The Regulatory implications of India’s membership of the Wassenaar Arrangement

 

 

 

 

India has joined the Wassenaar Arrangement (WA) on 8 December 2017 becoming the Arrangement’s 42nd Participating State. The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, commonly known as the Wassenaar Arrangement, is a multilateral export control regime (MECR). The Wassenaar Arrangement was established to contribute to regional and international security and stability by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies. Participating states seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities. It was established on 12 July 1996, in Wassenaar (the Netherlands).

India is also on the verge of joining The Australia group. The Australia Group is an informal arrangement which aims to allow exporting or trans-shipping countries to minimise the risk of assisting chemical and biological weapon (CBW) proliferation. The Group meets annually to discuss ways of increasing the effectiveness of participating countries’ national export licensing measures to prevent would-be proliferators from obtaining materials for CBW programs. Participants in the Australia Group do not undertake any legally binding obligations: the effectiveness of their cooperation depends solely on a shared commitment to CBW non-proliferation goals and the strength of their respective national measures. Key considerations in the formulation of participants’ export licensing measures are: they should be effective in impeding the production of chemical and biological weapons; they should be practical, and reasonably easy to implement, and they should not impede the normal trade of materials and equipment used for legitimate purposes. All states participating in the Australia Group are parties to the Chemical Weapons Convention (CWC) and the Biological Weapons Convention (BWC).

 

Joining of these regimes, besides having conventional strategic implications, have significant industrial/commercial spinoff as well. For instance, as a consequence of joining these multilateral institutions, in the near future, trade between the U.S. and India is likely to be simplified. After the US Commerce Department notifies India’s membership in these organizations in the Federal Register, the changes will likely reduce the exports for which a specific authorization will be required, and will increase the availability of certain license exceptions under the EAR, including Additional Permissive Re-exports (“APR”). However, to reap such benefits, India’s end of the bargain also has to be maintained.

 

The main policy instrument of the government to put into effect the obligations mandatory or otherwise as a consequence of entering the Australia Group or the Wassenaar agreement is the SCOMET list. Special Chemicals, Organism, Materials, Equipment and Technologies (SCOMET)” items are dual-use items having potential for both civilian and Weapons of Mass Destruction (WMD) applications. Export of such items is either restricted, requiring an authorisation for their export, or is prohibited. The export policy relating to SCOMET items is given in Paragraph 2.73 of Hand Book of Procedures of FTP 2015-20 and the list of such items is given in Appendix 3 to Schedule 2 of ITC (HS) Classification of Export and Import Items. There are eight broad categories of such items viz.,

  1. Nuclear materials, nuclear-related other materials, equipment and technology
  2. Toxic chemical agents and other chemicals
  3. Micro-organisms, Toxins
  4. Materials, Materials Processing Equipment, and related Technologies
  5. Nuclear-related other equipment and technology, not controlled under Category o
  6. Aerospace systems, equipment, including production and test equipment, and related technology
  7. Reserved
  8. Electronics, computers, and information technology including information security

 

All applications for export of SCOMET items as well as applications for onsite verification are considered on merits by an Inter-Ministerial Working Group (IMWG) in the DGFT under the Chairmanship of Additional Director General of Foreign Trade as per guidelines and criteria laid down in Para 2.74 of the Hand Book of Procedures. Members include, inter-alia, MEA, Cabinet Secretariat, DRDO, ISRO, DAE and Department of Chemicals & Petro-Chemicals. No export permission is required for supply of SCOMET items from DTA to SEZ. However, export permission is required if the SCOMET items are to be physically exported outside the country from SEZ. The SCOMET list which up to now was harmonised with the lists of Nuclear Suppliers Group (NSG) and Missile Technology Control Regime (MTCR) leading to India joining the MTCR in June 2016, has been further amended to fulfil the obligations of the Wassenaar agreement and the Australia group protocol, vide notification no: 29/2015-2020 dt:21/09/2017 further amending notification No.5/2015-20 dated:24/04/2017 and notification No.13/2015-20 dated:28/06/2017 .

 

Further, the following public notice has also been issued; Public Notice No. 2 7/2015-20 dated: 21/09/2017 which essentially amends Paragraph 2.72 (b) of the Handbook of Procedures of the Foreign Trade Policy (FTP) 2015-20.

The revised Paragraph 2.72 (b) of the HBP of FTP 2015-20 reads as under:-

(b) If the exporter has been notified in writing by DGFT or he knows or has reason to believe that an item not covered in the SCOMET list has a potential risk of use in or diversion to weapons of mass destruction (WMD) or in missile system or military use (including by terrorists and non-state actors), he shall apply for a SCOMET license. The export of such an item may be denied or permitted as per the procedure provided for SCOMET items in Paragraph 2.73.Note: “Military use” shall mean incorporation into items listed in SCOMET Categories 5D or 6 or for the use, development, or production of military items listed in these categories.

 

Implementing such complex provisions is hugely challenging for the Customs authority, which is the operational arm to implement the SCOMET guidelines, as primarily the customs resources are geared towards import monitoring. It is very difficult to correlate SCOMET items with HSN, this coupled with the fact of use of front companies, circumvention through third countries, exporting items just below the threshold requirements makes the task of implementation hugely challenging. The answer lies in enhanced capabilities required at the institutional level acquired through Inter Agency process of sharing information about potential export control violation, engaging with major multilateral export control regimes to understand emerging trends in proliferation issues. Effective implementation would also require significant outreach efforts.

 

 

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