Foreign trade law comprises complex legal provisions and requirements that regulate foreign trade. It applies not only to the movement of goods, but also to the provision of services, the movement of capital and payments with foreign countries. Economic and trade policy interests, as well as security and foreign policy reasons, are reflected in the regulations and restrictions on cross-border trade. National, European and international foreign trade law is therefore strongly influenced by the global political situation and existing conflicts. This repeatedly leads to often short-term changes in legal requirements with far-reaching effects on existing or planned business and transactions as well as on entire business strategies for foreign markets. The acquisition of companies by foreign investors has also come under the spotlight of foreign trade law due to repeated tightening of the laws.
Companies are faced with the challenge of independently complying with the complex requirements of foreign trade law. The large number of provisions and framework conditions makes implementation within the company particularly demanding. Nevertheless, companies must address this challenge to avoid legal risks such as fines, personal criminal liability or the loss of revenue that could threaten their very existence, as well as reputational risks. At the same time, it is important to integrate the internal implementation into the company’s processes as effectively as possible to ensure that cross-border customer and supplier relationships run as smoothly as possible.
With our many years of experience and expertise, we support in meeting all challenges that foreign trade law presents. We offer practical and industry-specific legal, compliance and organizational advice in all individual areas of foreign trade law and trade compliance. Our aim is to enable our clients to conduct, develop and expand their business securely.
The export control law, as the core of the European (EU Dual-Use Regulation) and German (Foreign Trade and Payments Act, Foreign Trade and Payments Ordinance) foreign trade laws, regulates the cross-border movement of goods (items, software, technology) and services with foreign countries.
Primarily, armaments and so-called dual-use goods, which are listed in corresponding lists of goods, are subject to export control licensing requirements. But the export of other, non-listed goods may also require a license in case of critical use possibilities, e.g. in the areas of military, NBC weapons, carrier rockets, civil nuclear power and digital surveillance. The restrictions also apply in particular to exports of software and technology that are not carried out physically but by data transfer. Cross-border services may also require a license if they are associated with a critical use. In this case, it does not matter whether the service is provided domestically or abroad.
Exports or services requiring a license require a prior application and the granting of a license by the responsible export control authority. However, in some cases and under certain conditions, simplified licensing procedures (e.g. general licenses) can also be used.
Violations of licensing requirements are subject to severe penalties and fines. Moreover, doubts on the part of the authorities that the export is not subject to a license requirement can lead to delays or even prevent the export during customs export processing.
Identifying existing licensing requirements is therefore an essential prerequisite for companies to ensure that their foreign trade business activities are legally compliant and successful.
Embargoes are specific sanctions against certain countries and certain individuals. They go well beyond the usual limitations of export control law, overriding them and adding further restrictions, usually in the form of prohibitions.
Country embargoes sometimes contain complex restrictions against certain countries that can affect all areas of business activities. These include the movement of goods and services, as well as the financial, insurance and capital markets. Investment, money transfer and traffic restrictions can also be the subject of embargo measures. Such measures regularly come into effect as soon as a contract is concluded and affect both export and import situations. Embargo restrictions are always designed to be country-specific and vary in their restrictive nature. They can lead to significant restrictions on economic activity with a country.
Personal embargoes include prohibitions on the provision of funds and economic resources of any kind to certain individuals, companies and organizations included on so-called sanctions lists. In practice, economic relations with listed parties are then effectively prohibited.
The complex embargo regulations, their rapid change and significant liability relevance require special attention. Companies should develop compliance measures tailored to their specific risk profile to avoid violations and sanctions.
Non-US companies also often must deal with US (re)export control law and US sanctions (US embargoes). At least if there is a link with the USA (US nexus) in the specific business transaction, the provisions of US (re)export control law have extraterritorial effect. A US nexus may arise, for example, from the involvement of a US person, from the fact that the goods are US items, or from the fact that non-US items contain US components (de minimis rule) or have been manufactured using certain US technology or US software (foreign direct product rule). Thus, companies outside the US are often affected by the requirements of US (re-)export control law and, for example, are obliged to obtain re-export licenses from the relevant US export control authority (BIS).
A special feature of the US sanctions administered by the OFAC are so-called “secondary sanctions”. In contrast to “primary sanctions”, which generally only apply to US persons, “secondary sanctions” prohibit certain business activities even without a US nexus. They aim to sanction non-US persons as well.
The regulatory system of US (re-)export control and sanctions law and the interplay of various provisions make it appear impenetrable, especially for non-US companies. At the same time, violations of US law can have serious consequences for companies concerned. Analyzing the extent to which US law applies and implementing the compliance measures derived from it is the basis for effectively countering these risks.
