Transit and Transhipment of Dual-Use Items India By Ritesh Kanodia and Aman Bhalla, Economic Laws Practice India implements export controls through various legislation which governs goods and activities having a direct or indirect relevance to weapons of mass destruction ( WMD ) and their related dual-use materials, equipment and technologies. Relevant legislation here includes: The Atomic Energy Act 1962; The Chemical Weapons Convention Act 2000; The Environment Protection Act 1986; The Foreign Trade (Development and Regulations) Act 1992 ( FTDR ); The Customs Act 1962; The Unlawful Activities (Prevention) Amendment Act 2004; and The Explosives Act 1908. In 2000, the Special Chemicals, Organisms, Materials, and Technologies ( SCOMET ) List was introduced under FTDR. The SCOMET List is a single, unified control list of all dual-use items, the export of which is restricted. The SCOMET List is a single, unified control list of all dualuse items, the export of which is restricted. In 2005, The Weapons of Mass Destruction and Their Delivery Systems (Prohibition of Unlawful Activities) Act 2005 ( WMD Act ) was introduced pursuant to UNSCR 1540 requiring member countries to have effective legislation in place to counter proliferation of WMD and related materials. The WMD Act expanded India s existing export control provisions, creating a unified export control law. The WMD Act provided for integrated legislation prohibiting unlawful activities and the export of WMD and their related delivery systems. The WMD Act incorporated for the first time provisions relating to the transit and transhipment of certain restricted goods and technologies, providing: notwithstanding the provisions of any other act the provisions of the Act shall apply to export, transfer, retransfer, transit and transhipment of material, equipment or technology of any description as are identified, designated, categorised or considered necessary by the Central Government, as pertinent or relevant to India as a Nuclear Weapon State, or to the national security of India, or its international obligations under any bilateral, multilateral or international treaty, Covenant, Convention to which India is a party. Section 4 of the Act defines the terms transit and transhipment : (b) brought in transit means to bring goods from any country into India by land, air, or amphibious means of transportation, where the goods are to be taken out from India on the same conveyance on which they are brought into India without any landing in India, but does not include a conveyance in innocent passage through Indian territory, Indian territorial waters or Indian airspace of a foreign conveyance carrying goods. Explanation I. A conveyance is a foreign conveyance if it is not registered in India. Explanation II. A conveyance is in innocent passage if it is not engaged in relevant activity and passes through or above Indian territorial waters or airspace without stopping or anchoring in India. (n) transhipment means to remove goods from the conveyance on which they were brought into India and to place the goods on the same or another conveyance for the purpose of taking them out of India, where these acts are carried out on a through bill of lading, through airway bill or through manifest. Explanation: through bill of lading, through airway bill and through manifest mean, respectively, a bill of lading, airway bill and manifest for the consignment of goods from a place outside India to a destination which is also outside India without a consignee in India. Section 13 of the WMD Act says that no notified item may be exported, transferred, re-transferred, brought in transit or transhipped except in accordance with the provisions of this Act or any other relevant Act. In addition, there are transfer controls on the technology of an item, the export of which is prohibited. Recent amendments to the FTDR transit and transhipment controls for dualuse goods The FTDR is the key legislation providing for controls of dual-use goods, services and technologies. The Ministry of Commerce, through the Foreign Trade Policy ( FTP ) and the Handbook of Procedures Vol. I ( the Handbook ) issued under the FTDR, is the competent authority for regulating exports. The Directorate General of Foreign Trade ( DGFT ) is a functionary of the Ministry of Commerce, responsible for the implementation and administration of Links and footnotes 1 The new SCOMET list was also notified effective from 31.03.2011 pursuant to the amendments made in the FTDR. 1 Transit and transhipment of dual-use items: 2012 www.worldecr.com
the provisions of the FTDR / FTP and the Handbook. Significant amendments were made to the FTDR in 2010, the primary focus of which was to bring in tighter trade controls especially with respect to dual-use goods 1. More specific to transit and transhipment controls on dual-use goods, the amended FTDR provides for a new Chapter IVA, which deals with transit and transhipment of specified goods, services or technologies. The term specified goods, services or technologies has been defined to mean the goods, services or technology, the export, transfer, re-transfer, transit and transhipment of which is prohibited or restricted. The restrictions on the export of dual-use goods under the The Foreign Trade (Development and Regulations) Act have been extended to include transit and transhipment controls. Section 14A of the amended FTDR makes the provisions of the WMD Act applicable to exports, transfers, retransfers, brought in transit, transhipment of, and brokering in specified goods, technology or services. Also, section 14B(2) of the amended FTDR explicitly states that, no goods, services or technology notified under this Chapter shall be exported, transferred, re-transferred, brought in transit or transshipped except in accordance with the provisions of this Act, the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 or any other relevant Act. The government has been vested with the powers to frame rules for the aforesaid under section 14B(1). Thus, in view of the aforesaid amendment, the