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Legal Capsule by Economic Law Practice


Open General Export Licenses


In lieu of the Government’s mandate to ensure ease of doing business, the Department of
Defence Production (DDP) has published two notifications dated October 21, 2019 for the issuance of an Open General Export License (OGEL) for the intra company transfer of technology as well as export of spare parts and components.

These notifications have been introduced with a view to reduce the bureaucracy and red-tapism plaguing the defence industry and to ensure that exports of defence related goods occur in a much faster time frame. Companies having offices abroad as well as in India will view this as a welcome break from the task of  constantly  seeking approvals and licenses from the various Ministries and Departments of the Indian Government.

INTRA-COMPANY TRANSFER OF TECHNOLOGY
The OGEL for transfer of technology only applies  to those companies having a foreign parent company, with a subsidiary in India. Such transfer of technology shall be from the Indian subsidiary  to either the foreign parent company and/or subsidiaries of the foreign parent company, provided it fulfils the following criteria:
  • The items/software/technology to be exported by Indian subsidiary, have been imported from the country of the parent company or from subsidiaries of the parent company abroad.
  • The items/software/technology to be exported is based on a Master Service Agreement/Contract between the parent company and the Indian subsidiary for carrying out certain services including design/encryption/research/development/ delivery/validation/testing. Provided, such items/software/technology  should  not undergo change in functionality and classification.
  • The applicant exporter declares that the exported items would only be used for the purposes for which it is intended by the parent company and/or its subsidiaries.
CONDITIONS FOR GRANT OF OGEL
While the first notification provides for the intra-company transfer of technology, the second notification addresses the export of spare parts and components by an Indian entity. While the items eligible under these two OGELs may be different, the DDP has provided similar conditions that the companies must comply with:
  • The applicant exporter should have a valid Import Export Certificate
  • The applicant exporter should have established an appropriate/certified Internal Compliance Program (ICP) or Export Compliance Programme of its own, or should be compliant with an ICP of its subsidiary/principal abroad  to which the items will be exported
  • The exporter agrees to receive an on-site inspection by DDP or its authorized representative, whenever desired for the auditing/verification of ICP
  • Submission of annual report to Export Promotion Cell of DDP every year, in respect of the exports made against a specific OGEL.
  • The exporter shall submit a declaration to the effect that they have internal controls in place   to prevent transfer of goods to countries/ entities facing UNSC sanctions or arms embargo
  • The countries to whom export of such items would be permitted are Belgium, France, Germany, Japan, South Africa, Spain, Sweden, UK, USA, Canada, Italy, Poland and Mexico.
ITEMS/ SOFTWARE/TECHNOLOGY TRANSFERABLE UNDER THESE LICENSES
For intra-company transfer of technology:

SCOMET List Classification
  • Technologies or software related to items listed in 6A010 of Munitions List except complete aircraft or complete unmanned aerial vehicles (UAVs) and any components specially designed or modified for UAVs.
  • Technologies or software related to items listed in category 6A005 of Munitions List.
  • Technologies or software related to items listed in category 6A013 of Munitions List.
For export of spare parts and components:

SCOMET List Classification
  • Components of ammunition & fuse setting device without energetic and explosive material.
  • All goods under this category. (Firing Control & related alerting and warning equipment and related system)
  • All goods under this category except complete aircraft or complete UAVs and any components specially designed or modified for UAVs
  • All goods under this category (Body protective items)
ACTIONS TO BE TAKEN
India’s inspiration for introduction of such OGEL appears similar in approach to a move by the European Union (EU) in 2012 whereby individual licenses by different European countries were replaced by a general license for intra-EU transfer of defence equipment. The European defence  market being fragmented and differing on national approaches caused many problems for the European defence industry in general, and  for  small  and  medium-sized  enterprises  in  particular. For example, national systems to control the transfer of defence equipment did not distinguish between exports to non-EU countries and transfers between EU  countries.  Different  national  licensing regimes also imposed burdensome administrative procedures,  while  hampering  the  security of supply between EU countries.

The Transfer Directive 2009/43/EC 70 diminished these obstacles, progressing towards a genuine European market for defence equipment, without sacrificing EU countries' control over  their  essential defence and security interests. It introduced a new licensing system namely general, global and individual licenses, differentiating between each of them and it encouraged EU countries to replace, as far as possible, the use of individual licenses with general licenses for unproblematic intra-EU transfers. Additionally, general licences were to be applied where the transfer of defence-related products were simply made for the purposes of  demonstration,  evaluation,  exhibition or for the purpose of maintenance & repair, where the recipient of the license is  the original supplier of the products.

This established licensing system aims at rendering individual licenses as the  exception.  EU  countries continue to remain free to determine the products eligible for the different  types  of  licenses and to fix the terms and conditions of such licenses. This has allowed for a smooth exchange of defence related products amongst the EU countries without the administrative hassle of each individual export.

STEPS IN THE RIGHT DIRECTION
With one fell swoop, the Government has addressed the concerns of the defence industry regarding the amount of paperwork, time and approvals required for a simple transfer of spares, components or technology from one subsidiary to another. These notifications serve to ensure that a company looking to transfer technology to one of its branches or provide defence items for overhaul and repairs to the parent company can now jump

ahead of the queue and obtain their export license rather than get bogged down by the excessive licenses and submissions previously required.
Similar to the move by the EU few years ago, the Government has vide these two notifications ensured ease of doing business in India while also furthering their goal of making India a defence manufacturing hub.

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