Trade & Security

Nuclear renaissance at cross hurdle of judicial activism

2011-11-15T04:07:00.000-08:00

Writ in Supreme court against nuclear energy
Prospects of nuclear energy renaissance post Indo-US nuclear deal now faced with unexpected hurdle of judicial activism in the form of public interest litigation(PIL). Common Cause , the delhi based NGO, an old hand at PILs through its lawyer Prashant Bhushan filed a writ petition no. 464/2011 in the supreme court that came up for hearing on 14th November 2011.
The petitioners are mostly former bureaucrats led by former cabinet secretary TSR Subramanian. An assortment of retired IAS officers having occupied sensitive top positions in government and at one or other time might have been party to decision processes leading to Indo-US nuclear deal. Also included are some former Magsasay ward winners like retired Admiral L Ramdas. The Magsasy award sponsored by Ford Foundation has recently been in news in anti-corruption movement of Anna Hazare when one of demand in the controversial Jan Lokpal bill wanted the Magsasy awardees in the penal to select Lokpal. The lawyer of the petitioners is none other than the irrepressible Prashant Bhushan of Team Anna.
That apart, the writ among other challenges the constitutional validity of nuclear liability act passed by the parliament last year, seeks a safety assessment of all nuclear plants in India, and a comprehensive long term cost- benefit analysis of nuclear power. It aggressively seeks to put an end to construction and proposal of any more nuclear power plants pending safety review. It alleges that governments solitary motive in pushing for nuclear power is at the behest of multi-billion dollar global nuclear industry. The proposed French company Areva supplied nuclear plants in Jaitapur have come for special crititcism for its poor, unsafe and outdated technology from the anti-nuclear energy activists in the petition. Building heavily on public fears post Fukuyama, the petition also calls for establishing an independent regulatory authority to oversee nuclear power sector. , The current regulator, Atomic Energy Regulatory Board( AERB) they argue, is loaded with former atomic energy scientists hence can’t be relied to exercise their authority impartially.
The writ petition came up for hearing on 14th November in the court of Hon’ble Chief Justice of India. The court bluntly informed the lawyer of the petitioners that the issues raised on safety were more based on hearsay, stray newspaper reports rather than hard and unbiased factual analysis. Besides, the court was not an expert on nuclear safety matters. It rightly advised them to approach the concerned of the government i.e deptt of atomic energy. Court was hardly persuaded by Prashant Bhushan’s repeated pleas to intervene on regulatory issue when he learnt that court would not entertain any points concerning safety issues with complex technical implications. It further opined that if issue involved safety of any particular reactor or general safety norms, they could issue notice to the atomic energy department and seek information to alley their apprehension. In case government was not found to be sensitive to the safety aspects, courts were at liberty to intervene in public interest at any time.
The petitioners often referred to proposed Areva reactors in Jaitapur to drive home the point that French firm’s technology was old and unsafe and India was a dumping ground from what had now become prohibitively costly and outdated technology. Besides they were at pains to point out that india was expanding its civilian nuclear program much against prevailing global trend of phasing out nuclear power. Examples of Austria, Germany were pointed out. Dr Gopal Krishnan, a former retired DAE chairman’s articles and statements in media were made rallying points against the Indian nuclear program by Prahsant Bhushan. The learned judges didn’t fail to notice petitioners reference to a particular foreign supplier and hinted at the anomaly in lawyer activists views despite his lack of any competence of nuclear safety issues and comparative economic cost-benefit analysis of nuclear power. The argument clearly had shades of market access battle between operators.
In the prevailing mood of resistance largely led by anti-nuclear activists, it is likely that nuclear program will face renewed resistance at local level. Even though these trends are somewhat global and not localized strictly, nuclear industry is much to blame for the current state of affairs. The safety technologies have leapfrogged since Chernobyl and Three Mile Island accidents happened. Fukushima was hardly about robustness and reliability of safety technologies but more about a freak natural calamity that had lowest odds of disabling a reactor. Yet it happened because there is nothing like hundred percent safe technology anywhere. Nuclear industry due to sensitive proliferation concerns has failed to educate the public about safety standards in latest generation reactors. It needs to build a balanced and careful approach to improve transparency in safety operations without endangering security issues inherent in operation of nuclear power plants.
The blog will follow the development in this court battle when it is resumed and will inform readers as debate progresses.

Sabarmati to Ralegan Sidhi; A Travellers Short Tale

2011-09-06T20:50:00.000-07:00

On the day Anna wound up his fast at Ram lila maidan, our ground zero of anti-corrruption crusade, it was flattering to witness history in making. The euphoric air of truimph blew harder with Kejriwal's 'mission accomplished' speech. Many I talked to said they no more felt the abscence of 'living presence' of Gandhi whom they were content to know through school text books or see in rupee bills. (Yes. The rupee bill whose mysterious catwalk is at the heart of the dispute.) They had now a 'real one' standing on the dias before them. A very redemptive moment for a long suffering people.
An enduring mystery of our culture , so providential, that it produces at every hinge point a great man who matches the moment. Or is it merely wish fulfillemnt of a civilization steeped in mythology of Mahabharata where Lord Krishna counsels Arjun to not despair as he is ever re-incarnate in any epoch that sees a decline of 'Dharma'. (Yeda, yeda hi dharmashya glanirbhavati bharat..)? Whatever that was. Anna gave wings to myths and whole nation looked up into the sky with thanksgiving gaze.
This is just the beginning. If Gandhi shifted his earthly office from Sabarmati to Ralegan sidhi, then he will have appoint his new Nehru's, Patels et al, to complete the mission. A 'Team' is ready to fill that vacuous imagination of our history while antagonists are ready to introduce their Jinnahs and juveniles .
If artistic defficiencies of this narrative has trumped your thoughts and you haven't seen the unfolding face of future, then read on...

