AI and its impact on EU Export Control Restrictions

The new era of advanced artificial intelligence (AI) has led to the rapid development of new technologies that have an ever greater impact on people's life. Modern AI may be utilized in a variety of sectors, and, given the competitiveness and growing rivalry across the globe, maintaining a competitive edge and ensuring that the technology is not used inappropriately or stolen. Export control restrictions have been established in order to restrict and control the export of technologies that are deemed of significant economic and security interest.

The Netherlands, Japan, and the United States reached a historic agreement in January 2023, although they took great care not to publicize it or even refer to it as an agreement. No joint agreement was issued, nor was there any press conference, but the agreement represents a key focus area for the intensifying geopolitical rivalry between the US and China, as well as other countries. Having stated this, it also captures some of the most pressing difficulties the European Union faces at the nexus of global economic growth, technological advancement, and strategic rivalry.

The nations agreed to limit the transfer to China of the most sophisticated microchips and manufacturing equipment, which ASML produces. Due to their role in the development of artificial intelligence and their importance to many of the most significant technologies of the twenty-first century, these items have become a focus point in international power politics.

For the European Union, this represents a major shift in increasingly developing a more profound export control restriction environment to deal with strategic export controls. AI represents a key component for the modern economy and will be in the future even more prominent.

Export control restrictions are not something new but have been around for a long time. The Coordinating Committee on Multilateral Export Controls (CoCom), a body used by the Western bloc to cooperatively restrict the flow of key technology to the East during the Cold War, was disbanded in 1994 after it was considered not properly reflecting the economic and political realities in the post-USSR environment. Strategic export controls were tightened by the Wassenaar Arrangement (WA), which superseded it in 1996. It was designed to counter security concerns such as the spread and buildup of WMD, delivery systems, conventional weapons, and dual-use technology.

The WA has 42 participant governments and is one of four multilateral export control systems. It's significant to note that the WA commits member nations to a shared list of dual-use technology that would be restricted for export. Since the WA is not a treaty and is therefore not legally binding, these controls are afterward applied by national measures on a voluntary basis.

Although the EU's 2021 legislation greatly enhanced union-wide coordination of controls and broadened the scope of EU export controls, member states alone have the authority to regulate the export of any additional goods not covered by the WA. Although member states have the ability to impose export restrictions on dual-use technology that are not on a list, these unilateral actions are uncommon in the EU and, unlike in the US, have generally only been employed to further specific security or human rights goals. Furthermore, the EU has historically maintained a country-agnostic approach to export prohibitions in accordance with the WA and in contrast to the US. Outside of arms embargoes or sanction regimes, sustained controls directed toward a particular nation have not been a component of EU and member state policy. This is a crucial difference to export control restrictions that are imposed by the US, which are more targeted, such as towards Russia, North Korea, or China.

Due to these factors, the EU chose to impose export limits on cutting-edge technology against Russia through its sanctions framework rather than through its export control legislation. This represents a key component to note for companies to utilize AI for analyzing export control restrictions and their applications. Additionally, this is another reason why export controls on technology targeted at China that are neither included in the WA nor clearly fall within the typical dual-use scope would necessitate not just a change in the EU's China policy but also a substantial shift in EU export control policy.

Taking into account major transformations in this space, export control restrictions will become ever more complex. First of all, as the conflict in Ukraine has shown, commercial technology is becoming a more important part of military power. Narrow dual-use regulations are insufficient as systemic competitors of the EU increasingly integrate their militaries and civic sectors. Second, the EU's limited definition of national security in export control policy gets more and more out of date as technology commerce becomes more weaponized and economic security becomes a concern of national security. Third, international frameworks like the WA are breaking down more and more. The regime's lengthy procedures make it impossible for the WA to keep up with the current generation's rapid technical advancements. Specifically, it might take three years for a new technology to be classified.

