Alerts & Updates 14th Jun 2022

ELP Export Control Update – Liberalization to the Export Control Policy Regulations concerning Global Authorization for Intra-Company Transfers

Authors

Sanjay Notani Partner | Mumbai
Harika Bakaraju Principal Associate | Mumbai

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Liberalization to the Export Control Policy Regulations concerning Global Authorization for Intra-Company Transfers

Introduction

In furtherance of the earlier policies concerning Global Authorization for Intra-Company Transfers (GAICT) introduced on July 24, 2019 and March 17, 2020 under Paragraph 2.79F of the Handbook of Procedures (HBP) of the Foreign Trade Policy 2015-20 (FTP), the Directorate General of Foreign Trade (DGFT), on June 13, 2022, issued an amendment in the said Paragraph 2.79F of the HBP of the FTP (Policy).

Prior to the amendment, only companies re-exporting certain imported SCOMET items to their foreign parent or subsidiary of a foreign parent were eligible to apply for the GAICT. However, post amendment, any Indian company intending to export/re-export certain SCOMET items to its foreign parent/another subsidiary of a foreign parent or its foreign subsidiary in certain countries can apply for GAITC.

The amended Paragraph 2.79F mainly obviates the need for a case-to-case basis pre-export authorization for the export/re-export of the SCOMET Items/Software/Technology (SCOMET Items), except for the items listed in Annexure I to the said paragraph and is limited to the certain countries.

  • Eligibility for exporting without pre-export authorization

    An intra-company transfer of SCOMET Items can be made by an Indian parent company or an Indian subsidiary of a foreign company (Indian exporter/exporter) without pre-export authorization subject to the following:

    • The export is an intra-company transfer by an exporter i.e., Indian parent company to its foreign subsidiary (or) Indian subsidiary of a foreign company to its foreign parent/another subsidiary of the foreign parent;
    • If a third party i.e., an end user is involved in the supply chain, such third party should be a foreign parent/another subsidiary of the foreign parent company or a subsidiary of an Indian company; and
    • The transfer meets certain conditions delineated herein below.
  • Key conditions under A.(ii) of Paragraph 2.79F

    The intra-company transfer by the Indian exporter/exporter has to meet the following condition:

    • The SCOMET items to be exported/re-exported is under the Master Services Agreement/Contract (MSA) between the aforementioned parties for carrying out certain services (including but not limited to design, encryption, research, development, delivery, validation, calibration, testing, related services, etc).
    • The SCOMET items are to be exported/re-exported to certain countries listed in Table 1. The third party i.e., the end user should also be in the countries so identified.
    • The Indian exporter is required to declare that the re-exported items would be used for the purposes for which it is intended by the overseas group company.
    • The Indian exporter is required to furnish its own certified/approved Internal Compliance Program (ICP) or demonstrate compliance to the ICP of the foreign parent company or ICP certified by the compliance manager or certified by any Government agency such as an Authorized Economic Operator.
    • On-site inspection of the Indian exporter, if required, should be allowed.
    • No export authorization to be granted for UNSC sanctioned destinations or countries.
    • If adverse notice has been provided to the exporter, no export authorization is to be granted.
    • A GAICT is granted per the prescribed procedure.
  • Key procedural requirements for issuance of the GAICT
    • Application, Form ANF 2O(b), and the following key details/documents among others for obtaining GAICT shall be filed by the Indian exporter/exporter online.
    • Proof of corporate relationship with the overseas group company.
    • Classification of the SCOMET Item.
    • Documentary proof of License Exception/Temporary license granted in the country of the parent company or subsidiaries of the parent company (if available).
    • Detailed description of the SCOMET Item intended to be exported.
    • In case of the involvement of a third party, a clear contract/service agreement/purchase order specifying the SCOMET Item description is to be provided.
    • Certified / approved ICP of the Indian parent company or self-certified copy of ICP of the foreign parent company adopted by the Indian subsidiary of the foreign company along with an undertaking.
    • An undertaking/declaration on the exporter’s letterhead encapsulating the following:
      • To allow on-site inspection
      • A declaration that the exported items will be used for the purposes for which it is intended
      • A declaration that, if the exporter is notified by DGTR or knows or has reason to believe that the item is intended for military use, the exporter will not be eligible for GAICT
    • Such applications would be assessed by the Inter-Ministerial Working Group (IMWG) for the issue of GAICT.
  • Validity of GAICT
    • GAICT shall be valid for a period of three (3) years from issuance.
    • The same cannot be revalidated under Paragraph 2.80 of the HBP of FTP.
  • Ongoing compliance for exports made under GAICT

