Legal Aspects of General Electric and Hindustan Aeronautics Limited F414 Engines Deal

Introduction

In a path-breaking defence deal, US’s General Electric (GE) signed a Memorandum of Understanding (MoU) with India’s Hindustan Aeronautics Limited (HAL) on 22nd June 2023, to co-produce F414 engines for Tejas Light Combat Aircraft (LCA) Mk2. The deal is estimated to be valued at US$1 billion. The US State Department notified Congress on 28th July 2023 about the deal.^[1] The agreement traversed through the complex legislative mechanism of US export laws, has emerged glorious as experts, academics and diplomats anticipated this deal would get through congressional scrutiny.

Key Elements of the Deal

In 2010, India’s Aeronautical Developmental Agency finalized GE’s F414 INS6 engines for Tejas MK2 aircraft. The engines being co-produced with HAL are improvised versions with a maximum thrust capacity of 97.9kN with Full Authority Digital Engine Control (FADAC). The current deal facilitates an 80% Transfer of Technology (ToT) including several key technologies as opposed to the earlier agreement that was negotiated in 2012 which was at 58%. The government has sanctioned around Rs. 10,000 crores for the LCA Mk2 programme.^[2]

The agreement aims to produce 99 F414 engines, with the first to be available in the next three years of signing the contract.^[3] GE has also said that it would collaborate with the Indian Government to develop engines for the AMCA Mk2, while making GE the most probable candidate for the same, with only approval from the Cabinet Committee on Security (CCS) pending. In addition, GE has been selected for the prototype development, testing, and certification of the AMCA programme.^[4]

Evolution of India-US Defence Trade

India and the US, from being on opposite side of the table at a certain point in history, have made progress in Defence Trade Relations, which is an exponential product of small steps taken in the form of foundational agreements signed through the 21st century. In 2000, India and the US released the Vision for the 21st century and the Joint Statement. In the aftermath of the 9/11 attack and as a part of the war on terror, India - US collaboration started with terrorism as the main object with the signing of the General Security of Military Material Agreement (GSMOIA). The Next Steps in Strategic Partnership (NSSP) in 2004 served as a milestone for the India-US partnership with revitalised interests for the 21st century. A Defense Framework Agreement was concluded later in 2005.

Despite the fact that the mid-2000s were mainly notable for limited US sales of S-61 Sea King helicopters and Firefinder weapon locating radars for counter-battery fire, the value of defence trade increased from 2008 to 2022, reaching $22 billion. Major U.S. defence sales to India over the past 15 years include transport and maritime aircraft (C130J Super Hercules, C-17 Globemaster IIIs, and P-8I Poseidon), transport, maritime, and attack helicopters (CH-47F Chinooks, S-61 Sea Kings, MH-60R Seahawks, and AH-64E Apaches), Harpoon anti-ship missiles, and M777 howitzer, among others. India is now the largest operator of C-17s and P-8Is outside the United States.^[5]

Actual efforts to transform India-US defence trade relations from importer-exporter to collaborators in defence technology and production started with the Defence Technologies and Trade Initiative (DTTI) in 2012.

The Obama administration, acting upon its strategy to ‘Rebalance to Asia’ that was brought to uphold its security interests in the Asia-Pacific region, renewed the 2005 Defence Framework Agreement in 2015. During that period, India, acting on its own Act East Policy, was trying to enhance its security and military ties with regional countries. The Make in India initiative by the Modi government also aimed towards self-reliance in manufacturing. The converging strategic interests in the region in light of China’s assertive rise led to the renewal. The renewal was envisioned to take defence cooperation to the next level with defence trade, defence co-production, and transfer of critical technology, not just restricting itself to cooperation in military exercises.^[6] Since then, the US has authorised the licences for the export and sales of defence equipment and related manufacturing technologies under 21 categories of the US Munitions List (USML) via the Direct Commercial Sales (DCS) process.

