In 1998, India and Pakistan each conducted tests of nuclear explosive devices,

drawing world condemnation. The United States and a number of India’s and Pakistan’s

major trading partners imposed economic sanctions in response. Most U.S. economic

sanctions were lifted or eased within a few months of their imposition, however, and

Congress gave the President the authority to remove all remaining restrictions in 1999

Rennack, Dianne E.

This report mainly discusses about the Current U.S. Economic Sanctions between India and Pakistan  where United states imposes no economic sanctions against the governments of India and Pakistan. United stats prohibited aid to Pakistan when the country fell into areas in serving its debt

UNT Digital Library

Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS20995Updated February 11, 2002India and Pakistan:  Current U.S. EconomicSanctionsDianne E. RennackSpecialist in Foreign Policy LegislationForeign Affairs, Defense, and Trade DivisionSummaryIn 1998, India and Pakistan each conducted tests of nuclear explosive devices,drawing world condemnation.  The United States and a number of India’s and Pakistan’smajor trading partners imposed economic sanctions in response.  Most U.S. economicsanctions were lifted or eased within a few months of their imposition, however, andCongress gave the President the authority to remove all remaining restrictions in 1999.The sanctions were lifted incrementally.  President Bush issued a final determinationon September 22, 2001, to remove the remaining restrictions, finding that  denyingexport licenses and assistance was not in the national security interests of the UnitedStates.Today, the United States imposes no economic sanctions against the governmentsof Pakistan or India.  An export license is still required to ship missile technology-controlled or nuclear proliferation-controlled items to either country, but the Departmentof Commerce no longer views such license applications with a presumption of denyingtheir issuance.  Today, only four Indian and 20 Pakistani entities (and their subsidiaries)remain on the Commerce Department’s list of entities for which export licenses arerequired.  By comparison, restricted entities numbered in the hundreds in the wake of the1998 nuclear tests.The United States prohibited foreign aid to Pakistan when that country fell intoarrears in servicing its debt to the United States in late 1998, a prohibition reenforcedwhen Pakistan’s military forces overthrew the democratic government in late 1999.Post-September 11 cooperation between the United States and Pakistan included arescheduling of the debt and new legislation to waive the so-called democracy sanctions.Pakistan is thus eligible to receive U.S. foreign assistance through FY2003 when, unlessit holds free and fair elections, restrictions on foreign aid will be reimposed.CRS-21 For extensive discussion of the sanctions imposed after the President determined that nuclear testshad been conducted, see LePoer, Barbara, et al., India-Pakistan Nuclear Tests and U.S. Response,CRS Report 98-570, updated November 24, 1998, 35 p; and Grimmett, Jeanne, NuclearSanctions: Section 102(b) of the Arms Export Control Act and Its Application to India andPakistan.  CRS Report 98-486, updated September 19, 2001, 17 p.  For in-depth discussion of therespective countries and relations with the United States, see LePoer, Barbara, Pakistan-U.S.Relations, CRS Issue Brief IB94041, updated regularly; and LePoer, Barbara, India-U.S.Relations, CRS Issue Brief IB93097, updated regularly.2 Sec. 102 of the Arms Export Control Act (P.L. 90-629; 22 U.S.C. 2799aa-1), popularly referredto as the Glenn amendment; and sec. 2(b)(4) of the Export-Import Bank Act of 1945 (P.L. 79-173;12 U.S.C. 635(b)(4)).3 Sec. 620E(e) of the Foreign Assistance Act of 1961, as amended (P.L. 87-195; 22 U.S.C.2375(e)), popularly referred to as the Pressler amendment.  Portions of Pressler are also referredto as the Brown amendment and the Brownback amendment.Recap of Nuclear Tests Sanctions1In May 1998, India and Pakistan each conducted tests of nuclear explosive devices,triggering sweeping U.S. economic sanctions as required by the Arms Export Control Actand the Export-Import Bank Act.2  Prior to the tests, for international treaty purposes, thetwo countries were classified as non-nuclear-weapon states; the tests put each country injeopardy of world condemnation and sanctions.  