    For each export/consignment of export made under GAICT, the Indian exporter shall be required to fulfill the following. Any failure to meet these requirements may result in the imposition of a penalty and/or suspension/revocation of GAICT.

    • Submit quarterly details of exports in proforma ANF 2O(c)2
    • Submit a copy of EUC for such exports in Appendix 2S(iv)

    In addition, the exporter has to keep records of all the export documents in electronic form for 5 years from the issuance of GAICT.

  • Other relevant points/conditions for the issuance of GAICT
    • GAICT shall not be issued in case the SCOMET Items are used for activities pertaining to chemical, biological, nuclear weapons, or missiles.
    • GAICT shall not be granted for the countries/entities covered under the UNSC embargo or sanctions list, etc.
    • In case of an amendment to the SCOMET Items or the supply chain, the applicant exporter has to obtain prior approval from the DGFT.
    • GAICT shall be liable to be revoked/suspended on receipt of adverse reports on proliferation concern or non-submission of mandatory reports within prescribed time or non-fulfilment of other conditions.
  • ELP Comments

    Since India is well known globally for its services industry and particularly, is miles ahead in the IT and ITES sector including conducting research and development activities, the GAICT policy provides further impetus to this sector for increasing and facilitating timely exports within the four corners of the regulations concerning export control. This will also help the Government of India (GOI) achieve its domestic policy for global exports to be made under the “AatmaNirbhar Bharat”.

    Based on the feedback received from stakeholders and Sectoral Associations such as NASSCOM and FICCI, the DGFT has finally issued the Policy which was in the making for a long time. The Policy is clear in terms of the eligibility, procedure, and compliance required for Indian companies to export the listed SCOMET Items including software and technology.  However, there are certain aspects that require being vigilant in using this Policy:

    • The list of countries under Table 1 lists the Russian Federation. Given the sanctions which have been announced against Russia, it is critical to note, that while India has no sanctions against Russia, the exporters/re-exporters directly or otherwise may require to take a cautious approach on this behalf before violating any of the regulations operating in the US, European Union, and the UK among others.
    • It is also a well-known fact that there are a lot of inbound and outbound exports to the countries listed in Table 1. However, the list does not contain other important countries such as Singapore and China PR. This may cause some disruption for the Indian exporters, especially wherein there is an end user or third party or any subsidiary involved in the supply chain in the countries not listed in Table 1 – as this may require the exporters to go for a separate license or may require remodeling of the supply chain outside of these jurisdictions.
    • Under the Policy, there is a requirement for providing certified/approved ICP on the part of the subsidiary company/parent company to be adopted along with the undertaking.  Given the heightened geopolitical situation around supply chains and security, it is critical that the ICP programs are automated and abreast with the latest updates, and regular training, and logs are maintained – this is considering an increasing likelihood of regulators globally keeping surveillance, whereby investigations could increase due to sanctions as well as mushrooming shell companies being created worldwide to avoid sanctions.
    • Under the heading of suspension/revocations in the Policy, it is also interesting to note that the Policy stipulates that the DGFT has the power to suspend the GAICT license if there is merely an issuance or initiation of any inquiry from any of the global regulators including DGFT.  While this may lead to immediate and adverse loss to the business, it is a legitimate expectation that the Indian exporters would bring such information to the notice of the DGFT as well as the latter would deal with this situation on a case-to-case basis depending on the gravity of the situation and thereby, not leading to immediate suspension of the GAICT license.

    The DGFT has been playing an active role in issuing liberalized policies. This Policy is a great and welcome step in the right direction given the geopolitical and economic concerns being felt globally. This Policy is also clearly an example of the Government’s role in facilitating businesses to increase trade for the Indian exporters during this turbulent period.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.