Kurt Godel and Anna Hazare: Logic of checks and balances

2011-08-21T23:50:00.000-07:00

The connection looks so distant and incomprehensible that I begin by fixing some background to it.
Godel was the one of greatest logician who made immense impact upon scientific and philosophical thinking in 20th century. His incompleteness theorems in mathematics helped us understand the foundations of mathematics (logic in particular) and paved way in early twentieth century for development of computing machines that have nearly a century later taken over every aspect of human life. The finer nuances of Godels work are best left to mathematicians but its wider implications can be subject of great interest to us today. The implications for politics are topical considering the developments we see today led by Anna Hazare against corruption.
Constitutional democracies are product of deep political understanding evolving from logic of power and legitimacy in ordering of societies. Their architecture draws sustenance and stability from concept of ‘checks and balances’ necessary for exercise of modern statecraft. Power corrupts and absolute power corrupt absolutely. If so is the wisdom of man concerning the political power then answer lies in distributing it among agents of state in a way that their functions act as a checks on each other’s behavior and the resultant outcome is a balance of power that seeks to further larger public good. Though such arrangements seems to function and democratic societies always swear by their faith in them. However their logical foundations have been rarely questioned. Implicitly constitutional democracies abhor the idea of empowering individuals and build institutions that honour the maxim of ‘checks and balances’. Therefore restoring balance of institutional power becomes a logical remedy against malfunctions.
Then what explains the crisis in our polity today raised by Anna Hazare? And how is Godel, a mathematician with little association and interest in politics relevant to the crisis at hand? The answer lies at understanding of the logical structure of our political institutions that are comprehensible to common citizen merely as a dogma rather that an instrument designed with intelligence to serve his needs. The dogma which Godel demolished in realm of logic and forever altered man’s intellectual and philosophical landscape. What did Godel say? Godel said for mathematical systems that rules of a system can not be understood with the available resources in that system alone. One must transit to higher set to understand the lower set of rules. Though hard and difficult to map this for a political process, a rough effort should interpret its consequences this way: the logic of ‘checks and balances’ in designing systems of governance will appear as dogma to elements in that system whose credibility has been consistently eroded . Hence the desire to over through it even swearing by the same rules will appear as face of resistance to it. That’s the most covert and seditious enemy of rule based systems.
Anna’s movement is a consequence of this political dogma that preached ‘checks and balances’ as the necessary cornerstone of a constitutional democracy. Partly because the beneficiaries of that system perpetuated that dogma and prevented efforts to probe its infirm logical foundation. Which translated else way would mean they never demonstrated the logical honesty in playing by those rules. The result was a vast segment of that society, that we see lined up behind Anna today, lost all faith in even limited efficacy of logic and hence this putsch. An anti-constitutional putsch that seeks to bring revolution through legislation and ,paradoxically, swears by those very axioms of ‘checks and balances’.
We now know that Jan Lok pal bill doesn’t supplement Indian constitution but seeks to supplant it. And Ann’a people are least to blame for it. It stands against an entirely compromised political establishment. That also explains the uncertainty of outcome associated with any dialogue. The positions are deeply fundamental and profoundly ideological, now arbitrated by lack of reason on both sides. UPAs fall now seems to be the easiest way out of this illogical impasse unless it manages an inspirational jump to summon a higher level of political imagination to restore sanity in polity.
In detailed biography of Kurt Gödel, it is mentioned that he had found a loophole in the American Constitution which could allow a Fascist type government to legally take power in some special set of circumstances. During his U.S. citizenship examination, sponsored by Einstein as a witness, the judge inquired about his German passport (given to him after Austria was taken over by Nazi Germany), and said that by coming to the U.S. he would be safe from the likes of Hitler. Gödel replied that such was not entirely the case, and that he could explain how a fascist dictator could come to power in the U.S.
Has anyone an idea of what Gödel had found in the U.S. constitution that would make him think in this manner ? Before proceeding for his citizenship oath, he is said to have discussed this possibility with Einstein who dissuaded him from discussing that with the judge if ever discussions came to that. Einstien feared that judge may reject Kurt Godel’s citizenship application.
Logical systems like constitutional democracies will continue to face assault from elements of those systems that continually test her limits. That’s what gives it an organic and evolutionary character. Those moments also test the leadership and imagination of the actors in that theatre. Anna’s movement can be regarded one such moment, bizarre , unsuspecting and spontaneous it may look today, it will test the deeper strands of our faith in constitutional democracy. Where it will end is today anybody’s guess. But by politicizing the vast middle class of India which has till date willingly or otherwise remained a dormant and withdrawn actor in Indian polity, it may have restored the sapping spirit of constitutionalism and thereby , paradoxically once again, saved it from its shaking logical foundations.

