India and Pakistan: Current U.S. Economic Sanctions

CRS Report for Congress
India and Pakistan: U.S. Economic Sanctions
Dianne E. Rennack
Specialist in Foreign Policy Legislation
Foreign Affairs, Defense, and Trade Division
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.
The sanctions were lifted incrementally. President Bush issued a final
determination on September 22, 2001, to remove the remaining restrictions, finding that
denying export licenses and assistance was not in the national security interests of the
United States.
Today, four Indian and 20 Pakistani entities (and their subsidiaries) remain on the
Commerce Department’s list of entities for which export licenses are required. By
comparison, restricted entities numbered in the hundreds in the wake of the 1998 nuclear
tests. An export license is still required to ship missile technology-controlled or nuclear
proliferation-controlled items to users in either country, but the Department of
Commerce no longer views such license applications with a presumption of denying
their issuance.
Apart from the sanctions imposed following the nuclear tests, the United States
prohibited foreign aid to Pakistan when that country fell into arrears in servicing its debt
to the United States in late 1998, a prohibition reenforced when Pakistan’s military
forces overthrew the democratic government in late 1999. Post-September 11
cooperation between the United States and Pakistan included a rescheduling of the debt
and new legislation to waive the so-called democracy sanctions. Pakistan thus became
eligible to receive U.S. foreign assistance through FY2003 when, unless it holds free and
fair elections, restrictions on foreign aid could be reimposed.

Congressional Research Service ˜ The Library of Congress

Recap of Nuclear Tests Sanctions1
In 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 Act
(AECA) and the Export-Import Bank Act.2 Prior to the tests, for international treaty
purposes, the two countries were classified as non-nuclear-weapon states; the tests put
each country in jeopardy of world condemnation and sanctions. In the United States, the
law required the President to impose the following restrictions or prohibitions on U.S.
relations with both India and Pakistan: termination of U.S. foreign assistance other than
humanitarian or food assistance; termination of U.S. government sales of defense articles
and services, design and construction services, licenses for exporting U.S. Munitions List
(USML) items; termination of foreign military financing; denial of most U.S.
government-backed credit or financial assistance; U.S. opposition to loans or assistance
from any international financial institution; prohibition of most U.S. bank-backed loans
or credits; prohibition on licensing 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 by
another provision of U.S. law pertaining to U.S. foreign assistance. The Pressler
amendment, added in 1985 to the Foreign Assistance Act of 1961, requires the President
to determine that Pakistan does not possess a nuclear explosive device and that any
proposed U.S. assistance would reduce the risk of obtaining such a device.3 President
Reagan 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 the
country eligible for other foreign assistance.
Sanctions are Eased
During the Clinton Administration. Almost immediately after the 1998
imposition 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 Export

1 For extensive discussion of the sanctions imposed after the President determined that nuclear
tests had 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,
Nuclear Sanctions: Section 102(b) of the Arms Export Control Act and Its Application to India
and Pakistan. CRS Report 98-486, updated September 19, 2001, 17 p. For in-depth discussion
of the respective 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 referred
to 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 referred
to as the Brown amendment and the Brownback amendment.

Relief Act, signed into law on July 14, 1998.4 The Act amended the AECA to exempt
various Department of Agriculture-backed funding from sanctions applied pursuant to
section 102 of that Act. This freed up U.S. wheat farmers to participate in auctions in
which Pakistan was a substantial buyer. Congress later passed the India-Pakistan Relief
Act of 1998, signed into law by the President on October 21, 1998.5 This Act authorized
the President 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
loans or 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, was
limited to a one-year period. Additional legislation was required to make the authority
permanent. Congress provided permanent waiver authority in the Department of Defense
Appropriations Act, FY2000, signed into law on October 25, 1999.6 This Act gave the
President the authority to waive all the economic sanctions imposed against India and
Pakistan in response to the nuclear tests, including for the first time those sanctions
related to military assistance, USML licenses, and exports to high technology entities. To
waive those sanctions pertaining to the sales of defense articles, defense services, design
or construction services, foreign military financing, or export licenses for specific goods
and technology (the sanctions related to, or with possible, military applications), current
law requires the President to determine and certify to Congress “that the application of the
restriction would not be in the national security interests of the United States.” President
Clinton exercised this authority on October 27, 1999, when he waived the applicability
of nonmilitary restrictions for India, on Export-Import Bank loans and credits, Overseas
Private 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) export
credits, and specific conservation-oriented assistance. For Pakistan, he waived the
restrictions on USDA credits and U.S. commercial bank 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 the
sanctions imposed against India and, to a lesser extent, Pakistan.7 India’s foreign and
defense minister visited Washington in April; Chairman of the Joint Chiefs of State,
General Shelton visited India in May to discuss military-to-military relations. In May,

