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Curbing Proliferation from Emerging Suppliers: Export Controls
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Anupam Srivastava and Seema Gahlaut

Reducing nuclear and other prolifer- ation dangers in South Asia is a crucial goal for the international community. Thus far, maximum international attention regarding India and Pakistan has focused on two approaches: one, encouraging bilateral dialogue and nuclear risk-reduction measures, and two, exhorting them to sign the Comprehensive Test Ban Treaty (CTBT) and the nuclear Nonproliferation Treaty (NPT). After September 11, 2001, international attention has expanded to include discussion of the two states’ abilities to secure their nuclear weapons and fissile materials.

Still, so far the international community has focused primarily on controlling technology trade and transfers to India and Pakistan. Experts have far less understanding of the motivations or policies of export restraints in the two countries.1 Yet, growing indigenous capabilities make it imperative for the focus to expand to include controls on trade and technology transfers from India and Pakistan.

Several reasons justify this expanded focus. First, as Table 1 shows, the two countries have significant nuclear stockpiles and other capabilities that are outside International Atomic Energy Agency safeguards. Second, until now, both countries have unilaterally controlled sensitive exports through broad regulatory powers exercised by the federal governments and by keeping the relevant technology sectors within state-owned enterprises. This situation appears to be changing as economic liberalization leads to a greater role by the private sector. Third, the leadership of both countries is facing significant domestic pressure to capitalize on the commercial and/or strategic potential of their respective technological capabilities, mostly through trade and transfers.

Both India and Pakistan, as targets of existing technology control agreements, remain outside the ongoing multilateral efforts to harmonize and coordinate trade and transfers of sensitive technologies. As such, they have no formal stakes in and obligations toward international efforts to regulate the diffusion of sensitive technologies. For instance, both remain outside the NPT, the Nuclear Suppliers Group (NSG), and the Missile Technology Control Regime (MTCR). They have not signed the CTBT but state their willingness to participate in discussions for a fissile material cut-off treaty. Still, Pakistan has signed 10 of the 12 international conventions on physical protection and nuclear security while India has signed all 12. Further, both are members of the Chemical Weapons Convention (CWC) and of the Biological Weapons Convention but remain outside the Australia Group—a voluntary group of countries that work to harmonize export controls on chemical and biological materials.

The possibility of secondary proliferation from states that have recently obtained nuclear, chemical, or biological weapons capability is more than a hypothetical concern. Recent assessments and press reports suggest that Iraq, Iran, and North Korea have been able to circumnavigate the multilateral export control regimes in two ways: one, by focusing on traditional supplier states for mass-market, dual-use equipment and materials, and two, by complementing such acquisitions via a parallel focus on emerging supplier states, such as India and Pakistan, for materials and technology integration. For instance, the Iraqi chemical weapons program obtained the majority of its equipment and materials from western Europe but secured additional materials from a range of developing states, such as Egypt, Brazil, Singapore, and India.2 Similarly, North Korea’s centrifuge program was reportedly helped by prototypes, designs, and personnel training from Pakistan3 and Germany.4 Finally, Iran’s nuclear facility at Natanz5 reportedly consists of centrifuges based on western European design, but it has benefited from an unspecified degree of assistance from Russia6 and Pakistan.7

These examples highlight secondary proliferation as a critical challenge facing the nonproliferation community. How does one ensure that emerging supplier states that are not part of multilateral export control regimes do not undermine the regimes’ effectiveness by becoming alternate sources for determined proliferators? This dilemma is particularly acute regarding India and Pakistan.


The encouraging news so far is that, in spite of being outside many regimes, India and Pakistan have unilaterally developed national policies in many of these areas to regulate their sensitive exports, assured the international community that they will not allow weapons of mass destruction (WMD)-relevant materials and technologies to spread beyond their borders, and become progressively more open to learning from other states’ best practices on export controls. Nevertheless, potentially troublesome issues remain, especially regarding their enforcement record and resources devoted to this task. Additionally, in the case of Pakistan, there are serious questions as to its political commitment regarding export restraint. We provide below a brief overview of export control policies and processes in India and in Pakistan, challenges in each country, and opportunities for improvement. We conclude with some preliminary recommendations for the international community to consider in its effort to engage India and Pakistan on the issue of secondary proliferation.