Sheriff Doubling As Salesman

2010-03-16T22:11:00.000-07:00

Obama’s New Export Promotion Policy
Obama’s 2010 state of union address has set the tone for America’s new found thrust on exports. By setting a goal of doubling exports in next five years as a major job boosting strategy, US signals to play hard at global trade forums. Exports will be expected largely to carry the burden of recovery. Some trade friction looks inevitable with unfinished and contentious Doha round still on table. It is estimated that US economy will add 2 million jobs by doubling its exports in next five years. Though historical trends militate against such ambitious rise, yet a weak dollar and faster growing rest of the world could see significant export growth in coming years. The president also announced a National Export Initiative, first ever of its kind, targeting US small businesses and farmers to be major engines of it’s export strategy. By promising to aggressively pursue market access , US has given enough hint of its likely stance at stalled Doha round. However what is most important of all is the President also promised to review US stringent export control rules in a way that they remain consistent with the objectives of national security. Reforming US export controls may not result in revival of national Export control Act but the promise carries potential of far reaching changes in the way US views it's companies declining competitiveness in global market. A long pending demand of America’s high-technology industries, who mostly constitute small and medium enterprises, easing export control regulation will see export growth while at the same time may unleash trade war in strategic commerce arena.
On March 11th, administration rolled out a slew of initiatives. The most significant being replacement of current system of export controls by one time notification. The review time taken in scrutinizing an application drops to 30 minutes from two and half months for 85 percent of the 3300 affected products. End-use and end-user requirements on exported goods have been further simplified. The Exim bank authorized financing limits have been raised with special focus on small and medium enterprises. Some symbolic steps such as naming an ‘Export Promotion Cabinet’ with representation from Commerce, Treasury, State, Agriculture as well as from other concerned government bodies and revival of long defunct President’s Advisory Council chaired by chief of Boeing and Xerox reinforce a sense of urgency on export front.
Though SMEs and farmers may need promotional stimulus to export but big firms would need market access more than any home grown help. The disappointing trajectory of Doha round has set widespread disenchantment with Geneva based WTO and set member countries getting busy striking regional trade deals. Free trade deals with Panama and Korea may be low hanging fruits. In any case concluding them would be easier than dealing with Brazil and India under Doha gridlock.
However , the real prospects of quick export surge lie in influencing China against holding on to fixed yuan. The growing and also shrill criticism of China’s fixed exchange rate policy has the potential to trigger a trade war leaving everyone worse off. But a bleeding US job market may find an easy scapegoat in lowly pegged yuan that keeps Chinese exports cheap and discourages investment in American manufacturing.
This New Export Initiative, however as pointed by leading strategic journal ‘Stratfor’ could have unintended and unprecedented consequences. First, America has not been historically a market capturing empire unlike those in the pre-World war II era. To build a stable global security architecture after 1945, US allowed allies to penetrate its markets without demanding access to theirs. This only in return to grant US the control on security matters. These arrangements proved successful beyond imagination as Japan, Germany reconstructed their war ruined economies giving them powerful incentives to be part of US alliance structure. The replication of that model proved equally good in Western Europe, Taiwan, Korea and also to some degree in Indonesia. This arrangement seems to be facing a subtle challenge now.
Doubling exports in five years would mean finding additional 1.5 trillion US dollars market. That’s unlikely to happen without trade frictions even in a vastly expanded global market. It is bound to have widespread disruptive effects. Few then are likely to trust the idea of free and fair trade when the global policeman also starts doubling as an active salesman.

The Civil Liability and Nuclear Damages Bill 2010

2010-03-15T07:52:00.000-07:00

No Clear Liability
Government has today introduced Civil Liability for Nuclear Damages Bill 2010 in the parliament. A logical consequence of much controversial and widely debated nuclear deal with the US, the Bill intended to facilitate entry of foreign firms in nuclear power generation seems destined to be no less controversial. The likely opposition against the bill is to be both political and economic in nature. The political one carries the echoes of controversy surrounding Indo-US nuclear deal while the economic factors may point to role of state in risk subsidization of intrinsically hazardous nature of nuclear commerce.
Liability arising from accidents is an important issue in nuclear civil nuclear power generation. Two multilateral regimes exist today to handle liability issues arising from nuclear accidents. The IAEAs Vienna Convention for Nuclear Damages and OECD led Paris Convention. This is apart from the national liability laws like Price-Anderson Act in the US. There is no provision for liability in India’s Atomic Energy Act of 1962. Most of the imported civil nuclear reactors in India today are a result of agreement between governments that the government of India ( read Indian taxpayer) through its state actor, Nuclear Power corporation of India Ltd, NPCIL ,alone liable against any nuclear accidents.
The bill pegs the liability of plant operator at Rs 500 cr with a further Rs 2087 Cr to be born by the government in case of an accident. Clearly ,it seems, the major burden of safety is to be borne by the taxpayer not the plant-maker foreign firms. Besides the provision against raising any lawsuit by victims in an Indian court or home country of the reactor builder ostensibly seems to be for purpose of easing the entry of private firms, mostly US based, in nuclear power generation. Though it can easily be labeled by critics as appeasement of US, the government may in fact be bending to US pressure to help its nuclear firms, most notably, General electric and Westinghouse. Besides the low upper liability limit can be treated as attempt to subsidize foreign reactor builders through taxpayer paid funds. India is not a signatory to Vienna or Paris convention, which doesn’t prescribe any upper limit on damages. Incidentally the upper limit under proposed Indian bill is the minimum prescribed under the Vienna convention. Governments anxiety to control cost of nuclear power generation appears to have got better of its commitment to protect health and safety of its people. It is likely to set a precedent on government bearing the burden of private-sector failure.
The Price-Anderson Act of the US does not providing for the channeling of legal liabilities and was one main reason for US not joining any of the two international nuclear damages liability regimes. Though it does allow economic liability enforcement through lawsuits and criminal proceedings against the reactor makers. International regimes were crafted by the suppliers nations under competitive claims of superior safety standards as a platform to outbid each other in this highly regulated business. Hence the terms of conditions in Vienna and Paris Convention put a high bar on safety in reactor business. Surprisingly the Indian bill seems to be designed keeping in mind India as a supplier of nuclear power technology rather than a receiver as it is today and also may be as a prelude to joining some international safety convention in future. As a receiver it is likely to become a ginny pig to test low end and low cost safety technologies. As a supplier the benefits may be in distant future when it will get a piggy ride on global giants like, Areva, Toshiba, GE to get a slice of lucrative emerging global nuclear business .
By making it easier for foreign firms to do nuclear power business in India than in their home countries, the bill gives an unmistakable signal on lowering safety standards for lure of cheap power. The message may be: if you find it tough to test your hazardous innovations at home under a vibrant consumer-protected environment, as has been the case in home turfs of leading nuclear suppliers, do it here with little or no fear for consequences. As our lives are not as precious as yours. Coming from a country that has seen history’s worst industrial disaster, the Bhopal gas catastrophe, the bill clearly conveys our inability to learn from past mistakes.
The more appropriate and balanced approach would be to peg the bar not at the minimum of international standards but fairly higher up to be in a position to influence nuclear safety issues at a global scale in future. There is no denying that safety technologies today are far advanced than in 60s when the current global standards were laid, yet the very nature of nuclear power calls for near perfect safety standards and can’t be compared with conventional power generating methods in an actuarial mode. Any lack of indication to suppliers to the potentially serious costs of laxity and pursuing profits at the cost of safety will seriously endanger the growth of nuclear power.
The common features of amended Vienna and Paris protocols which served as the template for the bill have been adopted in their minimalist forms. It continues to securely hide the suppliers behind the operators who will invariably be domestic companies i.e the public sector NPCIL in India’s case , and thrust on him the absolute liability. So are the other contentious issues related to time limitation of 10 years and court jurisdiction.
The necessity of raising legal infrastructure for high-technology industry like civil nuclear power is hardly denied. Yet government conveys an impression of being in hurry and pilots a bill with little thought on long-term consequences. Thus by inevitably inviting charges of pandering to Washington, it helps little his own case as was also seen in a similar legislation Foreign Trade Act up for amendment before the parliament.

