Changes to EAR Will Ease Dual Use, Space, and Medical Exports to India

February 1, 2011

On January 25, 2011, the Bureau of Industry and Security, Department of Commerce (BIS), eliminated major restrictions contained in the Export Administration Regulations on high-technology trade with India.  See 76 Fed. Reg. 4228.  This step fulfills a commitment made by President Obama during his November 2010 visit to India, in which he and Prime Minister Singh committed to expand cooperation in the trade, space, and defense sectors. As part of this agreement, the United States committed to reform its export control regulations and policies with respect to India, a goal that the new rule goes far towards achieving.

Removal of Indian Organizations from the Entity List

The new rule removes nine Indian enterprises from the Department of Commerce’s Entity List, on which they had been placed following India’s 1998 nuclear tests.  Inclusion on the Entity List triggers additional license requirements beyond those normally associated with the recipient, end use, or item sought to be exported. 

Eight of these entities are subordinate organizations of major Indian state-run defense and space organizations. The removed entities are:

  •   Bharat Dynamics Limited (BDL)

  •   Defense Research and Development Organization (DRDO) entities:
    • Armament Research and Development Establishment
    • Defense Research and Development Lab
    • Missile Research and Development Complex
    • Solid State Physics Laboratory

  •   Indian Space Research Organization (ISRO) entities:
    • Liquid Propulsion Systems Center
    • Solid Propellant Space Booster Plant
    • Sriharikota Space Center
    • Vikram Sarabhai Space Center

With the removal of these entities from the Entity List, exporters no longer need to obtain a separate or additional license beyond those otherwise required to conduct dual use trade with these entities.  However, all other applicable restrictions and regulations still apply, including those contained in other sections of the EAR Part 744.  Accordingly, depending on the Export Control Classification Number of the item, the end user and end use, a license from BIS may still be required to conduct trade with these entities.  It must also be noted that the new rule does not impact the need for licenses under the International Traffic in Arms Regulations to conduct trade in defense articles and defense services.

Moreover, several Department of Atomic Energy entities remain on the list:  Bhabha Atomic Research Center (BARC); Indira Gandhi Atomic Research Center (IGCAR); Indian Rare Earths; and any nuclear reactors (including power plants) not under International Atomic Energy Agency (IAEA) safeguards (excluding Kundankulam 1 and 2), including fuel reprocessing and enrichment facilities and heavy water production facilities and their collocated ammonia plants.  A license is still required to export any item subject to the EAR to one of these entities. 

We have also learned from BIS that the application of the license review policy for the entities remaining on the list has shifted in a positive direction.  In the past, despite a presumption of approval for EAR99 items found in Part 744, very few licenses were granted for export of EAR99 items to these entities.  However, BIS is now approving more of these license applications, particularly when the items relate to health and safety, security, or protection of the environment.

Removal of India from Restrictive Country Groups

The new BIS rule also removes India from EAR Country Groups listing countries on which certain restrictions are imposed for reasons of nuclear nonproliferation (Country Group D:2), chemical and biological nonproliferation (D:3), and missile technology (D:4).  

Nuclear Nonproliferation (D:2).  The removal of India from Country Group D:2 does not alter the status quo for the export of Commerce Control List “NP2” items to India, which did not previously require a license under a specific exemption for India at EAR § 742.3(a)(2) not available for other D:2 countries.  “NP2” items are items that the United States controls unilaterally (i.e., not under the auspices of the Nuclear Suppliers Group, or NSG) for nuclear nonproliferation reasons.  India’s removal from the D:2 category further clarifies India’s status, however, and makes this exemption unnecessary.  It also eases the permissive reexport of US-origin “NP2” items from other NSG member countries to India.  The export of “NP1” items, which are controlled multilaterally by the NSG, continues to require a license.

