For all the talk about U.S.-China decoupling and its implications for the currently rickety narrative of globalization, recent years have demonstrated that reports about the looming demise of globalization are exaggerated. Instead, a recalibration is underway of the long-prevailing terms on which globalization had played out and that were fundamentally premised on just-in-time supply chains.
A lot of the discussions on what globalization will look like in the future revolve around companies operating in multiple jurisdictions shifting their supply chains to other countries as a part of the process of global value chain diversification. It is here that experts have spoken about India possibly entering the fray as a candidate for where these supply chains can be relocated. This is the second-order effect of supply chain fragmentation—a scenario where India must jockey with other countries that seek to onshore such supply chains.
While India has positioned itself admirably to benefit from the fractious nature of the U.S.-China relationship, most of the onshoring to India has been in the form of consumer technology products like mobile handsets and solar energy equipment. What is missing from the picture is a focus on cutting-edge high-technology items like semiconductors, high-performance computing, and commercial space technology.
These sectors are significant for India as it starts to take an unprecedented interest in developing its high-technology sectors. Key members of the present government have also realized that a long-standing proclivity for a service-sector-led economy—India’s engine of growth—is simply not feasible at a time when India seeks to advocate for and transition to a more vigorous industrial base. It is here that a U.S.-India high-technology partnership assumes significance. However, U.S. export controls, specifically those under a regime called the International Traffic in Arms Regulations (the ITAR), may need to be carefully considered before this partnership can deliver.
A new tech partnership
The good news is that a new U.S.-India joint initiative called the Initiative on Critical and Emerging Technology (iCET) was recently elevated to a strategic partnership by both countries. The iCET has been positioned as a timely partnership that seeks to, among other things, foster an “open, accessible and secure technology ecosystem” between the technology networks of both the United States and India. This development has been hailed in all quarters as having immense potential to not just transform technology ties but also lead to a larger alignment on geopolitical and commercial issues as well.
This is significant for three reasons. First, the iCET has the political backing of the highest levels of leadership in both countries. Second, it has co-opted stakeholders from both the academic and the business communities to play a key role in shaping how the initiative evolves. Third, and perhaps the most encouraging, it is being heralded as a game changer along the lines of a prior strategic partnership between the United States and India called the Next Steps in Strategic Partnership (NSSP) that was inked in 2004. It was the NSSP that led to the landmark U.S.-India nuclear deal in 2005—an agreement to pursue full civil nuclear energy cooperation with India. Given the current momentum generated by the iCET, a U.S. official even went to the extent of stating that 2023 would be the “most consequential year in U.S.-India diplomacy.”
However, both sides would need to reach a consensus on how to navigate the ITAR export controls that could thwart the seamless access to high technology envisioned under the iCET. Considering the increasing awareness of export controls and the sensitivity surrounding them, India has its task cut out for it. Negotiating export control rules is tricky. India does not have to look too far. China is a good case study of how stringent export controls can disrupt the growth of an emerging technology ecosystem. However, the difference between the two situations is that in the case of China, an otherwise permissive set of export control laws related to semiconductor manufacturing equipment has been tightened and targeted directly at Chinese enterprises. Whereas the ITAR—one of the most stringent American laws governing trade in defense items—is a general legal framework aimed at no specific country, which may now be sought to be relaxed when it comes to India.
The American experience and the Indian experiment
Given these questions around the ITAR, policymakers in the United States may wonder if it is worthwhile to spend political capital on the iCET, aside from the goal of pursuing open and accessible technology ecosystems with India.
Drawing a parallel with the economic partnerships that the United States had entered into over the last few decades, particularly with Asian countries, the track record is rather checkered. The history of such partnerships is replete with instances of the sovereign counterparty not abiding by the agreed rules of the road. In the case of China, as an exhaustive account by the Office of the U.S. Trade Representative in 2018 laid out, it was massive subsidies, a predominance of state-owned enterprises, market access issues, intellectual property theft, and forced technology transfer. In the case of Japan too, as Fareed Zakaria has pointed out, “almost every charge levelled at China today – forced technology transfers, unfair trade practices, limited access for foreign firms, regulatory favoritism for locals – was levelled at Japan in the 1980 and 1990s.” In sum, both relationships were characterized by a lack of reciprocity toward what was perceived as American openness.