War clouds on horizon

2010-02-02T09:00:00.000-08:00

May you live in interesting times, says a famous Chinese curse. By all measures ,these appear to be interesting times and we seem to be cursed to live through them. So it’s time to do some crystal ball gazing. The fanning flames of Af-Pak war in heights of Hindukush mountains present most unpredictable scenario for future with massive global and regional ramifications. As Pakistan engages itself into the existential battle with the Frankensteins it created, it is faced with another moment of truth in its turbulent history. It now sees some flicker of light at the dark end of Afgan tunnel. The recently held London conference on Af-Pak has veered to the Pak view of grading and sorting Talibans and dealing with the ‘good’ one while vanquishing the ‘bad’ ones with added caveat that any such grading and sorting will be at Pakistan’s bidding alone. If that path is pursued, Afganistan could see a brief era of stability through Taliban co-option and Pakistan realize that elusive dream of strategic depth while India left confused and confounded in backroom of geopolitics. Yet ,like Iraq, it will be long before some sane semblance of peace returns to Afganistan even when the last boot of international coalition forces have left Afganistan. Let us first look at the implications it has for India.
What is the political poker Pakistan will play now on? It will not cease to press hard international community, US in particular, to arm twist India for a favorable settlement on Kashmir. So dialogue will be resumed , notwithstanding all political subterfuge on prosecuting culprits of 26/11 Mumbai carnage. Home Minister P.Chidambaram may be asked to test dialogue- waters through SAARC sidelines. Choice of India’s home minister to re-ignite the Indo-Pak stalled talks will be a politically pregnant move . No harm in talking to Pakistan, goes the chorus of liberal opinion. But talks that Pak sees as not producing outcome favorable to its policy goals may inspire ISI-Military combine to step on the terror pedal with a re-run of 26/11 catastrophe for India.
If one goes by the clues emerging from Indian side, it is this pessimistic scenario that Indian establishment seems to be preparing for. In the background of political consensus to respond to any 26/11 re-run on India, a somber analysis of some desperate events is called for. The first being the news of Chinese cyber attacks on Indian security establishments. A flash war on Indo Pak border will inevitably draw China to save its most trusted ally. This is the likely import of out-going General Deepak Kapoor’s call to Indian armed forces to be ready for a two-front war. No less than the outgoing NSA, M.K.Narayanan ,abandoning all diplomatic niceties, accused China of poking into it’s most sensitive computer networks . India’s message to China may be same that Pakistan has consistently delivered to India as a irredentist state in its short history. When push comes to shove, India is willing to give up its status-quoist pretensions vis-à-vis China.
The stray reports of tunnels on Indo-Pak border may be part of same strategy to out -wit Pak Generals. India’s cold-start military doctrine should see a gentle covert push, through the international border into Pakistan with Indian special forces raiding Laskar’s Lahore hide-outs in a blitzkrieg. And if action-response cycle in heating military cauldron spirals out of control with Pak unsheathing its nuclear sword, India may be prepared.
Look at the feverish activities of National Disaster Management Authority. Through expensive page-long advertisements in the national newspapers, NDMA has been releasing guidelines on public awareness about preparedness in the event of an array of disasters. Most notably those concerned with Chemical(Terrorism) attack, biological attacks and nuclear and radiological emergencies. A radiological emergency management service geared to handle the fall out of a limited nuclear exchange should be seen as a minimum necessary preparation before calling off the bluff of a free falling jehadi state in India’s neighborhood.
India may have finally overcome the strategic paralysis caused by Pakistan’s war of thousand cuts under a nuclear umbrella. Though the chickens of that mis-begotten state policy have now returned home to roost, Pakistan may still chose to go down the nihilistic path as a final homage to its unattainable dream of becoming the fortress of Islam. For India the uncertainty of perishing in wholesale may finally be preferable to certainty of death in retail. Hence it may try to shed its long winding cow web of existential doubts by making a cold start in an October night.

