Global Trade Commitments and National Law-The Intersection of SCOMET and India's Constitutional Framework

[DrJoshua Ebenezer]

Introduction to SCOMET, Wassenaar Arrangement, and India's Legal Framework

In the contemporary globalized world, export controls are pivotal in ensuring national security while fostering trade. India’s Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) list forms the foundation of its export control regime, especially for dual-use items. The recent  A.R. SALES PVT LTD. VERSUS UNION OF INDIA & ORS. - 2024 (8) TMI 729 - DELHI HIGH COURT. provides an important lens into interpreting and applying these controls in the Indian context, specifically concerning the Catch-All provisions that India incorporated as part of its international commitments under the Wassenaar Arrangement.

What is SCOMET?

SCOMET is a part of India's Foreign Trade Policy (FTP) and governs the export of goods and technologies that can be used for both civilian and military applications, referred to as dual-use items. The export of these items requires special authorization from the DGFT to prevent misuse, especially in the production of weapons of mass destruction (WMDs) or for military purposes.

SCOMET is divided into various categories covering nuclear materials, chemicals, microorganisms, aerospace systems, and more. The Catch-All provisions in SCOMET allow authorities to regulate items not explicitly listed but which pose a risk of being diverted for military applications.

What is the Wassenaar Arrangement?

India joined the Wassenaar Arrangement in 2016, marking its commitment to controlling the export of arms and dual-use technologies in alignment with international norms. The Wassenaar Arrangement aims to prevent destabilizing accumulations of arms and sensitive technologies by promoting transparency and responsibility in transfers.

The Catch-All provisions were introduced to control the export of goods that, while not specifically listed in SCOMET, might pose a threat to national or global security if used for military purposes. This provision, codified under Para 10.05 of the Foreign Trade Policy (FTP) 2023, gives authorities the power to stop an export if there is suspicion that it might be used inappropriately.

Indian Constitutional Provisions and International Law

India’s domestic legal system provides a strong foundation for integrating international commitments. Article 51(c) of the Indian Constitution directs the state to respect international law and treaties in its dealings with other nations. Although international agreements are not automatically incorporated into Indian law, Article 253 of the Constitution grants Parliament overriding authority to enact legislation for implementing international treaties, agreements, or conventions, even if such subjects fall under the State List (List II) of the Constitution.

The Supreme Court of India has also played a crucial role in interpreting the relationship between international law and domestic law. As noted in the landmark judgment of KESAVANANDA BHARATI SRIPADAGALVARU VERSUS STATE OF KERALA - 1973 (4) TMI 114 - SUPREME COURT, Justice Sikri held that the rules of customary international law are automatically incorporated into domestic law unless they conflict with municipal law. However, the power to enact a law for implementing an international treaty is not immune from constitutional restrictions, such as fundamental rights.

Catch-All Provisions under Indian Law

The Catch-All provisions in Para 10.05 of the FTP, 2023, allow the DGFT to regulate exports of items that are not specifically mentioned in the SCOMET list but could have military applications. These provisions were incorporated as part of India's obligations under the Wassenaar Arrangement, and they are in line with the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. The catch all provision is not merely a part of the FTP.  The importance that Government of India attaches to this requirement is evident from the fact that this requirement was incorporated a Section 14 C of the Foreign Trade Development and Regulation) Act, 1992 in August 2010 as a measure of India’s commitment to International treaties in this regard.

Section 14 C reads:

Catch-all controls.

14C. No person shall export any material, equipment or technology knowing that such material, equipment or technology is intended to be used in the design or manufacture of a biological weapon, chemical weapon, nuclear weapon or other nuclear explosive device, or their missile delivery systems.

This control helps India regulate the export of items that may not have been listed but still carry the risk of being used for illegal purposes, ensuring national security and compliance with international treaties.

Facts of the Case: A.R. Sales Pvt. Ltd. vs Union of India

In A.R. SALES PVT LTD. VERSUS UNION OF INDIA & ORS. - 2024 (8) TMI 729 - DELHI HIGH COURT, the petitioner, an exporter of civil/commercial aircraft parts, sought to export aircraft engines to Siberian Airlines. These engines were certified for civil use by the Directorate General of Civil Aviation and cleared by the Defence Research and Development Organisation as well. However, the DGFT invoked the Catch-All provisions, blocking the export because the engines could potentially be diverted for military use.

The petitioner contended that:

• The engines were certified for civil use and did not fall under the SCOMET list.
• The company had complied with all regulatory requirements, including submitting end-user certificates.
• The DGFT’s invocation of the Catch-All provisions was unjustified and speculative.

Court's Reasoning and Judgment

The Delhi High Court ruled in favour of A.R. Sales Pvt. Ltd., emphasizing the importance of rational implementation of export regulations. The court observed:

• The engines in question were certified as civil-use engines, and the DGFT’s decision lacked concrete evidence to support its suspicion that the engines could be used for military purposes.
• The court acknowledged the importance of dual-use controls but stated that economic interests must be balanced with security concerns. Simply because an item has potential military applications does not mean its export should be blocked if all certifications point to civil use.
• National legislation, even when aligned with international law, must be applied in a way that does not unduly hinder legitimate trade.

The court quashed the DGFT’s notification and allowed the export, reaffirming that items cleared for civil use should not be subject to undue restrictions based on hypothetical concerns. 

But the fact that was not taken into account is that the possibility of diversion and the objective of the Catch-all control is to take care of such eventualities.  In such matters the fact that the impugned goods were not specifically covered under the SCOMET list should not have been a decisive factor.

Recommendation:

The judgment in A.R. Sales Pvt. Ltd. vs Union of India is a landmark ruling that underscores the importance of rationality and balance in export regulations. While India’s obligations under international treaties like the Wassenaar Arrangement are crucial for global security, their domestic implementation must be carefully calibrated to avoid over-regulation that stifles legitimate trade.

India’s Catch-All provisions are critical for maintaining national security, but they must be applied judiciously. The DGFT should consider appealing the decision to the Supreme Court, not to contest the court's reasoning, but to seek further guidance on how to strike the right balance between trade facilitation and security concerns.

This case also highlights the importance of clarity in guidelines for businesses, especially exporters dealing in dual-use items. The DGFT should issue clearer directives on when and how the Catch-All provisions should be applied to ensure that legitimate exporters are not subjected to unnecessary restrictions.

In light of India’s international commitments, such as its membership in the Wassenaar Arrangement, this judgment could serve as a global precedent. It reinforces the need for clarity and fairness in the application of export controls, ensuring that national security and economic interests are given equal priority in the implementation of international agreements within domestic law.

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by Dr Joshua Ebenezer, Principal Consultant of NuCov Facili-Trade.