By Jim McShane, Export Solutions

Currently, the National Defense Authorization Act (“NDAA”) 2020 is under review in both Houses. Both versions of the Act contain a proposal to amend the Arms Export Control Act (“AECA”), thereby granting India Major Non-NATO Ally Status. Last week the U.S. Senate passed its version including the amendments to the AECA.  At the same time, a similar legislative proposal, an amendment to the AECA, was introduced into the House version of the NDAA and will be reviewed by the full House this month.  The NDAA would be signed into law after both the chambers of the U.S Congress pass it.

What are the proposed changes to the AECA?

India would be added to the list of Major Non-NATO Allies (defined in §120.32 of the International Traffic in Arms Regulations).  Amendments would be required to the following International Traffic in Arms Regulations (“ITAR”) sections:

  • 120.32 Major Non-NATO Ally (definition)
  • 123.9 Country of Ultimate Destination and Approval of Reexports or Retransfers – Subsection (e)
  • 123.15 Congressional Certification Pursuant to § 36(c) of the Arms Export Control Act – Subsections (a) (1) and (2); (b)
  • 124.1 Congressional Certification Pursuant to Section 36(d) of the Arms Export Control Act – Subsection (b)
  • 126.18 Exemptions Regarding Intra-company, Intra-organization, and Intra-government Transfers to Employees Who are Dual Nationals or Third-country Nationals – Subsection (d)(2)
  • 129.5 Exemption from Requirement for Approval – Subsection (b)

Allies AND Sanctions?

Given the relationship and defense cooperation between the United States and India, this amendment to the AECA and the ensuing amendments to the ITAR may not seem far-fetched and might even have been anticipated; EXCEPT for the fact that at the same time this is happening, the U.S. is considering sanctions against India under the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

CAATSA was signed into law in August of 2017 as a punitive action against Russia for Russia’s continued involvement in the wars in Ukraine and Syria. CAATSA allows the President to establish sanctions against any country which supports Russia through the purchase of Russia military items and technologies.

Currently CAATSA sanctions already exist against China and are being strongly considered against two countries: Turkey and India. Both sets of sanctions are the result of the proposed purchases of the Russian S400 missile system.

In late 2017 Turkey signed an agreement with Russia for the delivery of the missile systems.  Since then sanctions have been threatened by the U.S. to include cancellation of sales of remaining F-35 aircrafts and exclusion from the F-35 production/supply chain. There have been intense diplomatic efforts to get Turkey to cancel the purchase from Russia and purchase U.S. equipment (e.g., Patriot missile system). To Date, all efforts have failed and sanctions are closer to being implemented as the delivery of the missile systems to Turkey is expected at the end of the month. While press reports characterized President Trump as being sympathetic to Turkey during discussions which occurred on the fringes of the G-20 meeting, the administration continues to take a hardline that, at a minimum, Turkey’s removal from  the F-35 program (purchase of aircraft and production) should go forward. (NOTE: the U.S. has already halted training of F-35 Turkish pilots in the United States on the aircraft and refused to accept any others).

In October of 2018, India signed an agreement to purchase four S400 Trumf [Triumph] surface to air missile systems and again the U.S. has been diplomatically attempting to convince India to cancel that purchase; although the identification of what sanctions could be levied against India have been less specific than those involving Turkey.

Carrot and a Stick

The question is whether the amendment of the AECA and ITAR to include India as a Major non-NATO Ally is a big enough CARROT being offered by the U.S. to India to convince them to cancel the purchase of the Russian missile system and avoid the STICK of sanctions from the U.S. on future defense cooperation and sales? Most certainly U.S.-India relations have strengthened in recent years. India has already been designated a “Major Defense Partner” which provides it access to dual-use technologies at “a level commensurate with that of [the United States’] closest allies and partners.” Within the past few years, the U.S. has signed various Memorandums of Understandings and Agreements providing such benefits as:

  • Allowing the U.S. to transfer secure communications and data equipment to India. It also allows the U.S. to offer real-time data-sharing with the Indian military over secure channels (“Communications, Compatibility and Security Agreement” signed September of 2018)
  • Designated military facilities on for the purpose of refueling and replenishment (“Logistics Exchange Memorandum of Agreement” signed August of 2016)
  • Pending agreement is the “Basic Exchange and Cooperation Agreement” (BECA) which would provide the exchange of unclassified and controlled unclassified geospatial products, topographical, nautical, and aeronautical data, products and services between India and the US National Geospatial-Intelligence Agency (NGA).

Will It Be Enough?

Will all of this, plus Major Non-NATO Ally status be sufficient to dissuade India from proceeding with the purchase of the Russian missile system and avoid CAATSA sanctions? It is difficult to predict, as India (for years) has masterfully played the U.S. and Russia with the end game of getting what they want or what they perceive they need. Although India’s relationships and cooperative programs with Russia have diminished as the U.S.’s have been fortified, the S400 Trumf surface to air missile system is seen by India as its strongest defense against Pakistan and an effective air defense along its 4,000 mile border with China (who already has the S400 missile system).

At this point in time and without the ability to predict the future of the S400 missile system, the only thing that can probably be predicted is that, given the fact that both versions (House and Senate) of NDAA 2020 will have language to designate India a Major Non-NATO Ally within the AECA and ITAR, it will happen. So we can begin to pencil in the changes to our ITAR and our Export Management Compliance Programs to reflect the changes listed to the ITAR sections and subsections shown above.

If you would like more information on this topic or on other topics related to export compliance, please contact Export Solutions for a free consultation.

Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.