Catching on the catch-all

2010-01-28T23:40:00.000-08:00

On ‘Catch-all’ controls in export of dual-use goods and services
The Foreign Trade (Development & Regulation) Act , administered by the Department of Commerce, is the law that allows government to regulate export and imports from India. Commerce Minister , Shri Anand Sharma, has in November 2009 introduced Foreign Trade ( Development & Regulation ) Bill 2009 in Parliament to amend the Foreign Trade Act. The bill is currently under discussion before the Standing Committee on Commerce. As part of legislative process to benefit from widest section of public opinion and stake holders, committee has invited memorandum from public on the proposed amendments in the Bill.
The bill proposes to change several things. One being power to ban imports in case of surge in cheap imports that threaten nascent domestic industries .This is sought to be attained by including GATT(General Agreement on Trade and Tarrifs) compliant safeguard measures in the Act. Government also wants to bring services and technology businesses in the ambit of the Act. Though much of boom in services and technology sector over last two decades is undoubtedly attributed to government not being there. The ostensible reason given is to support these sun-rise industries through subsidies and grants. Imagine TCS and Infosys lining up for government bailout in some future scenario. Perhaps commerce minister is articulating a vision about which no reason and rationale exists today.
The most controversial change, however, seems to be introduction of ‘Catch-all controls’ in export of dual-use goods and technologies. Dual-use technologies and materials , by definition, are those goods and services that have widespread commercial use but are also needed for military applications. The definition is rather perfunctory as nearly everything that we use today can be used to build weapons and war materials. Rapid growth of strategic commerce, the most regulated business in the world, is due to the growing realization that increasing trade and widespread diffusion of technologies also undermines security. India, through its Foreign Trade Policy, maintains a list of controlled goods that require an export license for overseas sales. Yet in the era of WMD threat, these steps are not thought to be enough to meet challenges posed by proliferation which is believed to be rampant and growing. Security issues today are creeping into the heart of global trade agenda with ever increasing rapidity. Therefore some bit of history will serve us well here.
Though United States throughout its history has been the staunchest supporter of free trade, that policy since its ascent to world leadership post second world-war has been greatly compromised. It has become difficult for US to separate economics from politics. The roots of strategic trade control lay here. The professed goal of US export policy is to ensure national security by maintaining its economic and military power through tight control on flow of modern technologies flowing from America’s research labs while simultaneously ensuring that US corporations maintain their competitive edge in global market by using those innovations from America’s mostly tax-payer funded labs.
Various global technology control regimes have been in existence since second world war II. Almost all were initiated and led by the US with help of other developed nations, most notably those from Europe. India has always been at their receiving end as some like Nuclear Supplier Group were created specifically to punish it for its ‘peaceful nuclear explosion’ in 1974. But the real ballast to global export controls was provided by the US after collapse of Soviet communism in 1990.
Apart from strengthening existing multilateral export control arrangements i.e Nuclear Suppliers Group, Wassenaar Arrangement on dual-use goods, Australia Group on chemical weapons and Missile Technology control regime(MTCR), United States unilaterally came up with a policy instrument of Enhanced Proliferation Control Initiative(EPCI) in 1993 which extended hitherto list based controls to end-user and end-use verifications also. The broad principle enunciated for enforcement of EPCI meant that if any US entity or citizen knew or had reason to believe that his business partners overseas were involved in proliferation related proscribed activities , he was to treat any saleable goods and service to such partner as one requiring an export license. This policy came to be known as ‘Catch-all controls’.
These ‘Catch-all controls’ are enforced by the US President under International Economic Emergency Powers Act( IEEP). US Congress and President have not been able to build consensus around having an Export Control Act precisely for fear of crippling US corporations overseas through such stringent controls. This puts the United States in the embarrassing position of encouraging other governments to adopt export control laws without itself having one.
India’s evolving export controls are primarily an outcome of its intense bilateral engagement with the US post Pokhran II in 1998. One outcome of that process has been the Weapons of Mass Destruction Act passed in 2005 by Indian parliament which proscribes all unauthorized activity related to nuclear, biological and chemical weapons by all state and non-state actors. The present bill also proposes to enable WMD Act with Foreign Trade Act. Though WMD Act adopts ‘catch-all’ controls’ , it is now also explicitly sought to be brought in Foreign Trade Act .
But implications of this move have hardly been debated and discussed in public. Even though India has pursued an export centric approach to modernize its economy, it has little experience in managing strategic trade policy. Growth of high-technology industry is predominantly a post economic liberalization phenomenon beginning in the 1990s. Trade and industry too have limited experience in grasping the nuances of proliferation concerns arising in a rapidly globalizing world. On the other hand there seems to be policy consensus that expanding commerce has also endangered global communities sense of security.
It is a reasonable approach that India should regard “catch all” as an attempts to deny the inevitability of slow technology-diffusion, via excessive information gathering. So long as it remains a net importer of high-technology , this approach seems eminently in national interest. Besides shackling Indian companies for security concerns will prove controversial and unpopular among businesses once the law takes it life and begins to regulate business activities of Indian companies in future. By shifting burden of enforcement on industry, ‘catch-all’ controls will permanently stifle the growth of high-tech industries in India. Imagine TCS or Infosys someday being asked to account for their non-proliferation role for having written a software code embedded in a chip made by a Korean company and used in a missile fired by Iran across Persian Gulf? Such is the frightening sweep of ‘catch-all’ export controls being pushed into the Foreign Trade Act through the amendment bill by the government. Could India care more for it’s technology-driven future?

Amendment bill to FT(D&R) Act 1992 before the Parliament of India

2010-01-28T07:40:00.000-08:00

Following is the text of the Memorandum on Foreign Trade (Development &Regulation ) Amendment Bill 2009 submitted by the Institute of International Trade & Security
Before The Standing Committee on Commerce in Parliament of India.
In the statement of objects and reasons, the Commerce Minister has stated the following:
The Foreign Trade ( Development & Regulation) Amendment Bill 2009 (henceforth to be referred as the ‘bill’) amending Foreign Trade(Development & Regulation ) Act 1992 ( henceforth referred as ‘Act’) intends to provide for,
1. Imposing quantitative restrictions to safeguard interests of domestic industries against injury caused by import surge.
2. Dispensing with requirement for license or permit to import and export except as provided by the Act.
3. Enabling swift and exemplary action in trade dispute matters.
4. Rationalizing and improving system of levying and realizing fiscal penalties.
5. Providing provision for review of all decisions of sub-ordinate officers by the Director General of Foreign Trade.
6. Authorizing Settlement Commission under the Customs Act 1962 to settle interest dues under the Act
7. Bringing ‘Technology’ and ‘Services’ in the ambit of Act.
8. Establishing tighter export controls by enabling WMD Act 2005.

Each of the above proposals need to be examined from perspective of policy goals intended to be achieved, legislative redundancy, executive experience of efficacy of the Act since enactment nearly two decades ago and also to clearly comprehend the implications for fast modernizing Indian economy arising from export controls on dual-use goods including the most sensitive clause on ‘catch all controls’ proposed under section 14C of the bill.