The removal of India from the D:2 list also does away with a license requirement imposed on US persons with respect to certain nuclear-related activities under EAR §744.6, which prohibits exporting, reexporting, or transferring any item (including items not subject to the EAR) where the US person knows it will be used in the development or use of a nuclear explosive device.  Exporters should beware, however, that the “catch-all” controls of EAR § 744.2 remain in place, and prohibit any person from exporting, reexporting, or transferring items subject to the EAR to India if he or she knows they will be used in certain nuclear explosive activities or certain safeguarded and unsafeguarded nuclear activities.

Chemical and Biological Weapons (D:3).  India’s removal from the D:3 Country Group list allows the license-free export or reexport to India of medical products containing certain pathogens and toxins.  It also means that end users in India may receive certain articles controlled for chemical and biological weapons reasons under special comprehensive licenses (SCLs) governed by EAR Part 752.

Missile, Rocket, and UAVs (D:4).  With India’s removal from the D:4 Country Group, licenses are no longer required for items related to certain rocket systems and unmanned aerial vehicle end uses.  However, licenses will still be necessary for items that the exporter knows will be employed in the development or use of systems for the delivery of chemical, biological, or nuclear weapons.  US Persons may also, without a license, now export missile-related items to India not subject to the EAR, which would otherwise have been prohibited.  This step is perhaps the most significant of the Country Group list removals, and is expected to allow for far greater cooperation in India’s civil space programs.  India will now be treated similarly to several other US space partners, such as Brazil and South Korea.

License Exceptions.  With the removal of India from the above Country Group lists, additional License Exceptions are now available for India.  These are exceptions for unaccompanied baggage (BAG) and for Additional Permissive Reexports (APR).

Missile Technology Control Regime – Addition of India to Country Group A:2

The new rule also adds India to Country Group A:2, which lists countries that are members of the Missile Technology Control Regime.  India’s inclusion on this list does not alter any licensing requirements, and a license continues to be necessary for all exports of items controlled for missile technology (MT) reasons to all destinations except Canada. While India is not a member of that regime, it has committed to abide by its export control requirements, and the United States will support India’s eventual accession.  Its placement on the A:2 list is a recognition of India’s intentions and US support for these efforts. 

Observations

The new rule marks an important step in the rapidly progressing US-India strategic and commercial relationship, as India will now be treated similarly to some of the United States’ closest allies and regime partners.  With these changes, many of the remaining dual use control requirements for US exports to India will be eliminated, reducing trade licensing requirements by an estimated 80% or more.  Moreover, the more positive approach by BIS to approval of license applications for export of EAR99 items to the remaining listed entities will also enhance trade with India.  With India’s commitment to adopt the controls of the major multilateral control regimes (namely the Missile Technology Control Regime, the Australia Group, the NSG, and the Wassenaar Arrangement) and to enhance its own export enforcement capacity, controls may be further reduced.  Currently, BIS is considering reforming controls on exports to India now in place for crime control and regional stability reasons. 

By removing major Indian defense and space organizations from the Entity List, taking India off the above Country Group lists, and easing exports in a range of high-technology areas, the United States removes a major source of tension in the trade relationship between the two countries.  This step paves the way for increased cooperation on a range of high technology issues, especially in the high technology, defense, and space sectors.  This relationship will be reinforced by an early February 2011 visit to India by Commerce Secretary Locke, a March 2011 visit by Under Secretary of Commerce for Industry and Security Eric Hirschhorn on high-technology issues, and a planned April 2011 visit by Secretary of Homeland Security Janet Napolitano.

Additional changes to the EAR and to related regulations regarding India that reflect this developing cooperative relationship are likely to be forthcoming, and we will keep you apprised of significant changes. In the meantime, if you would like to discuss this or related developments, please contact Susan Esserman (202-429-6753; sesserman@steptoe.com); Ed Krauland (202-429-8083; ekrauland@steptoe.com), Shannon MacMichael (202-429-8085; smacmichael@steptoe.com) or Michael Lieberman (202-429-8064; mlieberman@steptoe.com) in Steptoe’s Washington, DC office.