In 2016, the US Congress designated India as the “Major Defense Partner (MDP),”^[7] a unique position given to the country. India was neither a treaty partner to the US like the UK or Australia, nor was it part of a formal alliance like NATO to be given this status. However, the position of MDP brought India on par with the US's closest allies, which expedited the procurement of defence equipment, spare parts and transfer of some critical technology. Following this, India was raised to Strategic Trade Authorization (STA) Tier 1 in 2018. STA is a license exception in Export Administration Regulation (EAR) that governs dual–use goods and technologies. STA allows for the export, re-export, and in-country transfer of certain specified goods in the Commerce Control List (CCL) to destinations that post low-risk of unauthorised or impermissible use as deemed by the U.S. Therefore, India wouldn’t have to acquire a transaction-specific license for any of these goods. Apart from India, the STA Tier status has been given only to two other Asian countries, Japan and South Korea, who are again treaty partners of the US.^[8]

The other foundational agreements signed have also been signed in the past two decades between India and the US including the Logistics Exchange Memorandum of Agreement (LEMOA) in 2016, the Communications Compatibility and Security Agreement (COMCASA) in 2018, the Basic Exchange and Cooperation Agreement (BECA) in 2020, and the Initiative on Critical and Emerging Technologies (iCET) in 2022. These agreements have been crucial in building confidence between the nations over the years, as each of these documents has facilitated the exchange of logistics support, communication, and military intelligence, respectively. India is the only non-ally partner of the US that has entered into these defence agreements. In that way, the GE deal is perceived to be the next step in the partnership, with the Transfer of Technology coming into the picture and hopefully collaborative production in the future.

Understanding the Legal Requirements of GE-HAL Deal

In the US, the Sales of defence articles are governed by the Arms Export Control Act (AECA) of 1976, which lays down a set of conditions that permit only the export of military items.^[9] These items are administered by a strict licensing policy regime laid out in the International Traffic in Arms Regulation (ITAR).

AECA provides a very strict description of situations to warrant the sale of defence articles and equipment. Section 4 of the AECA^[10] states that:

US defence articles and defence services shall be sold to friendly countries:

• “solely” for use in “internal security”
• for use in “legitimate self-defence”
• to enable the recipient to participate in “regional or collective arrangements or measures consistent with the Charter of the United Nations”
• to enable the recipient to participate in “collective measures requested by the United Nations for the purpose of maintaining or restoring international peace and security”
• and to enable the foreign military forces “in less developed countries to construct public works and to engage in other activities helpful to the economic and social development of such friendly countries.”

This provision indicates that India’s legitimate security interests are now being acknowledged and supported by the US Section 38 of the AECA^[11] “authorises the President to control the export and import of defence articles and defence services.” In this way, ITAR implements AECA while the administration of ITAR is carried out by the Bureau of Political-Military Affairs at the US Department of State. ITAR applies to any company that exports defence and military articles, products, and services listed in the USML.

As a part of the export control law regime reformation carried out by the Obama administration, a new Category XIX was added to USML in the year 2013, which deals with “Gas Turbine Engines and other Equipments” under which the F414 engine would find its place. The reform clarified that aero engines would be subject to the controls of USML.^[12] In addition to it, any “parts, components, accessories, and attachments specially designed” for engines including the F414 would also be subject to the control of USML, while the EAR can govern parts that are common to other engines. Thus, falling in the USML’s categories of equipment, companies dealing with export of this category have to meet the licensing requirement of ITAR.

After ensuring the compliance of the licensing requirements, the administration gives it for the consideration of the Congress. According to Section 36(b) of the AECA^[13], all major proposals to sell “major defence equipment and services, or to retransfer such military items to other countries” are given for the Congress’s consideration, to which the Congress responds with a formal report. The proposal has to be submitted to the Congress for approval 30 days before the administration finalises to conclude a government-to-government foreign military sale of major defence equipment. A notification is given to the House Foreign Relations Committee and House Foreign Affairs Committee as a result of a habit born out of practice and relevance. The thirty-day notification is a statutory mandate for the Congress; however, it has been a practice since 2012 to notify the committees 20-40 days earlier to facilitate an informed “close-door discussion” on the arms deal without “affecting the bilateral relations with nations.” The House of Representatives may come up with a joint resolution, or a separate law, or through the reports submitted by the committees to disapprove the deal; nevertheless, in the absence of such express overt disapproval, the administration is free to go forward with deals. This is precisely the current position of the deal, which had gone through Congressional scrutiny and having received no objections it is by default considered to be approved by the Congress. ^[14]