Challenges and Opportunities in India


India’s export control system is fairly well developed by international standards, and its control lists and practices are increasingly convergent with those of multilateral export control regimes.8 Some important weaknesses in its implementation remain, however, as was demonstrated with the recent case of NEC Engineering Private Ltd. In this case, acting on a tip from U.S. intelligence sources, New Delhi pursued an Indian company for exporting prohibited items—precursor chemicals and missile fuel—to Iraq via shell companies in Jordan and Dubai. (See ACT, March 2003.) Although the Indian government ultimately imposed severe penalties on NEC, the case highlighted gaps in its legal framework and enforcement practices and served to tarnish New Delhi’s claims of having a strong export control system.

NEC’s ability to obtain export licenses with false documentation and declarations suggests that procedures for scrutiny of end-user certificates and other documents by customs officials are inadequate.9 Since 1997, there has been more focus on training customs officials and border guards in identifying controlled dual-use chemicals and precursors. Clearly, there is a need to complement this with more rigorous upgrades in equipment and training, especially for nuclear and missile technologies. Our discussions with the implementing officials suggest that India will also need a larger cadre of scientists who can contribute to technical assessments and review of export license applications.

Further, the NEC case demonstrates the need to introduce to India “catchall controls” like those adopted by the principal members of multilateral regimes (including the United States, United Kingdom, France, Canada, Japan, etc.) during the 1990s to prevent companies from circumventing existing laws or exploiting loopholes in the implementing regulations. Such controls seek to block particular companies or individuals from having access to an export and go beyond the control lists currently adopted by multilateral regimes. A typical catchall clause places a greater burden of proof on exporters by prohibiting companies from exporting goods, services, or technologies to those end-users or transshippers that the company has “reason to believe,” or “knows,” or “is informed” might be engaged in a WMD program.

Until the NEC case, Indian exporters merely had to claim that they “did not have reason to believe” that their clients (end-users) were engaged in WMD-relevant work to avoid liability for exporting sensitive items to suspect end-users. Our discussions with Indian officials indicate that they have introduced additional stipulations that increase the responsibility of Indian exporters to verify the credentials of the end-user and to ascertain the likely uses of that item. But the officials are reluctant to introduce catchall controls for two reasons. First, the number of exporters is still relatively small, and the officials feel confident about warding off the potential problem cases before they result in future violations, as in the case of NEC. Second, they feel that introducing catchall controls at this stage of economic liberalization would scare away small- to medium-sized domestic exporters that lack technical and financial resources to perform rigorous and ongoing checks on their end-users.

Finally, the NEC case demonstrates that India’s export control bureaucracy needs to place additional emphasis on security and nonproliferation considerations, instead of its current focus on revenue collection. Thus, the Department of Customs has pursued the NEC case through its Directorate of Revenue Intelligence, which is otherwise tasked to gather pre-shipment intelligence, coordinate postshipment verifications, and conduct investigations and interdictions.

India has important strategic incentives to beef up its export control system. The burgeoning chemical, pharmaceutical, and software sectors have strong reasons to preempt adverse economic outcomes through deliberate or inadvertent export violations in the future. Further, as the economic liberalization program begun in 1991 gathers momentum, the government appears conscious of the growing pressure to open up nuclear energy, civilian space, and defense sectors to private participation. The state-owned enterprises, which control much of the sensitive technology, have also begun to focus on profits and greater export orientation. As such, better codification of export-control regulations, and greater government outreach to the private and public enterprises, will ensure that the newfound enthusiasm for exports does not result in questionable transactions that are justified by ignorance of the existing regulations.

In its pursuit to make India a globally connected knowledge economy, the government has promoted exports by introducing self-assessment of value of goods by the industry, faster customs clearance, and online application submission. These changes are essentially aimed at promoting trade, but they can also have positive implications for proliferation control by providing the government digitized databases on export licenses, exporters, and end-users of Indian exports. India is now keen to balance trade promotion and export controls, promote trade with members of multilateral export control regimes, and minimize the negative impact of “deemed export” regulations10 in the United States and western Europe. These goals have influenced the government to deepen and widen its cooperation with the U.S. counterpart agencies, aimed to make its export control system more transparent and effective by international standards.