1. Quantitative restrictions for purpose of safeguards action.
The GATT rules under the WTO permit developing countries to assist their new and infant industries. This assistance may often take the form of safeguards action restricting imports for temporary period. Since such support can adversely affect the interests of exporting countries, GATT rules lay down stringent conditions for their adoption. The preferred method to restrict imports is through raising tariffs by increasing bound rates. Yet if industrial injury fails to be mitigated by raising tariffs, quantitative restrictions can be imposed. In India, Director General Safeguards under the Deptt of Revenue enforces safeguard action under section 8B and 8C of the Customs Act 1962 through GATT compliant procedure laid down under the rules made therein. But it can only invoke safeguards action limited to tariff controls. Quantitative restrictions(QRs) on imports and exports in India are regulated through Act under amendment through instant bill.
Section 3 of the Act grants central government a carte-blanche to regulate, prohibit or restrict imports into and exports from India. Section 5 further authorizes the central government to formulate and announce and amend the export import policy. These two provisions of the statute have been used by the government to impose QRs by prohibiting or restricting all imports and exports till date. Item wise list of policy on exports and imports is published by the government as ITC(HS) Export Import policy. Its clear that there is no further need for statutory approval from parliament for imposing QRs. They can be imposed like any other QRs government imposes from time to time. Except.
Except the fact that QRs under safeguard rule of WTO need to be imposed in a manner laid under the GATT rules. The Act lays down no procedure but leaves it free to the executive to formulate any procedure through rules, policy etc. The procedure prescribed for QRs for safeguards can be formulated as a sub-ordinate legislation under Section 19 of the Act by the central government or under section 5 through export import policy and procedures as is the prevailing practice in the Directorate General of Foreign Trade( DGFT) who administers the instant Act. Alternatively the safeguards rules made under the Customs Act 1962 could be directly enabled through amendment to Foreign Trade (Regulation) Rules 1993. This would additionally ensure uniformity of procedure in India while invoking full sweep of safeguards provisions enhancing the confidence of international trading community in our trade and tariff rules.
Thus a case is made that the proposal adds to legislative redundancy hence needs to be ignored with due advice to the executive.

2. Dispensing with requirement for license or permit to import and export except as provided by the Act.
This curiously worded intent doesn’t translate into a cogent proposal anywhere in the bill. The Act under section 3 itself empowers the central government to dispense with requirement of permit or license except as provided by the law. Even in operation today, nearly all imports and exports except a small specified list of goods are allowed without a permit or license. A question would arise then: If no legislative mandate was available till date, how do the exporters and importers today do business without a license or a permit( except an Import-Export code number) from the government? Nor is there any proposal made to give affect to above intent.

3. Enabling swift and exemplary action in trade dispute matters.
This noble intention , sadly again, finds no articulation in the form of a proposal in the bill. Rising trade disputes in international trade has been an area long deserving attention of the government. For exporters and importers, there is no forum except arbitration and conciliation through contractual litigation. Cost of litigating overseas is beyond even medium sized businesses. Existing trade dispute procedures under export import policy are ineffectual for reasons that could had been the motive to express this intent. The government certainly needs to express its thinking on the matter through consultation with all stake holders.

4. Rationalizing and improving system of levying and realizing fiscal penalties.

The bill proposes amendment to sub-section 11(2) of the Act with regard to levy of fiscal penalty if provisions of Act are contravened. It proposes a minimum penalty of Rs ten thousands that may go upto five times the value of goods and services involved in violation. There is no change from the existing penal provisions except the lower limit stands raised to rupees ten thousands from rupees one thousands. Unarguably it grants vast discretion to the officials in matter of determining fiscal penalty as average consignment values involved in international trade are today more than Rs. one million. This discretion is prone to be abused by the officials and can be crippling to businesses that find themselves at the mercy of an abusive enforcement machinery. The fiscal penalty ought to have a deterrent value that improves compliance not financially cripple a business. An exporter or importer of free goods is never free from duty related fiscal liabilities under Customs and Excise Acts. As regards sensitive goods, stringent provisions in conformity with WMD Act have been proposed which includes imprisonment .A penalty ranging from Rs.Ten thousands to one lakh should be seen as an improvement and rationalization in the Act.
Besides , the government proposes to divide the work of collecting penalties levied with help of two departments of central government and also through machinery of state governments.. Though the penalties will be levied by the DGFT, it can be collected by Customs authorities also. And finally to district collector through arrears of land revenue if both DGFT and Customs fail to do so. This proposal for convenient division of work will lead to nothing but buck-passing in the event of revenue loss and the ultimate looser will be the tax-payer. Accountability , given the incessant turf war between government departments, will be the major causality. If a far specialized and better endowed enforcement machinery with the central government fails to recover its dues from erring exporters, how can a state government be expected to do so. It’s appears to be the most cleverly conceived bottomless pit to siphon out public money. Committee must ask the DGFT to enlighten it on its enforcement record of past two decades in administering this Act. A detailed analysis of penalties imposed, recoveries made will help the committee examine the efficacy of the proposal. Or is it a tacit admission by the commerce minister that provisions of the proposed bill have financial implications? Else why not administer the law in all aspects, from imposing fines to recovering them for the tax-payers? If it is admission of the abject failure of government in administering penal provisions of the Act, then why not accept it and honestly examines the reasons before proposing remedies?

5.Providing provision for review of all decisions of sub-ordinate officers by the Director General of Foreign Trade.

The objective expressed clearly states that DGFT doesn’t have the power to review the decisions of his sub-ordinate officers. It can at best be termed as shocking ignorance of statutory provisions of the Act in the government. In fact, section 16 of the Act deals with power of ‘revision’ vested in the DGFT. This section allows DGFT to review all the decisions made by his sub-ordinate officers. Surprisingly, the only amendment proposed in the bill to section 16 is changing its the name from ‘revision’ to ‘review’ and deleting the provision related of review of appeals made under section 15 . All other provisions of the section 16 remain completely unaltered. It seems government intends to empower DGFT to be able to review order-in-appeals also which hitherto could be reviewd by high courts having writ jurisdiction . Words ‘revision’ and ‘review’ are synonymous. Proposed change in section 16 can be effective only by deleting sub-section 15(3) also as it states that' ..order-in-appeal made under section 15 shall be final'. The only amendment to section 15 that has been proposed is changing the title of Chapter V of the Act from ‘Appeal and Revision’ to ‘Appeal and Review’! How can sub-section 15(3) co-exist with amended section 16? Looks like law-draftsman's blunder!

