing changes and amendments to licensing documents before their use (in case when terms and conditions of the export change, including changes to the list of goods intended for exportation). Development of recommendations regarding making appropriate changes to the Ukrainian legislation providing for introducing changes and amendments to licensing documents without necessity to draw up a new licensing document that is a current practice.

3. Study of the Experience with dual-use goods licensing (2 to 3 EU member states) by the example of a procedural chain from the intent of a legal person to export controlled goods example (including catch-all control) to issuing (receiving) a licensing document that enables exportation. Special emphasis should be placed on the process of review of applications for export and sharing functions and responsibilities among licensing officers. Development of the recommendations on the improvement of similar procedures in Ukraine.
4. Study of the EU member states practice on conducting negotiations connected with a probable export of military and dual-use goods.

5. Control for Transportation of military and dual-use goods. Legislative provisions for such controls in EU member states. Enforcement. The roles of transport, freight forwarding and cargoes surveying companies involved in international transfers of controlled goods. Licensing their activities.

6. Control for Transhipment of military and dual-use goods. Legal basis for such controls in EU member states. Enforcement. Best practices. Analysis of diversion risks. Measures to prevent diversions. Case studies (violations connected with transshipment), response activities of enforcement agencies.

7. Internal Compliance Program. Study of Poland experience with certification of internal compliance divisions of exporting enterprises according to the Standard for Quality Management Systems ISO 9001:2000. Development of sound recommendations on implementation of the quality management system in respect of internal compliance divisions in Ukraine. Preparation of a Standard ISO 9001 Handbook.

8. Development of a bilingual (Ukrainian –English) Index of dual-use goods included in the Common List of dual-use items and technology. In order to guarantee unambiguity in translation of definitions in the process of preparation of updated lists adopted by plenary meeting of multilateral export control regimes.