One indication of this growing awareness is that, apart from the Ministry of External Affairs, other government agencies have also begun to pay sustained attention to international trends in technology regulation. For instance, the Department of Defense Research and Development, which serves as the chief defense technology generator for the government, is encouraging its midlevel scientists to develop secondary expertise in export controls, multilateral regimes, new ideas in monitoring and verification of technology transfers (both into and out of India), and follow the trajectories of technology exports and export controls in the European Union, China, Russia, Israel, and the United States. 11

The next priority for the government is to build effective partnerships with the domestic industry and to ensure that national regulations are proactively modified and that enforcement capability stays abreast of industry and technology trends. Accordingly, the government has identified the need for external assistance in areas such as internal compliance programs for Indian industry, automated licensing, customs training, and new modes of government-industry interaction. By far the most sustained dialogue in this regard is with the United States, with at least nine interactions between Indian export control delegations and officials from the Office of Nonproliferation Export Control Cooperation (NEC) in the U.S. Department of Commerce’s Bureau of Industry and Security since 1999.

Future Indo-U.S. discussion is likely to include issues of growing international concern regarding proliferation of expertise from India (controls on intangible technology transfers), transit and transshipment controls, and security of imported technologies and information (re-exports, data privacy, and firewalls between civilian and weapons programs).12 In addition, India should be persuaded to introduce catchall controls so that its export-oriented industry is required to maintain vigilance about the credentials and activities of end-users and not get away with pleading ignorance. Finally, India needs to establish databases that cross-reference government licenses, exporters, and end-users to enable data mining and build risk profiles of exporters.

Challenges and Opportunities in Pakistan

In terms of formal policy, process, and procedures, Pakistan’s export control system appears inadequately developed by international standards, and there are several areas that are in serious need of attention.

Pakistan needs to reduce the number of exceptions and exemptions granted to designated government agencies. For instance, although all private exporters and importers are required to register with the Export Promotion Bureau prior to submitting license applications, all federal and provincial governments, departments, and authorized public sector agencies are exempt from this requirement. Further, a 2000 law exempts “any goods, stores or equipment when sold abroad on Government to Government basis and exported under an export authorization issued by the Director General of Defense Purchases or by any other officer authorized by the Ministry of Defense in this behalf.” It also permits the “Vice Chairman” of the Export Promotion Bureau to waive the regulations on any enterprise. This authorized capacity to bypass the formal process is a major area of concern, particularly as no information is available on how frequently such authority has been exercised in the past, what entities have been exempted, and if any official oversight mechanism exists to audit whether this authority to grant exemptions has been abused to the detriment of Pakistan’s security or its international obligations.

The government also provides little information about its enforcement record on export controls. This includes a lack of information on the degree of institutional checks and balances, on civilian oversight over military decisions, and on steps to curb the dangers of deliberate or unauthorized diversion of WMD-relevant assets and trained personnel13 to domestic or external terrorist groups. In particular, Pakistan has yet to show that it has successfully prosecuted cases involving the interception of unauthorized shipments or used pre-license checks to uncover a noncompliant importing entity, leading to the rejection of the license application or additional punitive action.14

Moreover, Pakistan’s track record on proliferation calls into question the ability or desire of its leaders to fulfill its commitment to plug the remaining loopholes in its export control regime. This apparent ambivalence is best demonstrated by Dr. A.Q. Khan Research Laboratories (KRL). On March 24, 2003, the U.S. government imposed sanctions on Changgwang Sinyong Corporation of North Korea for the transfer of items that fall under Category I of the MTCR and on KRL for receiving the shipment.15 Category I comprises complete rocket systems (including ballistic missiles and subsystems) and unmanned aerial vehicles capable of delivering a 500-kilogram or greater payload to a distance of 300 kilometers or more, as well as specially designed production facilities for these systems. Moreover, some reports suggest that KRL has engaged in a “nuclear-for-missile” swap with North Korea, 16 although the U.S. government has determined that it does not have conclusive evidence to prove the nuclear component of this relationship.

