Dual Use Technology Under India’s Foreign Trade Policy

FOREIGN TRADE POLICY

The Foreign Trade Policy of India, issued by the Ministry of Commerce and Industry, Government of India, contains provisions for the development and regulation of foreign trade by facilitating imports into, and exports from, India. In furtherance of this objective, the Foreign Trade Policy grants incentives in the form of special focus initiatives and sectoral initiatives. The Foreign Trade Policy also imposes restrictions on the import and export of certain categories of goods, services, and technologies. Export of dual use items is one such area where restrictions are imposed to protect India’s national security and foreign policy goals and objectives, objectives of global non-proliferation, and India’s obligations under treaties to which it is a State party.

In 2010, the Foreign Trade (Development & Regulation) Act, 1992 was amended to include a new chapter dealing with controls on export of specified goods and services. According to the new provisions, no goods, services or technology notified under the legislation shall be exported except in accordance with the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. The relevant section of this legislation states that no person shall export any material, equipment or technology knowing that such material, equipment or technology is intended to be used in the design or manufacture of a biological weapon, chemical weapon, nuclear weapon or other nuclear explosive device, or in their missile delivery systems.

SCOMET LIST

Pursuant to the above, under the Foreign Trade Policy of India, dual use items have been given the nomenclature of SCOMET i.e. Special Chemicals, Organisms, Materials, Equipment and Technologies. Appendix 3 of Schedule 2 of the Export Policy has put in place a regulatory framework embodying an exhaustive list of goods, services and technology, export of which is subject to fulfilment of conditions contained therein.

The SCOMET list in Appendix 3 has been divided into 8 categories of items. Category 0 in Appendix 3 deals with nuclear material, nuclear-related other materials, equipment and technology. Category 1 deals with toxic chemical agents and other chemicals. Category 2 deals with micro-organisms and toxins. Category 3 deals with material, materials processing equipment and related technologies. Category 4 deals with nuclear related other equipment, assemblies and components, test and production equipment and related technology, not controlled under Category 0. Category 5 deals with aerospace systems, equipment including production and test equipment, related technology and specially designed components and accessories thereof. Category 6 is currently reserved, and Category 7 deals with electronics, computers, and information technology including information security. Each of these categories is further broken down into various sub-categories.

Any person in India desirous of exporting any item mentioned under the SCOMET list has to obtain the requisite license for export from the Director General of Foreign Trade (“DGFT”) unless export is prohibited or is permitted without licence subject to fulfilment of conditions, if any, as indicated for any specific category or item. The licensing authority for items in Category 0 under the SCOMET list is the Department of Atomic Energy and the applicable guidelines are notified by the Department under the Atomic Energy Act, 1962.

Apart from the license required for export of specified goods, services and technology, the SCOMET guidelines also make it mandatory for all companies and their subsidiaries registered in India, and all other business entities operating in India and involved in the manufacture, processing and use of SCOMET items, to obtain permission of the Central Government before entering into any arrangement or understanding that involves an obligation to facilitate or undertake site visits, on-site verification or access to records or documentation, by foreign governments or foreign third parties, either acting directly or through an Indian party.

LICENSE AND OTHER FACTORS

Application for licence to export items covered under the SCOMET guidelines are considered on a case-to-case basis. Some of the factors considered by the DGFT before granting an export license are the end use of the SCOMET items being exported, credentials of the end user, credibility of the declarations of end use and integrity of chain of transmission of the items from supplier to end user. Further, the DGFT also assesses the export control measures instituted by the recipient state, the capabilities and objectives of programmes of the recipient state relating to weapons and their delivery, applicability to an export licence application of relevant bilateral or multilateral agreements to which India is a party and assessed risk that the exported items will fall into hands of terrorists, terrorist groups, and non-State actors.