Now, to facilitate the approval from the Congress for F414 engines, s. 2096, bill H.R. 4312 has been proposed in the 118th Congress session, which is awaiting approval. This bill would enhance the eligibility of India for Foreign Military Sales and exports under the Arms Export Control Act. ^[15] Section 36(b)(2) of the AECA provides procedures to expedite the consideration for resolutions of disapproval, the purpose of the same being timely consideration of such disapprovals. A period of 10 calendar days is given to the committee in question to come out with its recommendations on such disapprovals. Upon the failure of such reply within the stipulated time, they can be refrained from conducting any discussions on the matter. This time period is 5 calendar days for NATO allies, Japan, Australia, Israel, New Zealand, and South Korea, which could also be the case for India if this proposed bill H. R. 4312 were to be passed. This is an example of one consideration and position India would have if this legislation were to be passed.

This deal is perceived to be different from the 2008 Nuclear Deal and the Defence Policy Group, because “a number of other agreements signed between India and US over the past decade ……. have built trust between them.” STA is a “sign of trust, not only in the relationship but also (in) India’s capabilities as an economy and as a security partner, because it also presupposes that India has the multilateral export control regime in place which would allow the transfer of more sensitive defence technologies”. With the globe focusing more on “reliability and trust” in the context of trade, with efficacy and compatibility losing relevance, the STA Tier 1 system reassures us about the way forward.

Way Ahead

The US Defence Secretary Lloyd J. Austin III visited India ahead of the Prime Minister’s state visit to the US and met with India’s Union Minister of Defence, Rajnath Singh. Among other developments, there are promises to initiate negotiations on the Security of Supply Arrangement (SoSA) and a Reciprocal Defence Procurement Agreement.^[16] Signing these agreements would enable American companies to prioritise production and supply to India during crisis times and acquire defence goods from each other, promote interoperability, and provide assurance of timely delivery during peacetime, emergency, and armed conflict. Considering India’s initiative to develop the defence production ecosystem locally, that is equipped enough to carry out international export demands, these agreements are believed to facilitate them with binding regulations on countries to buy and sell from each other.

Experts were optimistic that this deal was “almost done” with the U.S. lawmaker and co-chair of Indian Caucus, Ro Khanna, promising that the GE deal is a “high priority” for them^[17].

Endnotes

^[1] (“GE Aerospace signs MOU with Hindustan Aeronautics Limited to produce fighter jet engines for Indian Air Force | GE News” 2023)
^[2] (Peri 2023, #14)
^[3] ibid
^[4]Ibid
^[5] (“India-U.S.: Major Arms Transfers and Military Exercises” 2023)
^[6] “Framework for U.S. - India Defence Relationship” Vivekananda International Foundation, June 3, 2015. https://vifdatabase.com/wp-content/uploads/2018/10/Framework-for-the-US-India-Defense-Relationship-2015-1.pdf [3].
^[7] (“U.S. Security Cooperation With India - United States Department of State” 2021)
^[8] (“US gives India Strategic Trade Authorisation-1 status: All you need to know about what this means-World News” 2018)
^[9]Arms export control act, 22 U.S.C. § 2751 (1976).
^[10]Arms export control act, 22 U.S.C. § 2754 (1976).
^[11]Arms export control act, 22 U.S.C. § 2778 (1976).
^[12]22 CFR Part 121.1 Subchapter M
^[13]Arms export control act, 22 U.S.C. § 2776 (1976).
^[14]Singh, Rahul. 2023. “US Congress clears landmark India-US fighter engine deal.” Hindustan Times, August 31, 2023. https://www.hindustantimes.com/india-news/us-congress-clears-landmark-india-us-fighter-engine-deal-101693418713191.html [4].
^[15], All Info - S.2096 - 118th Congress (2023-2024): A bill to enhance the eligibility of India for Foreign Military Sales and exports under the Arms Export Control Act, S.2096, 118th Cong. (2023), https://www.congress.gov/bill/118th-congress/senate-bill/2096/all-info [5].
^[16](Singh 2023)
^[17] (NDTV 2023)

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