6.Authorizing Settlement Commission under the Customs Act 1962 to settle interest dues under the Act

Its not clear as to what are the detailed reasons behind this proposal. DGFT administers a number of export promotion schemes i.e duty free imports of raw materials and capital goods for export production. Exporters while obtaining these authorizations, commit to make exports and failing so return the custom duties with interest to the DGFT as per procedure prescribed under the Foreign Trade Policy and Procedures. This has been the broad and stable principal of government’s export promotion schemes over more than last two decades. In case the exporter fails to pay back the custom duty and interests due post- default, he is treated to be in violation of the Act. For which he attracts penal provisions leading to fiscal penalties upto five times the value of the goods he imported on duty free basis. This is apart from the fact that he may also simultaneously be, after a default in meeting export obligation, in violation of Customs Act . He may make a settlement as per the Customs law but that doesn’t rescue him from adjudication proceedings under section 13 of the Act leading to imposition of fiscal penalty. That clearly traps him into the enforcement machinery of two agencies of government working independently in their sovereign domains. The net result is each undermines the others actions at the cost of public interest. Bill proposes amendment to section 11 empowering Settlement Commission at Customs to settle the cases of export obligation default for the benefit of DGFT also.
Clearly in case of default in DGFT, an exporter would first like to settle the case before the Customs with regard to all custom duty and interest related liabilities. It would mean DGFT suspends any penal proceedings under section 13 read with section 11 pending the outcome of settlement proceedings in Customs. If that is the case , an amendment to ensure that adjudication under the Act remains suspended pending outcome of the settlement is also needed in the Act. However ,this hasn’t been proposed anywhere. It would effectively reduce DGFTs workload and available surplus could be deployed in new areas.
Its also not clear why DGFT doesn’t utilize the facility of ‘settlement’ provided under rule 16 of the Foreign Trade (Regulation) Rules, 1993 for the benefit of exporters so that it makes best of its mandate to serve the exporting community.
Thus, the proposal to delegate responsibility to another authority appears merely to a clumsy attempt at appropriating powers but obviating burden of responsibility by a government department. It must be rejected without further consideration.

7. Bringing ‘Technology’ and ‘Services’ in the ambit of Act.
Habits die hard, as they said. Government’s desire to expand and peoples resolve to shrink it will always be a defining feature of every legislative politics. Why do we think that future can also be legislated and thus regulated? Technology and services are the industries of tomorrow. India’s manufacturing potential was realized when it broke away from ‘license-quota-permit’ culture ,in no less measure sustained by the predecessor to this Act. If carpentry, tailoring, weaving is better done without an inspector breathing down their neck, why not the children of carpenters, weavers, masons and tailors engaged in building a new economy of software, services, finances ? The idea of regulating services and technologies is inherently unsound and anti-people. It ignores the potential of people and undermines their determination to build a life that their forefathers dreamt. Yet government has been regulating it without a mandate from the parliament.
How? The proposal states that government intends to regulate ‘technology, services, including financial services’ within the ambit of the Act for purpose of incentives and other provisions of Foreign Trade Policy. This is to be achieved by broadening the definition of exports and imports. In fact , the Foreign Trade Policy announced by the government has a full chapter on services exports and it has been disbursing incentives, subsidies to services exporters i.e hotels, tourist resorts, airlines for many years since now. How did it do so when it wasn’t sanctioned by the statute? Or is it now a plane case of executive seeking ex-post facto approval from parliament for having used the powers it never had? If only someone would see the irony in calling Export Import Policy under section 5 of the Act as Foreign Trade Policy without statutory authorization . One could after all ignore this saying there isn’t much in a name yet the gulf between legislative mandate and executive indifference is starkly visible.

8.Establishing stronger export controls by enabling WMD Act 2005.
The Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act 2005 is a comprehensive piece of legislation to regulate all activities related to nuclear, biological , chemical weapons and also dual-use goods and technologies. Dual-use goods and technologies , by definition, are those materials and know-how that have both commercial and military applications. The Act presently regulates dual-use goods in the form of a list of specified materials published under the FTP. Strategic commerce today, is most regulated business in the world. Developed countries led by the United States of America(US) tightly guard the flow of cutting-edge goods and technologies as a part of their policy goal to maintain their economic and military strength.

