The hype on high-tech

The apparent easing of curbs on high-technology exports to India by the United States is not substantive, especially in the areas of space and nuclear energy.

in New Delhi

THE India-United States talks on high-technology trade is back in the news. On September 17, Foreign Secretary Shyam Saran and U.S. Under Secretary of Commerce Kenneth Juster issued a statement in Washington on the conclusion of what has been called Phase I of the Next Steps in Strategic Partnership (NSSP) Initiative. Following this, the Indian media have hailed it as a breakthrough in India-U.S. relations that would give Indian civilian space and nuclear activities increased access to U.S. `dual use' goods. Media commentators too have gone on an overdrive terming it a diplomatic triumph. In reality, the progress made is very marginal.

The NSSP was announced on January 12, by President George Bush as a follow-up to the Bush-Vajpayee agreement of November 2001 (Frontline, January 2, 2004). It was for cooperation in civilian nuclear and space programmes and high-technology trade, as well as "dialogue on missile defence". Progress in these areas of cooperation is predicated upon a series of "reciprocal steps" taken by the two countries. At the end of "Phase I", India may have yielded more in return for insignificant gains.

Deliberations at the recently held India-U.S. Conference on Space Science, Application and Commerce in Bangalore, made it amply clear that U.S. export control laws have severely limited such cooperation and trade (Frontline, July 30). These laws include controls that follow from the U.S.' commitment to multilateral arrangements, such as the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement and the Australia Group (A.G.), as well as those imposed unilaterally by the U.S. In particular, export of `dual-use' goods is controlled by complex and stringent Export Administration Regulations (EAR) of the U.S. Department of Commerce (DOC). In addition, following the post-Pokhran sanctions, several units of the Indian Space Research Organisation (ISRO), the Department of Atomic Energy (DAE) and the Defence Research and Development Organisation (DRDO) remained on the DOC's Entity List (E.L.), which further restricted access to U.S. high-tech goods to these entities. In particular, as many as eight ISRO units were still on the E.L.

The U.S. position, right from the start, has been that such strategic partnership will be consistent with U.S. domestic laws and national security and foreign policy objectives, including compliance with international commitments. This already greatly constrains the extent to which cooperation and high-tech trade can occur. But still there is enough room in the U.S. export control policies that can be exploited to enhance space and nuclear cooperation and trade in dual-use goods. This flexibility lies in how the U.S. defines its national security and foreign policy objectives.

From the Indian perspective, therefore, the initiative will have significance only if, within the constraints, the U.S. is willing to exploit this flexibility. After many rounds of talks, the present one has probably achieved a notional shift in U.S. policy towards export of nuclear-related dual-use goods to India.

So what do we have in the joint statement? Its high-point is supposed to be the "modifications to U.S. export licensing policies that will foster cooperation in commercial space programmes and permit certain exports to power plants at safeguarded nuclear facilities". This has been portrayed by the Indian media as something major, which, unfortunately, has led to considerable consternation and uproar in the Pakistani media. A closer examination of the announced changes, however, reveals that they do not amount to much. More pertinently, according to the statement, these changes are in reciprocation of India's "implementation of measures to address proliferation concerns and to ensure compliance with U.S. export controls". What are these measures that have been taken for compliance with U.S. export control laws? The Ministry of External Affairs (MEA) has not bothered to inform Parliament or the public.

Discussions in this regard have apparently been mainly on issues relating to end-use verification by on-site visits by DOC officials. However, unlike China, which till recently resisted such end-use verifications, India has been allowing such inspections, though some Indian centres are uncomfortable with the kind of arrangement that exists. Recently, the U.S. entered into an agreement with China for such visits. Though no such agreement on the modality of end-use verifications seems to have been signed, the Saran-Juster statement would suggest that an agreement may well be on the cards during the next round of talks in mid-October 2004 in India. How intrusive are these inspections likely to be? Does the envisaged arrangement compromise on India's sovereignty in any way? The MEA would do well to clarify such issues.