Pakistan has denied any government complicity and now puzzlingly categorizes KRL as a “firm,” despite the fact that KRL has spearheaded nuclear weapons research for the government for decades. The disturbing conclusion is that either the government of Pakistan is complicit in the activities of KRL, is unable to regulate the activities of such entities, or both.

As in the case of India, it is important to understand the motivations that appear to underlie Pakistan’s behavior regarding its export control policy. The international community has regularly expressed its concerns about the dangers of Pakistan becoming a “failed state” and about the growing sympathy for militant Islamist causes among the Pakistani elite. The government and the elite dismiss these characterizations as Western- and/or Jewish-inspired and seek to counter them in the public arena. Accordingly, much of the information on Pakistan’s export control policies, on related issues of physical protection of nuclear facilities, and on the establishment of nuclear command and control infrastructure has been explicitly linked to Pakistan’s image as a responsible member of the nuclear club.

In light of the above, some areas for future development of export controls are readily apparent. First, the 2000 export control law that exempts Ministry of Defense agencies from its scope must be re-examined. In Pakistan, nuclear weapons, missiles, and related production facilities are directly controlled by the armed forces, with little or no oversight from the civilian leadership. Therefore, unless these exemptions are clarified or withdrawn, unlicensed export by Defense agencies would legally not be violations of domestic export control laws, especially if they are sanctioned by top military leaders who have the authority to bypass these regulations.

Second, the activities of KRL discussed earlier raise serious questions regarding the political commitment of the ruling elite to responsible export controls. Therefore, Pakistan and the international community need to go beyond the procedural developments in export controls to strengthen the nonproliferation culture among the elite. Given growing concerns about Pakistani scientists offering their services to WMD programs in suspect countries, perhaps the government could consider establishing a registry of retired and active scientists in order to track their contacts and activities.

Finally, Pakistan could strengthen its ability to prosecute those who violate the letter or the spirit of its export control laws through transfers of know-how and know-why. In economic literature, “know-how” refers to knowledge sufficient for operating and organizing a particular technology, while “know-why” refers to more valuable information that can help reproduce as well as innovate technology. Pakistan could accomplish this by introducing explicit prohibitions against intangible technology transfers. If Pakistani-U.S. export control cooperation gathers momentum, the latter could encourage discussion on each of these issues.

Conclusion

The cases of India and Pakistan require the international community to re-examine its approach to dealing with NPT violators in general and India and Pakistan in particular. Although the two South Asian neighbors are outside the accord, they need to be thought of differently. Thus far, the NPT-based categorization, wherein India and Pakistan are seen as Siamese twins, has driven the consensus that what is applicable to India will automatically apply to Pakistan and vice versa. Yet, as the above discussion reveals, the two countries differ markedly in terms of capabilities, their record on export control implementation, and overall political commitment to avoiding the spread of weapons technologies to other countries.

Second, the crucial question before the nonproliferation community relates to the issue of quid pro quo. If there can be no rapprochement with India and Pakistan (and Israel) in the current nonproliferation regime, how long and why should these countries be expected to abide by the expectation of restraint embodied in current international concerns about sensitive exports by nonmember states? Or should further incentives be provided for them to cooperate? One option could be to explore the costs and benefits of making these countries partial or full members of the NSG, the Australia Group, and the MTCR without requiring their accession to the NPT. Another could be to encourage these countries to make their export control systems identical to those of the NSG, Australia Group, and MTCR. In return, principal supplier states within the regimes would assist the civilian programs in these countries through technology transfers and co-development.

The current stalemate is particularly problematic in the case of India, where the international community has little leverage to deter it from engaging in risky behavior if it takes a political decision to do so. The response of the nonproliferation leaders to Chinese—and now Pakistani—proliferation has already sent conflicting signals to India. U.S. sanctions on China and Pakistan, for instance, have been no more than a slap on the wrist.

