FAQs on Changes made in SCOMET on 24th April 2017

1.   What is the purpose of notification No. 5 dated 24.04.2017 issued by DGFT?

DGFT has amended SCOMET from time to time in order to implement India’s international commitments and obligations in the field of non-proliferation while simultaneously ensuring that trade facilitation is accorded the highest priority.

This notification to update SCOMET is part of India’s continuing obligations as a member of the Missile Technology Control Regime (MTCR) and as an adherent to the Nuclear Suppliers Group (NSG) Guidelines. Importantly, a significant number of changes to SCOMET have been carried out to adopt the regulations and lists of the Wassenaar Arrangement and the Australia Group, two multilateral export control regimes that India wishes to join.

2.   How will industry benefit by the adoption of these additional regulations?

Government and industry have a responsibility to ensure that Indian exports are not accessed by proliferators, terrorist groups and non-state actors. Any export that inadvertently lands up in the wrong hands may have implications for our national security and affect Brand India. These regulations are an important step to address such concerns.

Further, global supply chains are increasingly interconnected. India’s trading partners would like to be assured that India’s regulations are in line with the highest standards. Adoption of these regulations is expected to act as an enabler for a greater role for Indian industry in global supply chains for high technology and value added items and strategic sector items.

3.   When do these changes come into effect?

The changes come into effect on 1 May 2017. Please note that the entire SCOMET list has been re-issued and all previous notifications in this regard stand rescinded.

4.   What about contracts and purchase orders in the pipeline?

Any application filed with DGFT or Department of Defence Production on or after 1 May 2017 will be subject to the new regulations.

5.   How do I know whether my item now falls in the ambit of the amended SCOMET?

(1)  Trade and industry members are requested to study the notification No. 5 dated 24.04.2017 carefully and in particular the following:

·         Categories 1D, 3D, 6 and 8 of SCOMET and the exemptions and exclusions set out for relevant items;

·         Commodity Identification Note of SCOMET (for arriving at the proper classification and licensing jurisdiction)

·         SCOMET Glossary (for the definitions of terms)

(2)  Industry associations such as FICCI, CII and ASSOCHAM were made aware of the anticipated changes to Category 6 and 8. These associations as well as others are being requested to inform their members about the changes to the regulations.

(3)  DGFT in coordination with the relevant Government Departments plans to conduct industry outreach awareness events in the coming months to update the stakeholders.

6.   What are the specific facilitation measures that have been announced?

(1)  The time for processing SCOMET applications is being brought down further from 45 days to 30 days. (Please refer to para 2.82 of the Handbook of Procedures)

(2)  For chemicals covered in the new Category 1D, prior authorisation will not be required if the export is to forty-one notified countries. (Please refer to Category 1D of SCOMET)

7.   What are the specific changes with regard to defence exports?

(1)  The list of Military Stores (notification No. 5 dated 24.04.2017 has been rescinded. Please refer now to Category 6 of SCOMET (Munitions List) for the items that would now be under export regulations with effect from 1 May 2017.

(2)  Department of Defence Production (DDP) would continue to be the licensing authority for Category 6 items, subject to some exceptions.

(3)  DDP would be issuing a revised Standard Operating Procedure to clarify the implications

8.   What are the specific changes with regard to chemicals?

(1)  Export of chemicals specified in Category 1C to a country that is not a State Party to the Chemical Weapons Convention would now require a Government signed End-Use Certificate. This requirement is in keeping with India’s commitments under the said Convention.

(2)  Twenty-five chemicals have been notified under a new Category 1D. However, export of these chemicals to the forty one countries that are members of the Australia Group would not require a prior authorisation.

(3)  Notification no. 5 dated 24.04.2017 has been rescinded since the three chemicals covered in the notification are now included in Category 1D.

9.   There appear to be many changes with regard to the IT sector. Is it true that the IT sector will be affected?

At first glance, it may appear that there are many new regulations for the IT sector. But if you go through the provisions carefully, it may be noted that:

(a)  Software and Technology in the public domain is excluded from the purview of regulations.

(b)  There are specific exemptions and exclusions set forth in Category 8 of SCOMET.

DGFT is planning specific industry outreach for the IT sector. All concerns of the IT sector would be addressed.

10.       What is the new provision regarding maintenance of records?

Every SCOMET authorisation holder shall maintain the specified records in manual or electronic form for a period of 5 years. Please refer to para 2.73(c) of the Handbook of Procedures as amended vide Public Notice No.  4 dated 24.04.2017.

11.       Why has Government introduced regulations for non-SCOMET items?

Para 2.72(b) of the Handbook of Procedures as amended vide Public Notice No.  4 dated 24.04.2017 provides that export can be regulated 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 or in their missile system or military end use (including by terrorists and non-state actors). In such a case, the process for authorising export would be similar to the one for SCOMET.

The basis for this provision exists in the FTDR Act 1992 and the WMD Act 2005. It is a widely accepted and adopted international best practice that is in line with Government’s non-proliferation policy of ensuring that India’s exports do not inadvertently land up in the wrong hands for illicit use.

India's latest changes in SCOMET list

The new SCOMET list as notified by DGFT is

http://dgft.gov.in/exim/2000/scomet/2017/list2017.pdf

This amendment was done to align the list with the Wassenaar Arrangement Munitions list.

US recognises India as ‘major defence partner’, changes export control laws

Recognising India’s status as a ‘Major Defence Partner’, the US has made necessary changes in its export control laws that would benefit India by facilitating smoother transfer of technologies and arms to it. The new rule that makes necessary changes in the export control laws “creates a presumption of approval” for Indian companies seeking to import Commerce Department-controlled military items, except Weapons of Mass Destruction-related goods.