restrictions on the export of dual-use goods under the FTDR have been extended to include transit and transhipment controls. However, while the legal authority and capability to deter, identify and halt the transit and transhipment of specified goods, services or technology have been put in place and are in effect, no specific guidelines or application procedures have been laid down for them. Still, from the above regulations, it is clear that any transit/transhipment of notified goods, services or technologies (notified under the SCOMET List) are restricted for export and would require a SCOMET licence. Prior to obtaining the licence, it is important for the exporter to verify the following: n whether the goods in transit/transhipment are controlled items n whether the goods in transit/transhipment are regulated by foreign trade policy or other laws in force n that the destination of the goods in question following exportation from India has been determined in the country from which they were originally exported prior to their original exportation and subsequent transit/transhipment and has not been changed prior to their exportation from India, or the goods are being returned to that country n that the goods in question were exported from the original country in accordance with any laws or regulations relating to the exportation of goods applying there at the time of their exportation. Procedure for obtaining licences In respect of goods, services or technologies notified under the SCOMET List (dual-use goods), the exporter has to apply for a SCOMET licence. The authority for granting the licence for all categories under the SCOMET List is the DGFT, except in the case of a SCOMET licence for atomic goods, where the licensing authority is the Department of Atomic Energy. In addition, with respect to military stores (not restricted as part of the SCOMET List), a No Objection certificate is required by the Ministry of Defence. Section 2.49 of the Handbook lays down the procedure and the criteria for the application for the grant of export licences and permissions. For dual-use items listed in the SCOMET List, an application using FORM ANF 2E has to be made to the DGFT. Such applications are then considered on their merit by the Export Facilitation Committee for export authorization. An interministerial working group in the DGFT considers these applications on the following guidelines: n credentials of the end-user, the credibility of the declaration of end use of the item or technology, the chain of transmission of the item from supplier to the end-user n the potential of the item or technology to contribute to end uses which are a threat to India s national security, foreign policy, or the objectives of global nonproliferation, or obligations to treaties n an assessment of the risk of exported items falling into the possession of terrorist organizations n export control measures instituted by the recipient state n the capabilities and objectives of programmes of the recipient state relating to weapons and their delivery n an assessment of end uses of items. Certain stipulated certifications are also required to be submitted for the consideration of an application for export authorization. The following certifications are required: 2 Transit and transhipment of dual-use items: 2012 www.worldecr.com
Penalties for non-compliance Legislation Section Penal Provisions Where any person makes or abets or attempts to abets any export in contravention of any provision FTDR 1992 S 11 l Penalty not less than Rs.10,000 or not more than five times the value of goods whichever is more l IEC / Licence may be suspended / cancelled l Goods may be confiscated Weapons of Mass Destruction Ss 14-19 l Imprisonment for a term which shall not be less than 5 years but which and their Delivery Systems may extend to life and also fine. The penalty is for unlawful dealing, (Prohibition of Unlawful (manufacture, acquire, possess, develop or transport, transfer directly or Activities) Act, 2005 indirectly etc.) of nuclear weapons or other nuclear explosive devices and their means of delivery / biological or chemical weapons or their means of delivery or transfer, acquire, possess or transport fissile or radioactive material. l Any person who knowingly causes unauthorized export to a foreign national of a notified prohibited item under this Act, shall be punishable with fine which shall not be less than Rs. 3,00,000 and which may extend to Rs. 20,00,000. Second or subsequent offence is punishable with imprisonment from 6 months to 5 years and shall also be liable to fine. l Any person who, with intent to aid any non-state actor or terrorist, transfers or makes preparation to transfer notified prohibited items under the Act, shall be punishable with imprisonment from 5 years to 10 years, and shall also be liable to fine. l Violation of any provisions of the WMD Act (viz. with respect to unauthorized export, illegal brokering, transfer, re-transfer, transit and transhipment) punishable with imprisonment from 6 months to 5 years and also be liable to fine. For second and every subsequent office, imprisonment from 1 year to 7 years. l Penalty for signing or making false declaration, statement or document fine not less than Rs. 5 Lakhs or 5 times value of materials, equipments or technology or services, whichever is more. l General penalty provision for contravention of any provisions of the Act imprisonment which may extend to 1 year, or with fine, or with both Customs Act, 1962 Ss 111-121 l Prohibited goods not exceeding the value of the goods or five thousand rupees, whichever is greater l Confiscation of goods attempted to be improperly exported l Penalty for attempting to export goods improperly l Prohibited goods (under this Act or any other law for the time being in force) not exceeding 3 times the value of goods declared by exporter or value determined under Customs Act, whichever is greater l Dutiable goods other than prohibited not exceeding duty sought to be evaded or Rs. 5000, whichever is greater l Any other goods not