Finally, at the policy level, the cases of India, Pakistan, Israel, China, and Russia severely test the limits of the NPT-based classification of “proliferant” states. How can the United States and the regimes distinguish between non-NPT members who implement effective export controls versus NPT members who do not? These questions have acquired greater salience in light of the increased threat posed by terrorism and against the backdrop of the Bush administration’s approach to arms control, which favors pragmatism and building coalitions of “like-minded states” to tackle problems that threaten regional and global security.

 


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Table 1. South Asian Rivals: Comparing India and Pakistan

     
Attributes
Pakistan
India

Population a

148 million
1.04 billion

Land Area a

778,720 sq km
2,973,190 sq km

GDP (In Billions)

$59.7 b
$501c

Foreign Trade (2001) a

   

Total

$18 billion
$98.3 billion

Chemicals & Pharmaceuticals

$151 million
$6.3 billion

Electronics $ Software

$100 million
$8.3 billion

Machinery $ Engineering

NA
$5.7 billion

Entities Under U.S. Nonproliferation Sanctions after May 1998 Nuclear Tests e

   

Total

92
212

Military Expenditure a

   

As % of GDP

$2.9 billion (4.8%)
$12.1 billion (2.4%)

Size of Armed Forces

610,000
1.3 million

Nuclear Capability d

   

Operating Nuclear Research Reactors (Under IAEA Safeguards)

3 (2)
6 (0)

Nuclear Power Plants (Under IAEA Safeguards)

2 (2)
14 (4)

Total Installed Capability

NA
2,720 MWe

Uranium Enrichment Facilities (Under IAEA Safeguards)

4 (0)
2 (0)

Uranium Processing Facilities (Under IAEA Safeguards)

5 (0)
6 (partial on 2)

Reprocessing Facilities (Under IAEA Safeguards)

3 (0)
5 (partial on 1)

Heavy-Water Production Facilities (Under IAEA Safeguards)

2 (0)
8 (0)

Estimates of Nuclear Weapons

30-55
50-90

Estimates of Fissile Material
Note: These stockpiles include the above estimates of nuclear weapons each country possesses.

585-800 kilograms of HEU, plus 15-25 kilograms of weapons-grade plutonium (could produce 3-5 weapons)

Unknown quantity of HEU, plus 225-370 kilograms of weapons-grade plutonium (could produce 45-74 weapons)

Sources: a CIA World Factbook, 2002; b Factsheet, April 30, 2003, Economist Intelligence Unit;
c
Factsheet, May 12, 2003, Economist Intelligence Unit; d Joseph Cirincione, Jon Wolfsthal, and Miriam Rajkumar, eds., Deadly Arsenals, Carnegie Endowment for International Peace; e U.S. Entities List (http://w3.access.gpo.gov/bis/ear/pdf/744spir.pdf). Note: These numbers do not include nuclear reactors, enrichment and reprocessing facilities, and heavy water-production facilities, but they continue to be under U.S. sanctions.

Table 2. Export Controls in India and Pakistan

Export Controls in India
Export Controls in Pakistan
Laws
Laws


Atomic Energy Act, 1962


Import and Export Control Act (ICEC), 1950

Customs Act, 1962

Customs Act, 1950


Foreign Trade Development & Regulation (FTDR) Act, 1992

Pakistan Nuclear Safety & Radiation Protection Ordinance

 


Pakistan Nuclear Regulatory Authority Ordinance, 2001

Regulation
Regulation


Under FTDR: Export & Import Policy Guidelines (2002-2007)

Under ICEC: Export Policy and Procedures Order, 2000


Under Customs Act: Conservation of Foreign Exchange and Prevention of Smuggling Act (COFEPOSA), 1971

 
Bureaucracy
Bureaucracy

Licenses formally granted by Directorate General of Foreign Trade


Licenses formally granted by Export Promotion Bureau (Ministry of Commerce) and, in special cases, Ministry of Defense

Licensing decisions taken at periodic interdepartmental meetings


Technical review of license applications by Pakistan Atomic Energy Commission/ Pakistan Nuclear Regulatory Authority and Director General of Defense Purchases/ Ministry of Defense


Technical review of license applications by Department of Atomic Energy, Space, and Defense Research & Development

Enforcement by Department of Customs


Enforcement by Directorate of Revenue Intelligence and Central Board of Customs

 

 



NOTES

This article draws from the authors’ project, “Strengthening Export Controls in India and Pakistan,” supported by the Ploughshares Fund. A full report of the project will be available in September 2003.


