Transcript U.S. Export Control Policy Regarding India

Defense Trade Regulatory Requirements & National
Security Reviews of Foreign Investment in the United
States
Presentation to IACC Aerospace, Defense & Homeland Security Session
Ajay Kuntamukkala, Partner
May 24, 2012
International Trade / Washington D.C.
Agenda
• Overview
• Export Controls
– History of U.S. Export Control Policy Towards India
– Export Administration Regulations
– International Traffic in Arms Regulations
• The Committee on Foreign Investment in the United
States (CFIUS)
• Summary Matrix of Regulatory Issues
• Questions
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Overview
• The aerospace, defense, and homeland security industries
are highly regulated in the United States
• U.S. export controls apply to the transfer of technology,
export and import of equipment, export of software and
source code, and the employment of foreign persons in the
United States
• Mergers, acquisitions, and joint ventures involving foreign
entities may require national security reviews by CFIUS
• Indian companies, like other foreign companies, may be
subject to these rules when they enter the U.S. market
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U.S. Export Control Laws
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History of U.S. Export Policy Towards India
• Export controls policy is a key issue in the U.S.-India
commercial relationship
– Exports controls affect only a small fraction of overall bilateral trade
– However, export controls are viewed by India as a significant strategic
and economic issue
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History of technology denial
Need for technology as a developing country
• U.S. has gradually liberalized its export controls regulations
with regard to India to reflect India’s role as a strategic
partner
• India is in the process of integrating into international export
controls and nonproliferation regimes
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History of U.S. Export Control Policy Regarding India
•
Post-Independence Era (1947-1970)
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Era of Technology Denial (1970-2000)
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1950 - US-India Technology Cooperation Agreement
1963 - Early nuclear cooperation: purchase of GE nuclear reactor for Tarapur
1963 - Early space cooperation: India launches U.S. rocket at Thumba
1970 - NPT comes into force, India does not sign
1971 - Zangger Committee established
1974 - India’s first nuclear tests; nuclear cooperation with India ceases
1974 - Nuclear Suppliers Group formed in response to Indian nuclear tests
1998 - India’s second nuclear tests; range of sanctions imposed by U.S. Government
Renaissance (2000-present)
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2000 - President Clinton visit and removal of certain sanctions against India
2001 - President Bush waives remaining sanctions on India
2003 - U.S.-India High Technology Cooperation Group
2004 - Next Steps in Strategic Partnership
2005 - U.S.-India Civil Nuclear Deal announced
2005 - New Framework for US-India Defense Relationship signed
2009 - End-Use Monitoring Arrangement; increased defense trade
2010 - President Obama visit and subsequent removal of Indian firms from Entity List
and agreement on other export control initiatives
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U.S.-India Bilateral Understanding
• On November 8, 2010, President Obama and Prime Minister
Singh committed to strengthen bilateral cooperation on
export controls and nonproliferation
– U.S. to support India’s full membership in Nuclear Suppliers Group,
Missile Technology Control Regime, Australia Group, and Wassenaar
Arrangement
•
India to implement additional controls and meet requirements of each
regime
– U.S. to remove Indian space and defense entities from the Entity List
– U.S. to realign U.S. export control licensing policy to reflect India’s
status as a strategic partner, including removing India from list of
“countries of concern”
– Expanded export control cooperation through U.S.-India High
Technology Cooperation Group
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Structure of U.S. Nuclear Export Controls
Nuclear Regulatory
Commission
Department of Energy
Part 110 Regulations
Part 810 Regulations
Nuclear reactors, fuel
cycle facilities,
components and materials
Nuclear technology
and technical
assistance
Department of Commerce:
Bureau of Industry and
Security (BIS)
State Department:
Directorate of Defense Trade
Controls (DTC)
Export Administration
Regulations (EAR)
International Traffic in Arms
Regulations (ITAR)
Commercial and “dual use”
commodities and technology
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Military items, including
nuclear weapons
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Export Administration Regulations
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Administered by the Commerce Department’s Bureau of Industry and
Security (BIS)
The EAR’s Commerce Control List (CCL) controls the export and
reexport of commercial and “dual-use” (i.e., both commercial and military
applications) goods, software and technology
EAR also controls the transfer of certain technology to foreign persons,
including Indian nationals, in the United States (“deemed exports”)
Only a small fraction of exports to India now require export licenses from
BIS
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In CY 2000, 24% of U.S. exports to India required export licenses
In CY 2009, 0.3% of U.S. exports to India required export licenses
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ITAR: Controlled Activities
• Administered by State Department’s Directorate of Defense
Trade Controls (DDTC)
• Broad restrictions on exports, reexports, imports, and
brokering of:
– Defense Articles
– Technical Data
– Defense Services
• Generally speaking, the ITAR are more restrictive than the
EAR
• Manufacturers, exporters, and brokers are required to
register with DDTC
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ITAR: Controlled Activities
• With limited exceptions, prior U.S. Government
authorization required for:
– Exports and reexports of Defense Articles
– Exports and reexports of Technical Data to foreign
persons (wherever located)
– Provision of Defense Services to foreign persons
(wherever located)
– Temporary imports of Defense Articles or Technical Data
– Proposal to sell or manufacture certain Defense Articles
– Brokering transactions involving Defense Articles or
Services
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ITAR: Who Must Comply?