In the United States, the law required thePresident to impose the following restrictions or prohibitions on U.S. relations with bothIndia and Pakistan: termination of U.S. foreign assistance other than humanitarian or foodassistance; termination of U.S. government sales of defense articles and services, designand construction services, licenses for exporting U.S. Munitions List (USML) items;termination of foreign military financing; denial of most U.S. government-backed creditor financial assistance; U.S. opposition to loans or assistance from any internationalfinancial institution; prohibition of most U.S. bank-backed loans or credits; prohibition onlicensing exports of “specific goods and technology”; and denial of credit or other Export-Import Bank support for exports to either country.Since 1990, Pakistan had been under a sanctions regime that was mandated byanother provision of U.S. law pertaining to U.S. foreign assistance.  The Pressleramendment, added in 1985 to the Foreign Assistance Act of 1961, requires the Presidentto determine that Pakistan does not possess a nuclear explosive device and that anyproposed U.S. assistance would reduce the risk of obtaining such a device.3  PresidentReagan and President Bush issued determinations each year until 1990, when then-President Bush did not make the finding required to make assistance available.  In 1995,this requirement was changed to apply only to military assistance to Pakistan, making thecountry eligible for other foreign assistance.Sanctions are EasedDuring the Clinton Administration.  Almost immediately after the 1998imposition of sanctions on India and Pakistan required in the Arms Export Control Act,Congress intervened on behalf of U.S. wheat growers by passing the Agriculture ExportCRS-34 P.L. 105-194 (112 Stat. 627).5 Title IX of the Agriculture, Rural Development, Food and Drug Administration, and RelatedAgencies Appropriations Act, 1999, incorporated into the Omnibus Consolidated and EmergencySupplemental Appropriations Act, 1999 (P.L. 105-277; 112 Stat. 2681).6 P.L. 106-79 (113 Stat. 1283).7 The U.S.-India relationship appears straight-forward, even taking into consideration India’s ColdWar cooperation with the former Soviet Union, or that country’s relationship with China.  Not allin the Bush administration supported lifting sanctions against India; see Harrison, Selig S., “NoMore Sanctions: Why the U.S. Needs Closer Ties with India,” Washington Times, April 5, 2001,p. A17; and Barber, Ben, “State Split Over Lifting Sanctions Against India: Alliance Could LessonChina’s Power,” Washington Times, May 10, 2001, p. A1.Relief Act, which President Clinton signed into law on July 14, 1998.4 The Act amendedthe Arms Export Control Act to exempt various forms of U.S. Department of Agriculture-backed financial support from sanctions applied pursuant to section 102 of that Act.  Thisfreed up U.S. wheat farmers to participate in early summer auctions in which Pakistan wasa substantial buyer.  Later in the year, Congress passed the India-Pakistan Relief Act of1998, signed into law by the President on October 21, 1998.5  This Act authorized thePresident to waive, for a period of one year, the application of sanctions relating to U.S.foreign assistance, U.S. government nonmilitary transactions, the U.S. position on loansor assistance by international financial institutions, and U.S. commercial bank transactions.President Clinton quickly made use of his new authority, announcing on November 7,1998, that certain transactions and support would be restored.The authority granted to the President in each of these 1998 laws, however, waslimited to a one-year period.  Additional legislation was required to make the authoritypermanent.  Congress provided permanent waiver authority in the Department of DefenseAppropriations Act, FY2000, signed into law on October 25, 1999.6  This Act gave thePresident the authority to waive all the economic sanctions imposed against India andPakistan in response to the nuclear tests, including for the first time those sanctions relatedto military assistance, USML licenses, and exports to high technology entities.  To waivethose sanctions pertaining to the sales of defense articles, defense services, design orconstruction services; foreign military financing; or export licenses for specific goods andtechnology (the sanctions related to, or with possible, military applications), current lawrequires the President to determine and certify to Congress “that the application of therestriction would not be in the national security interests of the United States.”  PresidentClinton exercised  this authority on October 27, 1999, when he waived the applicabilityof nonmilitary restrictions for India, on Export-Import Bank loans and credits, OverseasPrivate Investment Corporation (OPIC) funding, Trade and Development Agency (TDA)export support, International Military Education and Training (IMET) programs, U.S.commercial banks transactions and loans, Department of Agriculture (USDA) exportcredits, and specific conservation-oriented assistance.  