This means that only under the rarest circumstances will India be denied licenses.The new rule also amends the law so that companies will not need a license at all after becoming a Validated End User (VEU).“Indian and US companies operating in India can seek VEU status for both civil and military manufacturing, and by doing so not need to obtain individual licenses. This makes it far more convenient to build a global supply chain and react quickly to changing market conditions.

Over 810 licenses representing some USD 5 billion in trade in the last half decade have been granted for goods covered under this new rule. Most of these licenses being focused on aerospace systems and ground vehicles. Additionally, under the new regulation, Indian companies will not be required by US law to seek approval for the re-export of platforms that contain less than 25 per cent US content.

This is a very favourable policy for Indian companies. The rule will make business substantially easier for Indian companies in the defence sector, especially those partnering with American companies. This gives Indian companies and US companies operating in India the ability to be reactive in real time to meet their supply chain needs.

Restrictions on export of chemicals as per SCOMET list

Export of Category 1A chemical is prohibited.

Export of chemicals listed in Category 1B is permitted only to States party to the Chemical Weapons Convention after obtaining a license from DGFT. The list of State Parties to the Chemicals Weapons Convention (CWC) and countries which are not State Parties is available on the OPCW website http://www.opcw.org.

 Export of Chemicals in Category 1C  is allowed  to  State  Parties  to the  CWC  without  an export licence subject to the condition that the exporter shall notify within 30 days of export to the National Authority, Chemicals Weapons Convention, Cabinet Secretariat; the Ministry of External Affairs (D&ISA); the Department of Chemicals & Petro-chemicals, and the DGFT of such exports in the prescribed format (Aayat Niryat Form ) along with the End-Use Certificate and submit to the DGFT a copy of the bill of entry into the destination State Party within 30  days of delivery.

   Export of chemicals in Category 1C to states not party to the Chemical Weapons Convention shall continue to be restricted and will be allowed only against an export licence, and in that case also exporters shall submit to the DGFT a copy of the bill of entry into the destination country within 30 days of export.

Export of Military Stores / Munitions from India

 Do I need a license for Export of Military Stores?

Yes, a No Objection Certificate (NOC) from Department of Defence Production is required for Export of Military Stores.

Check out the list here:- http://dgft.gov.in/Exim/2000/NOT/NOT13/not11513.pdf

A Committee under the Chairmanship of Joint Secretary (DIP) having representatives of MEA, PIC Wing of MOD, concerned SHQ(s), DRDO and any other expert, as deemed necessary, examines and makes recommendation on granting NOC for export of military stores in Appendix – II of SOP. 

In case NOC for export is not agreed to by/comments are not received from any of the stake holders, a meeting of this Committee will be scheduled after a gap of 15 days from circulation of application to all members. In case, due to certain sensitivities involved in the proposal due to any reason, the Committee is not in a position to take a final view, the matter will be placed before Defence Exports Steering Committee (DESC), which will be chaired by Secretary (Defence Production).

Cases for export of military stores in Appendix-II of SOP where EUC from Government of end user/ultimate end user country/State are not furnished, are also examined by this Committee on case to case basis and recommended for issue of NOC only if plausible justification is provided.

You can find the Standard Operating Procedure (SOP) for issue of No Objection Certificate (NOC) for Export of Military Stores at the link given below

Please check the link:

http://ddpmod.gov.in/sites/default/files/Standard%20Operating%20Procedure.pdf

Is there a prohibition on transfer of Technology related to SCOMET items?

Section 13(2) and 13(3) of the WMD Act, 2005 provide restrictions on transfer of technology. Section 13(2) clarifies that any transfer of technology of an item whose export is prohibited under this Act or any other relevant Act relating to relevant activity shall be prohibited. Note that it talks about “transfer of technology” and not “export of technology”. Section 13(3) specifies that when any technology is notified under this Act or any other relevant Act, as being subject to transfer controls, the transfer of such technology shall be restricted to the extent notified thereunder.

Transfer of technology may take place through either or both of the following modes of transfer, namely:-

a)                  by a person or from a place within India to a person or place outside India;

b)                 by a person or from a place outside India to a person, or a place, which is also outside India (but only where the transfer is by, or within the control of, person, who is a citizen of India, or any person who is a resident in India).

What are the restrictions on transfer of technology to foreign nationals?

Transfer of any controlled technology is not allowed from

a)      by a person or from a place within India to a person or place outside India;

b)     by a person or from a place outside India to a person, or a place, which is also outside India. (but only where the transfer is by, or within the control of, person, who is a citizen of India, or any person who is a resident in India).

Hence, transfer of controlled technology to foreign nationals is barred by any person who is a citizen of India, or any person who is a resident in India even if it happens outside India.

Meaning of Technology in the Indian export control regime

Para 2(m) of the Foreign Trade (Development & Regulations) Amendment Act, 2010 defines technology as follows:-

(m) “Technology” means any information (including information embodied in software), other than information in the public domain, that is capable of being used in—

(i)                the development, production or use of any goods or software;

(ii)              the development of, or the carrying out of, an industrial or commercial activity or the provision of service of any kind.

Explanation.—For the purpose of this clause—

(a)  when technology is described wholly or partly by reference to the uses to which it (or the goods to which it relates) may be put, it shall include services which are provided or used, or which are capable of being used in the development, production or use of such technology or goods;

(b)  “public domain” shall have the same meaning as assigned to it in clause (i) of section 4 of the Weapons of Mass Destruction and their Delivery System (Prohibition of Unlawful Activities) Act, 2005 (21 of 2005).]

(b)

Note:- Clause (i) of section 4 of WMD Act, 2005 defines Public Domain as

"Public domain" means domain that has no restrictions upon dissemination of information within or from it; the existence of any legal rights to intellectual property in that information does not remove such information from being in public domain;”