4 P.L. 105-194 (112 Stat. 627).
5 Title IX of the Agriculture, Rural Development, Food and Drug Administration, and Related
Agencies Appropriations Act, 1999, incorporated into the Omnibus Consolidated and Emergency
Supplemental 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
Cold War cooperation with the former Soviet Union, or that country’s relationship with China.
Not all in the Bush administration supported lifting sanctions against India; see Harrison, Selig
S., “No More 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 Lesson China’s Power,” Washington Times, May 10, 2001, p. A1.

2001, and again in August, Deputy Secretary of State Richard Armitage visited India and
publically stated the United States’ interests in fully normalizing relations with the
country. In August 2001, U.S. Trade Representative Robert Zoellick visited India to
promote global trade talks.
Regarding Pakistan, Secretary of State Powell met with its foreign minister in
Washington in June. They reportedly discussed Afghanistan and the Taliban, terrorism,
democracy, nuclear proliferation, and sanctions.8
After the terrorist attack on the United States on September 11, 2001, because of
Pakistan’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 President
exercised the authority granted him in the Defense Appropriations Act, FY2000, on
September 22, 2001, when he lifted all nuclear test-related economic sanctions against the
two countries after finding that denying export licenses and assistance was not in the
national security interests of the United States.9 Today, the sole vestige of the nuclear
sanctions is the listing of four Indian and 20 Pakistani entities (and their subsidiaries) on
the Commerce Department’s list of entities for which export licenses are required. By
comparison, restricted entities numbered in the hundreds in the wake of the 1998 nuclear
Pakistan continued to be ineligible for most forms of U.S. foreign assistance under
a 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 or
decree.” Pakistan’s current leader, General Pervez Musharraf seized power and overthrew
a democratically elected government in October 1999. He declared himself President on
June 20, 2001. Pakistan was also denied most U.S. foreign assistance for falling into
arrears in servicing its debt to the United States.11 Pakistan was found to be in arrears
under terms of the Foreign Assistance Act in September 2000, and under terms of the
Foreign Operations Appropriations Act in March 2001.12 At the end of 1999, Pakistan’s

8 Fidler, Stephen and Edward Luce, “A Fine Line: The Bush Administration Has Signalled That
It Wants to Forge Closer Ties With India,”Financial Times, June 1, 2001, p. 18. U.S. Department
of State. Daily Press Briefing, June 20, 2001.
9 Presidential Determination No. 2001-28, September 22, 2001, pursuant to sec. 9001, Public Law


10 Department of Commerce, Bureau of Export Administration. “India and Pakistan: Lifting of
Sanctions, Removal of Indian and Pakistani Entities, and Revision in License Review
Policy,”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
assistance to any country that is in default for more than 6 months in servicing or repaying loans
to the United States. The President may waive this restriction if he finds that assistance is in the
national interest and so notifies Congress. Sec. 512 of the Foreign Operations, Export Financing
and Related Programs 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 latter restriction includes no waiver authority for the President.
12 Agency for International Development, Loan Delinquency Status Report, As of August 31,