exceeding value of goods declared by exporter or value as determined under Customs Act, whichever is greater Atomic Energy Act, 1962 Section 24 l Contravention of following shall be liable to imprisonment up to 5 years or fine or both l Any order or conditions of a licence granted l Requirement, restrictions and/or prohibitions under any rule Chemical Weapons Section 41-43 l Penalty of Rs. 1 lacs (continuing default additional Rs. 1 lac per day) Convention Act, 2000 and/or imprisonment up to 5 years l Punishment for contravention in relation to development, production, etc., of chemical Weapons or riot control agents, etc l Punishment for contravention in relation to Toxic Chemicals, etc. / Transfer of toxic chemicals / Export-Import of toxic chemicals, listed in Schedule 1 or Schedule 2 respectively Indian Arms Act, 1959 Section 25 l Punishable with imprisonment for 3-7 years and shall also be liable to fine l Proves, or exposes or offers for sale or transfer, or has in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition in contravention of this Act, or l brings into, or takes out of, India, any arms or ammunition of any class or description in contravention of this Act 3 Transit and transhipment of dual-use items: 2012 www.worldecr.com
n that the item will only be used for the stated purpose and that such use will not be changed n that the items will not be modified or replicated without the prior approval of the Government of India n that the item, nor its replicas or derivatives, will be re-transferred without the consent of the Government of India n that the end-user shall facilitate any verification as may be required by the Government of India. Also, the Government may require additional formal assurances on end use and non-retransfer from the recipient s state. Applications for the export of items under the SCOMET List also require various documents to be submitted along with Form ANF 2E. Usually, the documents required are: n a purchase order from the foreign buyer, consignee and end-user n end-use certificates: Original enduse certificate on the end-user s letterhead giving all the relevant details of the product to be exported, the end product and end purpose for which the exported item will be used by the end-user. The complete contact details of the end-user should also be included with the original application. End-use certificates are also required to be submitted n by the foreign buyer if the foreign buyer is different from the enduser n by the consignee if it is different from the foreign buyer and the end-user n by any intermediary. It should be noted that end-use certificates should clearly reflect the chain of movement of the items that are being exported. All the items as mentioned in the purchase order need to be covered under the end-use certificates. Finally, the technical specifications of the items being exported should be submitted with the application for the perusal of the Department. The application fee for a SCOMET licence is a minimal amount, Rs. 250. Conclusion India is one of the world s largest and fastest developing economies as well as a major trading hub for Asia. Bearing in mind India s commitment to non-proliferation and duty as a leading developing economy, and India s objective to align its laws with the various multilateral regimes and obtain a permanent seat at such multilateral regimes, the Central Government should endeavour to lay down specific regulations, procedures and issue best practice guidelines (similar to those issued in jurisdictions like U.S. and the UK) for exporters and transporters. Ritesh Kanodia is an associate partner and Aman Bhalla an associate at Economic Laws Practice, Mumbai. RiteshKanodia@elp-in.com www.elplaw.in Visit WWW.WoRLDECR.CoM and subscribe today WorldECR is published and delivered by email to subscribers in an electronic, printable format, ten times a year. Articles in its first year have included reporting and analysis of the export control regimes of a variety of Asian and European countries developments in export control policy and regulation across the globe export controls due diligence International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) impact of sanctions on the shipping industry alternative approaches to combatting proliferation encryption, technology transfer and end-use and end-user controls impact of sanctions on government contracts impact of regulatory change on export and supply chain finance developments in deemed export rules EU blocking regulations under the spotlight interviews with practitioners at the coal face and more Keep up with the changes 4 Transit and transhipment of dual-use items: 2012 www.worldecr.com
WorldECR The journal of export controls and compliance General enquiries, press releases, subscriptions: info@worldecr.com Contact the editor, Tom Blass: tnb@worldecr.com tel +44 (0)7930405003 Contact the publisher, Mark Cusick: mark.cusick@worldecr.com tel: +44 (0)7702289830 WorldECR and Transit and Transhipment of Dual-Use Items 2012 are published by D.C. Houghton Ltd. Information in WorldECR and in this special report is not to be considered legal advice. The information herein is no substitute for legal advice. Opinions expressed within this guide are not to be considered official expressions of the publisher. The publisher assumes no responsibility for errors and omissions appearing within. The publisher reserves the right to accept or reject all editorial and advertising matter. The publisher does not assume any liability for unsolicited manuscripts, photographs, or artwork. D.C. Houghton Ltd 2011. All rights reserved. Reproduction in whole or in part of any text, photograph, or illustration without express written permission of the publisher is strictly prohibited. ISSN 2046-4797. Correspondence address: D.C. Houghton Ltd, Suite 17271, Lower Ground Floor, 145-157 St John Street, London EC1V 4PW England D.C. Houghton Ltd is registered in England and Wales (registered number 7490482) with its registered office at 145-157 St John St, EC1V 4PY, London, UK www.worldecr.com