Foreign direct investments are an important factor for Germany’s economic development. In individual cases, however, they may affect or even endanger national security interests. The foreign trade law therefore allows the Federal Ministry for Economic Affairs and Energy to review M&A transactions, to impose conditions or even to prohibit them to prevent security-critical influences and to protect sovereignty in key technologies.
Investment control no longer applies only to the acquisition of companies in the defense or IT security sector, but also to other areas such as critical infrastructures, telecommunications, health care, artificial intelligence, robotics and other key technologies. Starting at an acquisition threshold of 25%, an investment review can even be initiated independently of the product portfolio. The foreign investor may be subject to reporting obligations under foreign direct investment rules. Furthermore, the regulations on foreign investment control also affect the legal validity of the acquisition.Before making foreign investments in German companies, it is therefore important to clarify at an early stage whether the transaction is subject to foreign direct investment law and, if so, what measures need to be taken.
Customs export rules are primarily regulated at the European level by the Union Customs Code (UCC) and its implementing provisions (UCC-DA and UCC-IA) but are supplemented at the national level by further provisions, e.g. in Germany, among others, by the Foreign Trade and Payments Ordinance. Exports of tangible goods from the EU must generally be transferred to a customs export procedure. This requires a customs export declaration to the customs authorities, who check the export process and “release” it to the exporter.
In this context, customs, export control and other foreign trade regulations intertwine and must be considered. Ultimately, the export note also has implications under VAT law as proof of a VAT-exempt delivery. Certain simplifications of the export procedure under customs law require a customs approval, which the exporter must apply for.
Apart from certain exceptions, export declarations must be submitted to the customs authorities electronically. Missing export declarations or those with incorrect content (e.g. an incorrect document code) may constitute an administrative offense. Even when service providers are involved in customs export processing, the responsibility remains with the exporting company. If the customs authorities have doubts regarding the legal admissibility of an export, the export shipment will not be released for export until the legal situation has been clarified. This can lead to delays or even to the prevention of delivery.Through a legally compliant export process that considers customs and foreign trade law requirements and is seamlessly integrated into the company’s logistics processes, exports can be made on time.
Cross-border payments, existing stocks of liabilities and claims, along with corporate participations, are subject to regular reporting requirements under foreign trade law to the German Bundesbank (Z and K reports). Payments to and from abroad must be reported monthly if they exceed a certain value, subject to individual exceptions. Similarly, claims and liabilities of German companies against foreign nationals must be reported if the claims or liabilities exceed a certain amount at the end of the month. In addition, cross-border corporate participations may be subject to an annual reporting requirement. This applies both to German corporate participations abroad and to foreign corporate participations in Germany.
In this context, guidance and information sheets from the Bundesbank are often the first source of information regarding the implementation of the reporting requirements. Fulfilling obligations in this context in a timely and comprehensive manner is therefore a difficult and ongoing task.Many companies are unaware of these reporting requirements or assume that their commercial banks are handling the reporting for them. This often leads unintentionally to punishable violations. Yet even unintentional violations can be sanctioned with a fine. However, self-disclosure of inadvertently omitted reports is possible under certain conditions, thereby avoiding sanctions.
The War Weapons Control Act (KrWaffKontrG) contains strict restrictions and obligations that apply to the handling of weapons of war. The production, change of possession, transport and so-called foreign transactions with weapons of war, which are listed in the war weapons list, are subject to license requirements and the control of the Federal Government or certain federal ministries. In addition, special security and reporting requirements must be observed and a war weapons book must be kept. Furthermore, there are general prohibitions on certain weapons of war (NBC weapons, anti-personnel mines and cluster munitions). Since weapons of war are a subset of the listed military equipment, the control of weapons of war in the military equipment sector overlaps with foreign trade law. Cross-border matters concerning weapons of war must therefore always be considered in the light of war weapons control law and foreign trade law and may require licenses under both sets of regulations.
Violations of the War Weapons Control Act are generally criminal offenses, whether committed intentionally or negligently. In addition, they can have a significant impact on the reliability of a company, which is a prerequisite for obtaining and maintaining licenses.
Companies that deal with weapons of war must therefore always pay particular attention to compliance with the licensing and other obligations of the war weapons control law. These complex issues and requirements should be addressed through effective measures and established processes.
Foreign trade law rarely exists in isolation. In many areas of foreign trade, there are intersections with other topics and areas of law.
These include
- Import (customs clearance, customs procedures with economic impact, tariff classification, anti-dumping, origin of goods and preferences)
- Prohibitions and restrictions (including ChemG, PIC-VO, REACH-VO, CITES, AbfVerbrG)
- Excise duties (energy, electricity, alcohol, tobacco and coffee tax)
- VAT
- Money laundering
- General commercial law
If aspects from these or other areas are relevant, we will either support you ourselves or with the help of specialized cooperating law firms in Germany and abroad from our “best friends” network.