The reciprocal specific changes made to the export control policies following the September 17 agreement were first stated in a press release of the DOC's Bureau of Industry and Security (BIS) - formerly Bureau of Export Administration (BXA). The corresponding amendments to the EAR were announced on September 22 through a U.S. Federal Register Notification (FR Doc: 04-21303). However, as regards the nuclear-related changes, there were glaring inconsistencies, within the notification and with the press release, as well as with the Federal Regulation Notification of October 2001 (FR Doc: 01-24648). These were corrected subsequently on September 29 through a new notification (FR Doc: 04-21837). The changes seem to have been stated correctly in the original press release but not in the September 22 official notification.

The correct changes are: the removal of ISRO headquarters, Bangalore, from the E.L.; no licensing requirement for dual-use items classified as EAR99 and XX999 for export to the seven ISRO subordinate entities that remain on the E.L.; and, a `presumption of approval' policy for all dual-use items not controlled multilaterally by NSG for nuclear proliferation reasons, if intended for the `balance-of-plant' (BOP) of the nuclear plants at the Tarapur Atomic Power Station (TAPS 1&2) and the Rajasthan Atomic Power Station (RAPS 1&2), which are under International Atomic Energy Agency (IAEA) safeguards. (The balance-of-plant in a nuclear plant refers to the non-nuclear, back-end, part that includes turbines, generators, controllers and power distribution systems.)

WHAT do these changes imply for India-U.S. high-tech trade?

Under the EAR, export of dual-use goods is controlled for various reasons - nuclear proliferation, missile technology, chemical and biological weapons, national security, foreign policy, anti-terrorism and so on - through what is called the Commerce Control List (CCL). Each item in it has a specific Export Control Classification Number (ECCN) along with specified one or more reasons for control. ECCN is a five-character number, where the second character is one of the first five alphabets and the rest are digits 0 to 9. Items `XX999' are low-tech goods that normally do not require a licence but are controlled unilaterally by the U.S. mainly for anti-terrorism reasons and are thus embargoed for countries such as Iraq, North Korea, Sudan and Syria.

There is also a category of even lower level goods, called EAR99 items, which too do not normally require a licence (see box). These do not figure in the CCL, or have an ECCN, or have specified reasons for control. However, the DOC reserves the right to control their exports for non-specific contextual reasons. Under post-Pokhran-II sanctions, an export licence was required for all EAR-controlled goods, including XX999 and EAR99 items, to all entities on the E.L., with a presumption of denial. After the October 2001 revision, licence was still required for all controlled items, but there was a presumption of approval only for EAR99 items.

The ISRO headquarters is mainly an administrative wing of ISRO. It is not directly engaged in any satellite or launch vehicle projects, which come under different research and development (R&D) units of ISRO. At best, it coordinates certain science-based multi-institutional projects involving universities and other institutions. So, ISRO headquarters itself does not import any high-tech goods. So its removal from the E.L. is only notional. If all the subordinate units had also been removed from the E.L., it would have amounted to a substantive change. As was argued earlier in these columns (Frontline, July 30), it would have then constituted a significant first step in the NSSP initiative.

Removal of licensing requirement for XX999 and EAR99 items for the other ISRO units is also not of much consequence. By definition, these are low-level goods and, therefore, do not contribute to the expanded high-tech trade being talked about. In any case, there was a presumption of approval for EAR99 items after the October 2001 revisions. Only the bureaucratic process of licence approval has now been dispensed with. However, DAE and DRDO units on the E.L. still require licence for EAR99 items, though there is a presumption of approval. The reason for this seems obvious. Unlike the DAE or the DRDO, EAR99 goods account for as much as 75-80 per cent of licence applications for ISRO. With the removal of licence requirement for the goods meant for ISRO, the total number of licence applications to DOC from India would come down by as much as 25 per cent. The U.S. would be able to portray that as a major achievement of the talks. It certainly would have symbolic value (see box).

Even the above has a caveat for U.S. exporters that follows from the Enhanced Proliferation Control Initiative (EPCI) - the "Catch-all" - provisions of the EAR. The notification says: "Neither the removal of entities from the E.L. or the removal of license requirements for entities on the E.L. relieves exporters or re-exporters of their obligations under... the EAR which provides that, `you may not, without a licence, knowingly export or re-export any item subject to the EAR to an end-user or end-use that is prohibited by... the EAR'. BIS strongly urges the use of... BIS's `Know Your Customer' Guidance and `Red Flags' when exporting or re-exporting to India" (emphasis added). Given this onus on the exporter, it is more likely that the exporter would still apply for a licence for ISRO units to be on the safe side even when there is no licence requirement. Even the bureaucratic relaxation may not really, therefore, have the minimal impact of saving time.