international 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 Bank
loans, and $119 million in military loans).
Two steps were taken to relieve the prohibition on U.S. foreign aid. First, on
September 24, 2001, the U.S. Ambassador to Pakistan signed an agreement in Pakistan
to reschedule $379 million of its debt to the United States, enough to cancel the
arrearage.13 Then Congress passed a bill to exempt Pakistan from the sections of law that
prohibit making foreign assistance available to any country governed by a military that
overthrew a democratically elected regime. The President signed S. 1465 into law on
October 27, 2001; its authority to waive the sanctions related to both democracy and debt
arrearage remains available through FY2003, provided the President determines that
making foreign assistance available “facilitates the transition to democratic rule in
Pakistan” and “is important to United States efforts to respond to, deter, or prevent acts
of international terrorism.”14
Prior to the passage of S. 1465, President Bush invoked the authority granted him
in sec. 614 of the Foreign Assistance Act of 1961 (22 U.S.C. 2364) to provide $50 million
in Economic Support Funds to Pakistan on September 28, 2001, without regard to
restrictions in that Act or the Foreign Operations Act that are applicable to Pakistan. The
President made another $50 million available under the same authority on October 16,
2001. These two disbursements were part of the Administration’s proposed $600 million
package of assistance to Pakistan. The President also released $25 million in Emergency
Migration and Refugee Funds to Pakistan around the same time.15 Funding derived from
the 2001 Emergency Supplemental Appropriations Act includes the balance of the
President’s package to Pakistan ($500 million), and another $73 million for border
security between Pakistan and Afghanistan.16 On October 5, the President made another

12 (...continued)


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
the AECA (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 to unforeseen
emergencies), and sec. 516(f)(1) of the same Act (pertaining to the transfer of excess defense
articles) as each applies to Pakistan. These provisions of P.L. 107-57 sunset on October 1, 2003.
The provisions relating to democracy apply to FY2002 and possibly in FY2003, depending on
the President waiving their application. Because the FY2003 foreign operations appropriations
bill has yet to be agreed to by Congress, funding continues under terms applicable to the FY2002
appropriations. When, or if, FY2003 appropriations are enacted, the President will have to issue
a waiver to allow foreign assistance to continue to be made available to Pakistan. H.J.Res. 2,
awaiting conference, contains FY2003 foreign operations appropriations.
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,

September 28, 2001, 66 F.R. 51291.
16 P.L. 107-38, 115 Stat. 220, enacted September 18, 2001. $40 billion was made available “for

$100 million available for management of the emerging Afghan refugee crisis – $50
million in food assistance to Afghanistan and neighboring countries, and $50 million in
Migration and Refugee Assistance to be administered through the United Nations and
associated nongovernmental organizations tending to the Pakistan-Afghanistan border.
None of these recent fund releases was subject to sanctions. And on September 26, 2001,
the International Monetary Fund determined that Pakistan had met the requirements to
become eligible for $135 million, to complete disbursement of a $600 million loan.17
The Fiscal Year 2003 Budget Proposal
Any lingering doubts about the repair of U.S. relations with India and Pakistan were
dispelled in the President’s FY2003 budget proposal, shown below.18
(in $U.S. millions)
F Y 2001 F Y 2002 F Y 2003
(actual) (estimate) ( request )
Development Assistance53.39870.87875.185
Economic Support Fund4.9897.00025.000
International Military Education0.4981.0001.000
and Training
Foreign Military Financing––50.000
(in $U.S. millions)
F Y 2001 F Y 2002 F Y 2003
(actual) (estimate) ( request )
Development Assistance–15.00050.000
Economic Support Fund–9.500200.000
International Military Education–1.0001.000
and Training
Foreign Military Financing––50.000
International Narcotics Control3.5002.5004.000

16 (...continued)
additional disaster assistance, for anti-terrorism initiatives, and for assistance in the recovery
from the tragedy that occurred on September 11, 2001.”
17 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 nuclear
sanctions were in place, some foreign aid is exempt from sanctions generally. Funding for child
survival and diseases, international narcotics control, and emergency food aid, nonproliferation
programs, for example, is allowed regardless of a country’s objectionable behavior.