Though United States throughout its history has been the staunchest supporter of the principle of free trade but a series of dramatic changes since the world war II has compromised that policy to a large extent. With its ascent to the world leadership after second world war it could no longer afford to avoid entanglement in political struggle and conflicts around the world. It thus became impossible for the US to separate economic relationship from political relationship. Further the advent of nuclear weapons in second world war made the idea of war to achieve political goals largely impractical. Hence US evolved a trade control system based largely on the use of export controls an effective alternative weapon to direct military conflict to achieve its political objectives.
India’s evolving export control system is a direct consequence of engagement with the world community, US in particular, to meet common challenges posed by proliferation of technologies and materials that go into making weapons of mass destruction. Even though India has pursued export centric approach to modernize its economy, it has little experience in managing strategic trade policy. Growth of high-technology industry is predominantly a post economic liberalization phenomenon. Trade and industry too have limited experience in grasping the nuances of proliferation concerns arising in a rapidly globalizing world. On the other hand expanding commerce has also endangered global communities sense of security.
In attempting to set forth the inter-weaving agenda of trade and security in recent historical context , two dates stand out. The first being 1st January 1995 when the World Trade Organization(WTO) came into existence. The birth of WTO at the culmination of the Urguay round of trade negotiations indicated an unprecedented global consensus in favor of free trade and thus signified the triumph of free market principles. However free market did not ,and rightly so , imply unfettered markets. Members of the WTO club, in exception to the Most favored Nation (MFN) treatment, continue to maintain some permissible restrictions on trade for reasons of national security, to protect environment and culture, in pursuance of compliance of international treaties and obligation and sometimes for political reasons. Albeit these trade restrictions are now required to be applied with greater transparency.
The second important date on timeline is 11 September 2001 which brought terrorists attack on the United States and triggered the ongoing global war against terror. As a multifaceted response to the war on terror , United states has brought the security at the heart of international co-operation agenda. This has manifested in increased impetus to the nonproliferation efforts to control the spread of the weapons of mass destructions(WMDs) to avert future terror assaults. Export controls form one important component of that anti-proliferation approach. Trade in strategic goods ,therefore, requires a special treatment with emphasis on security rather than commerce.
In the Indian context, two developments require special mention. The first is the globally recognized success of India’s information technology(IT) sector and its competitiveness in the world market. In many ways the IT sector of India is the byproduct of process of economic liberalization that began in the 90s. It is also the first high-tech industry of India to venture into the global arena. The fact that it grew as and is still largely export oriented points to the role of global market access in sustaining that growth. IT industry, truly, is the ringleader of Indian industries high-tech march. The growth of telecommunication sector, bio-technology and pharmaceutical industries in last decade is a pointer to the changing complexion of Indian industries’ technological sophistication.
The other important event to be recalled is Pokhran II, when in May 1998 India stunned the world by conducting underground nuclear tests dealing a severe blow to the discriminatory international non-proliferation order. This achievement of India’s scientific community in the face of determined global technology denial regimes proved the success of it’s indigenous efforts and its determination to overcome all odds to protect its national security.
But this rising profile on both fronts had consequences. While one accelerated the march of Indian companies to all corners of the world, the other brought the government under increased scrutiny of international anti-proliferation lobbies, particularly the United States(US). Hence a bilateral engagement that began with the US post Pokhran II on proliferation and security issues has brought export controls as one important issue on the front desk of policy makers. Indo-US nuclear deal is the most recent consequence of that engagement.
The proposed amendment in the bill ought to be seen in the light of aforementioned facts. Though the basic legislative framework has already been provided to meet India’s commitments to global non-proliferation order under the WMD Act 2005, it would be mis-leading to construe that the proposed amendment merely enables the legislation to the Act under amendment. In fact it intends to introduce extremely sensitive and wholly undesirable provision in the form of sub-section 14C on catch-all controls. Equally undesirable is sub-section 14D which suspends the principal of natural justice in enforcement proceedings against companies and persons if they are suspected of unlawfully exporting specified materials and technologies. Catch-all controls proposed here have been borrowed from US export control system.
The US export controls system has roots that reach at least as far back as the First World War, when the United States cooperated with Great Britain to institute a “navicert” (i.e., naval certification) system for exports and passed the Trading with the Enemy Act (TWEA). The Cold War system of national and multilateral export controls developed nearly two decades later eventually spawned a fledgling system of export controls in the 1970s on nuclear items and in the 1980s on chemical and missile items. Nonproliferation export controls, however, really took shape in the aftermath of the Gulf War and the collapse of Soviet communism nearly two decades ago.
Control over the export of military and dual-use (i.e., goods, services, and technology with mainly commercial but also defense applications) by the United States, always complex, has become even more complicated in recent years. Adapting the policies of the Cold War to discourage the spread of weapons of mass destruction (WMD), advanced conventional weapons, and missiles to deliver the weapons has proven arduous and contentious. To maintain restrictions on most dual-use items, for example, the United States government relies on the International Economic Emergency Powers Act (IEEPA) as Congress and the Executive have not built sufficient common ground to create a new law on export controls. The controversy in the US over controls on encryption products and satellite exports in 2001 only followed a long line of problems, from the role of the Defense Department in the license review process to the imposition of mandatory, often unilateral, controls for reasons of foreign policy, that have plagued efforts to develop a new legal basis for US export control policy. This puts the United States in the embarrassing position of encouraging other governments to adopt export control laws without itself having one.
The United States, as the leading advocate of nonproliferation export controls, most often devises initiatives that set the international standards for export controls. Multilateral standards emanate through the consensual efforts of many nations, however, and the United States finds itself at odds with those standards from time to time.

Catch-all controls :
“Catch-all” owes its existence to United State lead Enhanced Proliferation Control Initiative(EPCI) in early 1993. This policy seeks to deny export license for any product irrespective of its controlled status under the US export control laws to any destination, end-use or end-user of proliferation concern. It transfers, to a large extent, the burden of enforcing export control policies to the industry itself eliciting their voluntary cooperation in enforcing export controls. “Catch all” derives legal force from the US constitution which makes trading a privilege rather than a right in the United States.
There can not be any prospects for adoption of “catch all” in India as Indian constitution allows trading as a right of individuals while reserving states right to regulate it in a manner it deems fit. By no means it’s a privilege that state can withdraw at will. India must regard “catch all” as an attempts to deny the inevitability of slow technology-diffusion, via excessive information gathering. Besides shackling Indian companies for security concerns will prove controversial and unpopular among businesses. By shifting burden of enforcement on industry, catch-all controls will permanently stifle the growth of high-tech industries in India. Even US congress has not enacted an export control law with catch-all controls precisely with due to opposition from US corporations. By enacting those provisions in our export control statute, can we afford to be seen as more Americans than Americans themselves? Even for limited export control enforcement US relies on vast global network of its intelligence and military power. I have grave doubts if the government has seriously pondered over the implication of this proposal for Indian companies and whether trade bodies have been taken into confidence about this proposal. Even the sheer scale and size of enforcement machinery to enforce this provision would require astounding resources. Security will completely trump commerce leaving neither in the end.
It is worth recalling here that the policy stance taken by the US government on catch-all controls was instrumental in ill-fated invasion of Iraq in 2003. An Indian company NEC Engineers in 2002 was accused by the US government of supporting Iraq’s WMD program prior to orchestrating invasion of Iraq on basis of fabricated evidence. Indian government agencies ,invoking all unconnected draconian laws arrested and jailed the senior officer of the company merely on the basis of information supplied by US officials. The government should come out with facts in public interest regarding the case of NEC Engineers and let the parliament see how catch-all controls destroyed a thriving Indian company. It must not be allowed to hide behind the veil of judicial proceedings in larger public interest.
Above testimony therefore makes a strong case to abandon these ill-conceived and unconstitutional amendment to the Act by inserting section 14C and 14D through the bill. The attempt must be jettisoned forthwith.

Conclusions:
The proposals in the amendment bill are either redundant or lacking in any clear policy focus and rationale. Not enough home work has been done before proposing the amendment bill. So much that the very nature of proposals betrays a shocking sense of ignorance in government about the existing statutory provisions on objectives desired to be attained. Most of the provisions i.e safeguards related, review power of DGFT, provision for settlement of dues are already existing in the Act and Rules.
The most sensitive and wholly undesirable idea of introducing ‘catch-all controls’ in export of dual-use goods and also of enforcing the provisions of the rules related to dual-use technologies and goods without adhering to principal of natural justice should be rejected by the parliament of India in the interest of its people.