For Pakistan, he waived therestrictions on USDA credits and U.S. commercial banks loans and transactions.During the Bush Administration.  Throughout the first eight months of 2001,the Bush administration had hinted that the United States would like to remove thesanctions imposed against India and, to a lesser extent, Pakistan.7  India’s foreign anddefense minister visited Washington in April; Chairman of the Joint Chiefs of State,CRS-48 Fidler, Stephen and Edward Luce, “A Fine Line: The Bush Administration Has Signalled ThatIt Wants to Forge Closer Ties With India,”Financial Times, June 1, 2001, p. 18.  U.S. Departmentof State.  Daily Press Briefing, June 20, 2001.9 Presidential Determination No. 2001-28, September 22, 2001, pursuant to sec. 9001, Public Law106-79.10 Department of Commerce, Bureau of Export Administration.  “India and Pakistan: Lifting ofSanctions, Removal of Indian and Pakistani Entities, and Revision in License ReviewPolicy,”Federal Register, October 1, 2001, 66 F.R. 50090-50093.11 Sec. 620(q) of the Foreign Assistance Act of 1961 (22 U.S.C. 2370(q)) denies foreign assistanceto any country that is in default for more than 6 months in servicing or repaying loans to the UnitedStates.  The President may waive this restriction if he finds that assistance is in the national interestand so notifies Congress.  Sec. 512 of the Foreign Operations, Export Financing and RelatedPrograms Appropriations Act, 2001 (P.L. 106-429; 114 Stat. 1900A-25), the Brooke Amendment,denies foreign assistance to any country that falls into arrears for more than 12 months.  This latterrestriction includes no waiver authority for the President.General Shelton visited India in May to discuss military-to-military relations.  In May,2001, and again in August, Deputy Secretary of State Richard Armitage visited India andpublically stated the United States’ interests in fully normalizing relations with the country.In August 2001, U.S. Trade Representative Robert Zoellick visited India to promoteglobal trade talks.Regarding Pakistan, Secretary of State Powell met with its foreign minister inWashington in June.  They reportedly discussed Afghanistan and the Taliban, terrorism,democracy, nuclear proliferation, and sanctions.8After the terrorist attack on the United States on September 11, 2001, because ofPakistan’s unique position – both geographic and political – vis-a-vis Afghanistan,policymakers recognized the urgency by which U.S.-Pakistan relations had to be mended.At the same time, parity had to be maintained in terms of India.  As a result, the Presidentexercised the authority granted him in the Defense Appropriations Act, FY2000, onSeptember 22, 2001, when he lifted all nuclear test-related economic sanctions against thetwo countries after finding that denying export licenses and assistance was not in thenational security interests of the United States.9  Today, the sole vestige of the nuclearsanctions is the listing of four Indian and 20 Pakistani entities (and their subsidiaries) onthe Commerce Department’s list of entities for which export licenses are required.  Bycomparison, restricted entities numbered in the hundreds in the wake of the 1998 nucleartests.10Pakistan continued to be ineligible for most forms of U.S. foreign assistance undera provision of the annual foreign assistance appropriations act that bans foreign assistance“to any country whose duly elected head of government is deposed by military coup ordecree.”  Pakistan’s current leader, General Pervez Musharraf seized power and overthrewa democratically elected government in October 1999.  He declared himself President onJune 20, 2001.  Pakistan was also denied most U.S. foreign assistance for falling intoarrears in servicing its debt to the United States.11  Pakistan was found to be in arrearsunder terms of the Foreign Assistance Act in September 2000, and under terms of theCRS-512 Agency for International Development, Loan Delinquency Status Report, As of August 31, 2001.13 Chandrasekaran, Rajiv.  “Taliban Deploys Its Fighters to Borders,” Washington Post,September 25, 2001, p. A14.  White House Briefing, September 25, 2001.14 P.L. 107-57; 115 Stat. 403.  The law also eases the notification requirements in sec. 73(e) of theArms Export Control Act (pertaining to  transfers of missile equipment and technology), sec.506(b)(1) of the Foreign Assistance Act of 1961 (pertaining to military assistance in response tounforeseen emergencies), and sec. 516(f)(1) of the same Act (pertaining to the transfer of excessdefense articles) as each applies to Pakistan.  These provisions of P.L. 107-57 sunset on October1, 2003.  The provisions relating to democracy apply to FY2002 and, depending on steps taken bythe President to waive their application, FY2003. 