However, the same concerns that generated American disenchantment with the Chinese and the Japanese establishments may not be reliable as a guide for India. For instance, India is already home to major American R&D labs that create cutting-edge intellectual property—so much so that approximately 66 percent of the patents filed in India are attributable to these labs.1 Furthermore, India has not insisted on technology transfer as a condition for seeking foreign direct investment. Perhaps, most importantly, India has been open to American Big Tech companies participating in its various sectors— Google Pay, Google’s digital payment application, is one of the leading apps on India’s Unified Payments Interface (UPI); India has gradually become WhatsApp’s largest consumer market; Amazon has acquired a leading position in India’s thriving e-commerce market; and Uber is relied upon by millions in India.
Just as significant is the fact that India does not have an industrial plan that seeks to dislodge foreign enterprises. In effect, there is no Indian equivalent of China’s Made in China 2025 plan, which laid out a roadmap in 2015 to promote indigenous innovation and reduce reliance on foreign technology. At first glance, this plan was like any other policy that seeks to pursue industrial development. However, what had antagonized U.S. firms was the specifics with which the plan explained its objectives. It sought to have 70 percent market share for Chinese firms in the specified sectors by 2025. This effort was perceived by foreign firms to surely involve more of the same—intellectual property theft, massive subsidies, and forced technology transfer.
India’s similarly labelled Make in India scheme (launched in 2014) and the recent AatmaNirbhar Bharat, or self-reliant India program, could not be any more different from the Made in China 2025 policy. Make in India seeks to entice foreign companies to manufacture in India. In other words, while the success of India’s industrial policy rested on closer integration with global supply chains, China’s avowed purpose was to pursue the indigenization of its technology supply chains to the maximum extent possible. Even with AatmaNirbhar Bharat, India’s position is no different from the coalition of nations that have realized that just-in-time supply chains need to be replaced with more “resilient” ones—a reality that reflects the new terms of engagement regarding globalization.
Roadmap to tackle the ITAR export controls
Taking the ITAR issue head-on at some point would reflect the appetite on both sides to tackle challenging topics. Other countries have found it difficult to deal with, even U.S. allies. A country no less than Australia—an official U.S. ally, a Quad member, part of the AUKUS trifecta, and a Five Eyes alliance member to boot—has encountered difficulties when it comes to technology collaboration due to the ITAR. So intractable is the problem that four former American ambassadors to Australia recently commented that the ITAR remained the “most significant obstacle” to collaboration between the United States and Australia.
For India and the United States, what is needed is a preliminary roadmap to gauge the degree to which high-end technologies covered under the iCET are afflicted by the ITAR restrictions. A mapping of the pain points that the ITAR presents on both sides should be the way forward. Perhaps the commercial space sector—often the subject of the ITAR restrictions—would be a good place to do this exercise.
Space technologies usually have their origin in the military domain, even though they certainly have civilian and commercial applications as well. For instance, launch vehicles can also be employed as ballistic missiles. Similarly, while satellites play a critical role in disaster management and other areas like precision farming, they could also provide support to a country’s armed forces for the purpose of reconnaissance and surveillance. Accordingly, trade in space technology items is usually subject to the ITAR controls.
What are the issues with the ITAR?
From the U.S. perspective, there is an inherent tension between controlling the proliferation of space technologies and relaxing export controls to ensure that hitherto unexplored markets for space technologies can be accessed by American space companies. On the Indian side, an enhanced access to space technologies would greatly assist Indian startups to codevelop technologies with their American counterparts as well as secure timely access to items for their own space operations.
For now, the issues with the ITAR are numerous. There are often delays in obtaining the necessary license documentation. While all the ITAR-related licensing is directed to be completed within sixty days, there exist exceptions pertaining to national security where such timelines can be extended. For cases requiring congressional notification, the timeline could even be extended further by as much as ninety days. Furthermore, “RWA” applications do not show up in the list of disapproved licenses. RWA stands for “returned without approval” and usually occurs when the case officer in charge of reviewing the application closes it without approving or denying the license. For some reason, the RWA applications do not show up in the list of total denials. Therefore, the overall approval percentage of technology transfers under the ITAR may appear more robust than they actually are. Accordingly, a more accurate representation of technology transfers would help aid policymakers in considering the bigger picture and in designing appropriate policy solutions.