The third modification pertains to the nuclear field. Export of critical nuclear goods and technologies, corresponding to NSG's Trigger List, is governed by the U.S. Nuclear Proliferation Prevention Act, 1978, and is controlled by the Nuclear Regulatory Commission. As India is not a nuclear Non-Proliferation Treaty (NPT) signatory, these items are out of bounds for it.

Nuclear-related dual-use goods, on the other hand, form part of the CCL and are controlled by EAR for non-proliferation reasons. There are in all 115 such items. Of these, 103 are controlled multilaterally and correspond to NSG's Annex List of dual-use goods. The remaining 12 are controlled unilaterally by the U.S. These 115 items would, in principle, find use in reactor parts or the balance-of-plant, and could be of interest to India. The NSG guidelines do allow these to be exported to safeguarded facilities of a non-NPT signatory, not necessarily under a full-scope regime. U.S. laws too do not actually prevent these from being exported to safeguarded Indian facilities. But, given its paranoid proliferation concerns, these have been denied all along.

The present change with regard to nuclear controls changes the above situation marginally. But it is significant to the extent that there is an in-principle change in U.S. export control policy of exporting goods controlled for nuclear proliferation reasons to safeguarded Indian nuclear plants, albeit its impact currently would be minimal. What has been done is a `presumption of approval' for export of dual-use items controlled unilaterally by the U.S. for non-proliferation reasons. Essentially for balance-of-plant operations of TAPS 1&2 and RAPS 1&2. That is, of the 115-odd items controlled for non-proliferation reasons, which are significant for nuclear plant operations, those 103 items controlled multilaterally by NSG are excluded. Of the remaining 12 that would now be allowed, there are only two items that would actually be relevant for balance-of-plant operations. These are generators and valves/piping made of stainless steel alloyed with nickel and/or chromium. But these are not items that Indian industry cannot supply. In fact, the needs of not only the balance-of-plant part but the nuclear side as well have all along been met by Indian industry.

According to V.K. Chaturvedi, former Chairman of the Nuclear Power Corporation, the company has never needed to import any U.S. item for balance-of-plant operations in its plants. According to him, some U.S.-made testing equipment for the reactor part could be useful. But such items are excluded. Interestingly, even in this inconsequential `policy change', the upcoming Koodankulam plant, though it is under safeguards, has been excluded. In fact, if at all any Indian nuclear plant requires equipment for balance-of-plant, it would be the under-construction Koodankulam plant. But, viewing the development positively, the positive policy shift of exporting items controlled for proliferation reasons to safeguarded facilities should be carried further by the Indian negotiators as neither the NSG nor U.S. laws prevent the export of the other 103 items as well.

But there has been a disconcerting development even as the nuclear changes were being clarified. On September 29, the U.S. Department of State identified 14 entities for having engaged in the transfer of equipment and technology related to weapons of mass destruction. Consequently, sanctions have been imposed on them pursuant to the Iran Proliferation Act, 2000. The entities include two former chairmen of the NPC, C.M. Surender and Y.S.R. Prasad. Whether this development has any implications for U.S. policies regarding exports to Indian nuclear activities, remains to be seen.

Reverting to space cooperation, the more important issue with regard to the export of U.S. satellites, subsystems and components does not seem to have been addressed at all. These items are part of the U.S. Munitions List (USML) of the International Trade in Arms Regulation Act (ITAR) and the State Department controls their exports. With U.S.-made satellite systems dominating the satellite market, this has prevented ISRO from entering the launch services market despite low launch costs. For a launch aboard ISRO's launch vehicles, the customer would require a licence to re-export the satellite, which is usually denied. This policy (of treating satellite systems as munitions) has also prevented interested companies like Boeing from partnering ISRO to fabricate satellites. Boeing required a licence even to discuss with ISRO and exchange data (Frontline, July 30). Some discussions have taken place and Boeing is interested in some of ISRO's satellite structures for mounting its payloads. More concrete policy measures, than the above insignificant ones, are necessary if such collaborative ventures have to succeed.