AUGUST 09, 2018

By V Sivasubramanian

THE recent US decision to grant Strategic Trade Authorisation (STA-1) status to India reflects a further recognition of India's commitment and adherence to multilateral export control regime in respect of sensitive defence and high-end technologies.

SCOMET list

It may be recalled that India has notified and has been regularly updating a list of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) as part of its continuing obligations as a member of the Missile Technology Control Regime (MTCR), Wassenaar Arrangement, Australia Group and as an adherent to the Nuclear Suppliers' Group Guidelines.The SCOMET list is organised under 9 categories (0 to 8) though items of category 7 containing sub-categories 7A to 7E have now been substituted with [Reserved] in the last update. The coverage of items category-wise is as follows:

* Governed by the Atomic Energy Act, 1962

** Governed by the extant Standard Operating Procedure issued by the Department of Defence Production in the Ministry of Defence.

The classification code is generally in the form of 5-digitswith category (1st digit), sub-category (2nd or 2&3rd digits – the 2nd digit being an Upper case alphabet) and a serial number (3-5th or 4-5th digits) though there could be variation in specific sub-categories. For example, sub-category 1A corresponds to Schedule 1 to the Chemical Weapons Convention. The items are only listed (1) to (12) [with more than one CAS (Chemical Abstract Service) number specified under each item]. Similarly, "Information security" items or functions should be considered against the provisions in (8A5, 8B5, 8C5, 8D5, 8E5)-Part-II (Information Security), even if they are components, "software" or functions of other items.

The end-use of the item would be a relevant criteria in determining the classification. If items are prima facie , classifiable under two or more headings, the heading which provides the most specific description shall be preferred to heading providing a more general description.

The items in the SCOMET list are permitted only against an export authorisation unless export is prohibited or is permitted without authorisation subject to conditions.

Bootstrapping and non-exhaustive specification

The SCOMET list is long and gets into the technological aspects and end-use in detail before the classification / coverage is decided. Even without getting into details line-by-line or category wise (which may not also be relevant for the present discussion), what is striking and hence important to note is the bootstrapping nature and the non-exhaustive specification of items in the SCOMET list.

The General Notes to SCOMET list stipulate that the object of the controls should not be defeated by the export of any non-controlled goods containing one or more controlled components when the controlled component or components are the principal element of the goods and can feasibly be removed or used for other purposes. So the SCOMET list covers (i) even non-controlled items in which the controlled component or components are the principal elements; (ii) technology; (iii) software, etc. subject to some exceptions.

Site visits, verification, transfer and brokering also covered

It is also important to note that a DGFT permission is necessary even for business entities involved in the manufacture, processing, and use of SCOMET items seeking to enter into any arrangement involving an obligation to facilitate or undertake site visits, on-site verification, etc. by foreign third parties.

The export of SCOMET items is governed by Chapter IVA of the Foreign Trade (Development & Regulation) [FT(D&R)] Act, 1992 which in turn specifies that the provisions of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) [‘WMD'] Act, 2005 shall apply in regard to export, transfer, re-transfers, brought in transit, trans-shipment of, and brokering of SCOMET items.

Catch-all control

In fact, section 14C of the FT(D&R) Act prescribes a catch-all control and goes to the extent of stipulating 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.

Punishment for violation

Sections 8 to 10 of the WMD Act specify the prohibitions relating to weapons of mass destruction, non-State actor or terrorist and intimidating acts in respect of the SCOMET items. Sections 11 and 12 specify prohibitions on export and on brokering. Section 13 specifies regulations relating to export, transfer, re-transfer, transit and transhipment of SCOMET items. Section 13(2) and 13(3) specify the prohibitions and restrictions as regards transfer of technology notified under the said Act. Even exhibition, sale, supply or transfer of any notified item to any foreign entity or a foreigner who is resident, operating, visiting, studying or conducting research or business with the territorial limits of India shall constitute an offence under the said Act [section 13(4)].

Contravention of sections 8 to 10 of the WMD Act will attract punishment with minimum imprisonment for 5 years which may extend upto imprisonment for life. The offence of exhibition, etc. of notified item to a foreign entity or foreigner [section 13(4) above] will attract penalty between Rs. 3 and 20 lakhs for the first time and imprisonment for second and every subsequent offence. All other violations will attract imprisonment between 6 months and 5 years for the first offence and between 1 to 7 years for second and each subsequent offence.

Standalone application of WMD Act

However, we may note here that the WMD Act has a standalone application as well,with section 23 of the said Act providing for an overriding application to the said Act notwithstanding anything contained in any other enactment or instrument having the force of law. The WMD Act applies to citizens of India outside India; foreigners while in India;companies or bodies corporate registered or incorporated in India or having their associates, branches or subsidiaries outside India; any ship, aircraft or other means of transport whether registered in India or elsewhere, wherever it may be; and persons in the service of the Government of India.

Moreover, where any act or omission constitutes an offence under the WMD Act as well as under any other law, the greater of the punishments shall apply.

Action forward for trade and Administration

While the US decision may take India closer to gaining membership of the Nuclear Suppliers Group (NSG), I am sure this decision also puts extra burden on Indian shoulders – whether of the Administration or in the Trade – to take greater care that sensitive defence and high-end technologies do not fall into wrong hands. The reputational harm to India from breach of export controls on such items/technologies could be substantial with implications far beyond quantification in financial terms.

Given the wide coverage and severity of the punishment as discussed above, and the reputational risk involved, there may be merit in anyone even remotely handling items in the SCOMET list to ensure that he fully complies with the legal provisions and making sure that he leaves nothing to chance.

(The author is Advocate and Executive Partner, Lakshmikumaran & Sridharan. Views are personal.)