Stakeholder feedback received by Carnegie India also revealed that usually, bids by American companies or companies dependent on American suppliers could be rejected outright since there are concerns about perceived constraints over technology transfer. Indeed, a report by the U.S. Army War College at the Strategic Studies Institute acknowledged that in 2011, Lockheed Martin and Boeing were eliminated from bidding for a contract to build a medium-multi-role combat aircraft for the Indian Air Force due to what was perceived as “higher cost of the U.S. systems regarding long-term maintenance” and also because “each order of replacement parts would need its own ITAR clearance, as would any software or technology required to run the planes.”
Accompanying these issues is a high degree of self-correction by Indian companies when it comes to the ITAR applications. The long timelines involved, uncertainty about the review process looming large, and the considerable spending on human resources and legal counsel (on both the Indian and U.S. sides) required in complying with the ITAR requirements dissuade some Indian startups from applying for a license in the first place. The ITAR also impedes interoperability. Stringent export controls under the ITAR may prevent U.S. companies from being able to design interoperable systems that are compatible with technologies being developed in India and therefore stymie the stated purpose of the iCET to create accessible ecosystems.
Lastly, the ITAR has also thwarted intra-company technology transfers from taking place. There are Indian technology firms that are now opening up offices in the United States to gauge partnerships and seek customers and talent. However, by virtue of being a “foreign” company, Indian startups have to compartmentalize information and access to such information in order to ring-fence it from Indian nationals that work within the same company. Because of the way the ITAR is framed, even granting theoretical access would be considered a breach of the same. This severely hampers intra-company technology transfer.
Even for American companies, there is the specter of suppliers from other countries taking their place to fill the void created by the ITAR. Given the perception that there are considerable hurdles to cross before an item can be approved under the ITAR review process, there is now a perception that there is a possibility of other commercial players from the EU or other jurisdictions stepping up and designing products that are designed specifically not to need any ITAR-regulated parts. Indeed, this was one of the findings from a study commissioned by the U.S. Department of Defense and conducted by the Center for Strategic and International Studies in 2008 that looked into the impact of U.S. export controls on the American industrial base.
The way forward
How will any possible changes to the ITAR regime play out in the age of renewed focus on export controls? The ITAR reform has happened once in 2013—and therefore, in theory, it can happen again. But rather than hoping for a top-down approach prompted by government-to-government interaction, what instead are the commercial drivers that can propel change? The ITAR reform may be an easier sell to the U.S. government if the domestic industrial base there is aligned with how proposed reforms benefit them. More sales by American companies, co-development opportunities, and an opportunity to become a supplier of choice to India—given the need for maintenance, repair, and enhancement of high-end technology in India—are a few considerations that come to mind. However, it is possible that a calculated recalibration may be required on the part of India as well, since the iCET has now been elevated to a strategic partnership.
India has always prized its outlook of seeking a multipolar world. However, there is a perception in some quarters that India’s desire for what it considers strategic autonomy—where it seeks to pursue “maximum options in foreign relations,” and in the process, hedge its bets—comes at the cost of predictability regarding India’s global outlook on various issues, such as the war in Ukraine. While the executive branch in the United States may have been respectful of India’s compulsions regarding how it voted on such issues, those in Capitol Hill, while increasingly understanding of India’s position, will be keeping a close watch. The good news here is that the iCET demonstrates India’s sincere intent to pursue a deep technology partnership with the United States and diversify away from Russia.
There is already talk about a possible détente between the United States and China and how a possible visit of U.S. Secretary of State Antony Blinken to China will serve as an opportunity to pursue rapprochement between both sides. Therefore, the window of opportunity for both India and the United States to achieve key deliverables under the iCET is rather narrow, given how an American reset with China may affect the urgency with which Indo-American technological cooperation is pursued. The policymakers and stakeholders invested in the success of U.S.-India ties will therefore need to handle and push the iCET with all the might and resources at their disposal and propel the initiative with the same imagination that led to its conception.
