The Hindu Business Line : Go for it, with caution

However, the US administration, it is expected, could also step up enforcement of laws that restrict transfer of certain technology. Of particular concern is the transfer of technology that occurs to foreign nationals in the US, according to Murali Neelakantan, Partner, Arnold & Porter, an international law firm.

American companies and non-American companies that do business in the US should carefully review technology transfers to ensure that they do not trigger licence requirements, whether the technology transfer is across the desk or across the world, he cautions.

In an online interaction with eWorld, the London-based Neelakantan and Washington-based John Barker, a former US Deputy Assistant Secretary for Non-proliferation Controls and Deputy Assistant Secretary for Export Controls, dwell on some of the macro issues related to the agreement, and what it means to Indian and American companies, especially in the IT sector. Excerpts from the email interview:

What sort of trade restrictions does the Act remove?

Complete prohibition on nuclear trade. Now nuclear trade is permissible under specific circumstances and licences, whereas it was previously prohibited. The administration has also started to loosen the restrictions on India-US space cooperation.

What sort of restrictions does the US impose?

The US imposes restrictions on transfers of defence-related technology as well as sensitive dual-use technology listed in the US Department of Commerce's Commerce Control List. For instance, defence and arms-related technology and sensitive dual-use technology such as sophisticated electronics, computers, lasers, and biological materials that can be used to develop weapons of mass destruction, long-range delivery systems, advanced conventional weapons or items useful in terrorism.

In general, most of these are referred to as high-technology trade. Not all trade requires licences for India. Some trade such as consumer items, most computers, civil aircraft, many electronics may take place without licences while the most sensitive goods would require licences for export from the US, whether to India or other close allies such as the UK.

Strict technology controls have always been a major issue. Isn't that so?

Technology restrictions continue, but there has been a trend since 2001 to reduce restrictions on exports from the US to India. The recent legislation regarding nuclear cooperation is a reflection of that trend. The Act has a significant impact on Indian industry — both for products and services. In addition, the ability of US companies to outsource high-value operations such as IT operations can be affected by licensing requirements for access to sensitive technology from outside the US.

Could you give an example of the effect?

For example, maintaining (or access to) networks or accessing, developing or maintaining software that run networks owned by leading telecom companies who also provide services to the Unites States Department of State or Department of Defense. More broadly, the US Export Administration Regulations and International Traffic in Arms Regulations can restrict access by foreign nationals to US technology. This could inhibit the ability of Indian companies to provide high-value IT consulting services to those US companies that work with restricted technologies, by licensing requirements for access to sensitive technology from outside the US.

What could be the broader impact on US exports to India?

The Act represents the culmination of a significant push by the US to enhance high-technology trade with India. Previously, onerous licences were required for large portions of trade with India. Now, a significant amount of trade can proceed licence-free. There are, however, risks for US exporters. Recent cases where exporters failed to obtain necessary licences for sophisticated products and technology resulted in fines ranging from several hundred thousand dollars to more than a million dollars. Some involved criminal charges.

What sort of policy level changes are expected after the Act?

The US Commerce Department reportedly is considering expanding the current draft of the Validated End-Users programme to give preferential treatment to Indian companies that have demonstrated strong commitments to protecting goods and technology received from the US. This programme, if implemented and extended to Indian companies, would require fewer export licences to those Indian companies that have demonstrated their ability to the US Government to use controlled items in accordance with US legal requirements and have agreed to periodic audits.

What will be the effect on outsourcing?

Murali Neelakantan

Outsourcing and joint technology development - watch out for inadvertent export violations. India is now a leader in providing outsourcing assistance. US companies are also increasingly setting up joint technology development centres in India. In both cases, US companies should carefully scrutinise transfers to make certain that they do not trigger licence requirements. More than one US company has authorised access to its computer system from abroad or set up a "help desk" staffed from outside the US, inadvertently permitting foreign nationals' access to technology that would trigger a licence requirement.

What sort of restrictions would be there for foreign nationals?

While the restrictions do not apply to foreign nationals who are permanent residents of the US (Green Card Holders), they do apply to high-technology workers in the US on valid visas (non-immigrant visas). The same workers may have done their most important graduate work in US universities where the research work would have been openly published and would not have required an export licence for access by the foreign nationals.

In other words, when people are doing research in the US, they did not need licence to access material for their work during student days but now that they are employed, they would need licences for similar work. Frequently, licences may be required for foreign nationals to work on certain proprietary technology in companies in the US. This is despite the fact that the same workers may have done their most important graduate work in US universities where the research work would have been openly published and would not have required an export licence for access by the foreign nationals.

How about access from abroad?

Access from abroad is just as much of an export under US law as is sending technology to a foreign destination. Similarly, any joint development work should be scrutinised carefully for export control requirements. Export control restrictions can apply even if the expertise is located abroad and most of the technology transfer is to the US rather than from the US.

raja@thehindu.co.in

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