• All individuals located in the United States
• U.S. citizens and permanent residents, wherever
located
• Companies organized under U.S. laws and their
employees, wherever located
• U.S. branches of non-U.S. companies
• Foreign entities and persons dealing in U.S.-origin
Defense Articles (including Technical Data) or U.S.origin Defense Services
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ITAR: Licenses and Approvals
• Primary types of licenses and approvals under the
ITAR
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Permanent Export License (DSP-5)
Temporary Export License (DSP-73)
Temporary Import License (DSP-61)
Agreements
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Technical Assistance Agreement (TAA)
Manufacturing Licensing Agreement (MLA)
Distribution Agreement
– Export license and agreements generally now bust be
filed via D-Trade
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Relevant ITAR Reform Initiatives
• DDTC has not made any India-specific regulatory changes,
but overall export control reform efforts should improve
defense trade with India
• Ongoing reform of U.S. Munitions List (USML)
• Proposed rule on components (3/15/11)
• Proposed rule on defense services (4/13/11)
• Final rule on dual nationals and third-country nationals
(5/16/11)
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The Committee on Foreign
Investment in the United States
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The Committee on Foreign Investment in the
United States
• CFIUS created to conduct national security reviews
of foreign investment and make recommendations
to the President
• U.S. continues to maintain an open, nondiscriminatory investment policy and to welcome
foreign investment
• CFIUS mandated to conduct its reviews within
context of overall investment policy; intended to
ensure that foreign direct investment remains
benign
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Exon-Florio Amendment
• Authorizes the review of any acquisition of control of
a US business by a non-US entity to determine if
the acquisition poses a threat to national security
• Grants the President the authority to block, restrict
or order divestment of any such acquisition if he
determines that there is a national security threat
and no other law is adequate to deal with it
• President’s authority only terminates if transaction is
reviewed and found not to threaten national security
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Covered Transactions Under CFIUS
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US Business
– Any entity engaged in US interstate commerce (even if foreign owned), but
only to the extent of its activities in interstate commerce
– US business need not have separate legal identity; acquisition of a division
that operates as a business meets the test.
For Exon-Florio to apply, transaction must involve:
– A merger, acquisition or takeover
– By or with a foreign person
– Which could result in foreign control
– Of a US business
Foreign government-controlled transactions
– Any covered transaction that could result in control of a US business, directly
or indirectly, by a foreign government
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CFIUS Procedures
• Process initiated by voluntary notice by parties to
transaction
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Significant amount of information required from parties (target and acquirer)
Submission of draft notice in advance of formal filing encouraged and often advisable
CFIUS also might initiate its own review
• Review process has up to three formal stages
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Initial review – 30 days (CFIUS may request additional information from parties)
CFIUS decides whether to proceed with an extended 45-day review (investigation)
If CFIUS decides to pursue investigation, at end of 45 days CFIUS must present report
to President
President must make a decision within 15 days
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Regulatory Issues Relevant to Indian Corporations in the U.S.
Aerospace, Defense, and Homeland Security Industry
CFIUS
ITAR
EAR
Acquisition of U.S.
Company
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ITAR Registration
60-Day Notification
Exports/Imports
Technology Transfer
Employment of Foreign Persons
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Exports
Technology Transfer
Employment of
Foreign Persons
Establishing Joint
Ventures in the U.S.
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ITAR Registration
Exports/Imports
Technology Transfer
Employment of Foreign Persons
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Exports
Technology Transfer
Employment of
Foreign Persons
Establishing a U.S.
Branch or Greenfield
Operation
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ITAR Registration
Exports/Imports
Technology Transfer
Employment of Foreign Persons
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Exports
Technology Transfer
Employment of
Foreign Persons
Supplying Equipment or
Services to U.S.
Government or U.S.
Company
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Exports/Imports
Technology Transfer
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Exports
Technology Transfer
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