There are some exceptions to the requirement of end use certifications. Licences for export of items under the SCOMET guidelines, other than those under Category 0, 1 and 2, solely for purpose of display or exhibition does not require any end use or end user certifications. The guidelines also state that export licence shall not be granted for display or exhibition of technology for items under Categories 0, 1 and 2. Licences for export of items under the guidelines for display or exhibition abroad are subject to a condition of re-import within a period not exceeding 6 months. Exporters can apply for an export licence for such items exhibited abroad, if the exhibitor intends to offer that item for sale during the exhibition abroad, as such sale is not permitted without a valid licence.

The DGFT also has the power to impose additional end-use conditions as may be stipulated in licences for export of items that bear possibility of diversion to, or use in development or manufacture of, or use as, systems capable of delivery of weapons of mass destruction.

TECHNOLOGY UNDER SCOMET

One of the items under the SCOMET list on which there has been a lot of debate and discussion is Technology. Appendix 3 defines “Technology” as, follows:

Except as otherwise provided for against any item in the SCOMET List, information (including information embodied in “software”) other than information in the ‘public domain’, that is capable of being used in:

  1. the development, production or use of any goods or software;
  2. the development of, or the carrying out of, an industrial or commercial activity or the provision of a service of any kind.

Explanation: When technology is described wholly or partly by reference to the uses to which it (or the goods to which it relates) may be put, it shall include services which are provided or used, or which are capable of being used, in the development, production or use of such technology or goods.”

Technology under the SCOMET guidelines is not covered in a stand-alone category. While Category 7 does deal with information technology including information security, a review of the sub-categories of Category 7 cover only items like data processing security equipment, authentication and key loader equipment etc. There are references to technology under the other categories of the SCOMET guidelines. For example, under Category 0, technology refers to technology and software for the development, production or use of prescribed substances or prescribed equipment specified in sub-category OA and OB. Under Category 3 dealing with material, materials processing equipment, and related technologies, technology refers to technology for the development, production or use of items in 3A (dealing with stealth materials) and 3B (dealing with materials processing and production equipment, related technology and specially designed components and accessories therefor). Category 5 dealing with aerospace systems, equipment including production and test equipment, related technology and specially designed components and accessories thereof refers to technology related to the development, production, testing and use of items listed in some of the other sub-categories of Category 5.

From a perusal of the above provisions, it can be seen that the SCOMET provisions contain reference to technology is always in relation to development, production or use of a product listed therein. Thus, as mentioned, technology per se is not covered under a separate category but has to be read with a specified product category listed under SCOMET. Therefore, on a plain reading of the SCOMET provisions, it seems that if a product does not fall within the ambit of the SCOMET provisions, technology for the development, production or use of such product is not likely to fall within the purview of the SCOMET provisions.

However, any technology can have many uses. It is possible that an exporter, if a layman, is not likely to forsee all possible uses of the technology. In such a case, if the exporter does not obtain an export license for a certain technology that he is exporting, and one of the uses of that technology is for development of an item falling under the scope of the SCOMET guidelines, the DGFT has the power to impose strict penalties for export of items in contravention of the provisions of the Foreign Trade Policy, which may include confiscation of the items by the adjudicating authority and fines upto five times the value of the items.

The lack of clarity in the SCOMET guidelines on whether technology per se is covered, and how export of technology is to be dealt with, has lead to a lot of confusion amongst exporters. Although the Foreign Trade Policy provides a mechanism for making clarification applications for obtaining clarity on the provisions of SCOMET, clarification applications to the DGFT inevitably get held up for months without any progress or response. While the DGFT has stipulated a time line of 2 months for processing of export license applications, they have not prescribed any timeline for clarification applications. The lack of any obligation on the DGFT to revert within a stipulated time frame provides no relief to an exporter suffering due to the ambiguous nature of the provisions.

Considering the SCOMET guidelines have been included in the Foreign Trade Policy with the intention of protecting India’s national security, we can only hope that all ambiguity on what is included in the SCOMET list is cleared at the earliest.

Seema Sukumar is a Senior Associate, and Garima Jhunjhunwala is an Associate

With J. Sagar Associates, based out of Bangalore. Seema can be contacted at seema@jsalaw.com and Garima can be contacted at garima.jhunjhunwala@jsalaw.com.

By Seema Sukumar and Garima Jhunjhunwala

 

 

 

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