15 Presidential Determination No. 2001-31, September 28, 2001, 66 F.R. 51293 (October 9, 2001);and Presidential Determination No. 2002-02, October 16, 2001, 66 F.R. 53503 (October 23,2001).  Migration and Refugee Assistance in Presidential Determination No. 2001-30, September28, 2001, 66 F.R. 51291.16 P.L. 107-38, 115 Stat. 220, enacted September 18, 2001. $40 billion was made available “foradditional disaster assistance, for anti-terrorism initiatives, and for assistance in the recovery fromthe tragedy that occurred on September 11, 2001.”Foreign Operations Appropriations Act in March 2001.12  At the end of 1999, Pakistan’sinternational debt was $30.7 billion, of which $2.38 billion was owed to the United States($1.14 billion in AID loans, $981 million in food aid, $139 million in Export Import Bankloans, and $119 million in military loans).Two steps were taken to relieve the prohibition on U.S. foreign aid. First, onSeptember 24, 2001, the U.S. Ambassador to Pakistan signed an agreement in Pakistanto reschedule $379 million of its debt to the United States, enough to cancel thearrearage.13  Then Congress passed a bill to exempt Pakistan from the sections of law thatprohibit making foreign assistance available to any country governed by a military thatoverthrew a democratically elected regime.  The President signed S. 1465 into law onOctober 27, 2001; its authority to waive the sanctions related to both democracy and debtarrearage remains available through FY2003, provided the President determines thatmaking foreign assistance available “facilitates the transition to democratic rule inPakistan” and “is important to United States efforts to respond to, deter, or prevent actsof international terrorism.”14Prior to the passage of S. 1465, President Bush invoked the authority granted him insec. 614 of the Foreign Assistance Act of 1961 (22 U.S.C. 2364) to provide $50 millionin Economic Support Funds to Pakistan on September 28, 2001, without regard torestrictions in that Act or the Foreign Operations Act that are applicable to Pakistan.  ThePresident made another $50 million available under the same authority on October 16,2001.  These two disbursements were part of the Administration’s proposed $600 millionpackage of assistance to Pakistan.  The President also released $25 million in EmergencyMigration and Refugee Funds to Pakistan around the same time.15  Funding derived fromthe 2001 Emergency Supplemental Appropriations Act includes the balance of thePresident’s package to Pakistan ($500 million), and another $73 million for border securitybetween Pakistan and Afghanistan.16  On October 5, the President made another $100million available for management of the emerging Afghan refugee crisis – $50 million infood assistance to Afghanistan and neighboring countries, and $50 million in MigrationCRS-617 Sipress, Alan and Steven Mufson, “U.S. Readies Financial Aid for Allies,” Washington Post.October 2, 2001.  p. A12; and Dawson, Thomas C., “A Loan for Pakistan,” [letter to the editor],Washington Post.  October 4, 2001.  p. A30.18 Though both countries were prohibited from receiving U.S. foreign aid when the nuclearsanctions were in place, some foreign aid is exempt from sanctions generally.  Funding aimed atchild survival and diseases, international narcotics control, and emergency food aid,nonproliferation programs, for example, is allowed regardless of a country’s objectionablebehavior.and Refugee Assistance to be administered through the United Nations and associatednongovernmental organizations tending to the Pakistan-Afghanistan border.  None of theserecent fund releases was subject to sanctions.  And on September 26, 2001, theInternational Monetary Fund determined that Pakistan had met the requirements tobecome eligible for $135 million, to complete disbursement of a $600 million loan.17The Fiscal Year 2003 Budget ProposalIf there were any lingering doubts that U.S. relations with India and Pakistan hadchanged after the events of September 11th, the President’s budget proposal for the nextfiscal year should dispel those doubts.  The proposal includes the following:18INDIA(in $U.S. millions)FY2001(actual)FY2002(estimate)FY2003(request)Development Assistance 53.398 70.878 75.185Economic Support Fund 4.989 7.000 25.000International Military Educationand Training0.498 1.000 1.000Foreign Military Financing – – 50.000PAKISTAN(in $U.S. millions)FY2001(actual)FY2002(estimate)FY2003(request)Development Assistance – 15.000 50.000Economic Support Fund – 9.500 200.000International Military Educationand Training– 1.000 1.000Foreign Military Financing – – 50.000International Narcotics Control 3.500 2.500 4.000

India and Pakistan: Current U.S. Economic Sanctions

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India and Pakistan: Current U.S. Economic Sanctions

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