Chaos in Export Rules: The Winners Will Be Those Who Adapt Fastest
The European defense industry currently finds itself in a situation reminiscent of the period following a major geopolitical shift. Export controls, which for decades were seen as a tool to prevent the proliferation of weapons of mass destruction, are gradually transforming into a dynamic and politically sensitive mechanism. States use them to regulate and supervise trade in military equipment and dual-use items through export licenses and mandatory reporting. The stated goal of these controls is to reduce the risk of proliferation of sensitive technologies, their use to violate international law, or their diversion to undesirable recipients.
The export control system consists of four multilateral regimes at the international level: the Australia Group, the Missile Technology Control Regime, the Nuclear Suppliers Group, and the Wassenaar Arrangement. The latter is of greatest importance for conventional weapons, as it sets standards for transfers of military and security material, including components and technologies. Wassenaar members maintain two extensive control lists, one for munitions and military systems and the other for dual-use items. These documents cover not only physical products, but also software, technical data, specific knowledge, and technical assistance, if designed or necessary for the development, production, or use of a controlled item. In addition, states are encouraged to implement so-called catch-all controls, whereby even unlisted items can be regulated if exported for military purposes to countries under arms embargo.
However, the reality of recent years shows how actual practice is beginning to diverge from the original intention (i.e., the non-proliferation of weapons of mass destruction). States use export controls as a tool of strategic competition, leading to a rapid expansion of lists, stricter export criteria, and a greater degree of unilateral measures. The entire system is thus shifting from the realm of technocratic security to that of geopolitical competition. There is an increase in situations where export controls are motivated more by an effort to limit the industrial development of a rival, strengthen one's own technological position, or maintain a dominant position in supply chains. This is turning what was originally a stable and predictable system into an environment with an increasing degree of uncertainty.
Companies have felt the fundamental impact of this transformation most acutely. Previously, a limited number of specialists were sufficient, but today it is necessary to build teams of experts who monitor daily changes in regulations. Companies are setting up export control departments to process export license applications, assess end-user risks, screen business partners, and continuously update internal databases of technologies, materials, and components. The most visible change has been in the production of dual-use goods, which enjoyed a lower level of regulation than the defense industry. This has created an environment in which even smaller companies are forced to adopt global compliance strategies, even if they only operate in the regional market.
The growing extraterritoriality of regulations is also contributing to this situation. The United States, the European Union, China, and other powers are increasingly applying their laws to foreign entities or goods containing even minimal amounts of domestic components. American rules such as the "Affiliates Rule" (affiliation with an entity on the sanctions list) or "de minimis" (use of a certain percentage of American parts in the final product) force purely European suppliers to comply with American legislation. The result is an extreme increase in administrative burdens, longer delivery times, and growing uncertainty, which affects investment decisions and business strategies.
This pressure is then transferred to the financial sector. Creating and maintaining a compliance system is a costly process for companies. First and foremost, there are the salaries of specialists, then the development of internal processes, the implementation of software tools, employee training, legal consultations, and finally ongoing audits. The gap between companies that can absorb these investments and those for which they are beyond their capacity will continue to widen in the coming years. Surveys show that companies with high growth potential have significantly larger compliance teams and also invest much more heavily in process digitization. Major players recognize the need for automated screening of business partners. Without central databases and analytical tools for risk assessment, it is impossible to operate effectively in international business.
In the European environment, however, the growth in regulatory burdens is accompanied by pressure to increase production and self-sufficiency. Europe has declared the need to rapidly increase its capacity to produce ammunition, sensors, armored vehicles, and aviation systems. However, these goals are in direct conflict with the reality created by an increasingly complex system of controls. Companies must invest in production lines while adapting their processes to new legal requirements. This leads to a paradoxical situation. Countries want more production, but through control frameworks, they themselves complicate the possibility of rapid and efficient production and delivery.
The growing complexity of supply chains also plays a role in the overall picture. Modern weapons systems include components from dozens of countries. A delay in the delivery of a single part can block the entire project. Dependence on foreign suppliers makes European companies extremely vulnerable. If one country tightens its own control regime, this can have a direct impact on companies thousands of kilometers away. The system that was supposed to ensure security is thus creating new weaknesses. It is becoming a tool that prevents proliferation, but at the same time weakens the industrial capacities of the countries that want to defend it.
At a time when politicized export controls are placing greater demands on companies, causing administrative burdens to grow, extending delivery times, and increasing costs, there is also room for a new competitive advantage. The winner will be the one who can understand complex regulations faster than others and who can align technological progress with properly managed processes. Success will favor companies that see compliance not as a hindrance, but as a way to accelerate their own industrial strength.