1. Lee Feinstein, “Avoiding Another Close Call in South Asia,” Arms Control Today, July/August 2002, pp. 3-8.

2. Bill Gertz, “Iraq Seeks Chemicals for Arms,” Washington Times, October 16, 2003; William Safire, “French Connection II,” The New York Times, March 20, 2003; Mark Erikson, “Germany’s Leading Role in Arming Iraq,” Asia Times, February 5, 2003.  

3. According to a June 2002 CIA report, in 1997, Pakistan obtained missile technology and parts from North Korea in return for high-speed centrifuges and how-to data on building and testing a uranium-triggered nuclear weapon. Seymour Hersh, “The Cold Test,” The New Yorker, January 27, 2003.

4. Report in “China Briefing,” Far Eastern Economic Review, May 8, 2003.

5. For a technical description of the Natanz facility, the Iranian nuclear weapons program, and the putative assistance from Pakistan, see Dale Grant, “The Pakistani (and the Iranian) Connection,” Defense Policy Review, vol. IX, no. 6 (April 7, 2003), pp. 1-12.

6. John Rossant, “The Next Nuclear Power: Iran?” Business Week Online, May 12, 2003.

7. According to Corey Hinderstein, “The (Natanz) site resembles heavy water plants found in Pakistan and contains a similar Z-shaped structure.” David Ensor, “U.S. Has Photos of Secret Iran Nuclear Sites,” CNN.com, December 13, 2002.

8. Seema Gahlaut, “Export Control Developments in India,” in To Supply or to Deny: Assessing Nonproliferation Export Controls in Five Supplier States, eds. Michael Beck et al. (New York: Kluwer, forthcoming).

9. “NEC-Chargesheet,” Press Trust of India, March 2, 2003; “NEC Used a UN Plan to Ship Material to Iraq,” Indian Express, February 27, 2003.

10. A U.S. university or industry that wishes to hire, say, an Indian professional to work on a program that deals with technologies and materials that are controlled under U.S. law will require a U.S. export license. India can facilitate this process by making all information about that individual’s past employment available to the U.S. entity.

11. This was evident in the authors’ discussions with Indian officials during June 2003, when they taught an intensive course, “Technology Regulations and Strategic Policy-Making in the 21st Century: Implications for India” at the Institute for Technology Management in Mussoorie, India. The attendees at the course were scientists selected by the Department of Defense Research and Development from its various laboratories across India. The scientific advisor to the defense minister participated in the class discussions during the last day of the course.

12. Anupam Srivastava and Seema Gahlaut, “Intangibles, Technology Trade, and India: Challenges in a Knowledge-Based Economy,” in The Knowledge Economy in India, Frank-Jürgen Richter and Parthasarathi Banerjee, eds. (London and New York: Palgrave-Macmillan, 2003), pp. 197-213.

13. David Albright and Holly Higgins, “A Bomb for the Ummah,” Bulletin of the Atomic Scientists, March/April 2003, vol. 59, no. 2, pp. 49-55.

14. Pakistan’s pursuit of nuclear weapons-related capability continues to fuel international concerns. On April 30, 2003, a U.S. company pleaded guilty to illegal exports to “a Pakistani state company” that could have been used to develop nuclear weapons. “Pakistan: U.S. Company Pleads Guilty to Illegal Export,” Associated Press, April 30, 2003.

15. Rose Gordon, “North Korea, Pakistani Lab Sanctioned for Proliferation,” Arms Control Today, May 2003, p. 35.

16. Gaurav Kampani, “Second-Tier Proliferation: The Case of Pakistan and North Korea,” The Nonproliferation Review, Fall/Winter 2002, pp. 107-116.

 


Anupam Srivastava and Seema Gahlaut co-direct the South Asia Program at the Center for International Trade and Security at the University of Georgia.

 

 

Posted: September 1, 2003