India’s Quest for Advanced Technology in the Era of Export Controls

By Team Asianet Newsable | First Published Nov 27, 2023, 11:59 AM IST

The rationale behind the recent U.S. export control measures, which were announced in October 2022, was to target the military-civil fusion program (MCF) of China. As per the MCF,

Konark Bhandari

The United States has recently embarked on a tightening of its export control laws when it comes to cutting-edge technological items such as advanced semiconductors and AI chips. These export control measures have been labelled as necessary to “protect U.S. security and advantage.” These measures have also largely been aimed at Chinese entities, which are suspected of using these technologies—that are largely dual-use—for military applications as well. In targeting these Chinese entities, other like-minded nations that also sell these advanced technological items have been co-opted by the United States. These countries, namely Japan and the Netherlands, however, have not named any specific country as the target of their export control measures. Instead, they have given wide discretion to their export control authorities to block such high-tech exports to any country. This means that tech imports from these countries will likely require an export license for all destinations, including India. How can India navigate these across-the-board export control measures at a time when it is also entering into technology-centric partnerships with other nations to secure enhanced access to advanced technology?

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U.S.-China tensions

The rationale behind the recent U.S. export control measures, which were announced in October 2022, was to target the military-civil fusion program (MCF) of China. As per the MCF, China allegedly uses civilian technologies for military applications. The U.S. Department of Commerce, while announcing its October 2022 measures, even announced that the subject matter of the export control measures was used by China to “produce advanced military systems including weapons of mass destruction; improve the speed and accuracy of its military decision making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuses.”

Another knock-on effect of these export control measures has been the seemingly retaliatory measures announced by China. While the recent U.S. export control measures have targeted advanced semiconductors, certain areas like batteries and photovoltaic cells—essentially green technology—are dominated by China. It is in these areas that China has implemented strict export control measures. This too may impact the ability of India to secure access to green technologies in the near future. For instance, in July 2023, China introduced a new requirement for exporters to seek special licenses when exporting minerals such as germanium and gallium – critical minerals needed to make microchips. Most recently, a few days after the United States announced a new series of follow-up export control measures in October 2023, China announced that when exporting synthetic graphite (used heavily in the battery industry), exporters must submit exhaustive documentation that details the end users as well.

Export control measures are unique

It is important to note that in this case, unlike in the U.S.-China trade war, export control measures are different. The U.S.-China trade war did manage to have a beneficial impact on other countries, such as Vietnam. In fact, it was even inferred that India may stand to benefit from higher tariffs on Chinese goods and the overall desire for diversification of global supply chains. While the jury is still out on whether India made any gains during the offshoring of supply chains away from China, the recent U.S. and Chinese export control measures might sting global commerce more acutely than what happened during the trade war.

First, U.S. tariffs on China benefitted third countries because they offered cost advantages in production once tariffs took effect. However, export control measures imperil access to specific technologies or location-specific critical minerals that usually cannot be substituted. For example, since the United States has a massive technological edge in advanced semiconductors, it is unlikely that other countries will be able to find other sources for access to such advanced semiconductors in the face of export controls it has initiated. Even access to large amounts of capital does not provide certainty of success in the semiconductor industry. For instance, China’s own efforts to kickstart its semiconductor industry have been mostly unsuccessful, despite several multibillion-dollar rounds of investments.

Second, other countries such as Japan and the Netherlands have aligned their export control laws with the United States. However, unlike the United States, both Japan and the Netherlands have been careful to not single out any specific country as the target of their new export control measures. They have applied these measures across the board, meaning that the designated export control authority in these countries will have wide latitude with respect to whichever country they choose to apply these export control measures to. India ought to be watchful here. It would do well to keep an eye out for being used as a base or conduit for proscribed third parties to route these advanced technologies through. There have been concerns that certain sanctioned Russian entities may have circumvented U.S. export control measures by routing advanced microchips through India. Even though the identity of the destination country and the nature of goods are usually hidden from Indian customs authorities, more care might be warranted here.

Conclusion

It may seem that India’s quest for advanced technology will be challenging, given the tightening of export control laws in most countries. However, India and the United States announced the Strategic Trade Dialogue (STD) in March 2023, which already convened in June this year. Also, on the U.S. side, there is talk of certain additional changes being introduced. For instance, ahead of the visit of Prime Minister Modi to the United States in June 2023, lawmakers Mark Warner and John Cornyn introduced a bill to “enhance the eligibility of India for Foreign Military Sales (FMS) and exports under the Arms Export Control Act.” This would seek to halve the time required—from the current thirty days to fifteen days—to notify the U.S. Congress prior to any defense deal being concluded with India. The stated purpose of the bill is to ensure that India receives expedited consideration. Furthermore, in September 2023, Technology Exports to India Act was introduced in the U.S. House of Representatives to facilitate the sale of high-performance computers and related equipment to India. With the apparent and burgeoning momentum in U.S.-India ties, perhaps now is as convenient a time as ever for India to find a solution to pressing questions on seeking high-tech access from the United States.

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