The Netherlands represents an example of how individual states may adopt their own strategic directions that have to be monitored and interpreted in a timely manner. Deep ultraviolet (DUV) lithography machines, one of the most crucial equipment for producing sophisticated chips, have become subject to new national export limitations announced by the Dutch government in March 2023. The most cutting-edge lithography equipment, such as DUV and even more sophisticated extreme ultraviolet (EUV) lithography machines, are only available in the Netherlands. The Dutch government already forbade the sale of these machines to China in 2018. As a result, ASML, a Dutch firm that manufactures lithography machines, holds a significant place in supply chains for cutting-edge semiconductors.

Importantly, The Hague enlarged the Dutch understanding of national security in export control policy with these additional measures. It placed national limits on a mostly commercial technology that was not mentioned multilaterally under the WA and — informally — singled out China as a country of concern. This was a significant strategic turn. However, it also came with a considerable strategic risk and difficulty, notably for the EU.

Under the EU dual-use export control rule, EU member states are permitted to take actions that are comparable to those of the US. In 2021, after five years of tense discussions, the bloc modernized and revised this legislation. However, compared to the US structure, the EU's is far more constrained and less consistent.

When investigating how AI can assist in dealing with the determination of export control restrictions, there are various aspects that have to be taken into account, given the future development of the area.

The 2021 regulation gives member states a lot of leeway to enact national export controls to handle some of these brand-new difficulties. For instance, the regulation allows member states to have controls on the export of dual-use items. This is especially important for developing WMD and of items intended for military end-use. The law gives governments the ability to ban the export of "cyber-surveillance" technologies. To protect "public security" and associated human rights, member nations may also impose export restrictions on any dual-use goods. This requires a solid analysis of the underlying export control restrictions, such as utilizing AI to predict the similarity of technologies that may be considered under these bans. The Dutch government used its national jurisdiction to prohibit the export of non-listed commodities for the sake of "public security" when it decided to nationally control the sale of sophisticated lithography machines to China. AI may benefit in analyzing the government's decisions and its classification of what constitutes security interests.

The benefit of the existing system is that member nations continue to own the majority of the expertise in this delicate area of national security policy. Member states upheld this stance throughout the talks for the recast 2021 rule, as they normally do with regard to foreign and security policy. Additionally, the framework gives member states the freedom to dynamically modify national regulations to a shifting global environment and changing technological landscape. To agree on common EU listings, member states do not need to engage in protracted talks. Additionally, a member state that is the source of a technology under consideration for control, such as the Netherlands in the case of lithography equipment, may proceed with national export limitations that may later be imposed by other member states in accordance with Article 10 of the dual-use rule. While these are significant benefits for individual states, it creates enormous challenges to analyze the various regulations and controls.

The issue with the existing arrangement is that national decisions made by individual member states have an influence on the EU as a whole. The member state adopting the regulations may be personally vulnerable to outside pressure and reprisal, with potential ramifications for the entire bloc. This is in addition to the direct impact on businesses in other member states. Such national choices ultimately have an impact on both the common commercial policy and the common foreign and security policy. This implies that companies cannot rely on considering the single market as cohesive, as export from one jurisdiction to another may potentially be not permissive.

There has been significant engagement and discussions surrounding a new agreement. A new agreement could more precisely define and broaden the goals of EU export control policy to incorporate considerations of economic security, mandate increased coordination between member states' national actions, and implement an EU-wide control list in addition to listings agreed upon in multilateral regimes like the WA.

In light of the dysfunctionality of the WA and the likelihood of the introduction of new multilateral procedures, updating the dual-use law would also enable the EU to more flexibly link its regulations to international frameworks. New legislation may also make it possible to implement strategic controls outside the boundaries of the EU, for example, by taking legal action against non-EU firms that aid in the evasion of EU restrictions. The EU is discussing a similar strategy with the aim of preventing Russian sanctions from being evaded. This is a major complexity that arises, given the abundance of various restrictions and controls. The challenge will also continue given that it is not very likely that any of the members of the EU will agree to a new, broader regulation in the near future, given that the current dual-use regulation was only forced into force in 2021, taking into account that it took five years. The member states are generally reluctant to cede competency on export controls to the European institutions. This implies that AI will become even more critical in order to analyze the restrictions and ensure compliance with the export control restrictions.